GRI Sustainability Reporting Framework
This is a transcript of the podcast interview recorded for Sustainability Explored on 27 of November 2019.
This is Season 2 Episode 14.
You can listen to it here, or join on any of your favorite podcast platforms.
[00:00] Hi, and welcome back to ‘Sustainability Explored’, a podcast on sustainability, environmental and social issues, justice, corporate leadership, circular economy, corporate social responsibility, and many more. This is me, Anna, as always your podcast host and a guide towards the world of sustainability and sustainable development.
Last week marked the opening of the second season of this podcast was a fruitful discussion on energy transition and climate change, with the energy and sustainability experts and professionals. We recorded it in Paris. Today I’m back home, I’m in Kyiv, and I want to talk to you today about the sustainability reporting.
As the end of the year approaches and it’s soon time for companies to report on [00:01:00] their deeds, it would be good to explore it more in-depth: the sustainability reporting, the kinds that are available and, probably, the importance of it.
You might want to listen later on or before, to the episode I have already had, an Episode #6 on sustainability reporting, it’s called “Sustainability Reporting: Transparency Is Always Appreciated”. Today I want to go deeper and wider into the reporting topic. So let’s start.
[01:42] Anna: Sustainability Reporting is an opportunity for a more dynamic engagement between investors and businesses. There is a clear link between good ESG performance (ESG, I’m just reminding, means Environmental, Social, Governance) and the ability of enterprises to be profitable and survive turbulent times.
In terms of data collection, there is still a big gap, especially in emerging markets, or when it comes to material ESG information about company performance.
Many investors, including institutional investors, need this information to make informed investment decisions. The lack of sustainability reports is a significant constraint on their ability to analyze and channel capital to sustainable emerging market companies. Over the last decade, GRI ( the Global Reporting Initiative) Sustainable Reporting Framework has established the international standards for sustainability reporting by organizations worldwide.
Sustainability reporting is a timely next step to improve transparency and strengthen trust in the private sector. It is also a management tool that can be helpful for companies to identify operational efficiency improvements, innovate on their products and services, build stronger relationships with stakeholders, enhance reputational value, and increasingly attract investors.
So what is this GRI (Global Reporting Initiative) framework, sustainability reporting framework, about?
It is meant to support senior executives and managers in establishing an effective internal system for the sustainability reporting process, as well as promoting an innovative and strategic approach to sustainability at the corporate level.
The second aim or goal of this sustainable reporting framework is to assist corporate reporting teams in the comparison of indicators between the IFC and GRI frameworks (‘IFC’ meaning International [00:04:00] Finance Corporation), thereby structuring information more efficiently. In some cases, there is a clear alinement and strong overlap.
Sustainability reporting is a business process that can create internal management benefits as well as enhanced reputational value. Environmental and social standards are applied in order to mitigate negative impacts on the environment and on affected communities and enhance the positive development impacts.
This reflects the World Bank’s and IFC`s belief that environmentally and socially sustainable companies are well-run companies with reduced risk and greater opportunities to succeed.
IFC’s Performance Standards, so the International Finance Corporation’s Performance Standards, the ones that are world-widely recognized, were produced through a rigorous process, including wide stakeholder consultation, and have become a leading benchmark for international financial institutions working with the private sector.
In 2012, the newly released performance standards were adopted as the basis for the Equator Principles, a benchmark for sustainable finance in emerging markets. To date, over 70 banks and financial institutions from developed and emerging markets have adopted the Equator Principles.
In addition, 32 expert credit agencies of the OECD (or the Organization for Economic Cooperation and Development) countries and 16 European development finance institutions now benchmark private sector projects against these performance standards.
At the same [00:06:00] time, while not adopting the standards in their entirety, some multilateral institutions are looking to achieve standards equivalence of their policy updates.
I have already mentioned in the Episode #6, I guess, the Performance Standards of IFC, so, will just remind you, there are currently eight Performance Standards, which outline the responsibilities of companies receiving or applying for international financial institutions’ investments.
