Credit: Ken Teegardin, CC BY-SA 2.0

In recent years, the Global Reporting Initiative (GRI) has emerged as a potent force for bringing transparency and accountability to the practice of sustainability reporting, helping companies communicate to stakeholders with clear and consistent standards. The GRI now provides an increasingly influential reporting framework in the economic, environmental, societal and governance spheres.

Neil Hawkins, Dow Chemical Co.’s vice president for sustainability and environment, health and safety, in an interview, says, “I believe that GRI is the best standard for reporting in the world, and I think the companies that are using it and especially getting third-party validation are some of the more sustainable companies out there. GRI creates confidence that the report you’re looking at is accurate.”

Ron Loch, managing director of the sustainability consulting practice for communications firm Gibbs & Soell, agrees that many of the smartest companies are moving to the GRI framework. He tells me that “by following the GRI standards for sustainability reporting, companies conduct a ‘materiality testing’ that helps them define the environmental and social issues that are most important for them to address.” This process “helps sharpen a company’s strategic focus on areas that offer the greatest return on investment,” he says.

According to Ceres, the investors organization that originally launched GRI, more than 1,800 companies now use the framework for sustainability reporting. A study by GRI’s report services team found recently that 52 percent of GRI-based reports come from publicly listed firms. The top reporting sectors are financial services, energy, utilities, food and beverage, mining, telecommunications, chemicals, construction and health care.

GRI’s Reporting Framework

The Reporting Framework is made up of a set of Sustainability Reporting Guidelines, Sector Supplements and other materials. First developed in 1997 and having undergone continuous improvements since then, the guidelines are now in their third generation, with the G3.1 version released in 2011. The fourth generation is scheduled for release in May 2013.

GRI, a nonprofit organization headquartered in Amsterdam, the Netherlands, is not an authority, so it does not mandate how companies present their sustainability reports. The Framework allows considerable flexibility, acknowledging that companies can be at various stages along the path to sustainable business. The guidelines say:

Some organizations may choose to introduce reporting against the full GRI Reporting Framework from the outset, while others may want to start with the most feasible and practical topics first and phase in reporting on other topics over time. All reporting organizations should describe the scope of their reporting and are encouraged to indicate their plans for expanding their reporting over time.

Sustainability reports can qualify for Application Levels rated from C through A+, depending on how deeply organizations decide to apply the guidelines. The A+, B+ and C+ levels require external review and assurance, such as an audit by an accounting firm. GRI’s report services team says that 45 percent of reports are now externally assured.

Dow Chemical opted for an externally reviewed GRI report for 2011, which received an A+ rating. Hawkins tells me that 2011 was the company’s fifth year for submitting an externally validated report. Dow Chemical retains sustainability consultancy Environmental Resources Management (ERM) for independent review and assurance. “We’ve made a very conscious decision to do transparent reporting,” Hawkins says. “The third-party validation is something our stakeholders want. They like to know that our reporting is accurate.”

Credit: ERG

To help organizations make decisions about what they will report and how they will apply the Framework, the GRI guidelines have a set of Reporting Principles. These help reporting companies establish the topics and performance indicators that will help them ensure quality and effective presentations of their information. Important reporting principles include:

• Materiality. A company should employ indicators that truly reflect its “significant economic, environmental and social impacts” and that “substantively influence the assessments and decisions of stakeholders.” Materiality is a principle often used in financial reporting, but in sustainability reporting it is extended beyond simply the financial realm.
• Stakeholder inclusiveness. A company needs to identify its stakeholders and their expectations and interests.
• Sustainability context. This is the broader picture that shows how the company expects to contribute “to the improvement or deterioration of economic, environmental and social conditions, developments and trends at the local, regional or global level.”
• Completeness. A sustainability report should cover a significant scope, “sufficient to reflect significant economic, environmental and social impacts” and for “stakeholders to assess the organization’s performance.”
• Balance. A report should be realistic and honest and lack bias.
• Comparability. Consistency allows stakeholders to assess the organization’s performance over time compare it with other organizations.
• Accuracy, timeliness, clarity and reliability.

The GRI Framework includes sets of Performance Indicators, some of which are defined as Core Indicators that should be included in every report unless they are immaterial to the company. The framework also includes other indicators, such as Sector Indicators that apply to specific industries, including financial services, electric utilities, mining and metals and food processing.

Credit: Ecopetrol

The Framework’s Indicators have metrics in the following areas, among others:

• Economic performance, including financial performance, market presence and indirect economic impacts.
• Environmental performance around aspects of materials, energy, water, biodiversity, emissions, waste, products and services and transport.
• Social performance in such areas as labor practices, health and safety, diversity and equal opportunity and equal remuneration
• Human rights performance around such aspects as investment and procurement practices, nondiscrimination, freedom of association and collective bargaining, child labor, forced and compulsory labor, indigenous rights and security practices.
• Society performance, in terms of local communities, corruption, public policy participation and anti-competitive behavior.
• Product responsibility performance in such areas as customer health and safety, labeling, marketing communications and customer privacy.

The continued growth of Framework-based sustainability reporting shows that GRI is resonating with companies worldwide.

The work that goes into such reporting is not trivial, says John Visich, a management professor at Bryant University, in Smithfield, R.I. Such reporting “can be a daunting task,” he tells me, requiring “an investment in resources to collect the data and compile it into a report.”

The GRI G3.1 Guidelines outline six major report categories with a total of 55 required items and 28 optional items to report. While a firm’s finance and accounting departments have years of experience in compiling financial reports, a new department — or two — will have to be created to compile the environmental and social reports. And these departments will have to go up a steep learning curve as they begin the process of reporting on their companies’ environmental and social performance.

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