Embracing the new GRI standards
Tony Wong, Founder and GRI Nominated Trainer, Alaya Consulting Ltd, argues that the new Global Reporting Initiative Sustainability Reporting Standards launched in October 2016 provide a user-friendly structure for Hong Kong companies of all sizes to start or continue their journey in sustainability reporting.
The Global Reporting Initiative (GRI) – the most widely used sustainability reporting standard for corporate and institutional reporting on an organisation’s environmental, social and governance (ESG) impacts – launched its new, modular GRI Sustainability Reporting Standards (GRI standards) in October 2016. This new set of standards represents the latest effort of the GRI in promoting the world’s commitment towards sustainable development, and features a clearer format and a new modular structure over the previous GRI fourth-generation guidelines (G4), on which it is fundamentally based. The G4 guidelines, currently the most commonly used sustainability reporting principles, will be phased out by 1 July 2018 to be permanently replaced by the new GRI standards.
Promoting sustainability reporting
Eric Hespenheide, GRI Interim Chief Executive, believes that ‘the improved structure, format and presentation of GRI standards, will open up reporting to thousands of organisations that have not yet begun disclosing their broader economic, environmental and social impacts’.
The GRI was initially launched in 2000, aiming for a future where sustainability becomes an integrated part of an organisation’s decision-making process. Over the years, the GRI framework has been continuously promoting international best practice in disclosing organisations’ impacts on environmental and social issues, and encouraging the transformation from financial-dominated business strategies towards sustainable thinking. According to research conducted by KPMG, 71% of the 4,100 companies surveyed in 2013 published individual sustainability reports, and among the world’s largest 250 (G250), the reporting rate has been stable at 93% since 2011.
The direction of the traffic is clear – sustainability reporting is now a global standard business practice. Companies should no longer ask whether or not they should publish a sustainability report – they either continue to swim against the tide and drown or catch up with this big wave and thrive.
This global trend is also getting closer to the Hong Kong market as the Hong Kong Stock Exchange (the Exchange) increased reporting obligations for companies in December 2015 by announcing stricter ESG disclosure requirements.
The Hong Kong market is clearly making efforts to follow global standards, but if we look at the real picture, Hong Kong companies are still one step behind this universal trend. The research issued by Alaya Consulting in October 2016 revealed that only 60 of the largest 200 companies (based on market capitalisation) listed on the Exchange published a separate sustainability report in the 2015 financial year, such a low percentage is not satisfactory compared with global practices. Many companies, especially smaller businesses, consider these reports time-consuming are sceptical about their return-on-investment, especially when they are still struggling to address business growth.
Sustainability reporting isn’t always easy. Like all worthwhile endeavours, it takes time, effort and the commitment of resources, but for those organisations that embrace sustainability reporting in good faith, the benefits always outweigh the costs. GRI has done its best to make reporting as straightforward as possible with the newly released GRI standards, enabling many more organisations, including small companies, to prepare their reports in a much easier way.
For those companies still struggling with their first sustainability report, the GRI standards are surely a perfect starting point.
What is new in the GRI standards?
The underlying goal of the new GRI standards is not to change the content, nor the key indicators, of the G4 guidelines, but to simplify the reporting process and to make it more straightforward to potentially millions of business worldwide.
New modular structure and clearer formatting
The new structure aims at providing a single solution for all needs, from comprehensive reports to issue-specific topics. Under the new framework, organisations are required to report on three universal standards, namely:
- GRI 101 Foundation – on the fundamental principles of the reporting standards
- GRI 102 General Disclosures – addressing the contextual information about the reporting organisation and its reporting practices, and
- GRI 103 Management Approach – disclosing the management system regarding material issues.
In addition to these standards, organisations can select to report on the 33 topic-specific ESG standards under the GRI 200, 300, 400 series, such as anti-corruption, emissions, waste management or child labour, based on the material topics of their own selection. This new feature allows organisations to handpick disclosure topics which are most relevant and significant to the sustainability of their business, emphasising the materiality principle – that is, to only report on topics that matter to the stakeholders and the business itself.
Overview of the GRI standards
Clearer instructions and terminology
To promote wider use of the GRI standards, clearer instructions and terminologies are applied. Within each standard, there is a clear distinction between reporting requirements (indicated by ‘shall’ ), reporting recommendations (‘should’) and guidance, providing standards users with straightforward instructions on what they are expected to report and how they should report them.
