New guidelines for the Global Reporting Initiative

The Global Reporting Initiative has launched the fourth generation of its sustainability reporting guidelines. What will be the impact on companies and investors, asks Jennifer Iansen-Rogers.

Major changes are coming at one of the biggest reporting initiatives.

More than 1,600 practitioners, from business and finance to civil society, met in Amsterdam recently for the launch of the 4th generation of the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines. Since G3 in 2006, sustainability reporting has increased significantly, stimulated by stock exchange and government requirements, as well as the need to demonstrate responsible business management to investors and other stakeholders.

Onus on materiality

What will G4 mean for reporters and report users? The good news is that G4 leaves behind the tick-box approach of G3 – that more is better, even if the information is not important to the business or their stakeholders. Once mandatory ‘General Standard Disclosures’ are reported, G4 asks companies to identify their material ‘Aspects’ (impacts, risks and opportunities) and disclose the process for determining these. Importantly, the company must explain how it is managing each and report relevant indicators over time. This step change from G3, shifting the focus from past performance to information on strategy implementation, should provide users with a more complete picture of how risks and opportunities are being managed.

In the current climate of outsourcing and complex supply chains, G4 also moves beyond activities under direct control of the organization, to the supply chain, products and services, with materiality determining the ‘boundary’ for each material Aspect. The distinction between ‘core’, ‘additional’ and ‘sector-specific’ indicators has gone, while the GRI Principles for report content and quality remain largely unchanged.

All in all, G4 aims to simplify sustainability reporting by focusing on what really matters to the business and its stakeholders, ending the practice of disclosing large volumes of non-material, and often unreliable data. As a result, the often misunderstood ‘A, B & C Application Levels’ are being replaced by a new ‘in accordance’ scheme, with ‘Core’ and ‘Comprehensive’ reporting options. Core reports will include the majority of the General Standard Disclosures as well as the Disclosure on Management Approach (DMA) and a minimum of one relevant indicator per material aspect. Comprehensive reports will include all the General Standard Disclosures and, for each material Aspect, the DMA and all relevant indicators.

There are revised disclosures on governance, ethics, supply chains, anti-corruption and GHG emissions, all updated to align with developments such as the UN Guiding Principles on Business and Human Rights, the OECD Principles and the Carbon and Water Disclosure Project CDP. This harmonisation should ease the reporting burden for organisations that have had to comply with varying criteria prescribed by different organisations. However, it also results in an increase in disclosures, especially on governance.

Challenges facing G4 reporters

Although the GRI Principles have not changed, the G4 disclosures on materiality and boundary are much more specific. While advanced reporters may already have a reasonably well-developed materiality process, new and smaller reporters may find this a challenge. GRI has provided guidance, but this is difficult to follow and sometimes less than logical, such as identifying the boundary for every relevant (potentially material) Aspect before prioritizing to just the material aspects. This seems like a lot of extra work for Aspects that don’t make it into the final sustainability report.

In a separate publication, GRI lists potentially material topics per sector which may provide a starting point for new reporters. While small organisations in the profit and non-profit sectors may not use the term ‘material Aspects’ they understand what is important to their success and to their stakeholders. This may include meeting regulations, attracting high quality staff, product quality control or customer satisfaction. By using these as a starting point, and then considering sector guidance and stakeholders views where relevant, a list of ‘material Aspects’ should emerge. G4 allows disclosure omissions if these are explained.

Also important are the new governance disclosures, where companies are asked to report on how sustainability is managed by the board, as well as remuneration indicators designed to uncover pay and compensation inequalities. While these are seen as positive developments by certain stakeholders, addressing issues often overlooked in current reporting, they will present a challenge for many.

What has changed on assurance?

One other key area of change in G4 of importance to the investment community is the level of transparency around assurance. Under G3, reporting a ‘+’ symbol after the A, B or C Application Level can mean anything, from assurance on one indicator to assurance on the whole report. Users cannot easily see which information has been assured and therefore to what extent they can rely on it.

As expected, G4 does not mandate assurance, but recommends it. To increase transparency an extra column has been introduced in the GRI Content Table where reporters indicate the disclosures covered by independent assurance – on General Standard Disclosures, DMA and/or performance indicators. This may encourage the extension of assurance from selected data (sometimes for ‘easy to assure’ rather than material aspects) to narrative on how material aspects are managed or on processes such as materiality and stakeholder engagement. This differs radically from financial auditing, which focuses on past performance, while the Director’s Report (or MD&A) is only read by the auditor to identify inconsistencies with the audited accounts.

So what about the users?

The investment community has always expressed concerns that information on sustainability performance, unlike financial data, is not consistent or comparable over time or across companies in a sector. The move in G4 to clearly defined quantitative indicators will help improve consistency if reporters apply these fully. However, the focus on materiality in G4 may lead to variable data boundaries, making performance comparison more difficult if investors or analysts are seeking consistent historical data to populate analytical (financial) models. For example, if one company in a sector reports the water use in its supply chain, another reports water use in regions of water scarcity and another consolidates water use in its production facilities, the resulting performance data will not be comparable. Despite this, where a medium or longer term view of sustainability risks and opportunities is being sought, a report which focuses on material aspects, with disclosures on how the business manages these, should provide investors with more useful information.

Where next?

Reporters following GRI now have two reporting cycles before they have to switch to the new G4 guidelines. Many will want to do so sooner, embracing the new focus on materiality and with it a more selective, business-focused approach to assurance. Others will take the time to develop their stakeholder engagement and materiality analysis as well as collecting information for the new disclosures. The upshot, it is to be hoped, is that both sustainability reporting and assurance become more manageable, useful and relevant for all concerned.

Jennifer Iansen-Rogers is a London-based partner and Head of Report Assurance Services at ERM Certification and Verification Services. Email: