The Global
Reporting Initiative published their G4 Guidelines in May 2013, but at the same
time announced that G3/G3.1 reports and the application level check services
would be accepted until the end of 2015. In consequence, companies that want to
continue reporting based on the requirements of the GRI Guidelines have time
until 2016 to declare either core or comprehensive ‚in accordance’ with the G4
Guidelines. Does this indicate that companies would have ample time to
transition towards G4 and more than 2 years still to go with G3/G3.1?
In our view
this is a dangerous perception, both based on the different – and sharpened -
requirements G4 poses and a critical reflection of the time needed to build the
necessary understanding, internal buy-in and systems readiness to be able to
comply. Also, an incorrect application of G4 makes that your report becomes too
broad, too thick and lacks in relevancy. Here’s a variety of 10 reasons why we
think there is no time to waste – working on the transition needs to start now!
1.
Understanding materiality is
crucial. A company’s
impact, related boundaries and focus on materiality are much more strongly
emphasized in G4, some of them described in more depth below, but the
consequences of that push by GRI go much deeper. While GRI G4 is out now and
the requirements become slowly clearer (G4 is nicely designed, but still no
easy read), companies need to ‚delearn’ G3/G3.1 first. Ignoring
materiality could quite easily lead to an irrelevant and a report which is too
broad. The flexibility of interpreting and reporting on certain indicators, the
lax regime on the use of omissions, the 3 applications levels, and the
comfortable, reductionistic and legalistic boundary setting, these days are
gone.
2.
Sustainability needs to be part
of your strategy. In order to better understand a company’s impact(s) – which in
consequence will help to define boundary setting and material aspects for
reporting– there needs to be a willingness of top management to look at
sustainability in a more strategic way. For existing businesses we know that
this can be a layered, multi-year process, and is demanding a personal openness
of top managers and a willingness of letting go of certain mental stereotypes.
Some of them are
a.
Short-termism driving hectic actionism for quick successes;
b.
Sustainability as merely risk management, thereby ignoring the
fact that sustainability can be positioned as a means to distinguish yourselve
from competitors;
c.
the avoidance of mid- to long-term (SMART) target setting
including a clear positioning of the legacy and right to exist (today and in
the future);
d.
data and performance become a goal in itself. The lack of the
ability to accept that relationships will drive success and not over-ambitious
targets that lead to customer dissatisfaction, stressed-out employees, and – in
the worst case – neglect of aspects like human rights, environmental
protection, and anti-corruption.
3.
You need to analyse and
understand your impacts. While top-management commitment is necessary and needs to go
further than just words, the ability to understanding a company’s impact needs
to include various actions, amongst them
a.
understanding impact based on root causes, including environmental
degradation, demographic effects, technological changes, world trade
developments, urbanization and transparancy development and how the company is
affected by this nexus as well as how the company itself affects others and
these root causes. Many sustainability strategy development projects visibly
have not gone through this important step, e.g. a simple ‚reduction of CO2
emissions’ target without a program of how to tackle different route causes
will remain on the symptoms level and risks any effectiveness, and more
dangerously could lead to wrong decisions, think of simple outsourcing of
effects into the supply chain and where effects can even be worsened.
b.
the willingness to work on various scenarios that can describe a
company’s reaction to the effects identified and where they occur in the value
cycle (that in contrast to the value chain which is a concept based on a
throughput economy). This includes an active exchange or even shared work with
partners up and down the value cycle.
c.
The willingness to gather data about impacts and therefore prepare
a readiness to discuss with stakeholders from an informed perspective.
4.
The number of disclosures have
been expanded. While the abovementioned steps are in our view necessary actions
to define a sustainability strategy, GRI G4 is urging to also make early
decisions about the ‚in accordance’ level. While both levels – core and
comprehensive – put a materiality focus on top, there is a huge difference in
disclosures. If a reporter is aiming for comprehensive reporting, the level of
information that needs to be ready is considerably higher and should be
reported for multiple years. Examples are disclosures on governance and remuneration,
supply chain, anti-corruption, GHG emissions as well as ethics & integrity.
