Sustainability Reporting: Should you implement the GRI Standards?
Sustainability reporting has been increasing in scope over the past years, given that the number of organizations worldwide issuing sustainability reports has been growing yearly, driven by several major trends, reflecting shifts in the regulatory, community, investor and consumer landscapes.
Regulatory bodies worldwide are starting to place more emphasis on transparency regarding corporate sustainability practices, mandating environmental, social and governance (ESG) disclosures for certain types of organizations. The 2014/95/EU Directive on non-financial reporting, which addresses public interest companies with more than 500 employees and is estimated to affect around 6,000 organizations, was implemented at the EU member state level starting with January 2017.
In addition, with companies being under constant scrutiny regarding their operations from investors, employees and consumers alike, sustainability reporting has become an expected component of stakeholder relations, as a tool for promoting transparency and ethical business practices.
At the same time, the proliferation of internationally recognized and utilized sustainability or corporate social responsibility (CSR) reporting tools is helping improve the consistency, and thus comparability of the said reports, contributing to the gradual global harmonization of the sustainability reporting process.
Among the non-financial reporting tools on the market, the guidelines issued by the Global Reporting Initiative (GRI) have stood out during recent years, being increasingly adopted on a global scale by companies and non-corporate organizations alike. The GRI online repository shows a dramatic rise in GRI reports containing ESG disclosure, from only 48 in 2000, to over 5,300 in 2016.
In the next part, we will explore the structure, implementation requirements and advantages of the GRI Standards, the most recent non-financial reporting guidelines issued by GRI and the first global standards for sustainability reporting.
The issuing organization
The Global Reporting Initiative (GRI), founded in Boston in 1997 and headquartered in Amsterdam, The Netherlands, represents an independent international standards organization focused on understanding and communicating the impact of business on important sustainability issues, including human rights, climate change and corruption.
GRI launched the first version of its sustainability reporting guidelines in 2000, which have continuously evolved until G4, the fourth generation of guidelines, published in 2013. The GRI Standards were launched in October 2016, having been developed by the Global Sustainability Standards Board, established as an independent entity under GRI and comprising 15 members with varied fields of expertise, who provide a multi-stakeholder perspective.
The reporting document
The GRI Standards, available for free download, are structured as a set of interrelated, modular standards, comprising:
- Universal standards: GRI 101: Foundation (starting point for using the standards), GRI 102: General Disclosures (contextual information about the organization) and GRI 103: Management Approach;
- Topic-specific standards: GRI 200: Economic, GRI 300: Environmental and GRI 400: Social.
Each topic-specific standard is designed for use with GRI 103: Management Approach, to report the organization’s strategy for tackling the respective sustainability-related issue.
There are two options for preparing a sustainability report in accordance with the GRI Standards, based on the degree to which they have been applied:
If an organization uses only a handful of individually selected GRI Standards, without complying to the entire sustainability report, it can include that its material references specific standards.
The sustainability areas addressed
GRI Standards focus on the impacts of an organization on sustainable development, rather than on the sustainability of the organization. The aim of the report is to describe how an organization, through its strategy, contributes to the improvement or worsening of economic, environmental and social factors within its operating context, presenting its performance in relation to broader sustainability concepts.
The GRI Standards suggest considering the following sustainability-related topics when reporting:
- Economic: economic performance, market presence, indirect economic impacts, procurement practices, anti-corruption and anti-competitive behavior;
- Environmental: materials used, energy, water, biodiversity, emissions, effluents and waste, environmental compliance and supplier environmental assessment;
- Social: employment, labor and management relations, occupational health and safety, training and education, diversity and equal opportunity, non-discrimination, child labor, local communities, customer safety, marketing and labeling etc.
KPIs, materiality and specific disclosures
A GRI report should cover issues which reflect the organization’s significant economic, environmental and social impacts, or that substantively influence the assessments and decisions of stakeholders. When assessing the materiality of a topic, organizations should take into account both internal factors (mission, competitive strategy) and external factors, such as the interests of different stakeholder groups and broader social, environmental and economic interests, at the societal level.
