G4 – the verdict one year on?

by Rikke Netterstrom  rikke@helikonia.com.my

Last May, the Global Reporting Initiative issued their new G4 guidelines. They differed substantially on a number of counts, and the focus on materiality helped move away from a tick-box approach  and provide for a more tailored report which is responsive to stakeholder concerns. At least that was the idea. One year and no with substantial experience in using G4, we take a look at whether this has been achieved.

The short answer is that G4 is an enormous improvement over previous versions. It encourages mindful prioritisation and presentation of relevant data whilst requiring very little unnecessary fill. We now rarely have to have painful discussions with clients who fail to see the relevance in collecting particular data. If it isn’t material it isn’t included.

A large concerns from some of my colleagues – both in-house and consultant professionals is that the G4 focus so much on materiality, but that it still is a complex and abstract concept which is difficult to quantify. I can see how it is indeed a rather vague term, and I sometimes wonder if ‘relevance’ might be better and clearer. Regardless of terminology, I prefer to see the complexity as a way to providing the necessary flexibility. Each company, even within narrow sectors, is extremely different, and a robust materiality process allows for these differences to guide report content. This year, we are providing advisory on five reports within the palm oil sector, and it is fascinating to observe the huge differences in material issues. Likewise, the clearer message that organisation boundaries should not determine report focus is also helpful; for good companies with robust management structures child labour or corruption may not be an issue, but occurrences of these in the supply chain may well pose a larger reputational threat than any internal practices. G4’s guidance on this is excellent and helpful in explaining this to companies wary of exposing external risks.

Of course, there is no such thing as perfect, so a few things could be improved:

Remove remaining tick-boxes. Whilst many obligatory indicators have been removed, there are still a few niggles which in many cases seem like overkill. In particular I have found that the requirement to list all stakeholder engagement, outcomes etc in a table is a poor way of presenting the stakeholder engagement cycle. For many companies, stakeholder engagement is an integral part of their approach to all material aspects and is better integrated into separate sections, highlighting how the approach to each separate issue is informed by particular stakeholders. Likewise, I am not a big fan of the requirement to list out material aspects, as a good strategy section and disclosure of the materiality matrix should suffice.

Core vs Comprehensive: While I am delighted to be rid of the A, B & C rating, I’d like to see this remnant removed. I really cannot see any reason why this remains, as a company which truly adheres to the reporting principles will and should only report on material aspects.

Lack of clarity of target groups vs stakeholders. Over the past 7 years, I have run materiality matrix exercises for dozens of companies around the world and in a great variety of sectors. Most companies find this a tremendously helpful exercise. However, I think that the ‘stakeholder’ moniker is too broad for this exercise, as there will always be someone who finds a particular issue of high importance. I now start the exercise by identifying target groups for the report, and focus the vertical axis on this. This does not mean that non-target groups are considered, as these may very well be a concern for the target groups (e.g. customers may well be concerned about community land issues, and investors about climate change).

Overall, these are minor niggles, and we will often adjust the process to ensure that reports meet the objective of engaging stakeholders and delivering information which is relevant, rather than perfect GRI-compliance. But with G4, the GRI has demonstrated once again why it is the leading sustainability reporting framework, and no local or alternative guidance comes close

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