GRI G4 will transform companies. Discuss.

Some commentators are bemoaning the changes to the GRI G4 released last week, while others are praising them. I’ll hold my views until next week, but it’s interesting that the G4 has polarised responses more than any other change to the GRI Reporting Framework.

GRI G4 – Main changes

First, a quick summary of the changes from to the GRI in the new version, G4. Most of what I said in relation to the Draft also applies – it didn’t change a lot.

Materiality

The GRI G4 relies heavily on the new Materiality process (which itself relies heavily on the materiality process from previous versions). But unlike in previous versions of the GRI, organisations must now disclose details of their materiality process, including which GRI-identified issues were discarded along the way, and which issues they think are relevant to report, and why. And the process needs to be validated by stakeholders (or others).

Far be it from me to suggest that some organisations never did the proper Materiality process from the G3, but I’m guessing this new process will catch some out. I know of several companies that commenced GRI-compliant reporting without having some of the hard conversations that a proper Materiality process will require.

It also gives organisations greater flexibility in terms of determining which issues are material for them and room to explain why issues are (or just as importantly, are not) relevant. No doubt some organisations will game that aspect, but sophisticated readers (including investors who will have more interest than ever in GRI’s reporting framework because of the Materiality aspects) will soon learn how to spot the gamers.

Materiality_Matrix_The_Perfume_Magazine GRI G4

GRI G4 relies heavily on a Materiality Matrix, like this one

For the sustainability professional, the extra room for conversations about material impact of CSR issues on the business will be both blessing and curse. For some it will reveal an untold level of bigotry against CSR, while for others it will help the organisation understand more of the business benefits from CSR-motivated thinking. If issues are more material, then they must have a bigger bottom-line effect.

If you want a hand with your Materiality Matrix, read my Top Tips or head on over to ValueCSR for some serious help.

Easy as ABC? … not any more

Gone are the self assessment levels from the G3. For some the ABC was confusing anyway, so its something of a welcome change. Although for those who understood the levels, they’ll probably miss the sneaky insight into how solidly GRI has been integrated.

Instead reporters will use Core and Comprehensive as indicators. There really isn’t a lot of difference between those two, but I still expect that they will be useful indicators of ambition for CSR within a particular organisation, and possibly become as much a proxy for quality of transparency in a report as ABC was.

In any case, the GRI can’t use the Jackson 5 to promote their reporting tool anymore.

Gone too is the ubiquitous ‘+‘, which was relatively meaningless without delving into the disclosures about assurance. In the new system, assurance will disclosed on a line-by-line basis, making it arguably easier to spot exceptions to assurance.

Readability

I realise that on the surface readability doesn’t count for a lot, but the GRI G4 final version improved massively on their draft. Not even my years of commercial lawyerliness could prevent me from getting bored by the dryness of the draft. By comparison, if the draft was a slab of text, the final version is an Infographic flowing with easy to read prose and diagrams to help readers. Big props to the GRI team, who clearly put a lot of effort in here!

The guidelines have also been split into to complementary parts, Book 1 and Book 2. The B1 and B2 approach also appears to be useful, with B1 telling you about How, and B2 helping with What. I think that makes it clearer for Sustainability professionals and also is helpful for having conversations with people within an organisation.

GRI G4 's B1 and B2 together make a great team (little nod to the readers with kids - especially the Australian ones)

GRI G4’s B1 and B2 together make a great team (little nod to the readers with kids – especially the Australian ones)

Scope

In some ways, organisations have greater control of the scope of reporting they will do under GRI’s G4, but in other ways, it will be much more costly and intrusive. There is a greater reach into most companies supply chain’s for comprehensive reporters.

The game has also changed in relation to the removal of the command and control test that pervaded supply chain reach – the test now relies on the much sharper definition of ‘impact’. Hiding behind complex structures won’t be as easy as it was for organisations who had things to hide. Putting it another way, if it’s a material issue, it really doesn’t matter who owns, who contracts, who sub-contracts, who doesn’t provide safe working conditions or who controls; it’s a question of what the organisation is doing to control detrimental impacts.

The changes in scope are profound, and (along with the issues of materiality) will be a significant input into deciding how successful the G4 ultimately is.

Governance Revamp

The additional Governance disclosures to achieve a Comprehensive report bring GRI closer to the level of disclosure expected by SRI and Ratings communities. There is a much greater focus on ethics and how issues are managed internally, and the changes are also broadly in line with the drive toward clear governance that seems to be infecting most of the stock exchanges of the world.

Other Changes

There are many other more minor changes, which would take too long to explain, when there is much to discuss about the G4 itself.

Next week I’ll give a framework for analysing the changes to GRI, talk a bit about how Integrated Reporting is related and give my thoughts on the G4 changes.

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