By Rati Bhattachary
Sustainability Strategist and Consultant, Innovation and Transformation Group
Tata Consultancy Services
G4: Initial Impressions
The fourth-generation (G4) Sustainability Reporting Guidelines developed by the Global Reporting Initiative (GRI) may well have complicated the reporting environment, instead of streamlining it. Launched in May 2013, and mandatory for reports published after 31 December 2015, the G4 tries to harmonize with other international reporting frameworks, instructing reporters to focus on material topics or aspects instead of outlining their organization’s broad sustainability footprint. With renewed interest and attention on corporate social responsibility, companies are pulling out all the stops to ensure that their sustainability initiatives occupy center stage. They are interested in measuring the effect of their sustainability programs, to identify new opportunities, while remaining informed on risks. Program disclosures are in the form of detailed reports, full of catchy phrases and engaging visuals to invite larger readership.
The G4 is therefore an important framework to guide such initiatives. While its strategic and focused approach is laudatory, and can improve enterprise-wide transparency, the G4 has been met with apprehension for a number of reasons.
Be it the GRI, the International Integrated Reporting Council (IIRC), or the Sustainability Accounting Standards Board (SASB), each organization has its own definition of materiality and how it should be identified, studied, and reported. Unlike the Dow Jones Sustainability Index (DJSI) or the CDP, the G4 does not include a prescriptive scoring process, depending rather on stakeholder engagement and transparency. It defines materiality as “those that reflect the organization’s significant economic, environmental and social impacts; or substantively influence the assessments and decisions of stakeholders”. This may not always be thoroughly aligned to an organization’s definition of the concept. Nor may materiality mean the same thing for reporters and investors, although as research by GRI and RobecoSAM indicates, there are significant overlaps. With multi-reporting frameworks clouding the business landscape, there is a growing concern that the strategic value of reporting is being diluted with too much information generation.
Catching up with the Indicator Count
In G4, the materiality approach brings in a big relaxation window; by allowing responders to pick and choose the relevant indicators, based on what is material to their organization and their choice of reporting style between ‘core’ vs. ‘comprehensive’.
As the G4 lays downs strict guidelines for materiality selection, companies may find it increasingly difficult to narrow down on aspects that they should align between the two contrasting platforms of GRI and DJSI. The redundancy and overlap of data asks between the two platforms can also ultimately dilute the significance of materiality.
Take the case of biodiversity. An organization’s materiality assessment may clearly identify biodiversity as an issue not material to it. It could be that the organization does not come under any biodiversity sensitive zone. In such cases, it would not appear in the materiality assessment. However, this information would typically need to be present under the DJSI framework. This may cause undue pressure on the organization, with resources engaged in compiling information that is not even relevant to the company.
There are also significant data overlaps observed, between what reporters and investors consider material. For instance, both the G4 and the DJSI require information on total volume of water withdrawn by source, or, in the case of energy emissions, reporting on the same parameters—total energy consumption, energy intensity ratio, and so on. This leads to information overlaps.
Another example can be around the disclosure of energy across G4 and DJSI. An organization which has energy on its materiality grid will be required to report on a total of eight to ten unique data parameters across GRI and DJSI. However, even if the company doesn’t have energy on its materiality grid, it will still need to report on a minimum of four to six parameters on DJSI. This kind of information redundancy still remains to be addressed.
Optimizing Resource Time and Effort
Although the G4 allows companies more control over the details they report, the sheer volume of information required may result in too much time in recording data, instead of investing resource efforts in more productive areas. Moreover, reporters may invest a lot of time and effort to justify their materiality selection process and ensure that it is aligned to the overall business objectives. All this, even before the extensive data collection process!
Although the G4 does intend to offer a user-friendly framework for novices and experienced reporters to develop relevant and quality content, there is a rising concern that the reports are becoming too specialized to only cater to a small group of experienced stakeholders. This has received a mixed response. While some believe that the effect of the reports are becoming diluted as they are prepared for everybody and nobody at the same time, others are of the opinion that information-specificity, combined with a thorough awareness of resource scarcity, will make reports more effective.
Taking the Materiality Lens to Solve the Problem!
There is no doubt that the G4 aims to standardize reports generation, making available critical and relevant insights that can drive decision making. It also aims to integrate the reporting process, combining financial and non-financial sustainability reporting into one consolidated repository, to ensure unified operations. It recommends that reporters should clearly “articulate” and “respond” to stakeholders’ requests.
DJSI, on the other hand, is the most credible platform for investors to gauge the maturity of an organization in sustainability dimensions. However, the tremendous amount of data asks and a competitive scoring mechanism pushes organizations to do their best on DJSI disclosures, where “materiality” gets redundant!
The GRI vs DJSI reporting seems to be approaching the big debate question: how does a company manage a stakeholder’s interest to an investor’s interests?
However, based on our recent consulting efforts with a few future-ready organizations, we are observing that organizations who have a good hold of their stakeholder’s would always cover investors as a critical sub-set of these stakeholders. For these organizations, hence, the interests of stakeholders in GRI vs. investors in DJSI are aligned and resonate with the organization’s real footprint and efforts.
These are also organizations wanting to take bold steps towards optimizing the efforts required to report on overlapping data across GRI vs. DJSI. By ensuring they study, understand and resolve the overlaps with streamlined responses, this can be the ONE answer to similar questions.
About the Author
Rati Bhattacharya works as a Sustainability Strategist and Consultant for the Innovation and Transformation Group of Tata Consultancy Services. For the past 6 years, she has formed part of a core consulting group focusing on innovation, transformation, and growth through next-gen concepts and technologies. Rati was awarded the Climate Leadership Award in 2010.