New reporting standards seek alignment, even as they proliferate

The European Financial Reporting Advisory Group (EFRAG) has released the first drafts of the European Sustainability Reporting Standards (ESRS), a key component of the EU Corporate Sustainability Reporting Directive (EU CSRD) and part of the package of proposals related to the EU Green Deal.

Non-European companies will still need to comply – the requirement to provide a sustainability report applies to all companies generating a net turnover of €150 million in the EU and which have at least one subsidiary or branch in the EU.

The ESRS seeks to strengthen non-financial reporting in the EU. And with 54% of EU companies using GRI to meet their non-financial reporting requirements, it makes sense to see the EFRAG baking the GRI standards into the ESRS development process.

However it’s not a 100% alignment yet between the two standards, with GRI providing an 84-page technical opinion mapping the draft ESRS to the GRI, a welcome (if lengthy) resource for reporters seeking to understand how to report in alignment to GRI.

If you don’t have time to read the full document, here are the key takeaways of GRI’s feedback:

Support for double materiality: GRI strongly supports the double materiality principle which ESRS is based on. When conducting double materiality assessments, GRI states the starting point should be the assessment of impact materiality. Sustainability impact may become financially material in the short, medium or long term. When it comes to financial materiality, GRI strongly recommends aligning with the International Sustainability Standards Board (ISSB), which focuses on ‘enterprise value’, rather than on general ‘value creation’ and ‘capitals’.

Too much detail: The ESRS’s proposed level of detail and granularity could be onerous, even for sophisticated and experienced reporters. ESRS is in effect asking organisations to guess missing information when data is unavailable. This goes against transparent and faithful reporting, and could lead to less focused and decision-useful data. 

Closer GRI alignment: The draft ESRS introduce new concepts and adopt terminology that is not widely adopted by organisations. GRI unsurprisingly suggests that closer alignment to their standards should be practised. Yet for reporters who are operating both within and outside of the EU, this is welcome advocacy for global alignment of reporting standards.

What this means for reporters

We are keeping an eye on the evolving sustainability reporting standards landscape. The one clear point is that double materiality remains a critical starting point for reporters.

Luminous can help you strengthen your understanding of impacts and non-financial disclosure. For help with your double materiality assessment or GRI gap analysis, please get in touch with