[Ed. note: interested in learning how to apply the GRI in your company? Consider a training course in a city near you!]
A few weeks ago, TriplePundit sat down with the top man at the Global Reporting Initiative to talk about the latest iteration of the guidelines (G4) and what it’s like managing an organization that’s built on stakeholder engagement and the collective process.
TriplePundit: Hi Ernst! Tell us a little about who you are and what you do.
Ernst Ligteringen: I’m the Chief Executive of the Global Reporting Initiative. The Global Reporting Initiative is an international network of individuals who have one interest in common: to make sustainability reporting — reporting on environmental, social and economic impacts — a robust practice. We want to make it a common practice that serves businesses, markets, and society.
I’ve been at the GRI since it moved to Amsterdam became an independent organization in 2002. GRI was actually started in the United States in Boston by CERES. The first guidelines were tested by American companies, American businesses, and foundations. After four years or so they decided that this was clearly meeting a need, but in order to grow, it needed to be spun off into an independent organization. So it was moved to Amsterdam and that’s when I came on.
At that time, I was in conversation with the founders, and they said, “well, we’ve decided to put it in Amsterdam. What do you think?” Now, I am Dutch, but it is pure coincidence because I never expected in my life to be back in Amsterdam. So I went back for the GRI and have been here since 2002! What a long time.
3p: Time flies, right?
EL: It does fly. But GRI has come a long way in the last decade. In the early years, there were a couple hundred reporting entities and issuers of reports. The experience was still very shallow. But the concept was great. What we do is foster collaboration by putting people who have direct experience issuing and producing reports together with those who have an interest in using reports. We codify that collective experience and intelligence into the GRI guidelines.
The goal of the GRI guidelines is to offer a very clear framework with a common language and metrics, to make sustainability reporting a common and useful practice. It has evolved from that to where we are now. To the best of our knowledge over 5000 reports are being issued, many of them from the world’s largest companies. 95 percent of the Fortune 250 now issue Environmental, Social and Governance (ESG) data.
So we’re moving very quickly from what was once an innovative idea to actually making sustainability reporting the norm for organizations. This will allow markets to get accurate information about the whole corporate picture.
3p: The GRI is a global framework. How do you create common language from country to country so that the standards are flexible but consistent with so many different reporters?
EL: The biggest challenge is that many issues have a specific context and meaning and that differs from culture to culture. And this is a challenge because, on the one hand, we feel that a global framework has its value: without it we could never speak to each other and understand each other in the global marketplace. But, on the other hand, we shouldn’t lose the unique variations of the perspective that nations and regions bring.
Discrimination is a good example. The GRI guidelines invite organizations to report on policies against it. But many countries have very different perspectives on what constitutes discrimination and how to manage it. So the guidelines must be flexible enough to speak to universal truths while leaving room for individual variation.
We have one experiment going on in Brazil, at the moment. The concept is that just as the GRI has the sector guidance, it needs national or regional guidance to showcase the organization through its local context. In this case, Brazilian reporters describe the Brazilian-relevant references to legislation and best practice. So that’s a very important pilot and we want to work further to see how regional reporting guidelines can actually support the reporting process.
3p: How do you balance a desire for detailed, specific reports with a need to welcome and not overwhelm new reporters?
EL: The issue is not so much the number of reporting requirements, but rather how clear the reporting guidance is. The goal is to encourage more relevant and increasingly more focused reports. All the work we’re doing at the sectoral level is not to make reports thicker, it’s to make them more specific. And that needs to be the overall trend.
With G4, the fourth generation of the GRI guidelines, coming, we’re focusing more on depth and breadth in order to encourage more solid, robust reporting with a strong focus on materiality.
We still need to help companies to move away from an idea that this is some sort of marketing exercise or that this a compliance exercise where you have to tick every box.
Our focus in G4 is on materiality – the critical issues facing a company. We would welcome reports being increasingly focused – or thinner – when published, as well as increasingly fact- and evidence-based. Data is important, but piles of data don’t make much sense unless the company tells a very clear story with the data.
3p: In our work we talk about sustainability as a benefit to markets because it provides additional information to investors. But many investors are still focused solely on quarterly earnings and other financial metrics. What do you tell companies that do not face investor pressure and therefore do not prioritize sustainability?
