Sustainability Reporting from GRI to ESRS

The transition from the Global Reporting Initiative (GRI) to the European Sustainability Reporting Standards (ESRS) marks a significant evolution in the landscape of sustainability reporting.

With the adoption of the Corporate Sustainability Reporting Directive (CSRD) by the European Union, many companies that once relied on the Global Reporting Initiative (GRI) for sustainability reporting are now poised to transition to the European Sustainability Reporting Standards (ESRS).

As companies navigate this transition, they face the challenge of adapting to a new set of reporting criteria, re-aligning their sustainability strategies, and ensuring compliance with the stringent requirements of the ESRS.

This article aims to guide businesses through this transition, offering insights into the nuances of ESRS, the implications of the shift from GRI, and practical strategies to manage this change effectively.

Understanding GRI and ESRS

A. Overview of GRI

The Global Reporting Initiative (GRI), established in 1997, revolutionized sustainability reporting. Originating as a project initiated by the United States-based non-profits CERES and Tellus Institute, GRI aimed to create a standardized approach to environmental reporting.

It quickly evolved to include a broader range of sustainability issues, including social and governance aspects.

GRI's Global Sustainability Standards Board (GSSB) develops and revises the GRI Standards. The principles underpinning GRI's approach include:

• Stakeholder Inclusiveness: GRI emphasizes the importance of considering diverse stakeholder perspectives in reporting processes.

• Sustainability Context: Reporting should present an organization's impacts within the wider context of sustainability.

• Materiality: Focus on issues that are significant to the organization and its stakeholders.

• Completeness: Coverage of material topics and their boundary within the reporting period.

• Accuracy, Balance, and Comparability: Reliable and balanced reporting that enables comparison over time.

GRI's impact has been global, with its standards widely adopted by organizations in various sectors and regions, fostering transparency and accountability in sustainability practices.

B. Introduction to ESRS

The European Sustainability Reporting Standards (ESRS) represent a significant advancement in the realm of sustainability reporting.

Here are some key aspects of the ESRS that contribute to its comprehensive and robust nature:

• Integration with EU Policies and Regulations: ESRS is closely aligned with other EU policies, such as the Green Deal and the EU Taxonomy for sustainable activities. This alignment ensures that sustainability reporting under ESRS is consistent with broader EU sustainability objectives.

• Sector-specific Requirements: Recognizing that different industries have unique impacts and challenges, ESRS includes sector-specific standards. These standards provide more relevant and precise guidance for companies in different sectors, enhancing the relevance and utility of the sustainability information reported.

• Stakeholder Inclusiveness: The development process of ESRS involves consultations with a wide range of stakeholders, ensuring that the standards reflect diverse perspectives and needs. This approach enhances the legitimacy and acceptance of the standards across different groups.

• Forward-looking Information: ESRS emphasizes not only on current sustainability performance but also on future sustainability strategy, targets, and risk management. This forward-looking approach provides valuable insights into the long-term sustainability trajectory of a company.

• Digital Reporting: The ESRS encourages the use of digital reporting formats, which facilitates easier access, analysis, and comparison of sustainability information. This digital approach is aligned with the broader EU strategy of digital transformation.

• Compliance and Enforcement: ESRS is designed to be enforceable under EU law, with clear implications for non-compliance. This legal backing ensures a higher level of accountability and seriousness in adherence to the standards.

• Regular Updates and Revisions: The ESRS framework is designed to be dynamic, with regular updates and revisions to reflect evolving sustainability challenges, stakeholder expectations, and best practices.

Related: The New European Sustainability Reporting Standards (ESRS)

C. Key Differences

GRI vs ESRS

Here are the key differences between them:

Mandatory vs. Voluntary Application:

• GRI: The GRI standards are primarily voluntary and globally applicable. They are widely used by organizations around the world, regardless of size, sector, or location, to report on their sustainability impacts.

• ESRS: Under the Corporate Sustainability Reporting Directive (CSRD), ESRS will be mandatory for large companies and all public-interest entities within the European Union. This represents a significant shift towards legally binding sustainability reporting within the EU.

Scope and Flexibility:

• GRI: Offers a broader and more flexible approach to sustainability reporting. Organizations can select relevant topics based on their materiality assessment and report in a way that best suits their context and stakeholder needs.

• ESRS: Provides a more prescriptive and detailed framework, with specific requirements for each reporting aspect. It aims to standardize reporting practices to ensure consistency and comparability across companies in the EU.

Materiality Approach:

• GRI: Focuses on materiality primarily from a stakeholder perspective. It emphasizes the importance of reporting on issues that are significant to both the organization and its stakeholders.

• ESRS: Employs a double materiality perspective. This means that it considers both the impact of sustainability issues on the company (financial materiality) and the impact of the company on society and the environment (environmental and social materiality).

Geographical Focus:

• GRI: Global in its approach and application, catering to a diverse range of international businesses and contexts.

• ESRS: Specifically tailored to the European context, aligning with EU policies and regulatory requirements.

Integration with Financial Reporting:

• GRI: While GRI can be used alongside financial reporting, it traditionally operates as a standalone sustainability reporting framework.

