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Introduction:

In a significant milestone for global sustainability reporting, the European Financial Reporting Advisory Group (EFRAG) and the Global Reporting Initiative (GRI) have jointly released a statement highlighting the interoperability achieved between the European Sustainability Reporting Standards (ESRS) and the GRI Standards. This collaboration marks a significant step toward increasing consistency and standardization in sustainability reporting worldwide.

Let’s delve into the history of EFRAG and GRI, their roles in shaping global reporting standards, and the implications of their joint statement. We’ll also take a look at the European Corporate Sustainability Reporting Directive (CSRD) and the role it plays in the sustainability regulation landscape.

History of EFRAG, CSRD and GRI:

EFRAG: Established in June 2001, EFRAG was formed through a collaboration of various organizations representing the European accounting profession, preparers, users, and national standard-setters. Initially created to provide technical expertise to the European Commission on the use of International Accounting Standards (IAS) within Europe, EFRAG evolved over the years to participate in the standard-setting process of the International Accounting Standards Board (IASB) and coordinate the development of views concerning international accounting standards within the EU. The European Corporate Sustainability Reporting Directive (CSRD) is an evolution of the earlier Non-Financial Reporting Directive (NFRD).

CSRD: In April 2021, the European Commission issued a proposal for a Corporate Sustainability Reporting Directive (CSRD), intended to replace the prior standing Non-Financial Reporting Directive (NFRD) by adjusting its reporting requirements. CSRD was introduced as a part of the Commission’s efforts to enhance the consistency and comparability of sustainability information disclosed by companies and financial institutions across the EU, broadening the scope of companies that need to comply to include all companies listed on regulated markets (except listed micro-enterprises). In June 2021, as a response to the CSRD, EFRAG issued the first set of European Sustainability Reporting Standards (ESRS) to define the specific metrics, methodologies, and other technical details that companies need to follow when reporting their sustainability information.

GRI: GRI is an independent, international organization with a mission to help businesses and organizations take responsibility for their impacts. GRI achieves this by providing a global common language for communicating these impacts, facilitating transparent and comparable sustainability reporting on a global scale. GRI’s standards have played a crucial role in promoting ESG (Environmental, Social, and Governance) reporting and ensuring organizations are accountable for their sustainability performance.

Joint Statement of Interoperability:

The joint statement issued by EFRAG and GRI underscores their collaborative efforts in achieving a high level of interoperability between their respective standards, specifically in the context of impact reporting. This achievement is noteworthy for several reasons:

1. Double Materiality Approach: In accordance with the requirement set forth in the CSRD (Corporate Sustainability Reporting Directive), which mandates the adoption of a double materiality approach, EFRAG and GRI have aligned their definitions, concepts, and disclosures related to impact materiality. This alignment eliminates the need for companies to engage in double reporting, simplifying the reporting process.
2. Leveraging GRI’s Expertise: The ESRS have adopted the same definition for impact materiality as GRI, capitalizing on GRI’s extensive expertise in this area. This alignment ensures a consistent and user-friendly reporting system without undue complexity.
3. Smooth Transition for Existing GRI Reporters: Companies already reporting under the GRI Standards will find it seamless to report under the ESRS due to shared disclosures and the high level of alignment achieved. The ESRS financial materiality perspective aligns with the identification of material impacts, making the transition smoother.
4. Support for Compliance: The GRI Standards support companies in complying with existing ESRS requirements and also prepares them for future European reporting obligations. This alignment streamlines the process and reduces the reporting burden on organizations.
5. Future Cooperation: EFRAG and GRI are exploring opportunities to enhance their technical cooperation further. This includes the development of a digital taxonomy and a multi-tagging system for their respective standards. Shared disclosures tagged under the ESRS and GRI digital taxonomies will simplify digital reporting, making it more efficient for preparers.

Conclusion:

The joint statement issued by EFRAG and GRI is a significant development that offers practical benefits to companies by reducing reporting complexities and promoting transparency. Arguably the most significant implication of this announcement, however, is that it underscores the commitment of these organizations to achieving global reporting standardization. In June of 2022, the International Sustainability Standards Board (ISSB) and Sustainability Accounting Standards Board (SASB) made news by consolidating their respective standards in a similar fashion to EFRAG and GRI. As we continue to see the consolidation of reporting standards in the EU and North America, a consistent global reporting standard is appearing more and more imminent.

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