Sustainability report: what changes with the new GRI standards?

European authorities are becoming increasingly demanding with regard to reporting on environmental and social sustainability by EU and non-EU companies.

In fact, recently, the Council of the EU has definitively approved the Corporate Sustainability Reporting Directive (CSRD), in order to make companies more responsible for their impact on the environment and society in general, expanding the categories of companies that will be obliged to publish detailed information on sustainability.

The reporting of corporate non-financial information is possible through several documents, including the sustainability report, a document that a company prepares annually, through which it is possible to communicate to all stakeholders, in a transparent and objective manner, the economic, social and environmental impacts of the business.

The principles of drafting and the contents of the sustainability report are drawn up by the Global Reporting Initiative, an internationally recognized non-profit organization, which has recently launched a new version of the GRI standards in force since 1 January 2023.

With the innovations introduced by the Global Reporting Initiative, the current GRI standards are grouped into the following categories:

• Universal Standards
• Sector Standards
• Topic Standards

This last category of standards, which is used to report information on the impacts of an organization related to economic, environmental and social issues, has not undergone substantial changes. However, it is necessary to adapt the analysis of Topic Standards to the changes made to Universal Standards and the introduction of Sector Standards.

What’s new for Universal Standards 

The most significant changes concern Universal Standards. These changes aim to improve the quality and consistency of sustainability reporting, as well as to facilitate a more effective use of standards by organizations to communicate their impact on the economy, the environment and people.

The previous Universal Standard (GRI 101 - Foundation, GRI 102 - General Disclosure and GRI 103 - Management Approach) have been reformulated as follows:

• GRI 1: Foundation 2021: Illustrates the aims and system of the GRI Standards, explaining the fundamental concepts of sustainability reporting. It also specifies the reporting requirements and principles that the organization must observe to submit a report that complies with GRI Standards. 
• GRI 2: General Disclosure 2021: contains the disclosures that the organization uses to provide data about reporting practices and other organizational details, such as activities, governance, and policies. This information illustrates the profile and size of the organization, providing a context for understanding its impacts
• GRI 3: Material Topics 2021: Provides guidance on how to determine material topics. It also contains the information that the organization uses to explain in detail its process of determining material issues, their classification and management methods.

As for the GRI 1: Foundation 2021 standard, one of the main innovations introduced is the obligation for companies to comply with all nine requirements defined in the information. If the organization does not meet all nine requirements, it cannot claim that the reported information complies with the GRI Standards. 

If the organization is able to meet all the mandatory requirements for reporting according to the GRI, the reporting mode will be «in accordance with GRI Standards», if the organization is not able to meet all the requirements in accordance with GRI standards, the reporting mode will be «with reference to». 

On the base of such innovations, comes less the precedence distinction between "Core" (report that contains the minimal information necessary in order to understand the nature of the organization, its material topics and the relative impacts, and like these they come managed) and "Comprehensive" (reports that in addition to the minimum information includes additional information on the strategy, ethics, integrity and governance of the organization).

Within the GRI 1: Foundation 2021, in addition, unlike the previous GRI 101 - Foundation, special sections are dedicated to the fundamental concepts underlying sustainability reporting, such as "Impacts", "Material Issues", "Due diligence" and "Stakeholders".

With regard to GRI 2: General Disclosure 2021, in addition to the update of existing information, a new disclosure on the commitments of the company for a responsible business conduct and how these commitments are effectively implemented by the organization.

Expectations of responsible conduct of companies include compliance with laws and regulations, respect for all internationally recognized human rights, including workers' rights, and protection of the environment and public health and safety. Expectations also include the fight against corruption, the demand for bribes, extortion and other forms of corruption; adherence to good tax practices; conducting a due diligence to identify, prevent, mitigate and account for how the organization addresses its negative impacts on the economy, environment and people, including impacts on their human rights.

Finally, regarding GRI 3: Material Topics 2021, a new approach for materiality analysis is introduced, through guidelines that support organizations in identifying and managing the most relevant material issues. 

In particular, according to GRI 3: Material Topics 2021, organizations should follow 4 steps in determining material themes:

• Understanding the context of the organization: in this phase, the organization presents an initial overview of its activities, the sustainability context in which these take place and a general description of its stakeholders, thus obtaining essential information to identify actual and potential impacts. The organization should consider the activities, business relationships, stakeholders and sustainability context of all companies it controls or has an interest in (for example, subsidiaries, joint ventures, affiliates, etc...);
• Identification of actual and potential impacts: at this stage, the organization identifies its actual and potential impacts on the economy, the environment and people, including their human rights, as part of the business activities and relationships of the organization itself. Impacts may be negative or positive, short- or long-term, intentional or involuntary, reversible or irreversible
• Impact Scale Assessment: At this stage, the organization assesses the significance of the identified impacts to prioritize them. Prioritization allows the organization to take action to address impacts and determine the material issues to report. Assessment of the extent of impacts involves quantitative and qualitative analyses. The extent of an impact depends on the specific organization and will be influenced by the sectors in which it operates and its business relationships as well as other factors
• Prioritization of the most important impacts for reporting: At this stage, to determine material issues for reporting, the organization prioritizes impacts based on their importance. The organization evaluates the significance of an impact compared to others identified, sorting them according to the importance and setting a minimum threshold to determine the issues to focus on in reporting. 

Further deepening the theme related to materiality analysis, companies subject to the Corporate Sustainability Reporting Directive (CSRD) will have to apply the concept of double materiality, which combines the materiality of the impact and the financial.

Thus, a theme meets the criteria of dual materiality if it is relevant from the point of view of impact or from the financial point of view or from both points of view.

The introduction of Sector Standards: what are they?

In addition to the innovations already described, the Global Reporting Initiative introduced Sector Standards.

The goal of the GRI Sector Program is to develop standards for 40 industries, starting with those that have the greatest impact.

As a new addition to the GRI Standards family, Sector Standards are designed to help identify the most significant impacts of an industry and reflect stakeholder expectations for sustainability reporting. They describe the sustainability context for an industry, outline the likely material issues of organizations based on the most significant impacts of the industry, and list the industry-relevant information to report on.

The following Sector Standards are currently available to the public: 

• Oil and Gas (GRI 11)
• Coal (GRI 12)
• Agriculture, Aquaculture and Fisheries (GRI 13)

Among the various standards being developed, there is one dedicated to the textile and clothing industry. The objective of this standard is to improve the quality and comparability of sustainability information by establishing global best practices for organizations operating in textile production, in the production of clothing and footwear and retail.

Conclusion

Expectations about the purpose of the business and how businesses operate and generate value are evolving. 

Companies are facing increasing pressures from the market, increasingly interested in clear, reliable and truthful data on the environmental impacts of business activities.

In addition, European authorities are becoming increasingly demanding with regard to reporting on environmental and social sustainability by EU and non-EU companies.

Reporting corporate non-financial information through the sustainability report is becoming crucial. It is therefore necessary to know and understand the various innovations introduced, in order to ensure correct and consistent reporting of information with the new GRI standards and not incur reputational risks

For these reasons, Cikis supports companies in drafting the sustainability report with the aim of making the company’s reputation more solid, authoritative and credible over time, by reporting sustainability information in a manner consistent with the latest updates of the relevant international standards.