Global Reporting Initiative (GRI)

In 1997, a not-for-profit organization called the Global Reporting Initiative (GRI) was formed with the goal of increasing the number of companies that create sustainability reports as well as to provide those companies with guidance about how to report and establish some consistency in reporting (such as identifying common themes and components for reports). The idea is that as companies begin to create these reports, they become more aware of their impact on the sustainability of our world and are more likely to make positive changes to improve that impact. According to GRI, 92% of the Global 250 produced sustainability reports in 2016.

Although businesses have been preparing reports using GRI standards for some time, in 2016, the GRI produced its first set of global reporting standards,⁷¹ which have been designed as modular, interrelated standards. Every organization that produces a GRI sustainability report uses three universal standards: foundation, general disclosures, and management approach (Figure 13.9). The foundation standard (GRI 101) is the starting point and introduces the 10 reporting principles and explains how to prepare a report in accordance with the standards. General Disclosures (GRI 102) is for reporting contextual information about the organization and its reporting practices. Management Approach (GRI 103) is used to report how a firm manages each of its material topics. Applying the materiality principle, the organization identifies its material topics, explains why each is material, and then shows where the impacts occur. Then, it selects topic-specific standards most significant to its own stakeholders.

Figure 13.9 Global Reporting Initiative (GRI). Every entity reporting under GRI must use three universal standards, covering foundations, general disclosures, and the firm’s management approach. Then topic-specific standards are chosen. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license)

Though the GRI has provided a framework, a firm’s decision about what to report rests on its definition of materiality. GRI defines materiality in the context of a sustainability report as follows: “The report should cover Aspects that: Reflect the organization’s significant economic, environmental and social impacts; or substantively influence the assessments and decisions of stakeholders.”⁷² In its 2016 report, Coca-Cola listed these areas as its primary sustainability goals:

• Agriculture
• Human and Workplace Rights
• Climate Protection
• Giving Back
• Water Stewardship
• Packaging and Recycling
• Women’s Economic Development⁷³

Dow Chemical issues a different type of report and lists these categories:

• Who We Are—Strategy and Profile
• Why We Do It—Global Challenges
• What We Do—Our Products and Solutions
• How We Do It—Our People and Operations
• Awards and Recognitions⁷⁴

Sustainability reporting is not confined to manufacturing or merchandising. Service organizations report as well. For example, Bank of America states in its 2016 sustainability report: “At Bank of America, we are guided by a common purpose to help make financial lives better through the power of every connection. We deliver on this through a focus on responsible growth and environmental, social and governance leadership. Through these efforts, we are driving growth—investing in the success of our employees, helping to create jobs, develop communities, foster economic mobility and address society’s biggest challenges—while managing risk and providing a return to our clients and our business.”⁷⁵ For more information about the GRI can be found on the web.

Sustainability Accounting Standards Board (SASB)

GRI standards were targeted at a variety of stakeholders, from the community at large to investors and lenders. This meant that the scope of disclosure encouraged by the GRI standards was perhaps too broad for companies that were primarily focused on reporting to investors in routine terms. Investors have their own unique needs related to sustainability information. Their concerns are related to the price and value of the organization, whereas other stakeholders are interested in how the company might affect them specifically. This effect may not even be financial; it could be whether the company pollutes in its local community, or it could be how a firm treats its workers.

For this reason, the Sustainability Accounting Standards Board (SASB) was established in 2011. SASB’s mission is to help businesses around the world identify, manage and report on the sustainability topics that matter most to their investors. The SASB develops standards for disclosure of material sustainability information to investors, which can meet the disclosure requirements for known trends and uncertainties in the Management Discussion and Analysis section filed with the Securities Exchange Commission. SASB’s version of materiality differs somewhat from the GRI’s version.

Whereas the GRI viewed materiality as the inclusion of information that reflects an organization’s significant economic, environmental, and social impacts or its substantial influence on the assessments and decisions of stakeholders, SASB adopted the US Supreme Court’s view that information is material if there is “a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available”.⁷⁹ It is up to the firms to determine whether something is material and needs reporting, and this determination would begin with the initial questions “Is the topic important to the total mix of information?” and “Would it be of interest to the reasonable investor.⁸⁰

The SASB standards, available for 79 industries across 10 sectors, help firms disclose material sustainability factors that are likely to affect financial performance. For example, a company that has operations in a developing nation may need to disclose its employment practices in that country to inform users of the risks to which the company is exposed because of its operations. SASB Standards and Framework to see the current SASB conceptual framework.

Integrated Reporting

Even though companies were reporting through a range of mechanisms—sustainability reports, triple bottom line, and CSR reports—these methods of reporting were seen as fragmented and not integrating the financial and non-financial information into one report (Figure 13.10).⁸¹ Also, the methods “failed to make the connection between the organization’s strategy, its financial performance and its performance on environmental, social and governance issues.”⁸²

In response to these criticisms, the International Integrated Reporting Council (IIRC) was formed in 2010, touting Integrated Reporting as a solution to the shortfalls of financial reporting. Its intent is to act as a catalyst for behavioral change and long-term thinking,⁸³ bringing together financial, social, environmental and governance information in a clear, concise, consistent and comparable format.⁸⁴

The goals of Integrated Reporting are to:

• improve the quality of information provided to investors and lenders
• communicate the full range of factors that materially affect the ability of an organization to create value over time by using a more cohesive and efficient approach to corporate reporting which draws on different reporting strands.
• enhance accountability and stewardship for the broad base of six capitals (financial, manufactured, intellectual, human, social and relationship, natural) and promote understanding of their interdependencies.
• support integrated thinking, decision-making and actions so as to create value⁸⁵.

As outlined, the Integrated Reporting framework identifies six broad categories of capital used by organizations which are: financial, manufactured, intellectual, human, social and relationship, and natural.

Whether information should be prepared and presented, that is, whether it is material in its inclusion is determined by:

• Identifying relevant matters based on their ability to affect value creation—that is how it increases, decreases or transforms the capitals caused by the organization’s activities. This may be value created for the organization itself or for stakeholders, including society itself.
• Evaluating the importance of relevant matters in terms of their known or potential effect on value creation. This includes evaluating the magnitude of a occurrence’s effect and its likelihood of occurrence.
• Prioritizing those matters based on their relative importance so as to focus on the most important matters when determining how they should be reported.
• Determining what information to disclose about material matters. This may require some judgment and discussion with stakeholders to ensure that the report meets its primary purpose.⁸⁶

Integrated Reporting has been adopted by a number of companies throughout the world and is mandatory for listed companies in South Africa and Brazil. So far, it has been slow to take hold in the U.S., however, a number of companies have implemented Integrated Reporting, including Clorox, Entergy, General Electric, Jones Lang LaSalle, PepsiCo, Prudential Financial, and Southwest Airlines.

Figure 13.10 Most Useful Non-Financial Information Sources for Investment Decisions. Although Integrated Reporting does not have mandatory status in many countries, an Ernst & Young survey of Global Investors found that integrated reports ranked second after annual reports in importance for decision-making. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license)

You can find out more information about the IR framework by visiting the Integrated Reporting website.