By: Karen Lutz, Senior Program Manager, EHS Compliance and Sustainability
The long awaited changes to the Global Reporting Initiative’s (GRI) Sustainability Reporting Guidelines were rolled out in Amsterdam in May. The revised guidelines, known as the GRI G4, represent the fourth generation of the reporting framework and the first major revision since 2006. Salient features of the new guidelines include:
- Materiality – Organizations will no longer be required to report on the laundry list of issues that could be considered “sustainable” but have no particular relevance to an individual organization’s performance. Instead, reporting entities are required to report only those aspects deemed most relevant, or material, and provide a descriptive narrative of the materiality assessment process and a delineation of the boundaries for each material aspect. While this will alleviate the burden of reporting on ancillary issues, it will be challenging to adequately assess and disclose material aspects and associated boundaries. Those that get this right will be better positioned to integrate financial and non-financial reporting (e.g., Integrated Reporting Framework), with content reflecting the crucial performance narrative and depicting sustainability embedded into the core business objectives.
- Disclosure of Management Approach (DMA) –This is now required for each material aspect. Disclosing why an aspect is material and whether the management approach is intended to mitigate, avoid, or remediate negative impacts or enhance positive impacts will provide pertinent narrative, with less box-ticking and boilerplate text. If a reporting entity does not have an identified management approach to a current material aspect, then it must identify any plans to implement an approach or discuss reasons for not having one. DMAs will be contextual and specifically tied to material issues within the organization’s sustainability context, which brings prominence to this often overlooked reporting principle.
- “In Accordance with” – The application levels (A, B, C) have been replaced with two “in accordance with” statement options. Reporting entities have the option to now declare that the sustainability report was prepared in accordance with Core GRI requirements or Comprehensive GRI requirements, with varying levels of content included, accordingly. For Core level reporting, organizations need to report management approach and performance against at least one indicator related to each material aspect. For those reporting at the Comprehensive level, management approach and performance on all indicators related to each material aspect must be included, as well as additional standard disclosures on governance. If neither of the “in accordance with” statements can be met, a reporting organization now has the option of simply stating: “This report contains Standard Disclosures from the GRI Sustainability Reporting Guidelines.”
- External Assurance – External assurance continues to be recommended but not required by GRI. Rather than the “+” designation assigned previously to reports to reflect the assured status, G4 now requires that assurance be documented on a disclosure-by-disclosure basis in the GRI Content Index. This allows a clean line of sight into the nature and extent of the assurance.
- Governance – The expansion of the governance reporting disclosures is intended to further highlight the linkage between responsible governance practices and sustainability. There could be controversy around the new remuneration ratio disclosures, such as the ratio of executive compensation to median compensation, executive compensation to lowest compensation and executive compensation increase to median compensation. A new Ethics and Integrity section with two new disclosures is also now included.
- Supply Chain – As anticipated, the G4 has expanded its emphasis on supply chain, in recognition that organizational impacts reach beyond the operational footprint. Two additional indicators (percentage of new suppliers screened; and significant, actual and potential negative impacts in the supply chain and actions taken) have been included in each of the following reporting topic areas: Environment, Labor, Human Rights and Society. While organizations will be required to report more comprehensively on their supply chains, they can also independently decide how to report on their suppliers (by region, total spend, type of supply, etc.) and set their own ‘boundary’ for reporting purposes.
- Standard Harmonization – The G4 includes clear linkages with other international standards and reporting guidelines such as the OECD Guidelines for Multinational Enterprises; the UN Global Compact Ten Principles; the IIRC’s Consultation DRAFT Integrated Reporting Framework and CDP. GRI’s alignment with these frameworks bridges an organization’s GRI report and other external initiatives and commitments, providing efficiency for reporters and clarity to users. Particularly helpful will be the alignment in the GHG indicators with the WRI/WBCSD GHG Protocol and CDP’s reporting framework.
Recognizing that it will take some time for organizations to adjust to the new requirements, GRI is allowing a phase in period of two reporting cycles, stating that “reports published after 31 December 2015 should be prepared in accordance with the G4 Guidelines”. GRI does, however, recommend that new reporters use the G4 standard, even if they are unable to initially meet the “In Accordance with” criteria.
The changes should bring clarity to future reporting through focus on only the most relevant metrics as it relates to an organization’s sustainability context, with strong linkages to governance mechanisms and management approach. Conveying saliency makes for a more compelling story and the G4 framework can be a useful venue for communicating the sustainability value proposition both to the organization and to society at large.
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