It is therefore necessary to prepare the necessary data spectrum early on and
define necessary ‚owners’, both with regard to responsibility as well as for
the disclosures.
5.
Boundary setting has been
changed. The G4
Guidelines have also changed the approach to boundary setting. While G3/G3.1
still allows a rather legalistic-reductionist approach based on ownership
structures, G4 now asks for the definition of boundaries based on the
underlying impacts. This is the reaction to the neglection of impacts down the
supply chain – most companies never got beyond a policy level in their
interaction with suppliers in the quest of reduced impact – and is now a major
challenge internally in terms of data availability and enforcement of targets
and policies.
6.
The stakeholder dialogue becomes
more important. It is to be expected that the stakeholder dialogue process will
see a change in depth and quality due to the new requirements of G4. Not only
does the reporter have to clarify how the involvement of stakeholders was
organized, but also how the dialogue has lead to the selection of material
aspects. Obviously the company needs to be well prepared for this dialogue. It
is recommended to use the sustainability context insight derived from a
thorough impact-based assessment as a necessary precondition to have an
informed and effective dialogue about the material aspects. This means that a
proper stakeholder dialogue is less of a simple ‚negotiation’ between the
company and its stakeholders, but a shared and joint point of view and
therefore less confrontative, but more collaborative.
7.
Understanding the sustainability
context is essential. Meaningful reporting demands a clear view in how far a company
contributes – positively and/or negatively – to the most urging problem areas
on this planet (or aspects in the language if GRI G4). The G 4 guidelines
demand certain disclosures, but many of them simply describe efficiency increases
(in relation to earlier reporting periods), relative changes or compliance and
quality in following a certain due dilligence (audits done, shortcomings
recorded, mitigation measures taken). Overall, many of the indicators do not
give the reader the impression that what a company has done is at least ‚good
enough’ in the light of the global urgencies. This shortcoming in G4 (which
also existed in G3 already) has been called the ‚sustainability context gap’
and refers to the requirements of the sustainability context principles in G4.
Every company needs to have a good view on their micro-performance against a
macro dataset (e.g. the ecological footprint, data from TEEB, etc.). This
enables companies in setting focused strategies, it makes communication about
real impact possible and facilitates readers in reviewing and understanding the
actual performance.
8.
There will be less room for
omissions. Another
point to start working on the transition to G4 now, is the use of omissions as
common in the GRI 3/3.1 Guidelines. GRI G4 has put a halt on the use of number
of omissions as well as not allowing any omission without proper reasoning. With
just 4 specific ones that are allowed (indicator not applicable and why,
confidentiality constraints, legal prohibitions, and unavailability of data
with a reference until when the company expects to have the data available).
The use of a larger number of omissions may lead to a ‚invalidation’ of the
claim for core or comprehensive in accordance reporting. It is not yet clear
what process the GRI will adopt in the light of the new regime, but it is to be
expected that companies claiming a certain level will at least need to notify
GRI about it.
9.
Sector specific information is
integrated in the reporting requirements. Sector supplements will be become
an integral part of the reporting requirements both for core and comprehensive
in accordance with GRI G4. This means that a reporting approach needs to take
that fact into account from the start of the reporting process design. The
luxury to just use feasible sector supplement indicators to obtain the highest
grading (A/A+ in GRI 3/G3.1) will disappear.
10.
There are more frameworks,
ratings and guidelines evolving. Additional frameworks like IIRC’s Framwork
for Integrated Reporting, sector specifications as proposed by SASB (the
Sustainable Accounting Standards Board) and GISR (Global Initiative of
Sustainability Ratings) and the consequences of their focus, logic, requirements
and information enlarge the plethora of
reporting requirements. IIRC’s capital model, SASB’s industry-specific
indicators, and at a later stage the recommendations by GISR on how to
safeguard quality in ratings are maturing and will become evident in the coming
two years (well within the timeline until GRI G4 will require in accordance
statement by reporters). Together with
all abovementioned reasons we think there is no time to waste to start using
the combined set of requirements for the design of a continuously improving
reporting regime.
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Authors:
Ralph Thurm is the Founder & Managing Director of A|HEAD|ahead, Nick de
Ruiter is partner at Sustainalize.
