In recent years, the global landscape of sustainable development standards has undergone significant changes, particularly with the introduction of the European Union's Corporate Sustainability Reporting Directive (CSRD). Accompanying this directive is the European Sustainability Reporting Standards (ESRS), which impose unprecedentedly stringent requirements on businesses operating within or exporting to the EU market.
The emergence of ESRS has raised significant questions for the Vietnamese business community – those that have been familiar with the Global Reporting Initiative (GRI) standard for many years. Are these two standards contradictory? Do businesses reporting under GRI need to revise their reporting to meet ESRS requirements? What is the difference between "Impact Materiality" and "Double Materiality"? Let's explore the answers and detailed analysis of the relationship between GRI and ESRS in the article below!
General definition of GRI and ESRS
To understand the differences, we first need to pinpoint the exact position and origin of these two sets of standards:
- GRI (Global Reporting Initiative): This is the most widely used voluntary sustainability reporting standard globally today. GRI is designed for all organizations, regardless of size or sector, focusing on disclosing the impact of a business on the world around it.
- ESRS (European Sustainability Reporting Standards): This is a set of mandatory sustainability reporting standards in Europe, developed by EFRAG (European Financial Reporting Advisory Group). ESRS was created to specify the CSRD (Corporate Sustainability Reporting Directive), and applies to businesses operating in the EU or with significant revenue from this market.
The key difference: Impact Materiality vs. Double Materiality
The biggest technical difference between GRI and ESRS lies in their approach to "Materiality." This is key to determining what a business needs to report.
GRI: Significant Impact
GRI takes an "inside-out" approach. That is, this standard is concerned with how a company's activities affect (positively or negatively) the environment, society, and the economy.
For example: A factory discharges waste that pollutes local water sources -> This is a critical issue according to GRI because it affects the community.
ESRS: Double Critical
ESRS places higher demands on the two-way approach, also known as double materiality. This includes:
- Key Impact: How Do Businesses Affect the World?
- Financial significance: How do environmental/social issues negatively impact a company's financial situation?
For example: Climate change causes flooding that inundates factories, leading to production disruptions and revenue losses -> This is a critical financial issue.
Therefore, when preparing reports according to ESRS, businesses are required to assess both the financial risks and opportunities related to sustainability, something that the current version of GRI has not yet prioritized.
Detailed comparison table between GRI and ESRS
To help businesses easily visualize the differences, GREEN IN has compiled a comparison table of the key features of these two sets of standards:
GRI standards | ESRS Standard | |
Scope of application | Global. Internationally recognized in every country. | Europe (EU). Applicable to EU businesses and foreign businesses with significant operations in the EU. |
Legal | Voluntary. Businesses voluntarily implement these measures to enhance their reputation. | Mandatory. Enshrined in law by the CSRD Directive. Non-compliance will result in penalties. |
Key approach | Key impacts (Focus on external effects). | Double materiality (Including both impact and financial risk). |
Target audience for the report | Diverse stakeholders (Community, NGOs, Customers, Employees...). | Prioritize investors and regulatory agencies, in addition to other stakeholders. |
Structure | GRI 1, 2, 3 (General) + Subject-specific standards (GRI 200, 300, 400). | ESRS 1, 2 (General) + Subject Standards (E - Environment, S - Social, G - Governance). |
Interoperability: Good news for businesses.
Given the complexity of ESRS, many businesses worry that they will have to "double-report" or rebuild their data systems from scratch. However, the good news is that GRI and EFRAG (the organization that developed ESRS) have signed a cooperation agreement to ensure the highest level of compatibility between the two standards.
Specifically, the degree of similarity is demonstrated through the following points:
- Unified definition: The definitions of impact and the process for determining materiality in ESRS are built upon the solid foundation of GRI.
- No conflict: A business reporting its environmental and social impacts under ESRS will be considered to be complying with the corresponding GRI requirements.
- Data inheritance: If your business already has a good reporting history according to GRI, you have largely fulfilled the "Impact Materiality" requirement in ESRS. The main additional work needed is to supplement the assessment of financial risks and opportunities (Financial Materiality).
Which standard should Vietnamese businesses choose?
In Vietnam, most businesses are not currently directly subject to the European Union's sustainability reporting regulations, with the exception of a few businesses with large-scale operations or branches in the EU. However, compliance pressure comes not only from the law but also strongly from the global supply chain. Partners and customers in Europe are increasingly requiring Vietnamese businesses to provide ESG data to fulfill their reporting and auditing obligations.
Based on this, businesses can consider choosing reporting standards that suit their position and operational direction as follows:
1. For businesses engaged in domestic production, trade, or regular export.
- Option: Start or continue implementing GRI-based reporting.
- Reason: GRI is a globally recognized sustainability reporting standard that is widely accepted and relatively accessible. It is widely accepted by international investors and partners in many markets such as the US, Japan, and South Korea. Implementing GRI systematically helps businesses build a foundation of ESG data, creating a basis for upgrading and expanding to higher standards in the future.
See more:
2. For businesses exporting directly to the European market.
(especially in the textile, footwear, agricultural, and food processing industries…)
- Option: Use GRI as a foundation, and also learn more about ESRS.
- Reason: Businesses exporting to the EU are increasingly required to answer ESG due diligence questionnaires from European customers. Therefore, in addition to meeting GRI disclosure requirements, businesses need to prepare data using a risk- and financial impact approach – the focus of ESRS. Gradually integrating content such as climate risks, supply chain disruptions, and raw material cost volatility into existing reports will help businesses improve their readiness and enhance their credibility in relationships with EU partners.
This article has helped you understand the differences between GRI and ESRS, as well as the reciprocal relationship between these two standards in the context of international integration. We hope that this information will be somewhat helpful in guiding you towards a suitable sustainable reporting roadmap. Don't forget to follow our next articles at GREEN IN for more updated information!