Nick Jones explains how a major update to the much used GRI guidelines brings new clarity, but also new challenges to CSR reporting.
The people at the Global Reporting Initiative secretariat like a challenge. Working from their headquarters in Amsterdam, the 20-strong organisation aims in their mission statement for nothing less than “to make sustainability reporting as routine and comparable as financial reporting”.
GRI has taken a major step towards its goal with the launch in draft form of its third generation Sustainability Reporting Guidelines, known as 3G. The draft guidelines were launched on January 2nd for a consultation period lasting until March 31st. A final version is scheduled for October 2006.
A substantial update of the prior 2002 Guidelines, 3G builds on the input of several Advisory Groups whose members are drawn from numerous countries and backgrounds. It aims to increase the up-take of CSR reporting and boost the quality of data such reports contain.
Focus on performance
The heart of GRI is a set of standardised performance indicators covering social, environmental and economic topics which companies are expected to report against. In theory, these let readers find the information they want, make comparisons between companies, track performance over time within one company, and assure them that the report covers a certain amount of ground.
In practice the 2002 Guidelines fell short of this promise. A lack of guidance on how to prepare data or define key terms left many users frustrated. A common criticism is that the indicators are a jumble of different types of information, with quantitative measurements and yes/no questions mixed with descriptions of the policies and procedures.
Many reports feature a GRI index; a page cross-referencing the report’s data with the Guidelines. But many companies struggled to match their data to the GRI’s somewhat opaque requirements, resulting in indexes peppered with empty spaces.
The revised Guidelines address the problems head-on. A two-step process now separates policy aspects from measurements of performance on any given issue. Companies are now asked to describe their management approach to a given issue, before responding to a set of performance indicators. The Management Approach sections separate out issues of responsibility, policy and targeting setting, leaving the performance indicators to focus on factual statements that measure performance in a set period of time.
The indicators themselves have been honed to become clearer, and trimmed down to become more concise. Instead of 97, there are now 79. And a set of Technical Protocols offer much-needed definitions and guidance.
On issues like human rights, labour standards and consumer privacy, the indicators were previously long-winded and complex. With G3, each of these indicators have been ground down to a single clear fact, such as the proportion of suppliers subject to human rights screening, or the percentage of consumer information subject to data protection measures.
First principles
The GRI presents companies with ten principles around which to base their CSR reporting. Wisely, G3 keeps these basically intact from previous versions. But while companies won’t find unpleasant surprises and major adjustment costs, G3 sharply refocuses a number of the principles in a way that will set new priorities. Two points stand out.
The 2002 Guidelines included the principle of ‘Relevance’, which encouraged reporters to select their material on the basis of its usefulness and interest to stakeholders. But the wording was convoluted and lacked force. The updated principle is renamed ‘Relevance and Materiality’, and is phrased in a more demanding way. Reporters are urged to use relevance and materiality as a filter when assessing the ‘indicator set’ they include. They are asked to cover the issues that matter most to stakeholders (relevance), and to judge whether each item of data is above a certain threshold of importance, and therefore sufficiently high priority to include (materiality).
The new emphasis on Relevance and Materiality gives a clear procedure for prioritising content.
The upshot is that reports crammed full of information, which is easy-to-gather but of little interest to potential readers (data on the environmental performance of office buildings comes to mind) will begin to look embarrassingly unbalanced in 2006.
Secondly, the ‘Comparability’ principle has been overhauled; largely, it seems, in response to the views of Socially Responsible Investors who were crying out for more credible, benchmarkable data. Companies are now encouraged to make sure their data is consistent and comparable in two ways. Readers should be able to make comparisons about the individual company’s performance over time. This requires a clearly specified basis for data collection – the information must refer to the same parts of an organisation each year. And they should be able to compare with rival companies or with an external industry benchmark.
Surprises thrown in
Sensibly, the draft G3 Guidelines put greater flesh on the bones of a key issue in CSR reporting: the links between sustainable development and an organisation’s core business strategy.
Firstly companies face new requirements on the economic aspects of the triple bottom line. A key new requirement is for a ‘cash value added’ table, showing how wealth created by the company is distributed among the various stakeholders. The exercise involves creating a basic economic map of how the company affects other groups within society: essential context for the report as a whole.
Secondly, an expanded ‘Strategy and Analysis’ section asks reporters to describe how their competitive position and major “value drivers” are affected by “sustainability trends” such as climate change, HIV/AIDS and biodiversity.
Thirdly, GRI have taken the chance to throw in a couple of wildcards in the form of indicator EC2, “Financial implications of climate change”; and indicator EC3, “Coverage of the organization’s defined benefit pension plan obligations”. As headline issues for the next several decades, both climate change and pensions merit some attention under the GRI’s general framework. But by pulling them out as specific, ‘core’ indicators in the draft framework, GRI is proposing to force companies to direct much more management time and attention to quantifying and dealing with them.
The new climate change indicator may be particularly important. If successful, it could make it de rigeur for companies to quantify the level of risk their shareholders face from exposure to possible regulatory change, bringing increased pressure on policymakers to end the regulatory uncertainty surrounding issues such as emissions trading and the Kyoto protocol.
Future considerations
Many features of the draft G3 Guidelines are likely to be greeted with open arms, particularly the clarification of the standard’s two main pillars: the reporting principles and performance indicators. But some of the most interesting changes may be those which are still to come, and which focus on the process of reporting rather than the content of reports. In particular two ideas have been raised.
GRI has dropped hints about a possible online, web-based reporting process. If implemented, this would see companies submitting their data via an on-line form. By exercising some control over the responses and measurement units deemed acceptable, GRI might be able to improve the quality and comparability of data in CSR reports. But the proposal will involve difficult trade-offs between data-quality and the time and patience of the system’s users.
There is also talk of introducing a system of tiered reporting. Companies could choose between 3-5 levels of GRI compliance, ranging from a basic system for new reporters to an advanced level involving full assurance.
Such changes will become clear as 2006 moves on. But in the meantime, this bold update to the Global Reporting Initiative framework has plenty to keep CSR managers busy.
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