The Global Reporting Initiative is growing up

Date: 25 Jul 2012

Regular readers will know that even though I have been a strong advocate of CSR / sustainability reporting I have been a GRI-sceptic for as long as it has existed. Why? Well, in the early days the indicator range was a poorly conceived hotch-potch of measures that really didn't tell you very much.

In the latter "G3" stage, although the framework had improved, it was still disconnected from who are the audiences for this information, still had a requirement for huge amounts of information - onerous to collect - that didn't tell you much, and had completely misleading features such as the A, B and C application levels that looked like, smelled like, and were taken by many companies in fact to be - a quality mark for the companies' reports that it wasn't intended to be.

During that time, of course, in spite of my critical commentary more and more companies have accepted the line that this is how such reports are done, and as a result it has become the widely used reference point. Fair enough. Sometimes you go with the best that you've got, and the impossible perfect can be the enemy of the achievable good.

My fear going back all that time was that reports that were little read that were so resource-intensive to produce would eventually create a board-level backlash. However, the ongoing string of corporate scandals, mishaps and catastrophes have helped to rule this out.

Reading a CSR / sustainability report might not have given you the information to predict any of these problems - but when the mood of the public and legislators is so antsy, you don't want to start making waves by turning against the notion of greater accountability. There you go. I'm very happy indeed to have been wrong on that score.

Now, the Global Reporting Initiative has released its consultation draft for what has inevitably been labelled G4. Is it a huge leap forward for those committed to using the framework? Will it make it finally fit for purpose?

I can raise two cheers. Believe me, that's progress.

First, it is proposed that G4 will drop the application levels. No more A+ or B reports. They will either be in accordance with GRI or they won't. Some companies will be outraged. They are the ones that boast about their A+ reports as though this meant that the report had been judged to be of high quality or indeed that their company has been judged to be highly sustainable.

You shouldn't blame the companies though. If you design a system that looks like a merit system, that's what people will believe it to be. I recall Toby Webb of Ethical Corporation and I making this case in a debate with a senior exec from GRI at one of Ethical Corp's conferences a couple of years ago. At that point, their line was that it was clearly understood that it wasn't a rating system. Clearly, reality has sunk in since, so that's to the GRI's credit that they've been prepared to fix it rather than simply tweak some guidance notes.

Secondly, rather than requiring companies to report on a huge range of core indicators - many of which were not very relevant to their market sector or situation - the new G4 will get companies to focus on a minimum of six key material issues, identified by them in consultation with their stakeholders. In principle, this should at a stroke cut some of the fluff, where you have to wade through a host of irrelevant, not very informative, stuff to get to the real meat of how a company is meeting society's expectations.

The danger that people will be worried about, of course, is that some companies will take the opportunity to miss out key material issues. Frankly, companies that were undertaking this process with the mindset to avoid giving bad information they didn't want to disclose found plenty of ways to bury that information in the past. Most companies will know only too well what their material issues are, and will know that their stakeholders will notice if they try to avoid talking about it.

In the past, some of the best reporters have refused to play the GRI game on this, and have focused on their important issues and have been penalised for it. They had the confidence to go ahead anyway, because they wanted to produce reports that were effective communication, not ones that ticked some fairly random boxes. They system has caught up with them. Great.

That's why good companies should not be constrained by these frameworks - they should look at what works for them and their audiences and do what makes sense. If they're right, the standards will be under pressure to follow. G4 does not abolish that incentive, by the way.

So that's two substantial cheers. I will profess myself to be moved from being GRI-sceptic to GRI-agnostic. Woot. Two key reservations remain.

First. There is still a lot of 'core' information required - and with G4 quite a bit of new added core information in areas such as governance, remuneration and supply chain - that companies will find problematic and difficult and which doesn't tell you much that you know what to do with.

So for instance, companies are asked at a country level to detail the remuneration of the highest paid executives, and to compare these to the pay of the lowest paid workers. You can understand the agenda behind this - as far as some people are concerned, a higher differential between the highest paid and the lowest paid is bad.

Simplistic formulas like this mask a huge amount of variation. Suppose you are a firm of solicitors, and you outsource back-office functions and office cleaning. You may have extravagantly well paid senior partners, but because the lowest paid people in the firm are also quite well paid, that won't show up so much in this particular comparison.

Equally, some would argue that the assumptions are wrong. If you value good leadership, then if the comparison is too far in the other direction, it would actually be a bad thing because your ability to attract the best leaders will be curtailed. So then you are left with the question - what is the desirable outcome for this indicator? What is the right ratio? And, of course, people very much disagree on that one.

Another random example of a new indicator with challengeable assumptions. "Describe the process for escalating complaints to the highest governance body." This is the kind of bureaucratic approach I think just gets in the way. Tell me this. How many complaints last year? How many were fully resolved within a short timescale? How many unresolved? What kind of complaints, and how are the problems that cause them being solved? If you can resolve all the complaints in a timely way without the highest governance body getting involved, is that better or worse than failing to resolve all the complaints, but having a process for referring them up the line? A good record of low complaints rapidly dealt with tells you all you need to know about the quality of the company's processes. Move along.

Scanning the list of information that remains required, it seems calculated to produce documents that are dry, and full of detail that tells you very little. Some of the governance requirements fall down to how many company committees can dance on the head of a pin, where presumably even picky SRI analysts really want to know how quality of management and oversight is brought to bear on the key issues of concern.

My second key reservation is that there is still no real insight or reference to different types of audience for this information. The GRI is set up as one big network of committees to produce a one (big) size fits all approach in a way that just doesn't work.

It should be made more explicit that full GRI reports are for those audiences that read complex reports - that's a minority sport by the way - but there should be some guidance on how to make these issues interesting and compelling enough to provide the same level of accountability to other key audiences. By and large, those that read reports want to download a pdf. Companies should be encouraged to separate out how they use their website to communicate the issues to non-specialist audiences from their GRI report.

Of course, there is nothing to stop companies doing that right now. But GRI could help a lot by ending the vanity that pretends that GRI reports are intended for all audiences.

Reporting companies still gain the most, in my view, by using the GRI as a resource of ideas and disciplines to draw from as appropriate, rather than as a standard to be followed. They should check with their most important audiences what are the areas of expectation, and communication should be tailored to meeting those audience needs.

And they should expect to think creatively about some of the communication that goes beyond the bounds of 'a report'. Because the definition of good communication is the impact it has on your audience, not on whether you ticked all the boxes in some framework.

Those companies for whom getting the badge is of real value, and who have interested enough stakeholders to heavily scrutinise what they are saying (a minority of the biggest brands) will find that reporting in accordance with GRI will have more aspects that are of value, and fewer that pull their resource into areas that are just not relevant.

In the mean time - I wonder what would happen if the GRI was told - by whatever higher authority could do such a thing - to cut the framework by half. Literally - you are only allowed 50% of the requirements you currently have. Do we think that would be impossible to achieve whilst keeping a framework that held companies to account in the areas of genuine interest?

I suspect that, on the contrary, you would end up with much better reports as a result.

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