There has been much noise about GRI G4, some of it helpful, some of it not. Here is our take on what you really need to know.
A sustainability report should be a powerful strategic tool – helping a company to articulate its vision, targets and achievements, refocus its efforts and activities and engage the right stakeholders in the process.
However, with the rapidly changing nature of reporting and particularly expectations around disclosure of CSR and sustainability information, reporters are facing an increasingly difficult task. For some, the strategic value of reporting is now being undermined by the time and resources required to gather data and prepare the documents.
To add to these concerns, integrated reporting is looming ever larger on the horizon, as are changes to the Global Reporting Initiative (GRI) framework and the move to G4. GRI has set some ambitious objectives for G4 including harmonisation with other reporting standards and guidance on how to link the process of sustainability reporting to the preparation of an integrated report.
The Five Essentials
What’s changing with GRI and G4, and what preparations should you be making? We’ve identified five key changes you should consider before G4 appears in its final form in 2013.
1. Goodbye application levels
Current application levels (A, B and C) will probably be discontinued in the G4 Guidelines, and replaced with ‘in accordance’ criteria.
Levels are often wrongly associated with a company’s sustainability performance – rather than the quality of its disclosure. The new proposal is based on ‘in accordance’ criteria meaning that all reporters are required to: a) report on all general disclosure items; and b) report on management approach and indicators related to the aspects selected as material aspects for the organisation’s value chain.
Extensive Profile Disclosure and greater detail about materiality will be required, with a limited amount of time to prepare. While we believe this approach will allow greater control over what you report, G4 proposes a much larger number of profile disclosures, which include supply chain, and extensive governance and remuneration.
‘In accordance’ criteria are yet to be defined but as it stands at the moment, there is a long list of requirements to cover, making the new approach challenging for many companies.
2. Hello value chain
When defining the boundary of your report, you should now consider not only your direct activities but also your impacts throughout the entire value chain.
The overall focus of G4 is materiality and allowing companies to report only on what matters most to them. So being clear on the most material issues and being able to demonstrate their importance internally by setting the right management approaches and indicators is central to the new approach.
Prepare to map the entire value chain. Conducting a value-chain materiality assessment to understand where your biggest impacts occur, regardless of whether those impacts are within your direct control, will be one of the greatest benefits and potential difficulties for companies. If your company has yet to understand the impact of your value chain you should consider how you can build this into your strategy and the impact it will have on your disclosure in GRI. Though it’s a new challenge for some, we believe this new requirement will be a step forward in helping companies understand the bigger picture of sustainability performance across all their activities.
3. Under new management
G4 proposes one general format to disclose DMA (Disclosure on Management Approach) information at any Category, Aspect or even Indicator level. There are currently 44 Aspects proposed for G4 including Procurement Practices in the Economic Category, Equal Remuneration for Women and Men in the Labour Category, and two Aspects: Screening and Assessment, and Remediation, in four Categories (Environment, Labour, Human Rights and Society).
By introducing new DMA requirements, GRI is hoping to respond to the feedback received from stakeholders about the lack of guidance in reporting Management Approaches. G4 introduces greater detail with a clearly structured set of issues to report on under each DMA Category.
DMA is now a minimum requirement for reporting ‘in-accordance’ with the GRI and will require a significant amount of information. This should bring a welcome reduction in the generic language companies often use in reporting their management approaches and encourage provision of more focused information. There are also risks: the focus on material issues will mean some impact areas we’re used to seeing in reports may appear to be missing, potentially leading to stakeholder concerns. Generally, we believe it will be a good discipline for companies to start defining management approaches for material issues, which will then help them define the right actions.
4. Stricter governance and remuneration disclosure
G4 beefs up disclosure requirements around governance and remuneration, with new indicators proposed on the ratio of executive compensation to median compensation, the ratio of executive compensation to lowest compensation and the ratio of executive compensation increase to median compensation. The number of indicators is rising by 17 in G3 to 41 in G4, all of which will be mandatory as they fall under the Profile section.