They cover such Performance Standards:
1. Social and environmental assessment and management systems
2. Labor and working conditions
3. Pollution prevention and abutment
4. Community health, safety and security
5. Land acquisition and involuntary resettlement
6. Biodiversity conservation and sustainable natural resources management
7. Indigenous people
8. Cultural heritage
Throughout the standards… they include various requirements for companies to monitor and disclose information externally as well as internally. Performance Standard #1 also requires internal reporting whereby a company senior management should receive periodic assessments of the effectiveness of its environmental and social management program based on systematic data collection and analysis.
A crucial part of this is the need to communicate effectively with stakeholders, including communities and investors about sustainability in business operations and supply chains.
[00:08:00] Proactive communication builds trust and strengthens reputation, which in turn protects a company’s investors and facilitate its ability to implement strategy.
The quality of reporting is also a direct reflection of the company’s own grasp of its environmental and social performance.
The Global Reporting Initiative was established in 1997 with the vision that reporting on economic, environmental, and social performance by all organizations should become as routine and comparable as financial reports.
In July 2018, GRI released so-called GRI Standards. The generation of it’s now the globally recognized framework for sustainability reporting. The GRI framework sets out the principles and indicators that any organization can use to measure and report on its sustainability performance. It also provides detailed guidance to companies of different sizes and in different sectors on how to navigate the reporting process.
This framework has been developed throughout a global multi-stakeholder process and is subject to ongoing revision and updating. It is now the most widely recognized international platform for sustainability reporting. The GRI guidelines are therefore a global standard that companies can use to publish a public sustainability report, which is relevant to a wide range of stakeholders.
By using these guidelines, that company knows:
1) it has covered the key issues that most stakeholders are concerned about,
2) it has used performance indicators and methods for calculating performance data that are accepted by global experts in these areas, and
3) it`s reporting in a way that can be compared with its peers.
[00:10:00] In addition, the guidelines steer companies through an examination of their underlying strategies and systems they have established or need to establish in order to manage environmental, social, economic and governance aspects of business operations and engagement with their supply chain and distributors.
The process of preparing the GRI report can be used to promote and guide the development of structures of management, and monitoring that help a company anticipate and respond to an increase in range of questions from stakeholders.
Due to the strong alignment between the guiding principles of the GRI framework and IFC Performance Standards, the content of company’s sustainability report can, therefore, be a good starting point for many of the specific questions and investor, like any international financial institution, for example, IFC, EBRD, OPIC, European Investment Bank (EIB), etc will ask.
Let’s look now at the investor’s perspective.
Environmental and social and governance, so ESG information has been increasingly important to investors of all types. At the time of these episode recording, I checked, 2698 investors, responsible for approximately 30 US trillion dollars in assets, had committed to the United Nations Principles of Responsible Investment (check it on UNPRI.org) on the [00:12:00] basis that ESG factors can be material to investment decisions.
So once again, over almost 2700 investors responsible for 30 trillion US dollars in assets had committed to the United Nations Principles of Responsible Investment.
A number of key sustainability challenges have become areas of intense investor concern as it has become more widely recognized that the long-term sustainability of a business is directly tied to its ability to weather environmental and social trends.
For instance, in the case of climate change, investors have recognized that there will potentially be direct costs and benefits from the emergence of emissions trades and schemes, as well as indirect challenges and opportunities resulting from the geophysical changes and technology shifts that will be driven by climate change.
However, for investors to integrate ESG performance into their decisions, they require disclosure, that is comprehensive, consistent across markets, and robust. As a result, demand from banks and investors for quality corporate reporting has grown tremendously. This demand has manifested itself through activities ranging from shareholder engagements with companies to encouraging regulatory bodies to enhance ESG disclosure requirements in a number of regions.
Investors need a combination of data and analysis on how sustainability relates to and influences the strategy of the company ,as well as comparable performance data that can be used in order to benchmark performance.
