The fifth GRI global conference in Amsterdam was celebrating 20 years of transparency, management, and sustainability reporting. The conference brought together companies large and small from around the world, their consultants and service providers, the investment community, and governance bodies. The overall tone was cautiously optimistic – updates to the GRI’s G4 guidance should make the reporting process more accessible and streamlined, but challenges remain, especially for small- and medium-size enterprises (SMEs). That said, the investor community reiterated the need for transparency and trust, which “comes by foot and leaves by horseback”. Often when companies disclose sustainability performance, it raises more questions requiring answers. The interaction that follows builds trust, and the improvement that comes as a result, builds real business value.

G4 guidance transitioning to GRI Standards
The GRI’s G4 guidance for sustainability reporting is admittedly large and complex. In 2015, the Global Sustainability Standards Board (GSSB) began a transition plan to update the G4 guidance to become more modular, easier to use, and more accessible to SMEs. The overall concepts and disclosures are largely unchanged, but the GSSB wants to provide additional guidance, clarifications, and recommendations for consistent reporting.
The new structure will include three universal standards applicable to all reporters: the Foundation standard, the General Disclosures standard, and the Management Approach standard.  Each organization reporting to G4 will also follow a handful of relevant topic / industry specific standards to ensure the relevant issues are addressed. If you are already reporting in accordance with the G4 guidance, this modular approach will eventually require a transition but the GRI is creating a mapping document and support tools to help you reorganize the information you have already prepared.
Some attendees expressed frustration at the timing of this change (so soon after everyone finally translated, learned, and reported to the G4 guidance), and pointed out shortcomings to the first draft of the new system. The GSSB lamented, everyone wants improvement; no one wants change; but they also welcomed comments from the group and have opened the standards for public comment and revisions through the remainder of 2016.  

Benefits and challenges of SME reporting
Despite the simplification and clarification of the G4 guidance, sustainability reporting can still take a significant investment of time, energy, and money.  SMEs often have relevant sustainability roles in the global supply chain but show little to no interest in understanding the standard, or budget for reporting to it.  A few case studies were presented where SMEs worked together gaining some economies of scale.  When consultants and big companies began recruiting SMEs to work on sustainability reporting, they found willing partners when they promoted the potential benefits to SMEs for increased business, financing for expansion, a more engaged and happy workforce, and stronger relationships with their customers.
Unfortunately, the overall process relied on investment from outside (either grants, NGOs, or large companies who buy from the SMEs). Consultants provided software and training; without this support, the SMEs likely would not have been able to conduct their materiality assessment, collect data, and prepare disclosures. Another important requirement was that the big companies echo and reciprocate investment and allocate resources.  Even though the benefits to the SMEs are tangible, the work would not be possible without the support of their big customers.  

Looking forward
Sustainability reporting is becoming the new license to operate, as investors are growing disillusioned with traditional metrics. Valuation of companies is relying more on brand value, supply chain risks, and other less-tangible, non-financial metrics. The EU will require many large companies to disclose Environmental, Social, and Governance (ESG) data alongside traditional financial and human resources metrics. Conference attendees included fund managers representing billions of dollars of market capitalization. They see sustainability reporting not as an end to itself but rather a sign of corporate excellence and long-term thinking.

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