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Flagship blog - eng

GRI vs. ESRS - Consistency or contradiction?

Does it make sense to write non-financial reports according to GRI standards when the new ESRS standards for mandatory reporting within the EU have been released? Where does GRI currently stand and are its standards in line with the new CSRD legislation?
The European Commission has approved the final version of the new European Sustainability Reporting Standards (ESRS) on 31 July 2023. These standards will be mandatory for many companies in the European Union from 2024, and if they are not mandatory for you, it would be a good idea to comply with them if only for a comparison with best practices or the requirements of banks, investors and large customers.
If you have been reporting non-financial information according to international GRI standards, what should you do? Is ESRS a completely new framework with different data or is it the same thing? We are currently in the process of comparing the two frameworks and we can reassure you right away - you don't have to worry about groundbreaking changes. ESRS is based directly on GRI, albeit in much more detail.

ESRS and GRI alignment

GRI (Global Reporting Initiative) are still the most commonly used international standards in the field of sustainability reporting and are used by most large companies not only in the EU but also worldwide. ESRS (European Sustainability Reporting Standards) aims to become a comprehensive standardisation system that emphasises the interdependence between social, environmental and governance impacts, i.e. a complete ESG.
In order to ensure the highest degree of consistency between the standards, GRI has worked with EFRAG (European Financial Reporting Advisory Group) to develop ESRS, which will come into force next year. The standards are thus very similar and the collaboration has resulted in a unified view on materiality assessment. GRI originally only considered one-directional materiality, i.e. the impact of a company on its environment and its people, but the updated GRI standards now support the introduction of double materiality. The ESRS has from the beginning built on double materiality, which looks at both the impacts originating from the company outwards on the external environment and the impacts originating from the outside world on the company, e.g. in the context of financial or reputational risks. The difference between the ESRS and GRI standards therefore lies more in the methodology and granularity of the reporting approach than in the indicators used.

Frequently asked questions on the compatibility of ESRS and GRI

1 What is the role of ESRS and the Sustainability Reporting Directive (CSRD) in relation to GRI standards in Europe?

EFRAG has confirmed that ESRS standards are aligned with GRI standards to the maximum degree possible. For all companies that have reported in accordance with the GRI standards so far, this means that they are well prepared for ESRS reporting and can make use of their existing reporting practices.
ESRS will require companies to report on all their material impacts, risks and opportunities. Where topics or impacts are not fully covered by the ESRS, the use of GRI reporting will allow companies to address the gap in order to meet disclosure requirements.

2 Are there differences between ESRS and GRI reporting?

There are some differences between the GRI's global impact-focused standards and the ESRS dual materiality standards as prescribed by the CSRD. According to EFRAG, ESRS standards are fully aligned with GRI where possible. In principle, they also share the objective of creating a comprehensive reporting framework that enhances transparency and dialogue between companies and their stakeholders.
However, the ESRS introduces new features in the area of disclosure, for example, reducing flexibility in the way data should be presented and requiring a more comprehensive collection of ESG data under the principle of double materiality. Other novelties include:
  • A more prominent role in the materiality assessment process: in addition to the 'inside-out perspective' in which organisations should report on their impact on society and the environment, an 'outside-in perspective' has been introduced to consider how external impacts might affect organisations - this relates to the principle of dual materiality.
  • Compliance with intergovernmental instruments on topics such as responsible business conduct, human rights and due diligence.
  • Higher level of detail compared to GRI, which means new challenges for companies to meet all the requirements set by ESRS.
  • The new structure introduced by the ESRS, containing a large number of diverse topics within a reduced number of standards, especially in the social and governance areas.
At the same time, the GRI continues to work with EFRAG to issue technical guidance to show how entities which have been already reporting on sustainability can use their GRI-based reporting practices and processes to comply with the ESRS.

3 Will mandatory reporting under the ESRS result in "double reporting" for companies (ESRS in Europe and GRI globally)?

Companies already reporting under GRI can use their existing reporting methods and practices to meet the new ESRS requirements. Ensuring consistency between ESRS and GRI standards will help achieve global comparability and reduce additional or duplicative reporting requirements. The European Commission has built on existing and established GRI standards since the first drafts of the ESRS.

4 How can companies adapt their sustainability reporting in line with GRI standards to the new CSRD criteria?

The GRI has committed to providing guidance to companies reporting under the GRI on how to use their reporting practices and processes to comply with the ESRS requirements. This guidance will include a detailed mapping of disclosures from both sets of standards.
Similarly, EFRAG will publish details on how each version of the ESRS has taken into account the information published under the GRI standards.

5 Many questions are raised about "materiality". Double materiality for ESRS, materiality of impact for GRI, financial materiality for ISSB (International Sustainability Standards Board). How do all these fit together?

To provide a comprehensive picture of its activities, a company should report both on how its activities impact the world in which it operates (using GRI standards) as well as how sustainability issues affect the organisation (using IFRS sustainability disclosure standards). In the context of CSRD, the concept of 'double materiality' is therefore introduced to unify these two materiality frameworks.
The GRI and IFRS standards reflect two aspects of materiality:
  • Impact Reporting - disclosing an organisation's most significant impacts on the economy, the environment and society to a wide range of stakeholders, as well as how the organisation manages those impacts.
  • Sustainability-related financial reporting - disclosing sustainability-related financial information that meets the needs of investors and capital markets to assess the financial implications of sustainability topics on the organization; including the impact of the company's activities on the economy, the environment and society, through a combination of IFRS accounting standards and sustainability disclosure standards.
IFRS are developed by two standard-setting boards, the International Accounting Standards Board (IASB) and the International Sustainability Standards Board (ISSB). The ISSB builds on the work of investor reporting initiatives, including the Climate Disclosure Standards Board (CDSB), the Task Force on Climate-related Financial Disclosures (TCFD), etc.

6 Our company is not registered in the EU. Does the CSRD apply to us and, if so, how will reporting under GRI standards help us?

The CSRD disclosure requirements will also apply to non-EU companies which hold securities in EU-regulated markets from January 2024.
From January 2028, the requirements for non-EU companies will be extended to apply to all non-EU companies that have a net turnover in the EU of more than €150 million and have a branch in the EU with a net turnover of at least €40 million or a large or listed subsidiary in the EU. However, these companies will only have to provide information relating to impacts for which a specific standard will yet be developed. The GRI advocates the adoption of its standards as an equivalent for the use of these new standards.
Given EFRAG's commitment to align the ESRS as closely as possible with the GRI standards, companies already reporting under the GRI can be assured that they will be able to use existing reporting practices and processes to prepare for the ESRS.

7 How does ESRS link the GRI's collaboration with the IFRS Foundation and their International Sustainability Standards Board (ISSB)?

The GRI is working with the IFRS Foundation to develop a global comprehensive reporting framework that addresses equally the impacts of a company on the world (GRI) and the impacts of the world on a company (ISSB). Together, IFRS and GRI will offer a complete and robust set of standards for sustainability disclosures that will enable an assessment of a company's behaviour, strategy, corporate value and impacts.
An important aspect of this system will be that it will be updated as necessary to reflect the reporting requirements of individual jurisdictions - i.e. to reflect specific local contexts, existing legal frameworks and interests. ESRS are a good example of how this can be successfully achieved.
Do you have any further questions about reporting in accordance with the new ESRS standards? Contact us.

(Image by Freepik)