A framework too far?

When it comes to ESG reporting or, non-financial reporting as it is sometimes known, companies are free to choose from many different reporting frameworks including the Global Reporting Initiative (GRI), the Integrated Reporting Framework (<IR> - established by the International Integrated Reporting Council (IIRC)), or the Sustainability Accounting Standards Board (SASB) standards.

During COP26 in Glasgow, the IFRS announced the International Sustainability Standards Board (ISSB) - a new effort to merge the many different standards into one, comprehensive standard. This helps to put sustainability reporting on the same foot as financial reporting.

But, why do we need another set of standards? 

The first principles for the ISSB standard established by the IFRS focus on facilitating economic decision making – reacting to complaints that non-financial reporting is not based on financial performance. This financial performance is often defined in terms of financial position, performance and future cash flows. Where other organizations – GRI, SASB, IIRC, etc. – have put in the hard work developing these standards from scratch, the IFRS has now applied the outcomes. 

What about the climate-related disclosures?

ISSB is recognizing the importance of the relationship of a company with the environment and climate change. This resulted in a framework that is built around an assessment of sustainability-related risks and opportunities. Moreover, the standards take a broad view of Governance, meaning that companies will have to provide more information on the expertise of their Boards with respect to sustainability issues. 

When will companies apply these standards?

The final ISSB standards are expected to be completed by mid to end 2022. Whether it will become mandatory for companies to report on these standards depends on timing and regulations. The UK has already stated that they expect the ISSB to be a core part of its non-financial reporting requirements. In contrast, the European Commission is working on mandatory non-financial reporting standards. These in the form of revisions to the EU directive on non-financial reporting. These revisions – known as the Corporate Sustainability Reporting Directive or CSRD are expected to be in place for 2023 reports – incorporating ISSB standards as appropriate for the EU region. 

Is GRI dead?

The question remains – what will happen to GRI? There is no mention of GRI in the new ISSB standards, and they don’t seem to have any ‘special mention’ in the upcoming CSRD – so where does this place them?

Well – they have been quickly putting together their new standards, which were released in early October 2021 – and a strong overlap with the new CSRD can be found, but is it too little too late? 

Only time will tell.