On 23 November last year, the European Financial Reporting Advisory Group (EFRAG) submitted the first set of draft ESRS to the European Commission, bringing the measures closer to final adoption into EU law.

Just a few days later, the Centre for European Policy Studies (CEPS) issued its lengthy and detailed ‘Cost-benefit Analysis of the First Set of Draft ESRS’ which, in a broad sense, gave the standards a clean bill of health. Compiled from the views of more than 2,000 stakeholders who had provided CEPS with quantitative and qualitative data on how the first batch of ESRS would financially impact their organisations or members, the report’s findings were welcomed by Kerstin Lopatta, until November Acting Chair of EFRAG’s Sustainability Reporting Board.

In a covering letter for the report, Lopatta noted that, according to the findings, while the costs would affect certain types of stakeholders, the scope of the expected beneficiaries is much broader. As such, she wrote: “EFRAG considers that the costs of this set of standards are likely to not exceed, in due time, the corresponding benefits, including those to the society and environment.”

Valuable lynchpin

However, at EFRAG’s 7 December annual conference – titled ‘Where is Corporate Reporting Heading?’ – hints emerged that the fanfare over ESRS risks eclipsing a longer-established protocol. 

In a panel on the future of sustainability reporting, Eelco van der Enden, CEO of the Global Reporting Initiative (GRI), signalled surprise that companies often face him with the question of whether they should continue to report under the voluntary GRI system, given the advent of ESRS and the development of parallel measures at the International Sustainability Standards Board (ISSB).

Van der Enden said: “I’m often countering boardrooms with the questions, ‘Why are you reporting under GRI now? And what’s your objective for that?’ And the answer is, ‘Well, we had stakeholder dialogue, and many of our stakeholders want to see this information.’ But then [my] question is, ‘If that’s the case, then what does that change in your position and your view when something is introduced that is mandatory?’ It shouldn’t, when it’s your strategic objective.”

In van der Enden’s assessment, those stakeholder demands highlight an ongoing interest in the approach to materiality that drives GRI, whereby corporate sustainability reporting accounts not just for financial impacts within a business but for external impacts that the organisation has on society and the environment. 

Van der Enden also characterised GRI as a valuable lynchpin in the work towards a global reporting baseline. “There is no alternative other than what we are currently doing,” he said. “And that is interoperability and close cooperation between EFRAG, the ISSB and GRI to bring this forward. What will be your alternative if this fails? It will be a disaster – with a swamp of incomparable data [and] multiple reporting frameworks.”

Another reason why that work is so important, he noted, is that it would also “curb the sometimes opaque methodologies of rating agencies, which have tremendous power over investment decisions – but sometimes we have no clue on what basis they rate certain companies. Controlling and auditing is comparing against a standard. So, if we have this global standard that is as aligned or interoperable as possible, it will be far easier to assess the quality of rating agencies’ methodologies and how they assess certain businesses.”

Asked why a company should continue to report under GRI from 2024 onwards, when ESRS will be in effect, van der Enden said: “I would like to turn it around: how much is ESRS aligned to GRI? The DNA of GRI is now in ESRS … If you work with the GRI standards, and your control and reporting framework has been built around that [system], it will serve you also to do ESRS. GRI standards are a bit broader – there are more topics than ESRS currently have, and there are very good reasons why businesses on a global scale use our standards to report on their impacts. So, the introduction of a mandatory statement is more a question about compliance.”

Ready to comply

Perhaps mindful of those questions over its relevance, GRI took the step on 13 December to publish a Q&A document highlighting why its protocol is still valuable to the reporting community – and particularly how it should work in tandem with ESRS and ISSB.

Addressing 10 frequently aired stakeholder concerns, the Q&A opens by directly addressing GRI’s pertinence in light of the EU Corporate Sustainability Reporting Directive (CSRD), into which ESRS will be absorbed. 

“For companies operating in the EU marketplace,” it says, “CSRD reinforces and increases the relevance of the GRI Standards. Most larger companies, in the EU and elsewhere, already report with GRI and will be reassured that their current GRI-based reporting practices should best prepare them for the ESRS. The topics and requirements in the ESRS will be expanded over time; using the GRI Standards means companies can be ready to comply with future requirements.”

In response to Question 4 – ‘How can I map my sustainability reporting with the GRI Standards to the new requirements under the CSRD? What resources or support will be available?’ – the document notes that GRI will provide reporters with guidance on how to use their GRI-focused reporting practices and processes to meet ESRS requirements. That guidance will include a detailed mapping of disclosures from both sets of standards, and will be published around the time the Commission releases its own final standards.

“It is encouraging that EFRAG also intends to publish a detailed description of how each ESRS has taken into consideration the corresponding disclosures in the GRI Standards, in the ‘Basis for Conclusions’ that is expected to publish very soon.”

In a statement announcing the Q&A’s publication, van der Enden said: “The sustainability reporting landscape is evolving fast – therefore, it’s understandable that businesses have questions on what the changes may mean for them. Confirmation that the draft ESRS aligns as closely as possible with the GRI Standards offers GRI reporters reassurance that they can use their current reporting practices to prepare for the new requirements.”

Van der Enden added: “Taken together with our ongoing collaboration with the IFRS Foundation and the ISSB on their sustainability-related disclosures, this further reinforces the relevance of GRI, demonstrating our leadership position as provider of the global benchmark for reporting on impacts.”

Commenting on the publication of the Q&A, ICAEW Technical Manager, Corporate Reporting, Laura Woods says: “The pace of change to the sustainability reporting landscape – coupled with other, competing boardroom priorities – means that businesses need support to understand what is best for them in terms of reporting. As ICAEW believes that global alignment is a mission-critical factor for the success of sustainability reporting standards, it is positive that GRI has endeavoured to address stakeholder concerns around the increased reporting burden.”