Peter Paul van de Wijs, chief external affairs officer at the GRI, discusses the voluntary standard setter place in the emerging mandatory reporting landscape. Interview by Vincent Huck
The expression 'alphabet soup' has been used a lot in the last couple of years to describe the numerous initiatives – and their respective acronym – in the non-financial disclosure space. But we've now seeing some sort of consolidation through the Value Reporting Foundation, and the work of the International Sustainability Standards Board (ISSB)... But it would seem the GRI has been left a bit on the side of this consolidation, would that be a fair/unfair comment to make?
I'm going to give you a different perspective on it, because first of all, there wasn't really an alphabet soup, I think, that was created. If you take a step back, there were only two, if you're generous three, actual reporting standards.
That was the GRI, which is focused on impact reporting, so on the impacts that you have as a company on the world. Then there was SASB standards which look at how the sustainability impacts your company. You could say that there's a third one, which is not really a standard, but still friends of ours, CDP, which is a questionnaire which really looks at the impact of a company on climate change and vice versa.
Everything else that was lumped into this conversation were either frameworks or voluntary initiatives, and much of them are actually rating and ranking initiatives. I have no problems with any of these initiatives.
Then the IIRC, which we helped set up, is a framework an organising principle. In order to meet the IIRC requirements, or the TCFD for that matter, you still need standards.
So, from a standard standpoint there was never so much of a soup as people make out.
Secondly, there was more initiatives on the financial materiality side of the equation, so the consolidation of the IIRC, SASB and CDSB in the VRF through the ISSB, makes sense.
But on the impact side, and to your point, there was only the GRI, and to some extent CDP – although that is not a standard.
What we see now and what is very interesting going forward, we see this global trend that we'll end up with a global reporting regime based on two pillars: strengthened financial reporting and impact or sustainability reporting.
Strengthened financial reporting is basically the IFRS standards plus what comes out of the ISSB. So, adding this disclosure of financial implication of sustainability issues to what the IFRS has in the traditional financial reporting.
On the other hand, you'll have the GRI kind of reporting based on trying to understand the impacts that the company has on the world.
One of the challenges that we see going forward is how do you define and create an overlap between those two pillars, because at some point impact might become financially material.
And that work is linked to the MoU that was signed with the IFRS, correct?
That's part of it. The other part of that work is simply the IFRS and the ISSB have a very specific set of audiences that need specific information to advise their decision making, but as much as possible, the underlying data should be the same as much as possible when looking at impact or financial materiality. So, the first step is to align definitions and terminology. For example, our definition of emission should be the same as the one of the ISSB. There is no reason for having different terminology, it just confuses companies and increases unnecessary reporting.
Greenhouse gas emissions, we have the greenhouse gas protocol, let's not reinvent the wheel, let's agree that that's probably the right disclosure. Then you draw different conclusions because of your audiences and their interest, that's where the differences come in.
With similar disclosures, using the same terminology, under the same structure or the same guidance on how to use the standards, that will help comparability, it will help reduce or minimise the reporting burden for companies, while meeting the need of providing an overall picture of a company's impact on the world and the impact sustainability has on the company.
While I take your point at the IFRS level, the EU through EFRAG is working on standards that address both pillars, but I'm not sure if the GRI is involved there?
What we call the two pillars, they call it double materiality, it's covering the same ground. We are actively engaged in that conversation. We've been part of the development of those standards, we provide the impact piece, and a lot of the standards are based on GRI standards. And that alignment is crucial because the European Union has that stated objective that they want to stay globally relevant and they want to reduce the burden.
We will produce almost like a mapping tool, if as a company you've done your GRI initiative report and your data collection, this is how it translates into the European standards to make it as easy as possible. Because there's also this recognition that the EU, and any other jurisdiction globally quite frankly, on top of the two pillars that I just outlined, will have local political context to consider, existing legislation that needs to be considered. So there's always a layer on top of the ISSB/GRI two pillar approach needed locally because you don't develop this in a vacuum with nobody starting from scratch.
Is it fair to say then that the GRI is more aligned with the EU initiative that embraces double materiality, rather than the ISSB approach and the so called 'dynamic materiality'?
The MoU is a recognition that's no longer the case, the IFRS has come a long way and has realised, through the whole public consultation process when they started thinking about sustainability as an issue, that it is that complementarity of impact reporting and financial reporting that gives us a full picture. The impact materiality pillar actually defines the pool of topics that might become overtime financially material.
Another interesting development at the moment is the SEC proposals...
The SEC announcement and the framing of that work by Commissioner Gary Gensler was interesting, it's a major step forward.
It's not as ambitious as the European initiative and you could say that the IFRS model sort of sits in between, but it's a sign that we see a slow move in alignment. It's the first time that you hear an American legislator or regulator talk about scope 3 emissions having to be reported, and it was quite interesting that Gensler position almost as a response to all the commitments made at COP 26.
It's different jurisdictions, maybe on different time paths, but they're all moving in the same direction.
So, we fall back to the question on alignment, and you mentioned earlier alignment of terminologies, which is one of the criticisms that EFRAG faces, and the ISSB seems to be spared of, why do you think that is?
EFRAG covers a lot more topics so maybe there are more people looking at it and having an opinion, that's a cynical answer, but it is part of it.
We need to realise that these consultations are just exposure drafts. There is another round of fine tuning needed. I see it as a natural progression in the process, and further discussion between EFRAG, ISSB and TCFD are probably warranted.
To your point that EFRAG covers more topics, French and German corporates have criticised that approach saying it is too much too quickly, do you have any thoughts on this argument?
Firstly, I don't think climate is the only topic that should be discussed.
It is unfair to blame EFRAG for this, that's a political decision by the European Commission, which is laid out in the in draft CSRD. I'm following the trialogue negotiation on the directive and that is not discussed as an issue. EFRAG is developing the standards based on what is requested by the parliament and the commission.
A discussion on prioritisation would need to happen at the EU level. But for GRI, 'climate first and the rest later' is wrong, because climate is not a single issue, there are social implications to climate change that definitely needs to be addressed as well.
And for the record, most of those companies that are making these statements– it's worth remembering – are actually already producing GRI reports. So, they have all of this information available. And the more important point, is that they've done this voluntarily! So over 10,000 companies already voluntarily agreed that they need to report more.
You mentioned that you follow the trialogue on CSRD, which aspects of the negotiations are you following the most?
Most importantly, the actual onset of CSRD and the use of standards, double materiality, are not up for debate. There seems to be general agreement that that's the right way to go – we're pleased with that.
Scope is probably the one we follow the most. Both from the size of company standpoint, but also what is going to be interesting is how they treat non-EU based companies. It is not a concern as a standard setter, but the how it could potentially have an impact on policies around the world is something we are keeping an eye on.
On assurance, we think that as much as financial reporting is assured, it also appropriate to have your impact materiality reporting assured. And even if more work is needed on that, the concept that's outlined is a natural progression towards full assurance as you see on the financial side, so that's very good.
On assurance, I don't think there is any debate on whether it should be assured or not, rather whether it's the statutory auditor that does it or whether you allow third party providers to do it – do you have a take on that?
We recognise there is a question on whether there is enough qualified auditors to do this work, but that is a political decision, we don't have an opinion on that.
