Environmental, Social, and Governance (ESG) reporting has become essential for companies globally, as stakeholders increasingly demand transparency concerning corporate sustainability and ethical impact. Three dominant ESG reporting standards are the European Sustainability Reporting Standards (ESRS), the International Sustainability Standards Board (ISSB) standards, and the Global Reporting Initiative (GRI) standards. While overlapping in their goals of driving sustainable business practices, these frameworks differ significantly in their application and reporting approaches. Understanding these distinctions is critical for businesses navigating the evolving landscape of ESG reporting.
1. Application: Where are they used or mandated?
ESRS:
The ESRS is mandated by the European Union’s Corporate Sustainability Reporting Directive (CSRD). Intended for use within the EU, it sets detailed reporting requirements for large companies and public-interest entities, including listed companies. Its introduction marks the EU's commitment to enhancing sustainability reporting accuracy and comparability, ultimately driving the European Green Deal's objectives.
ISSB:
The ISSB standards, developed by the International Financial Reporting Standards (IFRS) Foundation, aim to create a globally consistent baseline for sustainability disclosures akin to IFRS in financial reporting. Although the standards have global ambitions, they are yet to be widely mandated. Countries and regions individually decide their adoption and integration into national regulations. Over 20 countries have already signalled their adoption of the standard, among them China, Korea, Brazil and South Africa.
GRI:
The GRI framework is the most widely used global standard for sustainability reporting, offering companies a method to report their ESG impacts effectively. Unlike ESRS, which is region-specific, or ISSB, which seeks uniformity, GRI caters to a diverse set of stakeholders and is recognized in multiple jurisdictions worldwide. It is particularly favored for its broad, stakeholder-centric approach.
2. Approach: What is the reporting approach behind the standard?
ESRS:
The ESRS adopts a double materiality perspective, integrating both financial materiality (how sustainability issues impact financial performance) and environmental/social materiality (how a company's operations impact the environment and society). It mandates the disclosure of forward-looking information and quantitative and qualitative data, ensuring comprehensive ESG reporting.
ISSB:
The ISSB's approach centers on enterprise value and financial materiality, focusing on sustainability information that affects a company's future cash flows and financial performance. This approach aligns with investor interests, ensuring they receive pertinent information to make informed decisions. The ISSB aims for clarity and comparability by minimizing overlapping disclosures using a principles-based method.
GRI:
The GRI framework emphasizes stakeholder inclusivity and broad accountability. It employs a multi-tiered reporting structure, including Universal Standards (applicable to all organizations), Sector Standards (specific to sectors), and Topic Standards (focused on particular issues). This approach ensures that reports are tailored to a company’s unique contexts and stakeholder concerns.
3. Interoperability matters
All three standards promote interoperability with global frameworks to ensure that multinational companies can meet various reporting obligations efficiently. The IFRS foundation published information about interoperability with both the ESRS standard and the GRI standard. The goal is to achieve a high degree of alignment between the standards, with a focus on climate-related reporting.
4. XBRL is at the forefront
XBRL taxonomies are available for all three standards, enabling reporters to use digital tagging to facilitating clear and machine-readable sustainability reporting. The adoption of XBRL for these standards enhances the efficiency of data collection, dissemination, and use, fostering seamless integration with existing financial data systems.
The XBRL community is also working on a technical solution to support the interoperability of the standards, called concordance. With this in place, automatically comparing reports created by different standards will be supported, also enabling (parts of) reports to be automatically converted between the standards.
Understanding the importance: Fostering transparency, accountability and sustainability in global business practices
In an era where ESG reporting is paramount, understanding the nuances between ESRS, ISSB, and GRI standards is crucial for companies seeking to align with industry best practices and regulatory requirements. Each framework contributes uniquely to the sustainability reporting landscape, with specific applications, approaches, interoperability mechanisms, and XBRL taxonomy structures. For companies, the choice of standard will depend on their geographic location, stakeholder expectations, and strategic sustainability objectives. With XBRL taxonomies available for all standards, digital sustainability reporting will be more straightforward than ever before. Regardless of the chosen framework, the overarching goal remains the same: fostering transparency, accountability, and sustainability in global business practices.
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