• ESRS: Designed to be closely integrated with financial reporting, reflecting the EU's move towards integrated corporate reporting. This is in line with the EU's broader sustainability goals and the European Green Deal.

Alignment with Other Standards and Frameworks:

• GRI: Has established linkages and alignments with various international frameworks and standards, facilitating a more comprehensive approach to sustainability reporting.

• ESRS: While also aiming for alignment with international standards, ESRS is more also aligned with EU regulations and directives, such as the EU Taxonomy for sustainable activities and the Non-Financial Reporting Directive (NFRD).

Detail and Specificity:

• GRI: Provides relatively high-level guidelines, allowing for flexibility in how information is reported.

• ESRS: Tends to be more detailed and prescriptive, requiring specific disclosures and metrics.

Preparing for the Transition

A. GRI / ESRS MAPPING

Mapping between GRI and ESRS is a pivotal first step. It involves understanding how GRI's guidelines translate into the ESRS framework, ensuring that reports under the new standards remain robust and insightful.

For an in-depth exploration of how GRI's guidelines transition into the ESRS framework, a detailed resource is available: GRI Standards and ESRS Draft Interoperability Index, offering comprehensive insights and guidance for this crucial mapping process.

B. Assessing the Impact

Companies transitioning from GRI to ESRS must assess the impact on their reporting strategies. This involves:

• Gap Analysis: Identifying gaps between current reporting practices under GRI and the requirements of ESRS.

• Resource Allocation: Determining the need for additional resources, including financial and human capital.

• Strategic Realignment: Aligning sustainability strategies with the new requirements and integrating them into corporate governance.

C. Aligning with ESRS Requirements

To align with ESRS, companies should:

• Understand New Metrics and Indicators: Familiarize themselves with the specific metrics and indicators required under ESRS.

• Revise Data Collection Processes: Adapt existing data collection and management systems to meet the detailed requirements of ESRS.

• Update Reporting Frameworks: Modify existing sustainability reporting frameworks to align with the structure and content requirements of ESRS.

D. Training and Capacity Building

Effective adaptation to ESRS necessitates:

• Training Programs: Implement comprehensive training programs for staff involved in sustainability reporting to understand ESRS requirements.

• Skill Development: Focus on developing skills in data analysis, interpretation of sustainability standards, and report writing.

• Collaboration and Knowledge Sharing: Foster a culture of collaboration and knowledge sharing to facilitate smooth transition and continuous improvement in sustainability reporting practices.

Challenges and Opportunities in the Transition to ESRS

A. Navigating Regulatory Changes

Companies transitioning to ESRS must navigate these regulatory waters with precision and foresight. The key lies in understanding the nuanced requirements of ESRS, which emphasizes more detailed disclosures, covering a broader range of ESG topics compared to prior standards.

Staying abreast of ongoing developments is crucial. This involves regularly monitoring updates from the European Financial Reporting Advisory Group (EFRAG) and actively engaging with industry forums and regulatory bodies.

Establishing a dedicated task force within the organization can be instrumental in keeping track of regulatory changes, interpreting them accurately, and integrating them into existing reporting practices.

This proactive approach not only ensures compliance but also positions companies to rapidly adapt to future regulatory evolutions.

B. Opportunities for Enhanced Sustainability Performance

Transitioning to ESRS is an opportunity to elevate sustainability performance and stakeholder engagement.

ESRS’s comprehensive framework encourages a deeper examination of a company's impact on sustainability matters, fostering a more integrated approach to ESG issues.

This comprehensive scrutiny can reveal previously overlooked areas for improvement, driving innovation and efficiency.

Moreover, the detailed nature of ESRS reporting can enhance stakeholder trust and engagement.

Transparent reporting under ESRS standards can provide investors, customers, and other stakeholders with a clearer understanding of a company's sustainability practices, leading to strengthened stakeholder relationships and potentially unlocking new investment and growth opportunities.

Embracing ESRS thus can become a strategic tool, aligning a company’s sustainability efforts with its long-term business goals and stakeholder expectations.

C. Addressing Implementation Challenges

Implementing ESRS standards is not without its challenges.

One of the primary concerns is resource allocation. Transitioning to a more detailed and comprehensive reporting standard requires significant investment in terms of time, personnel, and technology.

Companies need to evaluate their current capabilities and identify gaps, which may necessitate hiring new talent, upskilling existing staff, or investing in new technology for data management and reporting.

Communication with stakeholders is another critical aspect. It's essential to maintain transparency with stakeholders about the changes in reporting standards and how these changes might impact reporting outcomes. This openness not only manages expectations but also underscores the company’s commitment to improved sustainability practices.

Consistency in reporting is vital to ensure comparability over time. As companies transition to ESRS, they must be cautious to maintain a coherent narrative, ensuring that the new reporting standards do not disrupt the continuity of their sustainability story.

This requires a well-planned transition strategy, where historical data is recalibrated to align with new metrics and indicators, ensuring a seamless narrative flow in sustainability reporting.

