Greater transparency with new sustainability reporting standards

accapr —  26 June 2013 — Leave a comment

ACCA heads-6084

By Gordon Hewitt, sustainability advisor, ACCA

“We use our Earth as if we have a planet and a half; we have a deficit relation with our natural resources. The biggest challenge facing not just business, society and government, but humanity is the question of our sustainability. And business as usual will do nothing to solve it.”

These are the words of the Global Reporting Initiative’s (GRI) chief executive Ernst Ligteringen at its global conference in Amsterdam last month, underlining the raison d’etre of the sustainability reporting standard-setting body’s work as he unveiled the latest generation of reporting guidelines, known as G4, to a 1,500-strong audience of business leaders and finance professionals.

The launch of the G4 guidelines marks the culmination of two years of consultation involving 120 specialists and two consultation periods to which more than 2,500 responses were received. The new guidelines demand greater transparency from the organisations that use them. It is about creating better companies, a better market, a better world with more social justice and business managed in a responsible way.

Key features of G4

The G4 guidelines aim to help companies produce clear, concise sustainability reports that are of high relevance to an organisation’s stakeholders. The guidelines aim to be more user friendly than previous versions, helping reporters to focus on and manage what really matters.

Some key features of the new guidelines are as follows:

  • Materiality: This is certainly not a new concept to the GRI, but the G4 places greater emphasis on the subject. The new guidelines aim to help organisations to produce reports that are concise and include information and KPIs on material impacts only. Reporters must define materiality and provide full disclosure on the topics that are material to them.
  • Value chain: A major difference between the G4 and previous iterations of the GRI guidelines is the focus on an organization’s value chain. Reporters must assess their complete value chain, and disclose where their impacts are most material. This will present significant challenges to many companies, as such supply chain transparency is complicated and expensive to attain, and will often involve the impacts of suppliers over which they have little control.
  • Application levels: The G4 no longer has a system of application levels (A, B, C), which many believed drove companies to take a checklist approach to sustainability reporting. The GRI have introduced an “in accordance” system, with two tracks – core and comprehensive – for reporters.
  • Disclosure on management approach: The new guidelines will require organisations to report on how they identify and manage their actual or potentially material impacts. This kind of narrative disclosure will provide report users with a better idea of how companies are managing their impacts, which will provide greater context to the KPIs included within a report.
  • Assurance: In previous iterations of the GRI guidelines, reporters would indicate whether they had some form of external assurance over their reports by adding a + after their application level (e.g. A+). This did not provide any information over how much of the report was assured, which was clearly an issue. This has been removed from the G4 guidelines, which instead has an additional column in the organisation’s GRI index table where reporters can indicate which elements of the report has been assured, thus providing greater transparency on the extent of external assurance.

GRI and Integrated Reporting

A recurrent question that emerged from the GRI conference was how the G4 guidelines will fit in with the integrated reporting. The International Integrated Reporting Council (IIRC) recently published a Consultation Draft of the International <IR> Framework, and is due to launch its framework later on this year. The IIRC draft framework aims to allow companies to report on material information about an organisation’s strategy, governance and performance that reflects the commercial, social and environmental context within which it operates.

According to the IIRC, integrated reporting is not simply about combining existing financial and non-financial disclosure, but will certainly draw on elements of a company’s financial and sustainability reports to the extent that the information is material to how an organisation’s strategy creates and preserves value.  With this in mind, the GRI will be looking to offer guidance on how to link the sustainability reporting process to the preparation of an integrated report.

Whilst there is still an element of uncertainty of the future of corporate reporting, the G4 guidelines are certainly a step in the right direction.

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