GRI and IFRS unite to set new sustainability reporting standard

27 June 2024 Consultancy-me.com 6 min. read
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The expanded collaboration between the Global Reporting Initiative (GRI) and the International Financial Reporting Standards (IFRS) Foundation signifies a pivotal moment for corporate sustainability reporting, writes Fadi Al Shihabi, Head of ESG & Decarbonization at KPMG.

The partnership between GRI and IFRS, which was unveiled in May this year, aims to establish interoperable sustainability disclosure standards that promise to streamline reporting processes, enhance transparency, and drive sustainable business practices.

The deepened collaboration builds on an initial agreement signed around two years ago.

GRI and IFRS unite to set new sustainability reporting standard

Sustainability reporting is a top priority

In today’s business landscape, sustainability reporting is no longer optional. It has become a critical component of corporate strategy and stakeholder engagement.

Stakeholders, including investors, regulators, and customers are increasingly demanding comprehensive insights into how companies manage their environmental, social, and governance (ESG) impacts. Effective sustainability reporting not only builds trust and reputation but also drives informed decision-making and sustainable growth.

Leaders in reporting standards deepen relationship

The GRI and IFRS are at the forefront of sustainability reporting standards. GRI’s Sustainability Reporting Standards are the most widely adopted globally, offering a robust framework for companies to disclose their ESG impacts comprehensively. These standards are known for their inclusiveness and focus on a wide array of stakeholder interests.

Conversely, the IFRS, through its International Sustainability Standards Board (ISSB), is focused on developing sustainability disclosure standards tailored to the needs of global capital markets. The ISSB standards emphasize financial materiality, aiming to provide a global baseline for sustainability-related financial disclosures.

The announcement of joining forces follows a Memorandum of Understanding (MoU) between the IFRS and GRI that was signed in March 2022. The MoU stated that the International Sustainability Standards Board (ISSB) and the Global Sustainability Standards Board (GSSB) will seek to coordinate their work programs and standard-setting activities.

An initial outcome of the collaboration will involve a methodology pilot building on GRI 101: Biodiversity 2024, published in January 2024, and the ISSB’s upcoming project on biodiversity, ecosystems and ecosystem services.

A progressive step for corporate transparency

The increased collaboration will optimize how GRI and ISSB Standards can be used together to facilitate seamless sustainability reporting and combat the historical complexities and inefficiencies posed by multiple reporting frameworks.

Success of this partnership would hinge on the following:

Harmonization of standards: Aligning the GRI Standards and ISSB’s Sustainability Disclosure Standards to eliminate redundancies and ensure complementary frameworks. This harmonization aims to simplify reporting processes for companies.

Development of joint resources: Creating joint guidance and resources to help companies align their reporting practices with both GRI and ISSB standards. These resources will offer practical insights and facilitate a pathway for integrated sustainability reporting.

Stakeholder engagement: Engaging with a diverse range of stakeholders in developing and refining the aligned standards to ensure they meet the needs of both users and preparers of sustainability reports.

Capacity building and support: Providing training and support to encourage the adoption of harmonized standards. This includes workshops, webinars, and other educational initiatives aimed at enhancing the quality of sustainability reporting.

Why companies should be celebrating this initiative

The interoperability between GRI and IFRS standards offers several significant benefits:

Simplified reporting processes
Companies will be well-positioned to streamline their reporting by adhering to a unified set of guidelines that satisfy both GRI and ISSB requirements.

Enhanced transparency and credibility
Improved quality and consistency of sustainability reports enhance transparency and build credibility with all company stakeholders, including investors, customers, and regulators.

Better decision-making
Access to consistent and comparable sustainability data enables more informed decision-making. Investors, in particular, will be able to better assess a company’s ESG performance and make decisions aligned with their values and investment criteria.

Regulatory compliance
Harmonized standards help companies meet current and future regulatory requirements, mitigating the risk of non-compliance.

Stakeholder trust
Transparent and consistent reporting fosters greater trust among stakeholders, enhancing the company’s reputation and strengthening relationships with key stakeholders.

Challenges to overcome
While the collaboration between GRI and IFRS brings numerous benefits, it also presents a couple of critical challenges:

Integration complexity
Aligning two comprehensive sets of standards into a single framework can be complex. Companies, consequently, may face initial challenges transitioning to the new harmonized standards.

Stakeholder alignment
Ensuring that the harmonized standards meet the diverse needs of all stakeholders, including investors, regulators, and civil society, can be challenging. Balancing these varying interests will require careful consideration and continuous engagement.

Getting ahead

As more developments are expected to come out, companies should already be thinking about how to embrace the incoming change.

Innovation in reporting
Companies should start thinking about how they can drive innovation in sustainability reporting practices, leading to the development of new tools, technologies, and methodologies that enhance reporting efficiency and effectiveness.

Enhanced ESG integration
Streamlined reporting standards enable companies to more effectively integrate ESG considerations into their overall business strategy, leading to more sustainable and resilient business models.

Closing remarks

The collaboration between the GRI and IFRS marks a significant advancement towards a more coherent and efficient sustainability reporting landscape. By delivering interoperable standards, these leading organizations are setting the stage for more transparent and impactful sustainability disclosures. This initiative not only benefits reporting entities and stakeholders but also contributes to the broader goal of fostering global sustainability.