Members of the European Parliament (MEPs) have recently endorsed the widespread adoption of the European Sustainability Reporting Standards (ESRS). The Global Reporting Initiative (GRI) has expressed approval of the decision, which will see the ESRS become mandatory for approximately 50,000 firms starting in January 2024.
The GRI, alongside the European Financial Reporting Advisory Group (EFRAG)—the organisation tasked with shaping the ESRS—has confirmed a significant degree of compatibility between the forthcoming ESRS and the pre-existing GRI Standards, which are already extensively implemented by numerous entities within Europe and globally. The objective is to ensure that definitions, concepts, and disclosures regarding impacts are harmonised to the greatest extent feasible.
The ESRS are an integral element of the Corporate Sustainability Reporting Directive (CSRD) and will be obligatory for all major and publicly traded companies within the EU. By 2028, this requirement will extend to include non-EU companies that operate within Europe, who will need to report their impacts either via the ESRS or through comparable standards. The congruence between the ESRS and the GRI’s impact standards offers companies the assurance that their present reporting frameworks will be in compliance with the upcoming regulations.
Currently, the GRI is in the process of perfecting tools to ensure seamless interoperability, such as a digital taxonomy and a multi-tagging system. These tools are designed to streamline the reporting procedure and aid organisations in producing a unified sustainability report that satisfies the criteria of both the ESRS and the GRI Standards.
The endorsement of the ESRS by the European Parliament is welcome because it signals the transition from political debate to practical implementation for these new rules – which are a game changer for corporate accountability, in the EU and globally. The close alignment achieved between the ESRS and the GRI Standards underlines the increasing influence of GRI as the global enabler for transparency on impacts. We will continue to actively engage with EFRAG and other standards setters, at national and international levels, to further increase the momentum behind impact reporting, ensuring companies deliver the sustainability information their stakeholders require while reducing the reporting burden. This reflects our evolving role as a trusted partner for regulators, with GRI reporting underpinning high-quality and increasingly mandatory sustainability reporting.
Over the past two years, the GSSB has closely collaborated with EFRAG to ensure technical alignment between our respective standards, and we now stand ready to deepen our engagement in the EU regulatory process. As we approach implementation of the ESRS, this work will be prioritised in the current GSSB work program. Furthermore, we will be working with EU institutions to reach agreement that reporting using GRI Standards is accepted as equivalent for non-EU companies.
The Corporate Sustainability Reporting Directive (CSRD) represents a significant stride in the European Union’s commitment to sustainable business practices. Introduced as an expansion of the earlier Non-Financial Reporting Directive (NFRD), the CSRD sets forth a more comprehensive framework for sustainability reporting. It obliges companies to provide detailed reports on their environmental and social impacts, as well as governance matters, ensuring that sustainability information is as reliable and comparable as financial data.
Under the CSRD, businesses are required to disclose information on how sustainability issues affect their operations and, conversely, how their operations impact society and the environment. This includes reporting on topics such as climate change, social rights, and work ethics. The directive mandates the inclusion of both qualitative and quantitative data, with an emphasis on the risks and opportunities presented by sustainability issues. Furthermore, the CSRD insists on the use of robust and standardised reporting frameworks, notably the European Sustainability Reporting Standards (ESRS), to foster consistency and comparability across different companies’ reports.
The scope of the CSRD is significantly wider than its predecessor, covering all large companies whether they are listed on stock exchanges or not, as well as all companies listed on regulated markets, excluding micro-enterprises. Specifically, this includes companies that meet at least two of the following three criteria: a net turnover of more than €40 million, total assets exceeding €20 million, and/or an average of more than 250 employees during the financial year. Consequently, the directive will apply to nearly 50,000 companies within the EU, a substantial increase from the 11,000 companies held to the reporting standards under the NFRD.
The regulation also casts a wider net, bringing non-EU companies into its purview. From 2028, any non-EU company generating a net turnover of €150 million within the EU and having at least one subsidiary or branch within the EU must comply with the CSRD. These businesses will be expected to report in a manner equivalent to EU companies, either by adopting the ESRS or by using standards that can be considered congruent with the principles and depth of information required by the CSRD.
This directive is not merely a formal requirement but aims to enable investors, consumers, and other stakeholders to evaluate the non-financial performance of businesses. By doing so, it promotes transparency and accountability, encouraging more sustainable business models and investment decisions. As the EU moves towards a greener economy, the CSRD serves as a cornerstone regulation, fostering an environment where sustainable growth is not just encouraged but becomes a fundamental aspect of business reporting and strategy.
