Is G4 reporting suicide?

08.04.2013

Following my two recent posts, in which I partially analyzed two reports for their alignment with the new G4 Exposure Draft, I wanted to add some concluding thoughts. In developing these two (limited) analyses of Clorox and Henkel reporting, I realize that in practice, G4 is much much tougher than G3, moreso than I anticipated. Value chain, supply chain, material aspects, core and add indicators, profile disclosures, management disclosures... it's all makes the reporting task a much more serious affair. In essence, this is what we should want: a more connected sort of reporting, one which addresses real impacts and outcomes and not just a list of let's-play-nice activities. G4 requires much more in the way of planning and preparation. Mapping your value chain, consulting your stakeholders, identifying your material sustainability issues in that chain, prioritizing them and selecting how to report requires great rigor. And all of this is before you have started to send out excel files to your internal content providers for data collection and filled in your case study templates. In essence, it's the right way to go. In theory, it's the right way to report on sustainability. It bridges the gaping gap between the shopping-list sustainability report and the material role-in-society sustainability report.

However, the G4 framework as presented in the Exposure Draft does not bring out this reality in the most effective way. The new G4 guidelines are not sharp enough to prevent confusion about what is required to report and what is recommended (guidance), and the presentation is difficult, taking some time to understand and then, even only after several readings. Because of the way G4 is structured, aligning management approach categories and aspects to material issues and performance indicators is no easy exercise, and makes defining the reporting structure a job which is more stretching than writing the report itself.

At this point, I would go as far as to say that launching G4 (as presented in the Exposure Draft) for the GRI would be akin to reporting suicide.

I tend to agree with Ben Tuxworth of SalterBaxter in his article on the Guardian Sustainable Business site, in which he states: "Though nobody doubts the good intention behind the changes, the overall sense I have from a seminar we held with a dozen leading reporting businesses in December is that G4 could make GRI simply too complex and burdensome. As one reporter we spoke to put it: "if the expectations of G4 cannot be simplified, existing reporters may begin to step away from GRI, and new reporters may not be in a position to report against the guidelines at all".

Marjolein Baghuis of the GRI responded to this article with the following comments about what might be expected to launch in May:

1. A new “in accordance” system with two tiers
2. Material focus: reporters will be required only to provide disclosures and indicators that are relevant to the business. It will be for the organization itself, in dialogue with its stakeholders, to determine what these are.
3. Separation between “What to report on” from “How to report” – greater clarity on what is requirement and what is explanation

So "In Accordance" may now become Application Level A and Application Level B? A two tier approach is not the solution. GRI needs to find a way to allow and reflect gradual and evolutionary implementation of the guidelines in a more comprehensive way without a qualitative beginners/advanced, high/low, better/worse black/white, A/B, impressive/not-impressive dichotomy. The approach needs to be fundamentally different. GRI has to be more creative here, and not simply reapply a bad system in a different way. Creating two tiers simply adds to the complexity and creates another margin for error, or even false claims.

Without the competitive benefit of being able to claim "In Accordance", at whatever tier, many companies will use G4 to "inform" but not to "frame" their reporting, which would lead to a stark dilution of the application of the GRI framework in practice, possibly even less rigorous than today. While G4 has some good ideas and intent - value chain, materiality, some more detail on supply chain etc - the sum of the component parts is horrendously burdensome and, frankly, unnecessary.

I disagree with Ralph Thurm who claims that many of the objections to G4 are about the (increased) number of indicators that should be reported. I don't think that's it. I think the problem with G4 is the relevance of the indicators required and not the quantity. We may want transparency, but we must curb our appetite for information overload for the sake of information overload. We want to see the wood and the trees. But if we have too many trees, all we will see is a big blurry landscape with undefinable constituent parts. The 2494-page document published by the GRI including all the responses to the G4 Exposure Draft Public Comment Period makes for interesting reading (if you have a few months to spare) and largely supports the need to simplify, clarify and focus the new guidelines on what's truly important.

