Incoming GRI chair ‘strongly urges’ Australia to choose EU standards over ISSB

Carol Adams, the newly appointed chair of the GRI standards governance body, has suggested that Australia should model its future climate reporting regime on EU rules rather than the International Sustainability Standards Board (ISSB) global standards.

The GRI signed an agreement to coordinate standard-setting activities with the ISSB a year ago but is more closely identified with the European Sustainability Reporting Standards (ESRS), which will underpin the bloc’s new corporate disclosure regime.

Despite similar aims, there are concerns that the diverging approaches of the two initiatives – the risk-based ISSB standards focus narrowly on enterprise value, while the ESRS pursues a broader “double materiality” approach – will entrench fragmentation of reporting standards.

Unlike the enterprise value approach to sustainability, which considers financial risks and opportunities in isolation, double materiality accounts for the additional impact of companies on the environment and society.

The feedback was submitted in response to an Australian government consultation on the design of an internationally aligned climate disclosure framework. It was signed by Carol Adams, who will begin her term as GRI chair in April, and three accountancy academics from Australia’s Swinbourne University.

“We strongly urge that climate reporting requirements in Australia should not be limited to the global baseline envisaged by the ISSB for three reasons,” said the signatories, according to a document published by Adams yesterday.

The first reason given was that users of sustainability disclosures extend beyond just providers of financial capital and will impact society at large.

The signatories also noted that research shows investors disagree with the statement that sustainability reporting should account only for financially material sustainability issues.

Finally, they argued that the popularity of socially responsible investing means that double materiality information has grown increasingly relevant for financial institution decision-making.

“We suggest the use of the ESRS, which is to be issued by the European Financial Reporting Advisory Group, but is currently in draft form,” they said. “Although not perfect, due to its alignment with the GRI standards the ESRS come close to adopting a concept of materiality based on accountability to financial and non-financial capitals that affect and are affected by organisations.”

The group separately recommended leveraging digital technologies to address ESG data gaps. These include using artificial intelligence tools such as machine learning, artificial neural networks and natural language processing tools to forecast impacts on organisations, as well as the organisational impact on the environment and society, under different climate scenarios.

Companies could also use blockchain tech to aggregate emissions across their value chain, they added.

The consultation was concluded in February. Stakeholder feedback will inform the design of a preliminary reporting framework, which will be released for public comment later this year.