Key concepts from G4 have also been clarified to improve understanding and application of the standards. Some G4 terminology has been simplified, for example, ‘disclosures on management approach’ is now replaced by ‘management approach disclosures’; ‘indicators’ is now termed as ‘disclosure’, covering both qualitative and quantitative disclosures. In addition, some key concepts have been clarified to form a common language of sustainability reporting, such as ‘impacts’, ‘topic boundary’ and ‘employee/worker’.
Moreover, previous G4 disclosures (including indicators) have new unique identifiers, based on the number of the standard, for example Disclosure G4-10 is now numbered as 102-8, locating in GRI 102: General Disclosures; Indicator G4-EN15 is now 305-1, locating in GRI 305: Emissions.
Facilitating future updates
The GRI standards were developed by the Global Sustainability Standards Board (GSSB), a fully independent standard-setting institute, with professional insights from a cross-section of global society, including business, labour, government, investors, civil society, academia and sustainability practitioners. ‘Collaborating across the public and private sector, we designed these standards to guide sustainability reporting for any company, in any industry, for decades to come,’ Michael Nugent, Vice-Chair of the GSSB commented.
With this new modular structure, GSSB is able to update new report measurements on a continual basis, without requiring revisions to the entire set of standards, which means that the standards will be able to keep up with sustainability reporting developments, adapting to the ever-changing demands for new and improved disclosures.
This new set of standards would therefore best suit those companies who are concerned about long-term development, those who want to follow international best practice and those who are keen to show leadership in sustainability reporting. The standards are designed to enable easy updating and further inclusions. Reports based on these standards can be modified so as to keep them relevant in the rapidly evolving sustainability reporting landscape.
Sustainability reporting is a vital step to achieving a smart, sustainable growth that combines long-term business growth with environmental care and social justice. In order for the information to be meaningful and useful, it is crucial that companies should, and should only, report material topics that matter most to their business and stakeholders. Assessing materiality and forming a clear reporting boundary, thus, are essential to a sustainability report. Reporters should bear in mind that they should prioritise their topics and only focus on those that significantly affect their sustainable performance and stakeholders. The materiality matrix in the GRI standards is a very useful and efficient tool for companies conducting their first materiality assessment, and for those who are looking to revise and update their assessment process as well.
In the long term, materiality assessments also serve as a strategic business tool to spot possible improvements, by applying a sustainability lens to business development. A broad and inclusive materiality process with internal and external factors can deliver valuable benefits to the company above and beyond compliance with any sustainability reporting regulations.
The new GRI standards indicate a greater emphasis on this principle mainly in two ways – providing a modular structure and relocating the materiality principle. As mentioned above, the modular structure assists organisations to follow the materiality principle as it provides reporters with greater flexibility in selecting topics to report on, allowing organisations to determine what topics are material to their own business and stakeholders.
Additionally, the materiality principle is highlighted in the new GRI standards as it is relocated to the very beginning (GRI 101) of the standards, whereas in the previous G4 version, it was elaborated only in the fifth section. This change encourages reporters to define material topics before getting down to the report writing and concentrating on selected topics throughout the reporting process.
To further assist in defining material topics, an easy-to-use method for determining materiality and prioritising topics – the materiality matrix is also provided as a guidance to conduct a pre-report materiality assessment. This method strictly restricts materiality to those topics that reflect the organisation’s significant ESG impacts and substantively influence stakeholders.
Materiality matrix, GRI standards
Aligning with global trends
Sustainability reporting has become a standard business practice the world over, and the latest version of the Exchange’s listing rules and the release of its updated ESG Reporting Guide indicates the efforts the Hong Kong market has made to catch up with this development. But still, Hong Kong is lagging behind its peers on this global trend. Companies should no longer dwell on the question of whether or not to publish such reports, but to embrace the opportunities open up to them in leading and promoting sustainable business development. The more important questions now are ‘what should we report on’ and ‘how should we report it?’
The new GRI standards provides a perfect platform for Hong Kong companies of all sizes to start or continue their journey in sustainability reporting with an easy and user-friendly structure. Applying the GRI standards makes sense for companies wishing to gain leadership in ESG reporting and to better align to other international reporting frameworks.
We are now living in a world undergoing unprecedented environmental and social changes and action needs to be taken to ensure sustainable development. Publishing a sustainability report is not only a process by which a company can gather and analyse the information it needs to create long-term value and to be resilient in the constantly changing environment, but is also an essential way to convince stakeholders that the business has a truly sustainable future. It is high time that Hong Kong companies caught up with the global trend and show leadership in reporting using the latest GRI standards.
Founder and GRI Nominated Trainer, Alaya Consulting Ltd