The GRI Standards provide specific key performance indicators (KPIs) to be measured, managed and reported for each suggested topic, together with additional breakdown, explanation and references, including authoritative intergovernmental instruments.
The G4 Sector Disclosures, developed for use with the G4 Guidelines, remain available and valid for reporting with the GRI Standards, as guidance material, without being mandatory.
Currently, there are industry-specific disclosures for ten sectors, including airport operators, financial services, oil and gas, media and NGO, with more to follow starting in 2017. These documents contain additional guidance and references for the disclosure of topic-specific standards for specific industries, based on the challenges encountered.
The types of organizations that can adopt GRI Standards
The GRI Standards are aimed at all types of organizations, including for-profit companies, NGOs and governmental organizations, irrespective of their size. In 2016, around 59% of the reporting organizations were large, 31% were multinational companies and 9% small and medium enterprises.
Reporting organizations are required to apply the GRI Standards starting with 1 July 2018, however earlier adoption is encouraged.
Currently, there are over 27,500 GRI Reports recorded in the organization’s repository and, of the 92% of the world’s largest companies that report on their sustainability performance, 74% use GRI’s guidelines. Similarly, research carried out during 2016 by The World Business Council for Sustainable Development (WBCSD) on the sustainability reporting practices of 163 member companies from more than 20 sectors and 35 countries, revealed that 87% of the reporting organizations used GRI guidelines, up from 75% in 2013.
Region-wise, the biggest number of reporters are headquartered in Asia and Oceania (36%), followed by Europe (35%) and the Americas (25%).
The GRI Standards were developed to meet the broader sustainability reporting needs of all stakeholders, including business, civil society, labor, accounting, investors, academics, governments and sustainability reporting practitioners.
Why should your organization implement the GRI Standards?
Among its main benefits, the largest one is the wide range of sustainability topics which get measured, factoring in aspects such as economic, environmental and social disclosure, as well as the inclusion of topic-specific KPIs (together with definitions and references), which many internationally-used reporting frameworks do not provide. By including KPIs and by making its standards modular and interrelated, GRI facilitates sustainability reporting at a strategic level.
In addition, GRI reporting is developed in such a way as to address and be comprehensible for a wide range of stakeholders, meaning that organizations reporting in accordance with GRI Standards manage to reach a wider audience and gain greater visibility.
Unlike other non-financial reporting frameworks, the GRI Standards manage to provide both a qualitative and a quantitative aspect to reporting, through the detailed guidelines and focus on materiality and stakeholder dialogue, on the one hand, and detailed KPI examples, indications on KPI selection and industry guidance, on the other hand.
Due to its comprehensiveness regarding sustainability areas covered and stakeholder categories addressed, as well as inclusion of KPIs to be used and industry guidance, the GRI Standards appear to be the framework with the highest applicability and ease of implementation, being suitable for all types of organizations, whether companies of any size or NGOs. Thus, it is not surprising that the previous version of the GRI Standards, the GRI G4 Guidelines, have been the most widely-used sustainability reporting framework worldwide, used by corporate and non-corporate organizations alike.
For some organizations, the inclusion of certain sustainability subjects is vital due to their strategic role, while others place emphasis on the inclusion of KPIs to measure outcomes.
At the same time, reporting burdens and expectations differ based on the organization’s type, size, ownership and history of sustainability reporting. Nevertheless, it is important for organizations to find a balance between meeting stakeholders’ expectations for sustainability-related information and managing the reporting burden, which oftentimes amounts to significant financial and time resources expenditure, particularly for smaller organizations.
Beyond selecting an adequate reporting framework, companies should direct their focus towards enhanced implementation processes, higher data quality and inclusion of performance measurement tools to generate more relevant and quantifiable sustainability disclosures to their stakeholders.