D. Global Compliance and Harmonization

For companies operating internationally and adhering to the Global Reporting Initiative (GRI) or other sustainability frameworks, aligning with ESRS presents a unique challenge due to differing requirements and focuses. Here's how companies can navigate this:

• Harmonizing Reporting Standards: Companies should seek ways to harmonize ESRS requirements with other international standards. This involves identifying commonalities and differences between ESRS and other frameworks like GRI, SASB, or TCFD. Leveraging the overlaps can minimize duplication of efforts and ensure a cohesive sustainability reporting strategy.

• Customized Reporting Approaches: Companies might need to adopt a dual-reporting approach or customize their reports to meet specific regional requirements. This involves creating a core sustainability report aligned with ESRS for EU operations and adapting it to meet additional requirements of other international standards for operations outside the EU.

• Stakeholder Communication: Effective communication with stakeholders across different regions is key. Companies should clearly articulate how their sustainability practices and reporting meet various regional standards, including ESRS, and how they address the specific sustainability concerns of different stakeholder groups.

• Utilizing Technology for Compliance: The use of AI and data analytics can help companies manage the complexity of adhering to multiple reporting standards. Advanced data systems can segregate and process data according to different framework requirements, ensuring comprehensive compliance.

Enhancing Capabilities for the GRI-ESRS Transition

As part of our comprehensive guide to transitioning from GRI to ESRS, it's vital to mention resources that can facilitate this process.

One such resource is the GRI Academy's training course titled "Unlocking the ESRS for GRI reporters."

This course is designed to equip existing GRI reporters with the necessary tools and knowledge to align their reporting practices with the upcoming ESRS requirements set by the CSRD.

For more information and to register for the course, please visit the GRI Academy website here.

Implementing ESRS in Reporting Processes

A. Data Collection and Management

Adopting the European Sustainability Reporting Standards (ESRS) necessitates a comprehensive overhaul of data collection and management processes. The challenges are multifaceted and require a strategic approach to ensure accuracy and comprehensiveness.

• Systematic Data Collection: The first step is to establish a systematic data collection framework that aligns with ESRS requirements. This involves identifying the specific data points required under the new standards, which may include environmental impact metrics, social performance indicators, and governance-related data. Companies need to ensure their systems can capture this data accurately and consistently.

• Integration with Existing Systems: Integrating ESRS data requirements into existing management information systems is crucial. This integration should be seamless, allowing for the aggregation and analysis of sustainability data alongside financial and operational data.

• Data Quality and Accuracy: Data accuracy is paramount in ESRS reporting. Companies should implement robust quality control measures, such as data verification processes and regular audits, to ensure the integrity of the data collected.

• Training and Capacity Building: Employees responsible for data collection and reporting need adequate training on the ESRS requirements. Building internal capacity is essential for ensuring that the data collected meets the new standards' rigor.

• Leveraging Technology: Utilizing advanced data management tools and technologies, like AI and blockchain, can enhance the efficiency and accuracy of data collection and management processes.

B. Report Preparation

Preparing a sustainability report under the ESRS framework requires adherence to specific guidelines and the inclusion of key sections and elements:

• Structure of the Report: The report should be structured to provide a clear and comprehensive account of the company's sustainability performance. This includes an introduction, a detailed analysis of sustainability aspects, and a conclusion summarizing key findings and future goals.

• Double Materiality Assessment: A double materiality assessment should be conducted to identify the sustainability issues most relevant to the business and its stakeholders. This assessment forms the basis of the report's content.

• Detailed Disclosure on Metrics: The report should include detailed disclosures on the metrics and indicators mandated by ESRS. This includes quantitative data, accompanied by qualitative analysis, providing context and explanation for the numbers presented.

• Governance and Strategy: A section on governance and strategy should outline how sustainability is integrated into the company’s overall strategy and governance structure.

• Stakeholder Engagement: The report should reflect how stakeholder feedback has been incorporated into sustainability strategies and reporting.

C. External Assurance and Compliance

The role of external assurance and understanding the compliance landscape under ESRS are critical components of the reporting process:

• Importance of External Assurance: External assurance provides an independent verification of the report’s accuracy and reliability. It adds credibility to the sustainability disclosures and is often viewed favorably by investors, regulators, and other stakeholders.

• Selecting an Assurance Provider: Companies should select an assurance provider with expertise in ESRS and a strong reputation for integrity and rigor. The provider's role is to assess the report's adherence to the standards and provide recommendations for improvement.

• Compliance Requirements: Understanding the compliance landscape is crucial. Companies must be aware of the specific legal and regulatory requirements under the CSRD and how they translate into ESRS reporting obligations.

• Continuous Monitoring and Improvement: Compliance is not a one-time effort but an ongoing process. Companies should continuously monitor their reporting processes, stay updated with any changes in the standards, and strive for continuous improvement in sustainability performance and disclosure.

The Shift from GRI to ESRS

While the shift to ESRS presents certain challenges, it also opens up avenues for enhanced sustainability performance and stakeholder engagement.

By strategically navigating these regulatory changes, leveraging them to drive sustainability performance, and effectively addressing implementation challenges, companies can turn this transition into an opportunity for growth and value creation.

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