Global Reporting Initiative (GRI) & Corporate Sustainability Reporting Directive (CSRD) gap analysis

The European Commission and its institutions are committed to tackling climate and environmental-related challenges and to transforming its economy and society towards a more sustainable model. It is the European Commission’s strategy to implement and integrate the UN Sustainable Development Goals (SDG) in its policymaking and actions. As part of this strategy the European Union introduced the Non-Financial Reporting Directive in 2014 and is rolling out the European Green Deal as of 2020.

The Non-Financial Reporting Directive 2014/95/EU which was transposed into Belgian legislation on September 3, 2017 requires Public Interest Entities (PIEs) of a certain size to disclose non-financial information in their annual report. This legislation, already in effect since financial year-end 2017, requires the corporates in scope to report the following information:

• A description of the undertaking’s business model
• A description of the policies pursued by the group in relation to those matters, including due diligence processes implemented
• The outcome of those policies
• The principal risks related to those matters linked to the group’s operations including, where relevant and proportionate, its business relationships, products or services that are likely to cause adverse impacts in those areas, and how the group manages those risks
• Non-financial key performance indicators relevant to the business

The Information mentioned above should be disclosed at a minimum on the following topics: Environmental matters, social and personnel matters, human rights matters and anti-corruption and bribery matters.

Additionally, the EU Directive and Belgian legislation require companies in scope to construct the reporting of this information on a national, EU-based or globally-recognized reporting framework. Both internationally as in Belgium, the most prominent and widely used reporting framework is the Global Reporting Initiative (GRI) and its Standards.

On 21 April, 2021, the European Commission issued their proposal for the new Corporate Sustainability Reporting Directive (CSRD), which should replace the current NFRD and follows on from the EU Green Deal. A revision to this proposal was issued on 18 February, 2022 and in June 2022, the European Council and European Parliament reached a provisional political agreement on the CSRD proposal. Initially, it was proposed that companies adopt the CSRD as of financial year 2023, but in the revised proposal, the effective date has been postponed. For PIEs in scope of the Non-Financial Reporting Directive (NFRD), the new requirements are to become effective as of financial year 2024. For large undertakings, other than PIEs, the CSRD is expected to be applicable as of financial year 2025.

Although still to be formally approved and adopted, the expected implications of this new Directive are already clearly indicated:

• We observe a large increase in the number of companies in scope of the new Directive, as not only PIEs will be subject to these new requirements, but also large undertakings that meet at least two out of the following three criteria: a balance sheet total of EUR 20 million; net revenue of EUR 40 million; and 250 employees. This will expand the scope of companies subject to this new Directive extensively compared to the current NFRD.
• The Commission proposed to add several new requirements for companies to report on. We see the introduction of the concept of double materiality – the application of both inside-out and outside-in views – which refers to the impact the company has on sustainability topics such as climate change (impact materiality), but also the impact climate change might have on the company’s business (financial materiality).
• Additional information and statements will need to be included, as well as the mandatory compliance of companies with the yet-to-be-issued EU Sustainability Reporting Standards. These reporting standards are currently being developed by EFRAG (European Financial Reporting Advisory Group). Meanwhile, EFRAG already issued exposure drafts of the general disclosure drafts, which are open for consultation and comments until the beginning of August 2022. The first set of final general standards are expected to be issued in October 2022. The second set of sector-specific standards are expected to be issued in October 2023.
• The reporting of companies will also need to be in line with the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation.
• One of the most important implications is the introduction of mandatory assurance on the company’s sustainability reporting. All companies in scope of the CSRD will need to obtain assurance on the information included in the management report. At first, this will be limited assurance, but there is a clear ambition to move towards reasonable assurance in the foreseeable future.
• Lastly, sustainability information will need to be included in the management report. Digital tags should be added and the report is to be submitted in the European Single Electronic Format (ESEF), so the company’s reporting will become machine-readable.

KPMG has conducted various international and national studies and surveys on non-financial and Sustainability reporting^[1]. This enables KPMG to benchmark the company’s reporting to national and international peers, Belgian and International averages, as well as sustainability reporting leaders. This provides companies with insightful information on where it stands and how to move forward.