Global Reporting Initiative (GRI): Last call

Global Reporting Initiative (GRI): Last call

A few weeks ago on November 10, the European Parliament approved a landmark new directive by a resounding majority. The so-called Corporate Sustainability Reporting Directive, or CSRD, is set to introduce stringent sustainability reporting requirements for corporates in the European Union.

Yet, corporate transparency on non-financial externalities is hardly a new thing. Companies have been preparing reports on their sustainability for decades, albeit with varying degrees of quality[1]. Under the NFRD, the much less ambitious predecessor of the new directive, reporting companies turned to well-established voluntary frameworks to structure their non-financial disclosures. Most of them placed their trust in the standards of the Global Reporting Initiative (GRI), as have most sustainability report preparers in the world[2]. However, the CSRD effectively removes the liberty to cherry-pick reporting frameworks as it mandated the EFRAG to develop European standards to be complied with instead. Thankfully, they did not have to start from scratch. The existing frameworks have been worked on for years, and the European standard setter was able to benefit of their experience[3].

But reporting on sustainability is much more than a compliance exercise. Assessing an organisation’s material issues, a preliminary but crucial step in the overall process, requires a look-through approach to understand the impacts of the organization. Those may be potential or actual, intended or unintended, positive or adverse. They may affect the economy, the environment or people. The impacts that are most significant form the organisation’s material issues. Identifying such impacts can be a complex and resource intensive process. Organisations differ in size, number of activities and subsidiary entities and branches, and breadth of stakeholder groups who have a say on the organisation’s most impactful activities. Such are the pivotal factors in conducting a materiality assessment.

This process of understanding how an organisation impacts its environment is known as “impact materiality”, the cornerstone of the GRI standards but also a key component of the ESRS. It is often compared to financial materiality which denotes the inverse relationship, i.e., how an organisation is affected by its external environment. This aspect is often more valued by investors and lenders who would like to get a better understanding of what might potentially affect the company’s financials. Both are two sides of the same coin describing how an organisation navigates its economic, social and natural environments. Focussing on financial materiality only gives a narrow outlook on the way an organisation deals with sustainability matters.

The CSRD will apply first to those companies which already had to prepare non-financial reports under the previous directive, starting 2024. It will then extend its obligations to a wider scope of businesses in 2025. Future report preparers should look now at existing frameworks to guide them through the challenging process that is crafting a sustainability report. GRI, in particular, is the long-standing reference when it comes to reporting on impact materiality and provides useful guidance to help organisations understand the way they impact the world. The GRI standards and ESRS expect similar reporting principles from organisations. Under both, the disclosed information must be presented in a way that is relevant, faithful, comparable, verifiable and understandable. Businesses should use this interim period to set up the necessary processes to identify their material impacts and collect relevant data, as well as to better define their approach to sustainability. No time like the present.

This article was written by 2022 scholar Thomas Collin, CSR Officer @ ABBL. Meet with Thomas Collin.

[1] Mion, G. & Loza Adaui, C. R. (2019). “Mandatory Nonfinancial Disclosure and Its Consequences on the Sustainability Reporting Quality of Italian and German Companies”. Sustainability.

[2] KPMG (2022). “Big shifts, small steps – Survey of sustainability reporting 2022”.

[3] European Financial Reporting Advisory Group. (2021). “EFRAG & GRI landmark Statement of Cooperation”.–GRI-landmark-Statement-of-Cooperation