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GRI's Looming Challenge: Standardized Sustainability Reporting vs. Company-Tailored "Material" Reports

The Global Reporting Initiative has a new survey, asking for feedback from companies, investors and other stakeholders on future direction

Submitted by: Sanford Lewis

Posted: Oct 09, 2011 – 03:04 PM EST

Tags: gri, sustainability, sustainability reporting, csr, environment, health

 
Sanfordlewis

By Sanford Lewis

The Global Reporting Initiative has reached a fork in the road. Should sustainability reports that are prepared according to its guidelines be more standardized, so that it is easier to compare data among similar companies? Or should companies be encouraged to focus principally on the particulars that are most material to their business?

In a September 27, 2011 outreach meeting in New York City at the Jacob Javits Center, Lisa French, director of the Sustainability Reporting Framework laid out these alternative pathways for the next round of revisions to the GRI reporting guidelines.

In one scenario, what she labeled the principles approach, reporting companies would answer certain standard questions and then assess or identify topics that are most “material,” and focus their most detailed reporting (e.g., data indicators) on those questions. In the second scenario, what she called the rules-based approach, companies would be required to answer standard questions across the board, possibly with GRI providing guidance for what issues are material to focus on, e.g., on a sector-by-sector basis.

From the perspective of investors in the Investor Environmental Health Network, an organization that has identified gaps in the current GRI guidelines that it seeks to be addressed through the G4 revisions, there is clearly a tension between these alternate pathways.

IEHN has asserted the GRI needs to better encourage companies to provide details on what they are doing to eliminate the use of substances suspected of causing toxic health effects to humans and the environment. Although the approach to chemicals will vary from sector to sector (healthcare is different from manufacturing, for instance), our organization believes a rule of general applicability is necessary within GRI.

Currently, some of the companies that are already doing a good job eliminating toxic chemicals include thorough discussion of this issue in their sustainability reports, while the companies that are failing to address this issue simply omit any reporting on it. Sector guidance could be useful as a complement to a generally applicable rule, but without a rule of general applicability the current inconsistencies would be perpetuated.

Another issue identified by IEHN relates to catastrophic risk, e.g., preventing disasters like the Gulf Coast Deepwater Horizon oil spill. Not every sector poses such catastrophic risks, but for those that do, a report that is ostensibly addressing sustainability would seem incomplete if such risks are not well addressed. Leaving it up to companies to decide whether catastrophic risk is a material issue seems an invitation to incompleteness. At a minimum it would seem necessary for sector-by-sector guidance to trigger reporting in sectors with greatest potential for catastrophes.

A further gap in the existing GRI standardized approach is often there is other significant information known to companies, but not explicitly required to be disclosed by the current standards, even if it would be necessary to ensure their other disclosures are not misleading. An example was the disclosures by BP prior to the Deepwater Horizon disaster. The company had disclosed extensive information on its risk management programs, but had not disclosed some major proposed penalties for violations of safety laws in the US. Left to its own devices to identify relevant information for its sustainability report, it presented an overly positive impression of safety management. It is predictable that when a company identifies its own “material” issues, the outcome can lead to spin, rather than an objective rendition of its practices.

The tensions between the rules-based and principles-based approaches to revising GRI are implied, but not readily comprehended in a survey GRI is currently taking of its stakeholders. GRI’s survey will help inform the staff's choices on the road ahead, but the form itself does not alert respondents to the profound choice of approaches that the GRI staff believes they face. The survey, due to be completed by November 24 (http://www.globalreporting.org/CurrentPriorities/G4Developments/GetInvolved/GetInvolved.htm), asks what the “minimum content of the sustainability report” should be, in terms of items that are “essential” or “useful.”

Embedded in this survey, which is largely a checklist, are the two profoundly different models for sustainability reporting. Under one scenario the reports could become quite different on a company-by-company basis, with companies tailoring their reports to the issues they believe are material; on the other extreme, could be a standardized “checkbox” approach with little real analysis. According to Lisa French, there is currently no written material on the GRI website that describes these alternative scenarios. Since GRI is the de facto standard for sustainability reporting, and such reporting is setting the pace for the entire conversation and sustainability, this is an important conversation. Clearly, the worldwide community of stakeholders and companies affected by this decision needs to weigh in on these important deliberations.

About Sanford Lewis, Attorney

Sanford Lewis is counsel to the Investor Environmental Health Network, and also represents other shareholders and NGOs on issues of corporate disclosure and shareholder rights. You can also write him with your thoughts or questions at sanfordlewis [at] gmail dot com.

Readers: Regarding GRI sustainability reporting, which is better: in-depth and incomplete or shallow but addressed? Take the survey and weigh in on Talkback!

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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