GRI G4: A Gateway to Meaningful Sustainability Reporting?
On May 22nd, GRI published the fourth generation of GRI Guidelines at a major conference in Amsterdam. But has GRI’s multi-stakeholder process delivered what is appropriate given the global multi-faceted sustainability nexus of global challenges? Or is G4 a compromise to what is currently possible to attract many more thousands of companies to sustainability reporting?
This at a time when new players like the International Integrated Reporting Committee [IIRC], the Sustainability Accounting Standards Board [SASB] and Global Initiative for Sustainability Reporting [GISR] are hitting the stage and creating some confusion with reporters about the relative importance of the pieces in this new plethora of tools?
G4: The Promise vs. Implementation
One has to read G4 very carefully to conclude that it can indeed – theoretically – deliver more meaningful reports through several changes made in the focus, structure, language and clarity of the guidelines. The crux really will be, if G4 is applied accordingly, accepting the very positive ambition of the authors, confirmed by the GRI governance bodies and several thousands of people that were involved through the working groups and feedback processes. Or will G4 be abused by a rather lax and unaccounted watering down of the reporting process? Only experienced, industry-specialized raters, rankers and alert stakeholders will be able to tell. Critical watchdogs like SOMO that looked at the application of the A, B, C system in G3/G3.1 and who complained about the lagging and unspecified indicator coverage in certain sectors and reporting areas have given us a taste of what is needed in the future on a much broader scale. To understand G4, we first need to de-learn G3.
Unlearning the G3
Forget about application levels and the extra plus for assurance, no matter if one indicator, incremental or reasonable assurance processes were applied. Forget about the GRI application level checks. G4 asks for self-assessments, supported by a flexible, but transparent application of external assurance. Forget about core and additional indicators. And forget about leaning back and ignoring your supply chain impacts because G3 allowed you to just report on those parts of your supply chain where you had a majority share in. And finally forget about too much flexibility to interpret an indicator much differently than literally defined in G3. All this now finds a place in the historical archive of GRI. Materiality was the magic word that you couldn’t escape from at the G4 launch conference. Reports should be as meaningful as possible while as concise as needed. GRI’s G4 development process mostly focused on a much better description of the reporting process to come to that specific selection. A much better description of the application of the four report content principles was needed, and one in which boundaries become functions of impact.
Abstracts: Pushing for Transparency + Sustainability Context
In consequence, the reporting boundaries can now vary per aspect and are no longer abstract legal constructs. GRI is now asking for much more transparency about this process and its outcomes, which helps to understand some of the context in which those crucial decisions have been made. A legal counselor can’t be the restrictive entity to define any more what needs to go into a report and what not; of course aspects of liability, litigation and reputation are sometimes tricky, but there is a common sense behind this whole exercise of transparency – to avoid those questions from the very beginning! Additionally, G4 puts much more focus on the reporter’s impact in the supply chain. Visibly, supply chain cuts through all three dimensions – economic, environmental and social – of the G4 Guidelines, through indicators around supplier assessments, the results and consequences of these assessments and grievance mechanisms in case of dispute. This is clearly a big step forward towards meaningful reporting. Together with the right application of the reporting principles and the boundary setting, the spectrum of reporting elements, while focused on the most material aspects, is enlarging. Aspect-specific boundaries will tell us much more about where a company thinks its responsibility starts and ends. Sustainability context, the most neglected of the four report content principles, can support a proper first step. Again, it needs to be applied correctly to bear the fruits of the more rigorous process.
Forgiving Material Omissions
G4 comes with a new system on how to be in accordance with the Guidelines, namely ‘core’ and ‘comprehensive’. While Elaine Cohen and Monaem Ben Lellahom elaborated on how these will work earlier this month on Talkback, taking into account that most indicators ask for multiple data points or qualitative descriptions, an experienced reporter that has data accuracy guaranteed will still feel challenged. I doubt that we will see many comprehensive reports in the first one or two years, even though the known holding message called ‘omission’ is still allowed for comprehensive reporters. It will be a fine line for the ambitious reporters to assess how much omission is acceptable for stakeholders before committing to become ‘comprehensive.’ There is a danger that using too many omissions in material aspects will backfire. Core reports are not allowed to use omissions due to the fewer number of indicators demanded. In that regard, the GRI also allows the use of the G3/G3.1 Guidelines for another two full reporting cycles, so the pressure to switch is rather low anyway. Finally, assurance: the ‘in accordance’ context index is now asking for assurance evidence per indicator and for all standard disclosures. It will be quick and easy to see what has been assured and what not. Also, G4 asks for page references for the External Assurance Statement, so the level of assurance – limited or reasonable – will become more transparent making it difficult for a comprehensive reporter to present a patchwork without a proper opinion about where to go with assurance in the future. So those are the main highlights of GRI’s G4.
License to Operate: Promises, Promises
The texts in both parts of G4 try to help the reader better understand the link to existing other global standards (OECD, UN GC, ILO). Still little is said about the link to integrated reporting, and nothing yet on the new players [CDP, SASB or GISR], but that’s understandable given either their regional focus or limited time of existence. Although MoUs now exist between GRI and many of the other players in this reporting landscape, there are still many open questions, mainly about synchronization, timing, responsibilities and overlap. How much that will lead to a vacuum in companies to find the right application opens new potential for the wrong application of G4. As I said earlier, it will need very experienced groups of reporting experts to offer a third-party review beyond the black boxes of rankings and ratings and single-focus advocacy of labor, human rights, anti-corruption or environmental groups. These groups will also need to push for further improvements of the reporting standards, since the biggest challenge in reporting remains unaddressed even now: making reporting fit to address the real sustainability context challenges through indicators that combine micro-performance with macro challenges. While the report content principle on sustainability context rightly addresses the need to create those micro-macro links in G4, the indicator section in GRI G4 hasn’t closed that gap. In sum, while G4 is a step in the right direction, it needs to develop further, either standalone or within the closer context of integrated reporting. Now everything depends on the correct use of G4 and the ability to make reporting ready for the real purpose: why has a company the right to exist in a green and inclusive economy?