More than 1,000 corporate responsibility professionals gathered in Amsterdam in October for the launch of the latest Global Reporting Initiative guidelines on sustainability reporting.
The sheer number of attendees demonstrates how far GRI has come since its foundation nine years ago. It is yet more evidence of the dramatically rising demand for information on corporate social and environmental performance.
Four times as many companies contributed to the formation of the grand-sounding “G3” guidelines than did to their predecessor, the G2 – almost 800 companies compared with 200 in 2002. The multi-stakeholder process that led to the new guidelines received 4,000 submissions.
This time, voices from the financial markets – including representatives of FTSE, Goldman Sachs and UBS – played an influential role in developing the guidelines.
This willingness and interest from investors to be involved was absent four years ago, observes Ernst Ligteringen, GRI chief executive. And their demands are reflected in the new guidelines, he says.
Satisfying investors
Two changes to the GRI guidelines are particularly relevant to investors.
First, a strategy and analysis section at the beginning of reports will encourage companies to explain what they see as their main sustainability challenges and opportunities.
Second, for each set of indicators – economic, social and environmental – companies are invited to disclose their management approaches, outlining policies and the laws and standards they observe.
Both additions will help investors create risk profiles for companies reporting on the guidelines. Putting policies and codes into these sections also means indicators can focus on results, says Ligteringen. A criticism of the old guidelines was that their indicators covered both results and commitments, rather than focusing on performance.
To further clarify the meaning of indicators, each is backed up by technical protocol, explaining how the indicator is calculated.
“We have certainly tried to increase user-friendliness, because the guidelines were seen as complex,” says Ligteringen. Fewer indicators will make the guidelines simpler. In the latest version, the number of indicators has fallen from 97 to 79.
Apply yourselves
Another key change to the guidelines is the introduction of a third tier of compliance with the GRI framework. The two-tier system of reporting “in accordance with” or “with reference to” the guidelines is to be replaced by three so-called “application levels”: A, B and C.
As with the old system, application levels describe the extent to which a company meets the guidelines’ requirements. They do not comment on how well, or how accurately, particular indicators are covered. In keeping with the voluntary spirit of GRI , it is down to companies to self-declare their level.
Level A is the most comprehensive. A-level companies must respond to every core indicator, either reporting on it, or explaining why it is not material to their business.
At level B, companies are asked to report on at least 20 indicators, taking at least one from each area.
At the lowest level, C, companies must report on just ten indicators. Unlike the higher levels, C-level companies do not have to disclose their management approach to sustainability. Neither must they comply with some of the guidelines’ principles, including “accuracy”, or commit to producing a balanced report.
In lowering its entry standards, the question is whether GRI is in danger of watering down its own commitment to promoting transparent reporting.
But GRI insists it does not pass judgment on the quality of information in reports using the guidelines.
“We do not say for any indicator: ‘You fail’,” says Mark Moody-Stuart, chairman of Anglo American and the GRI board. Asked whether application levels can be seen as ratings or grades, he says: “That’s not the GRI’s business.”
Instead, GRI encourages companies wanting to demonstrate the credibility of their reports to obtain assurance. “It’s not worth going through the process of reporting unless you have it externally verified,” Moody-Stuart says. Companies that do obtain assurance will be credited with a plus symbol to add to their application level.
Where now?
GRI says it should play no role in certifying reports. But as the numbers using the framework continue to rise, it may have to do more to maintain high standards of disclosure. Or as Markus Reichart, of South African corporate responsibility consultants URS, puts it, at some point GRI must “flush out the freeloaders”.
For every company that reports faithfully using the GRI guidelines, several more can receive a GRI stamp without becoming noticeably more transparent.
Although verification should be left to assurors, GRI could use its pre-eminent position within the sustainability reporting debate to push companies further in being more honest and transparent, says Reichart.
This is a capacity that GRI could easily develop. The principles that form the basis of the guidelines – some of which entry-level participants need not meet to produce a “C” level report – are a good starting point.
GRI could learn from the example of the Global Compact, which recently announced it was to delist 335 signatories for failing to demonstrate progress in meeting their commitments under the initiative.
The real test for GRI will come in a couple of years’ time if, or when, C-level companies fail to show progress in responding to indicators and meeting more of the fundamental reporting principles.
As a multi-stakeholder initiative in constant search of new members, GRI is reluctant to tell companies what to do. But for some commentators, the initiative would benefit from being more assertive.
“GRI should declare what it stands for and what it means for a company to report against its guidelines,” says Sean Ansett, managing partner of At Stake Advisors, a corporate responsibility consultancy based in Spain.
Improvements to the GRI guidelines should improve their uptake. The question now is whether, in expanding, GRI should transform itself from being a neutral framework into a guardian of reporting standards.
Useful link:
www.globalreporting.org
GRI facts
· Founded in the US in 1997, the Global Reporting Initiative aims to make sustainability reporting as routine and comparable as financial reporting.
· 850 organisations currently use the GRI guidelines, including Microsoft, ABN AMRO, Anglo American, Nike, GAP, Petrobras and Novartis.
· More than two-thirds of companies on the Dow Jones Sustainability Index report on the guidelines and 60% of the S&P 100.
G3 guidelines – key changes
· Principles: new definitions and self-tests for key reporting principles of “materiality”, “stakeholder inclusiveness”, “sustainability context” and “completeness”.
· Strategy and analysis: disclosure of a company’s overall approach to sustainability management.
· Disclosure of management approach: disclosure of policies, procedures and goals for each aspect of sustainability management – economic, social and environmental.
· Indicators: fewer performance indicators, from 97 to 79; and some new indicators including gender, equity and local market presence .
· Protocols: accompanying each indicator, explaining key terms and how answers are reached.
· Application levels: disclosure of how much of the guidelines reporters have covered, with three levels – A, B and C.
· Harmonisation: harmonised with the United Nations Global Compact, meaning the compact’s “Communication on Progress” can now take the form of a GRI report.
· Transition: The transition to the latest version of the guidelines will be completed in two years, but companies can use them immediately.
Investors push for G3
The California Public Employees Retirement System (CalPERS) and the New York City Comptroller’s Office are among institutional investors to sign a letter – timed to coincide with the publication of the new G3 guidelines – calling on all S&P 500 companies to adopt the GRI framework.
Uptake of GRI in the US still lags behind that in Europe. Of the framework’s 850 users, only 100 are based in the US.