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GRI Standards: An innovative gain and a material loss

Peter Truesdale, OBE

The Global Reporting Initiative (GRI) has now completed the revision of its system: the GRI Standards are now complete.  The standards are shaper and clearer than what went before.

Well done.

For starters, here is my favourite gain!

For years GRI has made it clear that if a reporter has a material issue not specified in the guidelines they should nonetheless report it in their index.  I was delighted to see formal provision and guidance being provided for this.[1]  A very positive move that underlines the fact that enablement in reporting adds more value than detailed prescription.

I am looking forward to seeing how companies use it creatively and for the benefit of report-users.

However one clarification made to the guidelines is in my view most unwelcome.  It relates to Materiality.

The old G4 guidelines said:

“Determining materiality for a sustainability report includes considering economic, environmental, and social impacts that cross a threshold in affecting the ability to meet the needs of the present without compromising the needs of future generations.”[2]

In effect in the new Standards this is superseded by:

“Relevant topics, which potentially merit inclusion in the report, are those that can reasonably be considered important for reflecting the organization’s economic, environmental, and social impacts, or influencing the decisions of stakeholders. In this context, ‘impact’ refers to the effect an organization has on the economy, the environment, and/or society (positive or negative).”[3]

Why is saying: “…‘impact’ refers to the effect an organization has on the economy, the environment, and/or society…” unwelcome?

In my view, for four separate but related reasons.

The first is authenticity.  To put it simply a reporter’s statement of materiality ought to tell us what the reporter thinks and why the reporter thinks it.  We should expect this to be different from what other reporters say.  We should be unsurprised if two reporters in a similar industry have materiality analyses that vary significantly.

We want to know what the organisation really thinks.

The second is that it is an example of over-prescription.  Detailed prescriptions about how an organisation should go about determining materiality are helpful only up to a point.  Beyond a certain point prescription is counter-productive.  It ends up focussing more on the detail than the essence of the issue under review.  Without intending to it ends as a break on innovation and diversity.

On this at least, I agree with Chairman Mao, let “… hundred flowers blossom and a hundred schools of thought contend…”

We need a springboard not a straight-jacket.

Third, the clarification is at odds with market practice.

We are told that the materiality of issues should be judged by the: “organization’s contribution (positive or negative) to sustainable development.”  In an ideal world this might well happen.  The fact that we have reporting guidelines evidences that that is not the world we live in.

In practice the assessment of materiality of issues to stakeholders depends not upon a fine judgment about the salience of the issue to sustainable development.  It depends upon the degree of noise and concern about the issue in society at large.  It is none the worse for that.  People are rightly concerned about child labour in the supply chain.  They are concerned not because of its contribution to sustainable development but because it is morally repugnant.

In assessing ‘Influence on stakeholder assessments & decisions’ reporters are, in fact, measuring societal concern about an issue.  This may or may not have a correlation with sustainable development.

Market practice diverges more radically when considering materiality to the business.

What most reporters do is to rank the issues identified in order of importance to the business and its long-term success.  They set out how important each issue is considered to be on a day-by-day basis – how much it really matters to them.  This is doubly the case if they are going to produce and publish a matrix.  Who is to say that is wrong?

There is no prima facie reason why that ordering of issues should be the same as ordering them by contribution to sustainable development.  There is no prima facie reason why that ordering of issues should not be the same as ordering them by contribution to sustainable development.  The great merit of current market practice is that it gives the reader an absolute insight into what the reporter actually thinks.  It lets us know what’s actually going on.

I believe any move away from these common practices will significantly diminish the utility of reporting.  It will be a loss to the stakeholders.  It will be a loss for the reporters.

Fourthly, applying the test of the “organization’s contribution (positive or negative) to sustainable development” both to the influence on stakeholder decisions and business impacts has something of a disconnect built in.  Isn’t it the case that it is likely that the product of the test will be to all intents and purposes the same?

This is unclear.

Overall the clarification cuts across market practice without any compensating gain.

So what to do?

The best thing for reporters is to tell materiality as it is from their point of view.  They should say what it is they do, say why they do it and go from there.  Equally GRI would be wise to recognise such a course of action as being legitimate and net helpful.

We need a hundred flowers to blossom and a hundred schools of thought to contend.

 

[1] See GRI Content Index Service GRI Standards Methodology page 6/10

[2]  G4 Sustainability Reporting Guidelines Implementation Manual page 11

[3] GRI 101Foundation 2016 page 10/29 Effectively as a result of the consultation the first two paragraphs were cut down and merged

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