Dow, UPS and 21 others report on year one of G4

Dow, UPS and 21 others report on year one of G4

Maze image by Laurin Rinder via Shutterstock

The Global Reporting Inititative's G4 Sustainability Reporting Guidelines debuted with a great deal of buzz last spring. Would G4 reports be longer or shorter? Just how many new indicators would companies disclose? What would value chain and supply chain discussions look like? Would people use the materiality process as an excuse to screen out topics they did not want to disclose?

To answer some of these common questions, our firm, Environmental Resources Management, conducted a benchmarking study of 23 companies that made the move to G4 for their 2013 sustainability reports. These companies were selected from the North America DJSI list and GRI's report database, primarily in heavy industry (oil and gas, power, mining and manufacturing), but also including ERM's own 2013 G4 report.

From benchmarking this robust sample of leading sustainability companies and also from our first-hand insight working with various clients over the past year as they made their transition to the new guidelines, here's what we've learned.

1. Core it is

For the first step into G4, most companies produced reports either informed by G4 or in accordance with the core model. Only two of the 23 reports reviewed made the jump to a comprehensive report: Dow Chemical and UPS.

Neither company, however, responded to required indicators G4-54 and G4-55 regarding the ratio of compensation between highest-paid employee and median compensation, citing confidentiality of information and waiting for SEC rules to come into effect, respectively. We expect companies will remain hesitant to disclose these two indicators without a regulatory driver to do so.

2. Material short cuts

The new materiality process has been adopted in various shades. Even still, some companies do not disclose a list of their material issues, including five of our 23 sampled reports. Another set of companies — seven out of 23 — disclose issues, but have not begun to map them across the value chain or specify if an issue is material inside or outside of the company. The remaining 11 reports followed in the spirit of the G4 requirement. Biogen Idec is an example of a robust materiality assessment linked to the value chain.

3. Creating new non-GRI indicators

As companies more formally assess their material issues, many have identified material issues that do not neatly fall into the GRI aspect scheme, such as innovation or sector-specific topics, such as hydraulic fracturing. As a result, they are developing and disclosing their own custom metrics that correspond to the material issue to meet the G4 core requirement.

For example, two of Exelon's material issues — economic viability of nuclear power and investments in energy infrastructure — do not line up with existing G4 aspects (even in the Electric Utilities Sector Supplement). The company has included a robust set of metrics, goals and discussion around these topics that are core to their business model even though they do not line up with G4 requirements.

4. Longer, not shorter

G4 reports are actually longer than G3.1 reports; for companies that produced PDF reports in both 2012 and 2013, most had a longer page count. For various reasons, most organizations feel the need to continue to disclose data, processes and anecdotal information for issues that may not be most material. These companies already have systems in place to manage and collect the information from previous G3.1 requirements and also they feel that some stakeholders are still interested in the topic.

5. Supply chain challenged

The new supply chain disclosure, G4-12, is a challenge for most companies to discuss in depth. We're finding that many companies are just starting to think through their supply chain impacts and have not analyzed them in much detail, so there is little to disclose at these beginning stages. Johnson & Johnson is an example of good practice, with a detailed description of its supply chain and how it is managing the impacts within it.

6. DMAs all over the place

Disclosures on Management Approach vary wildly from one report to another. Some reports followed closely with the G4 guidance to include aspect-specific DMAs in the report and GRI index. Other reports disclosed broader DMAs in the vein of G3.1 — a broad discussion of environmental or labor practices, for example. It's unclear at this point if disclosing more detailed DMAs are actually providing value to stakeholders.

7. No common approach to assurance

Of our sample, nine companies did not seek external assurance on the report. The remaining 14 were split down the middle; half of the companies sought assurance on the full report and the remaining half verified particular data points, most commonly GHG emissions.

Side benefits

Interestingly, our clients have found the transition to G4 pretty easy and uneventful, with the primary practical impact around refreshing and enhancing their materiality assessments. These upgraded materiality processes had two other important side benefits, beyond the reporting realm.

Stakeholder engagement improved. Many of our clients used the materiality assessment to further engage internal and external stakeholders, including through a combination of surveys, interviews and workshops.

It's also enhancing strategy. The added rigor of the materiality process is helping companies really focus on the issues that matter. Some are taking the next steps: assessing how the management of these issues can create or destroy business value, reviewing their existing programs related to each material issue and incorporating new actions into their business strategy as appropriate.

We're still early in the G4 transition, but in our experience with companies that are implementing the new guidelines, it's been a smooth, relatively easy and well-received process.

Top image of maze by Laurin Rinder via Shutterstock.

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