To put sustainability higher on the Board’s agenda and to ensure a better link between sustainability and remuneration.
The mandatory reporting requirements in this section are increasing significantly and some companies may find it difficult, perhaps impossible, to cover all the indicators. GRI’s greater focus on accountability and responsibility could be a useful wake-up call for Boards of Directors. However, it remains to be seen whether demanding such a high level of detail will help embed sustainability into businesses.
5. New approach to suppliers
G4 brings in new and amended expectations of disclosure about supply chain impacts. There’s a new definition is of supply chain and supplier and new disclosures including procurement practice, screening, assessment and remediation.
Many companies’ greatest value chain impacts are in the supply chain. By encouraging them to explore and report more detail about suppliers, G4 aims to improve their performance.
As noted, G4 aims to focus companies’ efforts on what really matters, and the push on review and assessment of supply chain practices should mean companies get better at anticipating impacts and responding in this crucial area of performance. Again, the newly-proposed requirements demand a level of detail that companies may find difficult to achieve.
Other minor and technical changes in discussion
- Integrated reporting: GRI G4 promises guidance on how to link the sustainability reporting process to integrated reporting.
- Reporting principles: minor changes to the text of all Principles will be made.
- Format: a new web-based format for the G4 Guidelines is expected.
- GRI G3.1: already includes expanded guidance for reporting on human rights, local community impacts, and gender â€“ seen as a stepping stone to G4.
- Sector Supplements: when G4 is launched, the Sector Supplements will be re-launched in the new format (but no proposed change to the content).
- Transition period: a transition period is yet to be defined. Historically it has been 2 years.
What will the changes really mean for companies?
With G4 fast approaching, it’s a good opportunity for companies to rethink reporting processes. While G4 has the potential to help integrate sustainability into businesses in the long-term, it may also present significant challenges for many when it comes to meeting its new expectations in the coming months.
Communicating gri – online innovations
With G4 looking ahead into a possible online format for the Guidelines, it is worth exploring the opportunities the web presents. Increasingly we’re seeing more interesting ways companies are adopting to communicate GRI information online and furthermore the growing use of digital tools to aid the collation and presentation of GRI content. There are options to customise companies’ existing website content management systems (CMS) to add a field where administrators can include details of the relevant GRI indicator which is recorded within the website database. This gives the opportunity simply to link from the GRI index directly to content within the report that relates to that indicator. This interactive and dynamic approach is very useful for site visitors, allowing them to understand better how GRI is embedded in the report.
For those companies that have started to integrate sustainability into business strategy and have built solid information- gathering and management processes, the changes should help them further focus their efforts and put them on the road to integrated reporting. For others that are less advanced or that have less resources to direct at reporting, the new Guidelines may appear too challenging and they may decide to stop using them. For those companies at the very beginning of their GRI journey or are now considering it, the mountain may just seem to big and increasingly difficult to climb so they will look for alternatives or simply continue to do what they think is best for their business and stakeholders.
In light of this it is worth remembering that the Guidelines are not simply a reporting standard to follow blindly. The Guidelines provide a great source of ideas that can help in developing and evolving your approach to sustainability and its reporting, but this should not limit a company’s aspirations to think differently, innovate and create new solutions. It is also worth considering that as the complexity of GRI and the resources required to meet the criteria both increase, reporting will have to work much harder as part of a joined-up communication strategy to deliver a decent return on this investment.
The risk is that G4 pushes companies to even greater expense and internal investment around reporting, without prompting any useful innovation. Avoiding that pitfall is now the big challenge facing reporters. Surviving and thriving in the G4 era may mean accepting that the huge, monolithic sustainability reports of the last few years may soon become a thing of the past as companies look to meet stakeholders’ information needs with more diverse communications.
So what do you think?
Join our discussion http://www. salterbaxter.com/blog/ to share with us your thoughts, opinions and comments.