The new materiality mantra may not be as simple to implement as it might seem at first glance.
By Elaine Cohen
The big event of the 2013 global sustainability calendar concluded with two gongs ceremoniously sounded using a cooking pot and a soup-ladle, possibly reflecting the familial spirit of the event, by Herman Mulder, Chairman of the Board of GRI.
The first gong was to signal the end of the much-awaited Global Reporting Initiative (GRI) 2013 Conference, attended by 1,600 delegates from 80 countries.
The second: to usher in a new era of corporate transparency and reporting.
Welcoming G4…and a New Era of Sustainability Reporting?
The new era will become known as the G4 period.
G4 is the new Sustainability Reporting Framework revealed by GRI during the conference after a two-year multi-stakeholder dialogue process in which 2,500 inputs were received, processed, analyzed, categorized, embraced, adopted or discarded. Amid quite a bit of fanfare, G4 was heralded as the tool, which will separate the irrelevant from the important, the inputs from the impacts and the trivial from the material.
In fact, materiality was the Big Word of this conference. Closely followed by regulation. With 'integrated' a lagging third.
The new G4 framework, however, is not an easy transition. Placing materiality squarely at the center of the reporting agenda, all companies who wish to report "In Accordance" with G4 will need to undertake and disclose, a process of identifying, validating and prioritizing material issues and detail how they address these transparent in their Sustainability Reports.
In a world where materiality in most sustainability reports has been seriously underplayed to date, the G4 audience was unanimously supportive of the injection of this clear focus for reporting. The conference was largely "of the converted for the converted," as Vice Chairman of the NASDAQ OMX Group Meyer Frucher put forth.
Adding to the dialogue was the refreshingly frank and charmingly militant General Secretary of the International Trade Union Confederation (ITUC) Sharan Burrow – perhaps the sole voice of dissent – who was supportive of the "improvements made in the new G4 to deliver more strategic sustainability reports that are focused on those impacts that matter most to people and the planet," but not without emphasizing that "the reality is that the short-term quest to maximize profit pits corporations against rights and sustainability."
Firmly behind mandatory non-financial reporting, Burrow warned:
"The central challenge remains a global floor of human and labor rights with fair wages and safe work, social protection and a serious transition to a low carbon economy."
Will G4 help us to achieve that?
From Layering Materiality…
Having determined material issues through a transparent, participatory stakeholder process, G4 reporters may choose one of two routes: Core or Comprehensive.
At the Core level, companies make a range of general disclosures plus at least one performance metric per material issue selected. At the Comprehensive level, reporters disclose against a slightly broader set of general disclosures, but must report on ALL performance indicators for each material issue selected (out of a total of 91 metrics, versus 84 in G3.1).
This may appear to be a wide gap. But it all boils down to the extent to which companies take the materiality challenge seriously. Those who wish to produce scam G4 reports will find it all too easy to fluff the materiality exercise, select the most harmless and least controversial issues to report, and hope that no one pushes back, while claiming to have reported at the highest level of the most advanced sustainability reporting standards ever developed.
We can already anticipate the plethora of press releases celebrating this new, enlightened transparency. But as we know, and as was evidenced by the proliferation of false claims in Sustainability Reports, such abuse of the GRI framework most often goes unnoticed.
If, on the other hand, reporters seriously embrace G4 in a true spirit of the "strategic and purposeful exercise" that it is meant to be, as GRI CEO Ernst Ligteringen pointed out, then we might just find that the vision of Sharan Burrow may just be within reach.
…To Celebrating Regulation…
While materiality stole the show at the GRI conference, regulation was close behind. Regulation, at some level, was generally welcomed, and the multiple government representatives at the conference were largely well received, including Michel Barnier of the European Commission, who was elevated to somewhat of a divine status for his work in driving the new European Commission directive for mandatory non-financial reporting in Europe, the world's largest economic market.
Pia Olsen Dyhr, Ministry of Trade and Investments for Denmark, was applauded for her impressive and bold stand for mandatory reporting, saying "As governments, we must acknowledge our role in creating the right incentives and frameworks."
…At the Cost of Integration?
Integration fared less well. Glossing over what appears to be more than a minor disconnect between G4 development and the relentless advance of the International Integrated Reporting Council (IIRC), Ernst Ligteringen repeated more than once: "Before you can integrate, you have to have something to integrate," which, roughly translated, means that integrated reporting is racing ahead before most companies have even understood the basics of Sustainability Reporting.
In other words, without sustainability reporting, Integrated Reporting is just another scam. I tend to agree. And, while Integrated Reporting has its protagonists (mainly those with financial, investment and shareholder hats on), I believe the G4 mood won the day in Amsterdam.
But closing plenary speaker Connie Lindsay, Head of Corporate Responsibility at Northern Trust might just have had the last word: "Cynics have no place in this discourse," she said to the rousing crowd.
I'm willing to give her the benefit of the doubt in the hope that G4 will become the reporting framework that turns the materiality mantra into a new reality, which truly helps change business for the better. What do you think?
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