EL: Financial markets are coming late to the game. Many analysts are not prepared at all, they don’t understand it, so they won’t ask about it. Markets on the whole are geared to the short term. That’s one of the problems, they don’t factor in many of the externalities. That’s also why markets are sometimes caught by surprise.
I would say, the fact that your short-term focused analysts are not asking about this shouldn’t be a reason for a smart company to say sustainability is irrelevant. The same analyst might suddenly come back next year because they’ve realized that some sustainability issue has become highly material to them and they probably won’t give you much notice to respond. What isn’t considered material today might suddenly become highly material next year. And if you look over all the kind of issues that will effect our economic fundamentals, it is just simple logic that sustainability issues are going to shape the markets and are going to shape the operating environment for companies.
3p: Why such a big focus on reporting at the sectoral level?
EL: Markets need information. They can’t work without information. The information needs to be very generally available for it to work. It’s like a swiss cheese. If the available information is full of holes, then analysts can’t do much with it. You can’t analyze and compare if you have data for some companies in a sector but you lack data for other companies.
In order to get to the point of sector-wide information, that’s where policies are needed. And not necessarily to make it all mandatory. What we need at this moment is the discussion of how you actually establish effective policies. Because as this information becomes more generally available, as the U.S. economy positions itself to deal with the economic truths. Øystein Dahle, vice-president of Exxon Mobil from 1985 to 1995, said: “[Communism] collapsed because it didn’t allow prices to tell the economic truth. Capitalism will collapse because it doesn’t allow prices to tell the ecological truth.”
There are so many dimensions that are fundamental to the functioning of an economy, and sustainability is one of them. When I say economy I mean national economy but also corporate economies, about resource use, about how we affect our environment, and our environment is the beginning of any production process and about social effects. So if you don’t incorporate those, you’re only having a partial view of how your economy is functioning.
So, in order to come to more complete information, it needs to be generally available, and you need to have policy for that.
3p: How does the G4 differ from the past iterations?
EL: Previous iterations are – I wouldn’t say looser – but less specific. In G4, we separate out the guidance from disclosure items. There will be a separate dimension to G4 that will give guidance on how to report, but originally we wanted this guidance to be in a separate document so that issuers would not be overwhelmed. We will now have specific sections where we give the disclosure items, shaped like a reporting standard. So this So this ‘standard’ presentation, for your readers who are familiar with it, it’s one of the reasons why the G4 Exposure Draft proposes to abandon the application level system.
3p: And application level checks, level A, B and C, are gone completely?
EL: The proposal in the draft is to abandon the application level system, because standards have this binary quality. You follow them or you don’t. If you only follow the standard a little bit, it doesn’t give the readers any assurance so it shouldn’t count.
3p: Does that mean that, at least in this iteration, the standard is going to get a little bit lower so that people can comply? Will what we now call the C level be the new standard?
EL: It’s not about how many elements of the standard you pick up anymore, everyone needs to follow the complete standard. At the same time, we’re working to make that standard user friendly so it doesn’t lead to more reporting. We actually hope that it will lead to more focused reporting. It is a big challenge to do that well and make that clear.
Currently there is a draft out of the G4. The draft is there to collect commentary. It’s really important to get anyone with experience on reporting to comment to help us build the right and the most practical set of guidelines with these goals in mind. The draft has a lot of good ideas that have been built on and proposed by the working groups which are experienced reporters from around the world. But we now really need to have the practitioners both on the issuing side and the information using side to look at it and tell us how that would work. What is practical? Where can it be improved? We’ve done that, it’s part of our due process for every set of guidelines we’ve developed and always to good results. The public comments period will be open until the 3rd week of September.
3p: What’s one thing you would like American business reporters to understand about the GRI process?
EL: The process is a very open process, it’s a process that has been built by many experienced issuers and users of data, including many Americans. While the U.S. isn’t in at the forefront of having the largest number of reporters compared to the size of the economy, in qualitative terms, it has some of the most experienced reporters and they have been part of the GRI, so the GRI is not some foreign imposition, a lot of it has been built by Americans, and it originated in the U.S.
The beauty of the GRI is that it’s co-created. You can take part in this, to share your experience, to help it to advance and that’s why I call it a massive collective learning experience. That’s where our supply of the content of the GRI comes from.