The Global Reporting Initiative’s new CEO, Eelco van der Enden, is planning to work with the nascent International Sustainability Standards Board on environmental, social and governance standards, while maintaining GRI’s independence.
Van der Enden began his tenure leading the ESG standard-setting organization on Jan. 1 (
As more companies work on improving their sustainability efforts, and investors flock to ESG funds, financial regulators have been pressuring the competing ESG standard-setters to unite around a common set of standards as the pace of climate change accelerates.
Last year, the International Financial Reporting Standards Foundation, which oversees the International Accounting Standards Board, announced it would set up an International Sustainability Standards Board that it would oversee alongside the IASB. The Value Reporting Foundation, which recently merged together the Sustainability Accounting Standards Board and the International Integrated Reporting Council, agreed last November to be “consolidated” into the ISSB, along with another standard-setter, the Climate Disclosure Standards Board, an initiative of the Carbon Disclosure Project (
In contrast, GRI has decided to remain independent, but it will work with the ISSB.
“What will be GRI’s pathway forward? Alignment, alignment, alignment,” Van der Enden told Accounting Today. “We seek to cooperate and align working processes when it comes to sustainability reporting. We can set joint agendas with the ISSB. We can, as far as I’m concerned, share projects and whatever is needed to make sure that cooperation between them is good.”
Businesses will eventually need to account for both their financial performance and their environmental efforts. “We need alignment between these standards, so we need on equal footing on the one hand the financial reporting standards and on the other hand the set of sustainability standards cooperating with each other, and not being seen as competitors because they all serve their purpose for their specific set of stakeholders,” said van der Enden. “I foresee a wonderful future when looking at the international corporate reporting environment. We see that business is very serious about sustainability reporting. Look at Net Zero commitments. Look at social commitments. They’re not always only altruistic, but also because it’s just good business.”
Increasingly businesses want to be able to show investors and other stakeholders not only how they are doing financially, but also environmentally. “Making profit be profitable is important,” said van der Enden. “Without profit, without the business drive, there will be no transformation from fossil to sustainable fuels and business models and supply chains because profitability and businesses drive innovation and the means for doing so. On the other hand, of course, making profit and doing business has effects on climate and society, and that’s exactly where we step in. Those organizations that report under GRI standards and sustainability standards want to show evidence that the commitments they have made they indeed follow, that they indeed have executed upon them.”
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ESG standards can apply to not only the climate and the environment, but also to social topics like human rights and child labor. GRI has built a presence in the European Union, where the European Financial Reporting Advisory Group, is collaborating with the organization on “co-constructing” sustainability and biodiversity standards in the EU in line with a Corporate Sustainability Reporting Directive proposed last year by the European Commission.
“Don’t underestimate European legislation,” said van der Enden. “The Corporate Sustainability Reporting Directive and the following standards will be mandatory for companies with a very small threshold if you compare it to what you generally see as a threshold for mandatory reporting, which is 750 million euros. The thresholds with the CSRD in Europe are 40 million in revenue, 20 million balance sheet total, 250 FTEs [full-time employees], and you have to meet two out of three. So there’s keen interest in looking at what will come out of that one.”
He sees potential crossover with the ISSB’s work on sustainability, which, like the GRI and EFRAG sustainability standards will be built around a framework from the Taskforce on Climate-related Financial Disclosures, or TCFD.
“We know that at the level of the ISSB, the first standards to be published are on climate based on the TCFD framework,” said van der Enden. “Europe, with EFRAG, will also be working on climate, also based on TCFD. I see alignment there with ISSB, but they will also focus on human capital. GRI 419 is human capital. GRI is in fact the only standard-setter that has such a strong foothold when it comes to human capital.”
The Value Reporting Foundation’s Sustainbility Accounting Standards Board is also still planning to continue to work on developing sustainability accounting standards, even though it will be merged into the ISSB this summer.
“We’re in a period of transition now and the ISSB is being stood up now,” said Neil Stewart, director of corporate outreach at the foundation. “The chair of the ISSB, Emmanuel Faber, was appointed in December, and you can expect to see the vice chairs appointed. There will be exposure drafts of the first standards coming out for comment, and the SASB standards need to move through a rigorous due process with the ISSB to become industry-specific requirements under the new IFRS sustainability disclosure standards. That’s going to be hard work, and it’s not going to be overnight. It needs the attention of the full ISSB board once it’s set up. It needs public comment and market input, so the world shouldn’t expect to wake up on July 1 and find that SASB standards become the IFRS Foundation sustainability disclosure standards. There’s due process to go through, so the research that we’re doing, whether it’s around human capital or content moderation on internet platforms, that work doesn’t stop either. The world doesn’t stop changing and the SASB standards in advance of being transitioned into the IFRS Foundation can’t get frozen either.”
Tax standard
In addition to sustainability standards, GRI is also seeing interest in its tax standard, GRI 207, which aims for greater transparency in the taxes that companies are paying in different countries.
“We don’t see it anymore as black and white, that companies are there for profits for their investors and their shareholders, and all the other responsibilities are to be taken care of by governments: education, infrastructure, health care, security and so forth,” said van der Enden. “If we were to be that black and white in our reasoning, we have an issue. I call that the neoliberal tax paradox. Striving for profit maximization by reducing tax bills beyond what is reasonable under a shareholder centric system will not enable governments to take care of their responsibilities because they will not have the income. And if you look at this stakeholder-centric economic model, by taking care of that, you grant governments the possibilities to take that responsibility, and then we can hold them accountable for not performing.”
