COMMIT!Forum Workshop Provides Insight into GRI's Upcoming G4 Guidelines

NEW YORK - The COMMIT!Forum, hosted by CR Magazine, kicked off today at Cipriani Wall Street in the heart of the world's financial sector. The Forum brings together participants from leading corporations, NGOs, analysis firms, and media outlets to discuss the most pressing issues in the world of corporate social responsibility.

This morning featured a workshop from BrownFlynn, the Ohio-based CSR and sustainability consulting firm. The workshop, entitled "Spotlight on Governance: Inside the GRI Framework," provided insight into the Global Reporting Initiative's (GRI) upcoming G4 Sustainability Reporting Guidelines.

The G4 guidelines, which will be released in 2013, are intended to provide a major update the G3 guidelines, which were released in 2006 (GRI released G3.1 in 2011 as a precursor to G4).

GRI has seen wide adoption at both European and North American corporations. In 2011, 80 percent of the Global 250 used GRI for non-financial reporting, up from 77 percent in 2008. GRI hopes that G4 will be more user-friendly than G3 to encourage further adoption. But the G4 guidelines will almost certainly be more difficult to implement than G3, which may dissuade some companies from adopting G4.

In an effort to make GRI reports more relevant to institutional investors, G4 will require that executive management play a larger role in the reporting process. Investors making long-term purchases of stocks want to understand the degree to which top-level management has assessed how sustainability issues can mitigate risk and provide opportunities for future growth. A company's sustainability governance processes are therefore increasingly important to institutional investors, and G4 seeks to reflect that.

"Investors see sustainability as a proxy for the quality of management," said Michael Berg, a senior consultant at BrownFlynn who presented at the workshop.

To issue a G4 report, a company's management will have to conduct an assessment to determine the most material issues around which the company should report. A G4 report will also have to be accompanied by a letter from the CEO that provides a "balanced and reasonable" presentation of the company's economic, environmental, and social impacts. The "balance" here is crucial, as CEOs will be forced to explicitly weigh the company's negative impacts against the positive.

Furthermore, where G3 focused on the number of sustainability indicators that a report addressed, G4 will focus much more on the materiality of a company's disclosure.

Reports based on G3 were assigned letters from C to A+ to correspond to the number of indicators the company reported on. This rating system led to the incorrect perception, especially in the United States, that the letters represented grades of the quality of the report (the letter system was developed in Amsterdam, where students receive numerical grades, so this ambiguity was not anticipated).

G4 scraps the letter system and instead focuses on the materiality of the report and the degree to which the report successfully addresses the company's sustainability risks and opportunities.

By and large, companies that received at least a B rating for their G3 reports should be able to report according to G4. Companies that are new to GRI or struggle to meet materiality requirements will have a grace period of two reporting cycles to get up to snuff.

The G4 Sustainability Reporting Guidelines will be released at GRI's global conference in Amsterdam in May, 2013, and GRI expects the first reports based on G4 to be released in 2014. Companies will still be able to report based on G3 and G3.1, but GRI anticipates that the adoption of G4 to happen fairly quickly.

GRI releases new guidelines every five to seven years to correspond to the evolution of the sustainability landscape. The public comment period to make suggestions about the G4 guidelines has ended, but Mike Wallace, Director of GRI's Focal Point USA, made it clear that he was still open to hear suggestions from North American companies and practitioners to make the G4 guidelines more relevant to North American companies.