Big Changes Ahead for G4 Sustainability Reporting: Are You Ready?

Have you been keeping up with the latest version of the GRI Reporting Guidelines set to launch next May?  The next generation of GRI (G4) has many significant changes that will have implications for US reporting companies.  Our friend Karl Pfalzgraf, Vice President of Sustainability Assurance at BPA Worldwide, attended the July GRI meeting in DC for Organizational Sponsors and received a full briefing on the proposed changes.  We had the opportunity to catch up with Karl recently and ask him a few quick questions.  We hope you enjoy his insights as much as we did!

1.  In a nutshell, can you explain the process by which the GRI Guidelines are revamped?

Working Groups comprised of representatives from business, labor, academia, civil society, the financial markets and consultants were appointed by GRI to draft the next generation of the GRI Reporting Guidelines (G4).  There was an initial public comment period for GRI to gather input regarding changes to the Reporting Guidelines.  

The Working Groups then drafted proposed changes which were reviewed by the GRI Technical Advisory Committee, Secretariat and Board.  An “Exposure Draft” was then released for public review and comment

2.  What is the current timeline for the new G4 Guidelines?

We are currently in the Second Public Comment Period – June 25th to September 25th – to solicit public feedback. Comments will then be integrated by the Working Groups, reviewed and approved by the GRI Governance Bodies, and officially released in May 2013.

3.  What are the major changes being proposed?

  • Elimination of the A B C Application Levels and + (for external third party assurance): They will be replaced by criteria that must be met for an organization to claim that the report has been prepared ‘in accordance with’ G4.
  • Several new required profile disclosures on governance: The proposed changes include new disclosures on the ratio of executive compensation to median compensation, the ratio of executive compensation to lowest compensation, and the ratio of executive compensation increase to median compensation.
  • A requirement that the CEO sign off on the report: A statement, signed by the highest governance body or CEO that the report has been prepared in accordance with the GRI Guidelines and that it is a balanced and reasonable presentation of the organization’s economic, environmental, and social impacts.
  • New and amended disclosures on the supply chain: They include a new definition of supply chain and of supplier, as well as new disclosures on procurement practice, screening and assessment as well as remediation.

4.  What do you see as the biggest improvements with this iteration of the guidelines?

  • Recognizing that executive compensation and the supply chain are key drivers of sustainability and worthy of additional disclosure.
  • Rethinking the concept of the report boundary that moves away from a legal ownership perspective to one that focuses on sustainability impact.

5.  What do you see as the biggest problems/challenges with the new proposed components?

  • Discontinuing the ABC application levels and the “assurance +” which have helped organizations begin their sustainability journey with a sensible, step-by-step approach and have led to continuing improvements in reporting.
  • Applying a “one size fits all” approach to reporting regardless of an organization’s size or experience in reporting. GRI intends to develop tailored guidance for small and medium-sized entities, but won’t have those guidelines ready until after the launch of G4.
  • Requiring the CEO to sign off on the report.  How many CEOs considering GRI reporting will back-off when they realize they have to publicly sign the report?  

6.  How do these changes tie into the push for integrated reporting?

Integrated reporting, the “integrated” representation of a company’s financial and non-financial performance is intended to provide better clarity about how sustainability fits into the business. The proposed changes are intended to provide more context around sustainability so in that regard they do help to advance integrated reporting.  GRI was hoping to do more but the development process of G4 did not align with the timeline of the International Integrated Reporting Council.  We should see more specifics in the future.

7.  Looking to the future, what impact do you see the G4 changes having on reporting organizations in the United States?

One of GRI’s primary objectives with G4 was, “to offer guidance in a user-friendly way so that new reporters can easily understand and use the Guidelines.”  By that measure, G4 falls short.  It is a dauntingly complex reporting manual that strains the limits of friendship.  New reporters may think twice about adopting GRI and existing reporters will wonder if the time and effort to comply with GRI is worth it.  They may decide they have other more important things to do, namely advancing sustainability in their organization.  

About Karl Pfalzgraf and iCompli

Karl Pfalzgraf is Vice President of Sustainability Assurance at iCompli, a division of BPA Worldwide.  ICompli provides independent third party assurance on government mandates, voluntary industry standards and organizational performance claims. Founded in 1931 by a group of advertisers, publishers and agencies, BPA Worldwide is a not-for-profit organization that conducts audits for media brands in print, online/digital, and live events across more than 30 countries.  You can find Karl on Twitter @BPA_iCompli.