More than 10,000 large multinational companies are voluntarily using GRI standards, according to van der Enden, and many of them have been downloading the tax standard since it was unveiled in 2020. “If you look at this tax standard, the voluntary take-up of this has been frankly beyond expectation,” he said. “Myriad multinationals have started voluntarily using it to show what their contribution is to society from a tax point of view, including BP, Allstate, Anglo American, Phillips and UBS.”
Auditing and assurance
Accountants and auditors can provide assurance based on the standards. “We advise a form of assurance, limited assurance, reasonable assurance on the report,” said van der Enden. “Many of these large organizations already have our reports being validated by external auditors.”
Auditing sustainability reporting on carbon emissions may be easier in some ways than auditing reports on social issues. “When it comes to carbon, CO2 emissions, greenhouse gases or water pollution, everything that has to do with reporting on that, everyone will understand that there is sufficient academic and scientific evidence and approaches to measure what output is in something that you can quantify in hard data, in numbers,” he said. “To audit something like that is easier than to try to audit something like human rights.”
However, some approaches may work in providing some measure of assurance. “It is possible to see whether or not child labor is used in palm oil fields,” he continued. “You can see whether or not the right to organize is lived up to. It’s not that difficult to measure whether or not there is equal pay and gender equality in organizations. It’s about internal processes, internal audit and then external auditors assessing by, for example, a systematic approach whether or not those policies have indeed been followed. Yes, it is possible. Is it new to many to start auditing something that is outside financial reporting only, outside the local statutory financial accounts? Yes, for many, it’s new. But will it happen and is it important? Yes, we see it already happening.”
He pointed out that his former firm, PwC, has already committed $12 billion to ESG, part of which will be used to find people with the right skills as accountants and advisors to assess sustainability. “Don’t forget that in the EU, under the Corporate Sustainability Reporting Directive, there will be mandatory limited assurance on those sustainability reports,” said van der Enden.
PwC recently expanded an alliance with the technology company Workiva to provide ESG reporting and strategy. “There’s a market need for high-quality comparable ESG data that can be used to inform decisions,” said Wes Bricker, vice chair and trust solutions co-leader at PwC US. “We see it bringing a market-led and tech-enabled solution to companies so that they can produce reliable consistent comparable reporting. Some of that they’ll do voluntarily through their sustainability reports and corporate websites. Some of that they’ll do as a matter of mandate in the U.S., in the U.K., in Europe, elsewhere around the world where they do business. They do that as part of reporting inside the organization as they make better decisions, but together PwC and Workiva are solving an issue that companies have which is how do they bring a wider set of information into their reporting and do that in a high-quality, decision-useful way. That’s where we see it going.”
Top 10 Firm BDO USA also has been expanding its ESG services, creating an ESG Center of Excellence and appointing partner and executive team member Christopher Tower as the firm’s first-ever ESG strategy and services leader. “ESG is both a business and climate imperative, and businesses that do it well are going to be rewarded with value creation, risk management, resilience and hopefully a healthier planet,” he said. “As a result we have really focused on ESG as a cultural and operational imperative. In order for us to follow our core purpose of helping people thrive, to do it successfully we really need to drive ESG deeply into our culture and our operations. By doing so, we create an environment that will help our people thrive and help our clients thrive.”
Companies in many cases will need to turn to auditors to help provide assurance on their ESG reports, but it will be a challenge, as companies in Europe will discover with the proposed Corporate Sustainability Reporting Directive.
“If you have the CSRD being applicable to roughly 50,000 European enterprises and they all need on the European standards a form of limited assurance on those reports, that is, of course, a daunting task for the audit firms to live up to in whatever form, and that will be something that will need to be studied more in detail,” said van der Enden. “Is it possible? Yes, it is possible. We live in a different world. We live in a world of digital transformation, of digital capabilities that we hadn’t even dreamt of three years ago. So through innovation, we will be able to do it. I think, frankly, with all the stories on greenwashing and so forth, we don’t have assurance on financial data for nothing.”
SEC disclosures
The Securities and Exchange Commission is also working on requiring disclosure of climate change risks after issuing a request for comments last year. GRI may see more demand for its standards in the U.S. as well, as the SEC climate disclosures will probably also revolve around the TCFD framework.
“Here in Europe, we are looking very closely at developments on the other side of the Atlantic, in the United States, and what the SEC will come up with on climate, which will also, I guess, be fully based on TCFD,” said van der Enden. “And then will there be more? Is the concept of sustainability reporting outside the financial mandate? There’s of course a lot of politics involved. But I constantly need to tell my European colleagues and the people I speak with in Brussels, it is not that there is a focus on financial materiality, that large U.S. businesses do not care about sustainability. On the contrary. We get most questions for support out of U.S. companies. They’re very positive about things we are doing because it provides a framework outside just financial.”
Meanwhile, van der Enden plans to continue to work with the IFRS Foundation as it forms the ISSB that it will oversee alongside the IASB.
“I'm really looking forward to cooperating with our colleagues of the ISSB and EFRAG, and of course, IASB, which is included in the ISSB, to bring this forward,” he said. “I can seriously not see that we move from an international corporate reporting landscape toward something different than these two pillars, since basically it would mean that all those more than 10,000 organizations that already voluntarily use GRI standards would then somehow stop using them. That makes no sense. It has been a proven concept. Organizations like to work with it.”