The European Sustainability Reporting Standards (ESRS) are a pioneering set of regulations put forth by the European Union to enhance the transparency and comparability of sustainability information provided by companies. These standards are a central element of the Corporate Sustainability Reporting Directive (CSRD), which seeks to integrate sustainability reporting closely with financial reporting. The ESRS are poised to redefine corporate accountability, enforcing a robust sustainability reporting regime across the EU.
Compliance with the ESRS necessitates that businesses provide a comprehensive account of their sustainability impact. Companies are required to report on their environmental performance, including their carbon footprint, resource usage, and waste management strategies. Social aspects, such as labour practices, respect for human rights, and community engagement, are also under the purview of these standards, alongside governance matters like corporate ethics and anti-corruption measures. The goal is not just to report but to demonstrate how sustainability is embedded in the company’s strategy and operations.
The breadth of the ESRS’s scope is extensive. It applies to all large companies that are either EU-based or listed on EU exchanges, encompassing those that meet two of the following three criteria: a net turnover of more than €40 million, total assets over €20 million, and an average of more than 250 employees during the financial year. This wide scope aims to standardise sustainability reporting, bringing it on par with financial reporting and ensuring that all major players contribute to a sustainable European economy.
For non-EU companies, the ESRS rules will come into force starting from 2028. Any non-EU entity with a net turnover exceeding €150 million in the EU market, and which operates within the EU either through a subsidiary or a branch, will need to comply with the ESRS. These companies will have to ensure that their reporting aligns with the standards or is equivalent in detail and scope to the requirements set forth by the ESRS.
The introduction of the ESRS represents a significant step towards a sustainable future, mandating transparency and accountability from businesses regarding their impact on the environment and society. It not only aligns with the global urgency of addressing climate change and social inequalities but also positions the EU as a leader in setting a gold standard for sustainability reporting. With these standards, the EU is sending a clear message: sustainable business practices are no longer optional but a fundamental aspect of corporate responsibility in the 21st century.
The Global Reporting Initiative (GRI) is an international independent standards organisation that has pioneered sustainability reporting since the late 1990s. The GRI’s sustainability reporting framework, particularly its guidelines for Environmental, Social, and Governance (ESG) reporting, is widely recognised and used globally. This framework, known for its flexibility and comprehensiveness, assists organisations in disclosing their impact on the economy, the environment, and society. It is considered by many to be the pre-eminent ESG framework for businesses in the UK, Europe, and beyond.
One of the core reasons the GRI ESG framework is highly pertinent to UK and European businesses is its universal applicability. Regardless of a company’s size, sector, or location, the GRI provides a standardised approach for reporting sustainability issues, which facilitates comparability and benchmarking. This universality is crucial for companies operating in the diverse and integrated markets of the UK and Europe, allowing them to report on a wide range of sustainability issues that resonate with their stakeholders and align with global best practices.
The GRI framework’s focus on materiality is another aspect that makes it relevant for businesses. It encourages organizations to report on ESG issues that are significant to their business and stakeholders. This principle ensures that companies concentrate their efforts and reporting on areas where they can make the most significant impact, leading to more strategic and effective sustainability practices. This approach aligns well with the expectations of European stakeholders who are increasingly demanding meaningful and material sustainability information.
Moreover, the GRI’s commitment to continuous improvement and alignment with other reporting standards adds to its relevance. The GRI standards are regularly updated to reflect the latest developments in sustainability and to integrate with other prominent frameworks and regulations, such as the EU’s CSRD and ESRS. This harmonization is crucial for businesses seeking to ensure their reports meet the evolving regulatory requirements and stakeholder expectations within the UK and across Europe.
The GRI ESG framework also emphasizes stakeholder inclusivity, ensuring that the reporting process considers the perspectives and needs of all stakeholder groups, not just investors. This is particularly important in the European context, where there is a strong emphasis on corporate social responsibility and the broader impacts of business activities on communities and the environment.
Finally, the GRI’s global recognition and adoption make it a strategic tool for businesses looking to demonstrate their commitment to sustainability on the international stage. As UK and European companies operate in an increasingly globalized economy, the ability to report sustainability performance in a manner that is understood and respected worldwide is a clear advantage. This global perspective is integral to the GRI framework, ensuring its continued relevance and utility for businesses aiming to lead in sustainability.
In conclusion, the GRI ESG framework’s comprehensive, flexible, and stakeholder-focused approach, along with its alignment with international standards and regulations, makes it an invaluable tool for UK and European businesses committed to sustainable development and transparent reporting.
Leads the daily operations at ESG PRO, he specialises in matters of corporate governance. Humperdinck hails from Bermuda, has twice sailed the Atlantic solo, and recently devoted a few years to fighting poachers in Kenya. Writing about business matters, he’s a published author, and his articles have been published in The Times, The Telegraph and various business journals.
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