Good sustainability [00:14:00] reporting can help investors understand the key strategic issues for a company, and also provides data that can be used to benchmark across a sector or a region.
So finally, what is the sustainability reporting?
It’s a form of internal monitoring, management, and external communication. So three pillars, basically — internal monitoring, management and external communication, which enables organizations of all sizes to meet the growing information needs of their various stakeholders, both internal and external.
In addition, reporting also helps reinforce internal capacities to engage the full organization in defining a corporate sustainability strategy, setting public targets, implementing plans and reviewing results.
Developed mainly for the private sector, but now being adopted by cities, NGOs, and government agencies around the world, sustainability reporting captures dimensions of an organization’s practices that have traditionally not been measured or reported in a systematic way.
For this reason, sustainability reports offer valuable insight into drivers of organizational performance that may previously have been overlooked.
What type of information is included in a sustainability report?
In the broadest sense of sustainability report, it’s about the economic, social, and environmental aspects of a company’s operations, they related impacts it has through its everyday activities and the consequences of those impacts for the company and others.
It can also respond to specific questions from a company’s stakeholders about key sustainability [00:16:00] topics such as relationships with local communities, protection of human rights, adaptation to climate change and corporate governance performance.
Increasingly, the investment communities are using sustainability reports to assess how environmental, social, and corporate governance performance might affect their investments.
Some companies are combining their annual reports and their sustainability reports into an integrated report and are putting it online in order to make information easier for investors to find. A sustainability report should contain information that is material or, more simply stated, information that matters to stakeholders, so that they can better engage with the company and make informed decisions.
Because the range of a company’s stakeholders may be broad, so will the range of information that may be included. The GRI Standard offers a set of principles and performance indicators that have been developed over more than 15 years of global multi-stakeholder dialogue to guide companies on what to report.
This can be used in combination with other tools such as IFCs Performance Standards and the United Nations Global Compact Principles (check it on www.unglobalcompact.org) to design internal commitments and management approaches.
Sustainability reporting has a direct link with the good corporate governance.
Transparency is a fundamental component of good corporate governance and serves to build vital relationships of trust with key partners and any business. This ranges from stakeholders and customers to employees, civil [00:18:00] society and governments. Each has a different relationship with the company and therefore different interests in its performance.
With a greater understanding of what makes a sustainable business, stakeholders want to know that a company is not only financially strong but also whether it has properly taken into account and has systems to manage other material aspects of its business.
Failure to manage across all dimensions of all the aspects of the business will be reflected in the results achieved, either in terms of direct financial consequences or diminishment of key intangible assets, such as employee productivity or tangible and measurable assets, such as customer loyalty.
Integrated sustainability performance and integrated reporting is recommended to enable stakeholders to make a more informed assessment of their economic value to a company.
The GRI Standards sets out the following principles for defining report content and quality. So content: materialities (they call their inclusiveness), sustainability context and completeness.
And as for quality, we are talking about balance, comparability, accuracy, timelessness, reliability, and clarity.
Material information will reflect the organization’s significant economic, environmental, and social impacts, or be information that would substantially influence the assessment and decisions of stakeholders.
When determining the materiality of report content, GRI states that organizations should also take into account the basic expectations, [00:20:00] expressed in the international instruments and standards, which their organization is expected to comply with.
In this regard, IFCs Performance Standards are a key sustainability benchmark for many companies operating in emerging markets.
Sustainability reporting has an external as well as internal benefits for a company.
Through the reporting process companies identify policies and systems that have to be enhanced in order to improve performance and communication.
Externally, it demonstrates a commitment to transparency and builds trust with shareholders, employees, customers, suppliers, communities, and other business partners.
Internally, when done well, the process of publishing a sustainability report can help a company stimulate internal communication and the alignment of vision, building management systems, develop staff competencies, and promote behavioral change.
It can be particularly useful in focusing the attention and resources on measuring and improving performance in line with corporate targets and for identifying gaps in existing practices.
