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Future of Reporting: A pathway towards globally-aligned sustainability standards

IFRS Foundation, GRI set foundational baseline that combines enterprise value and ESG impacts

By Nadja Picard, Global Reporting Leader, PwC Germany, and
Gilly Lord, Global Leader for public policy and regulation, PwC UK


As the business world continues to address wide-ranging environmental, social and governance (ESG) issues, a debate has arisen around what business should report on and to whom. There is a growing risk that multiple jurisdictions will develop their own sets of reporting standards – some focused on information useful to investors (the enterprise value), and others focused on information useful to a wider group of stakeholders (the impact value). The former primarily focuses on the impact of ESG issues on business, the latter more on the impact of business on the world around it. Both areas of focus give their respective audiences information that helps them hold companies accountable for their actions – whether that’s to maintain or create value, or to minimise negative impacts on the planet and society.  

The risk is that different jurisdictions may produce concurrent, but different, standards leading to different frameworks which will be costly and inefficient for companies to implement and difficult for stakeholders to interpret and act on. These efforts, while well-intentioned, would add to confusion by adding more noise as reporting multiplies, but with different standards and objectives. A solution may well be at hand following the announcement in March that two prominent standard-setting entities have agreed to align their respective approaches and programs. The agreement - in the form of a Memorandum of Understanding (MoU) - is between: the investor-centric International Financial Reporting Standards (IFRS) Foundation and the stakeholder-centric Global Reporting Initiative (GRI). Their agreement pledges to coordinate their guidance and terminology. It is potentially a very significant simplification of the approach to ESG standard setting.

The MoU aligns nicely with the significant work that the European Financial Reporting Advisory Group (EFRAG) has been doing in coordination with GRI under a 2021 agreement to co-create new sustainability standards for the European Union. Indeed, the MoU would not have been possible without the ongoing efforts of the EFRAG task force.  It is now time for the task force to consider partnering with IFRS and GRI in jointly helping to reduce the sustainability reporting burden on companies and improving the usefulness of the reported information to stakeholders. There is no need for more standards; the MoU provides a foundational baseline. Nations can use this baseline set of standards to build regulations that meet their own needs.

The collaboration between GRI and the IFRS Foundation provides two pillars of international sustainability reporting. The first are the recently proposed IFRS sustainability disclosure standards developed by the International Sustainability Standards Board (ISSB), concentrating on the investor-focused capital markets. When the ISSB issues the final standards later this year, they will form the comprehensive global baseline of sustainability disclosures designed to meet the information needs of investors in assessing enterprise value. 

The second pillar, compatible with the first, are the GRI standards. Widely adopted by companies worldwide, GRI standards are the globally consistent basis for sustainability reporting that highlights an organisation’s impact on the economy, environment and people for a multi-stakeholder audience.

An agreement to bring these two pillars together seems a sensible solution to the debate around the direction of ESG-related reporting, particularly for the link between enterprise value and impact. One could argue there’s really no practical difference between these two views, and the exposure draft of ISSB’s general disclosure requirements standard already gives a few good examples. After all, it makes sense that a business operating in a way that has a negative impact on the planet and its people will — in the short, medium or long term — have a negative impact on the business itself, and a corresponding effect on its enterprise value. In the long run – which is where sustainability standards focus – enterprise value and impact align. This brings together the work of the IFRS Foundation and GRI creating a truly global baseline that regulators overseeing corporate reporting can build upon. 

This recipe for a global sustainability reporting structure that allows for regulatory overlay means that the European Commission will have ready access to a base set of reporting standards that could be applied to comply with the requirements of Corporate Sustainability Reporting Directive (CSRD), the EU law that requires listed and other large companies to disclose information on the way they operate and how they manage social and environmental challenges. This gives EFRAG the opportunity to play its critical role, both in the endorsement of the baseline global standards for Europe and in setting the requirements that overlay the baseline, tailored to European stakeholder and policy needs. Consequently, European policymakers will be able to focus on what really matters: driving the sustainable transformation consistent with the EU Green Deal goal of becoming the first climate-neutral continent by 2050.

High-quality reporting brings the increased transparency that’s needed to build trust with all types of stakeholders. But that transparency needs to focus on what investors and other stakeholders need to know to assess a company’s performance in a number of aspects, including economic, environmental and social. The MoU between the IFRS Foundation and GRI does just that. The combined multi-stakeholder focus of the two organisations’ work brings a holistic level of oversight and accountability. It also can empower investors to allocate capital to businesses that manage risk effectively and are working to create sustainable value. And it can empower other stakeholders to decide whether to buy from, sell to or work for a company.  In this way, reporting can drive the business transformation needed to address these vital issues facing the world today.

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Nadja Picard

Nadja Picard

Global Reporting Leader, PwC Germany

Tel: +49 211 981 2978

Gilly Lord

Gilly Lord

Global Leader, Public Policy & Regulation, PwC United Kingdom

Tel: +44 (0)20 7804 8123

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James Chalmers

James Chalmers

Global Assurance Leader, PwC United Kingdom

Tel: +44 (0)20 7213 5501

Matt Graham

Matt Graham

Partner, Assurance, PwC Australia

Tel: +61 412 744 547

Wes Bricker

Wes Bricker

Vice Chair - US Trust Solutions Co-Leader, PwC United States

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