A first look inside the new GRI G4

A first look inside the new GRI G4

Amsterdam — After the first day of the GRI conference, I wanted to take a moment to recap the changes and practical implications associated with the just-released, upgraded sustainability reporting standard known as G4. As a GRI-certified training partner, ERM participated in a one-day workshop on the new G4 standard just yesterday, one day before its official release.

The key changes include:

  • Intensified focus on materiality — what are the issues and where across our value chain do they matter? Companies will be expected to disclose the complete list of material issues they identify. You will not need to report performance on non-material issues.
  • No more application levels — out with the A, B, C application levels and in with the new “in accordance” scheme. This scheme will consist of two options: “Core” and “Comprehensive.” Core reports will include the majority of the standard disclosures and a minimum of one relevant indicator per material aspect. Comprehensive will include all of the standard disclosures and all of the relevant indicators for each material aspect.
  • Expansion of the boundary — think outside your fenceline, both upstream in your supply chain and downstream through customer use.
  • New governance and ethics indicators — including board oversight of sustainability-related issues and remuneration ratios.
  • Integration of supply chain considerations into various indicators – including for the environmental, labor practices, human rights, and society categories.
  • Slight modifications, additions and deletions to indicators throughout G4.

Though I’ve only had a few hours to reflect on the G4 changes, I'm already looking forward to the many changes I think this will encourage in reporting. Having worked with some 50 companies to help them develop their sustainability reports, it seems the greatest driver of change will be the explicit focus on material issues. By eliminating the A, B, C levels and clearly stating that the report should focus on material issues, companies will be able to spend more time reporting on what matters and less time collecting irrelevant information to check a box.

In practice, I think we'll see:

  • More reporters: The “core” in accordance scheme will allow the GRI reporting community to continue to grow.
  • Shorter reports:  With the focus on materiality, the fledgling trend towards shorter reports will continue.
  • More case studies focused on specific dimensions of material issues, including a focus on where the issues are material -- what operations, what suppliers, what countries, what products/services, etc.
  • Fewer indicators will be covered in a given report, but the relevant discussion on each material aspect will likely increase.
  • More discussion on governance, ethics and supply chain: This will be driven by the inclusion of a number of new standard disclosures on these topics.

In particular, GRI has updated nearly all of the required governance disclosures. The shift is two-fold. First, it aims to encourage companies to report on how sustainability-related issues are managed by the board (the assumption here is that the board has responsibility for overseeing sustainability-related issues).

Second, new indicators focused on remuneration are designed to uncover pay inequalities and unbalanced compensation practices. These are positive developments, addressing relevant indicators often overlooked by companies. The extent and approach to how companies report on compensation practices will be interesting to see.

One final consideration is the ability for report readers to compare data from company to company. With the increased focus on materiality, the negative side may be that it becomes more difficult to compare the absolute performance of different companies. For example, if a company only reports its water consumption in certain regions of significance, it will be more challenging for data users to compare water consumption from company to company.

Obviously there will be much more to come on this very soon.

Join ERM for a free, two-hour in-person download on the details of the new G4 standard, key changes from G3.1 and the implications for both new and experienced reporters in one of seven US cities (Atlanta, Boston, Chicago, Denver, Philadelphia, Seattle, and San Francisco) in early June (register here). Feel free to contact me at james.margolis@erm.com.