GRI has been the gold standard for sustainability reporting for many years; of late, it seems to be slipping in terms of the mindmap of sustainability professionals. What could be the reasons for this decline? A quick rejoinder.
Over two decades ago, the Global Reporting Initiative (GRI) released the “exposure draft” version of the Sustainability Reporting Guidelines. In the subsequent years, GRI became the flag-bearer of sustainability reporting. The guidelines and later standards became the most common and widely adopted sustainability reporting framework, used by around 2/3rd of top 100 companies across 52 countries and 3/4th of Global top 250 companies[1] (KPMG – 2020).
And that brings us to the core question, from a position of unassailable lead, how is that GRI seems to be losing relevance? Or is it really?
But before coming to GRI, let’s look at the sustainability reporting landscape. In the last couple of years, we have seen a flurry of activity, the WEF Stakeholder Capitalism Metrics, the formation of the Value Reporting Foundation and the standards evolving through the newly formed ISSB. Recently, the regulatory bodies have also started presenting their reporting requirements like the EFRAG, SEC and our own SEBI BRSR.
In this high-octane scenario, where does GRI stand? Is the standard losing out?
The answer from me is a big NO. For me, personally, there is no question about the relevance of GRI. The legacy and the mechanisms are its biggest strengths. In addition, what I much admire about GRI standards is the way they keep evolving through a collaboration of multiple stakeholders. This multi-stakeholder process is hardly present in other reporting standards, as most of them seemed to be singularly guided by just one — namely, the investor. Although the genesis of GRI was also to activate an investment response towards sustainability issues, it was developed to sensitize investors on the need to factor in multi-stakeholder views.
The trigger for GRI came in 1997, in the wake of public outcry over the environmental damage of the Exxon Valdez oil spill. The spill off the coast of Alaska took place in March 1989. In the same year, CERES (Coalition for Environmentally Responsible Economies) was founded, and they created a 10-point code, initially called Valdez Principles, which then became CERES Principles. In 1997, CERES formed GRI in partnership with the United Nations Environment Programme (UNEP) to “enhance the quality, rigour and utility of sustainability reporting“. This year is the silver jubilee year for GRI.
Having witnessed the standard-setting process first-hand, I can vouch for the multi-stakeholder process behind it. GRI ensures representation from 5 constituent groups as below [2].
- Business Enterprise
- Civil Society Organization (CSO)
- Mediating Institution (MI)
- Labor
- Investment Institution
Apart from the constituents, it also ensures that Stakeholders are also organized into seven major geographic categories:
- East Asia and the Pacific
- Europe and Central Asia
- Latin America and the Caribbean
- The Middle East and North Africa
- North America
- South Asia
- Sub-Saharan Africa
On top of this, they also maintain gender balance. During the GRI G4 development, I witnessed the quality and strength of the discussions, debates, and arguments that happened in the development of the guideline. I was involved in the committee that developed the materiality principles for GRI G4. This fundamental principle in recent times has been in the limelight because of the segregation that has come up between “Single” materiality and “Double” materiality. When the GRI G4 committee was discussing and finalizing, there was hardly any debate that there should have two dimensions.
The two dimensions, according to GRI [3]:
(1) The significance of the organization’s economic, environmental, and social impacts – that is, their significance for the economy, environment or society, as per the definition of ‘impact’ – and
(2) Their substantive influence on the assessments and decisions of stakeholders. A topic can be material if it ranks highly for only one dimension of the Materiality principle.
GRI also clearly states that ‘Impact” refers to the effect an organization has on the economy, the environment, and/or society, which in turn can indicate its contribution (positive or negative) to sustainable development. It does not refer to an effect upon an organization, such as a change to its reputation.
SASB (Sustainability Accounting Standards Board) has clearly distinguished its materiality definition from that of GRI, focusing on information that is reasonably likely to be important to investors in making investment decisions [4]. BRSR (Business Responsibility and Sustainability Report) requires entities to disclose material issues that present a risk or an opportunity to their business. The requirement extends to disclosing the impact of such a risk or opportunity on the company’s financials. After the SEC (Securities and Exchange Commission) put out its climate plan, the debate over single materiality and double materiality has only grown more complex. I believe that from the objective of institutions like SEC, SEBI (Securities and Exchange Board of India) and even IFRS (International Financial Reporting Standards), they have a primary responsibility to ensure the investor money is safe. It is only the European Sustainability Reporting Guidelines under EFRAG (European Financial Reporting Advisory Group) that defines double materiality as a union of impact materiality and financial materiality, which is the closest to the GRI definition.
Also, there has been a major shift in the manner in which a business’s role is viewed in a post Pandemic world. Even before COVID hit us, at the Business Round Table in August 2019, 181 CEOs committed to lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders [5]. This marked a significant shift from the principles of shareholder primacy – that corporations exist principally to serve shareholders.
In these circumstances, I feel GRI has more relevance for the business today than ever. We also should revisit the original purpose of sensitizing the investor community to the sustainability challenges. In that context, it goes beyond just protecting their investments and ensuring that those investments create a sustainable impact.
The GRI standards, with its principles for defining report content and quality and followed by a whole list of indicators, is the mothership of most standards. The so-called “One Report” will never be helpful for all stakeholders. The future may not call it a Sustainability report because I have often seen terminology fatigue in my career in this field. I feel GRI should be differentiated for its legacy, the strength of its multi-stakeholder process, and the outcome in the form of the standards. GRI as an institution has a significant role in bringing its standard to the centre of the discussion.
So coming back to our moot question — is GRI losing relevance? I would again state that it is not a question of relevance. GRI as an organization should stand firm on the pillars of its legacy and the reputation it has built over the years. GRI could be the beacon for all stakeholders to have their voice in an ever-changing world of sustainability standards. The big question is, whether it has the fuel for the long haul…
[1]https://assets.kpmg/content/dam/kpmg/xx/pdf/2020/11/the-time-has-come.pdf
[2]https://www.globalreporting.org/media/mj0cd422/rop-sc-oct-2020.pdf
[3]https://www.globalreporting.org/how-to-use-the-gri-standards/questions-and-answers/pre-2021-gri-standards-system-faq/materiality-and-topic-boundary/
[4]https://www.sasb.org/implementation-primer/understanding-sasb-standards/
[5]https://opportunity.businessroundtable.org/ourcommitment/
Wonderful view point presented Sir.
Good one, thanks Santhosh