I recently attended a two-day training course in GRI G4 Reporting. GRI stands for "Global Reporting Initiative" and G4 is GRI's newest generation framework for companies to use when writing up their annual sustainability report. Sounds dull, right? A niche line-item accounting standard for number crunchers.
But in fact G4 is a revolution.
G4 is really a process of principles-based reporting. A company must ask itself what is most material to its business, including risk factors, and report transparently on those things. C-level executives and the Board get involved in forward-thinking strategic analysis. Longer-term issues like water management or climate change are finally given their place alongside quarterly profits.
Companies' sustainability reports do not all follow GRI. Many follow randomly selected criteria and are not comparable to those of other peer companies. But a company wanting to use best practices would do GRI reporting, and there is a powerful lure to doing things the best way.
Meanwhile, the brand new Sustainability Accounting Standards Board (SASB) is working on reporting standards for US-listed companies. These will be more specific, so a company could do a GRI report and then report specifically on issues that have been identified as material for its particular sector. Investors will be able to compare information reported by the company with that of other companies in the same industry.
And once the number of comparable, reporting companies reaches critical mass, every US-listed company will feel the need to move to G4 and SASB industry-specific reporting, whether required or not (with a chair and vice chair of the caliber of Michael Bloomberg and Mary Schapiro, SASB standards are likely to adopted as obligatory reporting standards).
In April the European Parliament moved in the direction of making such reporting obligatory within the EU, approving a directive for large companies to disclose, using methodology they choose, "information on policies, risks and results as regards environmental matters, social and employee-related aspects, respect for human rights, anti-corruption and bribery issues, and diversity on boards of directors."
The real point is what happens within a company when the discussion on what to report takes place. Strategic questions are raised. If a company doesn't report on, say, a high profile human rights issue affecting that industry, it will have to explain why not. So the CEO is going to quickly weigh the pros and cons of adopting new policies, not just reporting on existing practices. There are plenty of incentives in place now for companies to proactively do less harm, and even to proactively do more good.
And this is where the change occurs. Not on an NGO's wish list. Not on a consultant's pie chart. In the internal discussion where business strategy can no longer be removed from environmental, social and governance issues and impacts, risks, responsibilities and opportunities. In today's globalized world, companies are not only the ones with the power to affect change for the greater good. We are moving towards a time when they will not survive if they do not.