Who will monitor G4 compliance? Will GRI perform "In Accordance" checks on every report that wishes to claim this achievement? If not, who will? Stakeholders will not perform detailed checks on adherence to GRI, no matter how many times the GRI says that it is their responsibility to do so.

We all want businesses to perform better on sustainability, and be more transparent, and we recognize that there are many gaps in the current reporting landscape. G4, as is, may only serve to make those gaps wider and impossible to reconcile. Companies who are already experienced in reporting at the highest (GRI Application Level A) level, may be tempted to push the envelope, but, frankly, why should they strive to be "In Accordance"? Would it not be simpler for companies to publish a more general non-GRI based report, while responding to specific requests for information such as the Carbon Disclosure Project and the DJSI or other rating and ranking and analyst companies? Despite the objective of harmonisation, it is not clear how the GRI aligns with these frameworks (except for realignment of emission scopes reporting with the CDP), and when it comes to the crunch, companies may believe that they could gain more value from focused responses to information requests rather than publication of an overly complex Sustainability Report. In fact, this is a core inconsistency in the GRI approach. On the one hand, reporting is for stakeholders who should check whether companies are indeed transparently accountable. On the other hand, most stakeholders are not willing/able to do the detailed work to identify whether companies are actually living up to their promise in terms of report quality, accuracy and adherence to a reporting framework.

This is what GRI says "GRI is not in a position to police or control the quality of reports based on its Guidelines – this is outside of the remits of what GRI does. However, using GRI’s Framework means organizations should engage their stakeholders when developing their reports. GRI also encourages stakeholders to challenge reporting organizations on their sustainability goals and what they report."

The fact that almost nobody notices when companies mis-report, or mis-apply the GRI framework, may suggest that stakeholders are passive and perhaps, gullible. Or it may suggest that they are looking for the big picture, the material impacts, the difference a company's activities makes in their lives and in their communities, rather than the detail of how many suppliers of which type a company employs in Latin America and how many tons of ingredients it buys from each. It may suggest that stakeholders want enough data, but not too much, to assure themselves that executive remuneration is equitable, aligned with company performance and competently managed, rather than the entire disclosure of the "ratio of the annual total compensation percentage increase for the organization’s highest-paid individual in each country of significant operations to the median annual total compensation percentage increase for all employees in the same country (excluding the highest-paid individual)." Stakeholders want to know about supply chain risks, but may not need the full report of "the percentage of existing suppliers and other business partners identified as having actual and potential adverse impacts on society assessed on society-related performance, and actions taken".

In this sense, G4's focus on materiality is good. But this focus is buried in a mass of profile disclosures and a long list of performance indicators which go into unnecessary depth and which most stakeholders will not know how to use. Even the most skilled of financial analysts will be challenged to understand the financial impacts of such granular disclosures. Maybe G4 will have the effect of encouraging companies to leave detailed reporting of performance to those who specifically ask for it (and presumably know what to do with it) while publishing a more general review of their sustainability impacts for the bigger picture stakeholders. I think it would be a shame if this happened and could lead to disjointed reporting and potential for inconsistencies.

In the run-up to the May conference, I believe the GRI needs to do some soul searching, rethink several elements in G4 and turn it into something it was originally intended to be: a simpler, clearer, more relevant and more accessible framework that will deliver information that stakeholders need and know how to use. That doesn't mean just cutting out the extra bits. I think a real back-to-the-drawing-board approach is called for to get to what matters most in the most effective way. I hope we will see a somewhat different G4 in Amsterdam in May. I suspect it's probably pretty much wrapped up by now, bar the waiting, so these comments may have missed the train. But it's not too late to make a change in the way G4 is launched......

....... I would recommend a soft launch for G4: an invitation to up to 100 reporters to produce their 2013/2014 report using G4, log their experience, make recommendations, and help define whether G4 is really a workable, beneficial, new framework or something that looks great on the drawing board but overly challenging in the harsh reality of corporate practice.

PS: In the meantime, have your say about the reporting landscape now and in the future in the CR Perspectives survey from CorporateRegister.com.