Sustainability reporting body provides greater clarity on materiality, launches sector-specific standards, strengthens the governance disclosures.
The Global Reporting Initiative’s (GRI) new sustainability reporting standards aim to enhance human rights-related information flows to investors, while improving overall transparency and governance of corporate impacts on the environment and society.
GRI said the update to its Universal Standards is the most “significant change” since GRI Standards’ launch in 2016 and would come into effect for reporting from January 2023.
The standards body estimates at least 10,000 companies globally use GRI Standards annually for sustainability reporting, while recent KPMG research found that 73% of the 250 largest companies in the world reported via GRI in 2020.
The new standards support disclosures in line with major intergovernmental frameworks relating to human rights and sustainability due diligence, including the UN Guiding Principles on Business and Human Rights, OECD Guidelines for Multinational Enterprises, OECD Due Diligence Guidance for Responsible Business Conduct, ILO International Labor standards and ICGN Global Governance Principles.
“Transparency is a great enabler for change, which is why improved and widespread reporting by companies on their human rights impacts is essential,” said Dante Pesce, Member of the UN Working Group on Business and Human Rights. “We need the right tools to speed up and scale up implementation of the Guiding Principles, therefore I encourage all companies to apply the Universal Standards, demonstrating how they are fulfilling their responsibility to respect human rights.”
The update to GRI’s Universal Standards is part of a multi-phase project to update its human rights-related disclosures, according to Judy Kuszewski, Chair of GRI’s Global Sustainability Standards Board.
“Human rights-related disclosures had previously been incorporated into a whole range of GRI standards, but needed to be updated as a single project. As a consequence, we opened up the Universal Standards to ensure a high-level focus on the impacts on people across the entirety of the sustainability report,” Kuszewski told ESG Investor.
As part of the exercise, GRI has reviewed the advice it provides to companies to encourage the necessary level of focus on human rights impacts and responsibilities, she added.
Commitment to materiality
GRI’s revised Universal Standards comprise three standards. The Foundation standard outlines the purpose, principles and requirements of sustainability reporting using GRI standards, General Disclosures covers disclosures on reporting practices, governance and other organisational factors, while Material Topics provides guidance on how to determine and manage material topics.
“This should strengthen consistency and comparability, and should reduce cherry picking in sustainability reporting. The new standards provide stronger guidance on materiality and aim to really nail down some of the lack of clarity around materiality in previous GRI standards,” added Kuszewski.
The new standards are accompanied by the publication of a GRI’s first sector-specific standard, for use in the oil and gas industry. Sector-specific standards are also under development for coal, mining, agriculture, aquaculture and fishing.
GRI’s Sector Standards provide information to firms about their likely material topics and are used to determining their material topics and the reporting needed for each material topic. These are used alongside Topic Standards, which contain disclosures used by firms to report information about impacts in relation to particular topics.
“We’ve also strengthened the governance disclosures in the universal standards as we know this is one of the main areas of interest for investors. They look closely at how organisations are set up to make good decisions and to ensure internal and external accountability for those decisions,” added Kuszewski.
GRI said firms using its revised standards would be able to comply with upcoming regulatory requirements such as the EU’s Corporate Sustainability Reporting Directive, as well as handling new reporting standards which may be used as the basis of mandatory obligations, such as those being developed by the IFRS Foundation’s proposed International Sustainability Standards Board.
“While the new Universal Standards clarify GRI’s emphasis on sustainability impact as the main driver of materiality, they do not interfere with reporting firms’ other obligations, including those that are still under consideration,” said Kuszewski.
Major jurisdictions are at different stages in the development of their mandatory sustainability reporting requirements. Europe has explicitly committed to a regime that requires the reporting of environmental and social impacts by and on corporates, known as double materiality. The UK is also heading in this direction, but the US has yet to establish is mandatory disclosure rules.
It is, however, expected that the US will prioritise sustainability disclosures focused on impacts on enterprise value, rather than those on environment and society, in common with the approach indicated by the IFRS Foundation.
GRI is helping to develop sustainability reporting standards for European firms with the European Financial Reporting Advisory Group (EFRAG) Project Task Force on European sustainability reporting standards.
EFRAG recently published an interim draft of its climate reporting standard. The proposed disclosures are aligned with GRI’s reporting, but also take into account information needed in order to facilitate and support other aspects of Europe’s sustainable finance regime, including the Taxonomy and Sustainable Finance Disclosure Regulation.
Kuszewski acknowledged the potential difficulties arising from different approaches to sustainability reporting, but emphasised the need for further work to strengthen links to ‘traditional’ financial reporting processes.
“There is still a process missing by which we can create a dialogue between the pillars of sustainability reporting and financial reporting to understand the ways in which external factors – whether or not they float through to the balance sheet – may have a system-wide impact on corporate risks which are felt by investors. That link that bridge has not yet been created,” she said.