Taking Note of Proposed Changes to Sustainability Reporting Guidelines

Stephanie Hamilton, VP Sustainable Business at ÉEM Sustainable Management, shares with us her review of GRI's fourth generation Sustainability Reporting Guidelines.

The Exposure Draft of Global Reporting Initiative’s (GRI) new G4 Sustainability Reporting Guidelines is out and features some significant proposed changes.
These guidelines provide organizations with the framework to report sustainability information (economic, environmental, and social) in a systematic way, and outline the standards for consistent and comparable metrics and disclosures.
The fourth generation guidelines, G4 Guidelines, are expected to launch in 2013 after collective feedback has been reviewed.
The core of the G4 changes focus on “materiality” – areas that have a direct or indirect impact on an organization’s ability to create, preserve, or erode economic, environmental, and social value for itself, its stakeholders, and society at large. Paul Maclean, President of ÉEM Sustainable Management, says,
“The success of G4 will depend on how rigorously companies apply the materiality test.  If the methodology is respected and companies err on the side of caution, we should see an improvement in corporate reporting.  If on the other hand, the materiality test is used to justify excluding too many topics, we may well see a regression.”

Learn What’s New

Stephanie Hamilton, VP Sustainable Business, with ÉEM Sustainable Management shares with us her review of proposed changes below:
Application Levels
The “A”, “B”, or “C” application levels have been abandoned.  It will now only be possible to declare that the organization is reporting “in accordance” with the G4 standards, or not, based on an analysis of materiality.  It’s all or nothing. Organizations must follow the Technical Protocol and assess what should be in the report.  If an assessment says its material, then all management disclosures and core indicators for that topic must be included; otherwise, the report is not “in accordance”. If an organization cannot report on a core indicator for a topic that is considered material, it must explain why and make a commitment for future reporting.
Protocol for Defining Report Content
In the Technical Protocol, the focus for defining boundaries has shifted from the organization’s “control and influence”, as used in financial reporting, to mapping the “value chain”, listing the material aspects, and assessing the relative significance of topics. “Materiality” is the new keyword.
Disclosure on Management Approach
There is a more flexible approach for management disclosures. Rather than being required at a fixed level, they can now be presented at the level best suited to the organization and its actual management of the aspect.  This could mean more granular reporting on the aspects most material to the organization and more global reporting on the topics of less significance.
In the standard profile section, which is mandatory in all reports, the governance section has been “beefed-up” to include disclosures on executive remuneration and on the ratio between the earnings of the highest and lowest/median workers in the same country. This may pose disclosure challenges for some companies.
Also interesting is the link to the sector specific supplements. These are supplementary reporting guidelines for certain sectors, such as oil and gas, food production, media, etc. Under G3, it was possible to ignore core indicators in a supplement unless reporting at Level A.  No longer.  If the disclosure or indicator is related to a topic deemed to be material, then it needs to be included. This will be a tall order for some of the newer sector supplements that have not yet been road-tested extensively.
Supply Chain
In keeping with the emphasis on value chain, there is a new section related to managing supply chain risks: procurement practices and policies, how to screen and assess suppliers, what to do when suppliers fall short, etc.

ÉEM’s First Impressions

While we like the concept of putting the emphasis of the report on what is material, the new guidelines will be very challenging for those organizations that were choosing to report at Level B or C.  The requirement to report all core indicators that are material is laudable, and should be the ultimate goal of all sustainability reports, but it may dissuade companies that were just gaining traction in reporting their corporate social responsibility. There is a mechanism to allow new reporters some time to get up-to-speed, but we cannot see anything for the current Level B and C reporters.
Visit GRI’s website to learn more about the developments around the G4 Sustainability Reporting Guidelines.
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