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The Global Reporting Initiative (GRI) issues new guidelines – what will these mean for business?

23 July 2013

by James Margolis

GRI - the story so far
Since the Global Reporting Initiative (GRI), a non-profit organization that provides a comprehensive sustainability reporting framework, introduced its ‘G3’ guidelines for sustainability reporting in 2006 there has been a significant increase in sustainability reporting. Over 6000 companies globally now produce GRI reports, part of an increasing trend which looks set to continue despite a challenging economic climate. GRI has helped to ensure that stakeholders get useful information for assessing both the sustainability and also the wider operational performance of an organisation.

Needless to say, both existing reporters and aspirants are pondering over the implications of the new ‘G4’ Sustainability Reporting Guidelines which were launched recently at GRI’s Annual Global Conference in Amsterdam. How will the new guidelines impact the substance of a sustainability report? How will they impact the value of the sustainability reporting process for those organizations producing reports? How will G4 reports be received by stakeholders? Will G4 drive more organizations to use the GRI guidelines? These are just some of the questions which ERM will be addressing with clients and the wider business community over the coming months. 

What has changed with G4?
The G4 guidance introduces a number of important changes designed to simplify the reporting process and make GRI sustainability reports more relevant and informative for all concerned. Arguably top of the list is a more intensified focus on materiality (see separate heading below). This requires G4 reporters to specifically address their material sustainability issues rather than reporting a set number of indicators which were a requirement under G3.

Alongside materiality is the introduction of a simplified choice between “Core” (less extensive) or “Comprehensive” (more extensive) reporting. Out go the more complex A, B, C classifications of G3 and in comes what GRI hopes will be two clear and meaningful options, both of which require a focus on the indicators that matter for a particular organisation.

Also new is an expansion of the reporting boundary. Reporters are being encouraged to think outside their fenceline – both upstream in the supply chain and downstream through customer use. This means that instead of having the same boundary for all content included in a report, a company may report a different boundary for different issues. For example, child labor could only be reported on from the perspective of the supply chain or specific buying categories or geographies in the supply chain, while greenhouse gas emissions could be reported on from the perspective of the company-owned fleet or the downstream impacts associated with product use. New supply chain disclosures have also been added to the human rights, labor practices, environmental and societal indicator categories.

Governance and ethics are also singled out for G4 attention. Comprehensive reporters, for example, are asked to report on how sustainability issues are being managed by the Board along with new indicators for remuneration ratios. While these are seen as positive developments by certain stakeholders, reporting on compensation practices will be a concern for many companies.

Another key change is the elimination of the ‘plus’ (+), which previously indicated that the report had received some level of third-party assurance. In its place, reporters are required to specify which individual disclosures are subject to external assurance in the GRI index. This provides significantly more clarity around a sometimes-abused aspect of the GRI guidelines.

It’s all about materiality
Aside from reporting on the general standard disclosures, companies will only need to focus their topic specific reporting on the issues identified through a materiality assessment process. This process narrows the universe of issues that a company reports on to those most critical to both the company and its stakeholders. The big change in materiality is the new consideration of the boundary when determining material issues. This means that companies must not only consider what, but where an issue is relevant across the organization and its value chain (which sites, subsidiaries, countries, suppliers, products, etc.). 

A big potential plus with the increased importance and approach to determining materiality is a more targeted and meaningful identification of relevant issues and an end to the frustration which can occur when head office asks for a mass of data not considered important in the business. The downside is that stakeholders may find it more difficult to compare performance among peer companies. Inevitably, similar issues will likely emerge, but it is likely that organizations will set different boundaries for their material issues or may identify different issues entirely as reporting priorities. One potential concern around materiality is that companies become too selective, screening out issues that they should be reporting. Deciding on a realistic list of material issues will be the critical element of the G4 reporting process.

Where is assurance heading?
While the external assurance of G4 reports isn’t mandatory, it is recommended. What we are likely to see is an increasing link between assurance and materiality. Thus if water, greenhouse gas emissions and supply chain in a particular region are the top material issues, then this is where you might consider seeking third party assurance. And with the improved disclosure around assurance in the GRI index described above, companies will be more thoughtful about what they assure and who they use to provide assurance.

At the recent global GRI conference in Amsterdam, there was much concern raised about the domain expertise of assurers and range of assurance practices used. As the sustainability assurance field matures, the value from assurance will grow. While assurance is no substitute for good management or reporting practice, it can certainly help both to hone the materiality process, improve data quality and drive overall sustainability performance. 

Integrated confusion?
Integrated reporting was undoubtedly a hot topic at the Amsterdam G4 launch – albeit a confusing one for many. If integration (or more integration) is the Holy Grail for reporters what does this mean in practice? For the vast majority, integration up until now has meant a “one cover” approach, meaning a short sustainability report simply gets sandwiched in with the financial report. G4 can serve as the foundation for identifying which non-financial metrics should be integrated into an organisation’s mainstream financial report to demonstrate value for the investor audience. Alongside this increasingly integrated approach to annual financial reporting, there will continue to be a need for more detailed and expansive information on a broader range of sustainability issues – across a variety of media - which is aimed at a wider stakeholder community. The challenge for organisations is to understand their stakeholders and what they are interested in – and then to ensure that information is publicly available in an accessible form.

Where to next?
G4 has implications for both aspiring and existing GRI reporters. The former group need to carefully consider what is involved, how long they need to prepare and, if they decide to go ahead, when it would be appropriate to start the G4 reporting cycle. Existing reporters can take two reporting cycles before implementing the G4 guidelines. In this interim period, they should look particularly at how they deal with an issue like materiality and its impact on the tone and substance of their sustainability reports. However, we predict that most existing GRI reporters will want to move to G4 quickly, embracing the new focus on materiality and with it a more selective, business-focused approach to assurance. 

Post Amsterdam, all the indications are that the new G4 guidelines will make an important contribution to the maturing field of sustainability reporting. Growing numbers of multinational companies want (and need) to provide investors and other stakeholders with a more rounded perspective on their business and GRI is part of that process. The “core” reporting option will enable the GRI reporting community to continue to grow and the focus on materiality and the full value chain should result in more meaningful reports.

Whatever the pace of change, the G4 upshot, it is hoped, will be further improvements in the quality and relevance of sustainability reporting for all concerned.

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