Here is how the process goes.
So first step is — company should identify relevant sustainability issues and understand how these are linked to its business.
Second step is — to address these issues a company defines action plans to implement business cases with performance targets.
And the third step — company commits to a performance targets, monitors and reports annually to stakeholders and feeds back stakeholder perspectives into company strategy.
A sustainability report and the [00:22:00] reporting process offer ways for a company to channel data collection and evaluation so that it informs corporate strategy on an annual basis.
Many leading companies site the internal strategic value of reporting as one of the main benefits to their business.
For instance, reporting provides a resource for staff to serve as ambassadors and communicate about their company’s efforts. This in turn helps a company to harness staff input in planning effective sustainability strategies and achieving continuous improvement in their operations, products, and services.
Who should be involved in preparing a sustainability report?
This is one of the core questions.
As everyone, especially those companies who are reporting for the first time, are challenged with this — who should be involved in preparing the sustainability report?
Often information about a company’s social and environmental performance as well as economic and corporate governance aspects will be split between various departments and levels of operations.
If this information has not been collected before, it presents an opportunity to establish a system to gather the needed information in an effective way and to make sure it is conveyed in a comprehensive and understandable fashion.
Many times, companies will have done a specific social report about their community involvement. They may also have prepared this and submitted environmental reports for environmental authorities. They will often also have initiatives to improve attraction and retention of employees. However, these activities will most likely have been managed by specialists in different areas such [00:24:00] as community development, engineering, communications, or human resources management, who may not be in regular contact with each other.
The sustainability reporting process can facilitate the integration of these various aspects and provide input to cross-cutting corporate sustainability strategy. There are two effective ways to actually initiate such a process. The first one is to create a cross-departmental task force to initiate and facilitate the reporting process.
The task force should consist of knowledgeable staff or managers, that is from the relevant areas of company’s operations, who can ensure the quality data is collected. It should also meet regularly to ensure that information is shared, compared, and integrated effectively in an overall corporate strategy.
The second way, effective way to initiate such a process, is to provide leadership from the top, which is usually a problem. Nevertheless, a senior executive or a director should have responsibility and accountability for the reporting process and final outcome, similar to the annual report process.
Clear direction from the outset will help to guide the task force in terms of corporate priorities and messages. A senior executive can also push the task force to achieve a more ambitious standard and can ensure that the report aligns with and informs corporate strategy in the most effective way.
The benefit of this kind of corporate structure for sustainability reporting is that at any time an investor can quickly be guided to relevant companies’ contacts with regard to specific sustainability questions.
Sustainability reports are a way for companies to explain in their own [00:26:00] words how their strategies and systems for managing social and environmental risk, as well as opportunities, are working.
For any company, the providers of capital are the key stakeholder group. The presence over report is relevant for financial institutions as evidence of the client’s efforts to engage with different stakeholders.
The report itself represents a base of information that can be extracted into other formats, for example, websites, incorporated into any old reports, and also demonstrates openness to engagement. There should be a way to capture feedback and questions from these groups.
Specific questions from one stakeholder group may also improve communication with another stakeholder group.
So that’s it about the GRI reporting and the importance of stakeholder engagement, and reporting on sustainability. Next time I would like to… I hope you understood a little bit why it is needed and why it is important.
Next time I would like to invite a couple of guests to explore with them, which mistakes they made the first time, which lessons they learned while preparing the GRI reporting on sustainability, what were the main challenges and so on.
I myself did the first GRI report for a financial institution last year, and so will also share my findings and lessons learned.
Thank you for now. Stay tuned for more episodes coming next week.
Until then, take care and listen to previous episodes of “Sustainability Explored”.
Thank you. Goodbye. [00:28:00]
If you liked the episode, found it useful and/or going to implement anything that I mentioned, please do let me know, I would appreciate your feedback, and it will most certainly make me very happy! You can as well send me your questions, and I will try to answer them during the next episodes.
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Stay tuned, stay sustainable!
