Analysis: The proposed governance changes at the Global Reporting Initiative

‘Sustainability Reporting Standards Board’ among ideas to refresh the GRI

The Global Reporting Initiative (GRI), the pioneer of standards for corporate sustainability reporting, has announced several changes to its governance, key of which is the creation of a new ‘Sustainability Reporting Standards Board’ to oversee the continued development of those standards.

Responsibility for those standards, the latest of which is known as ‘G4’, currently lies with the GRI’s management.

The GRI said that in keeping with good governance, a separate 15-member board for its standards would be created and include representatives from all of its stakeholders.

The most representatives for the board are to be drawn from companies (five), followed by NGOs, investors, schools/churches and unions (two from each group). Rounding out the new board will be a chairman – with a deciding vote – and vice chairman.

Among the other governance changes that the GRI wants to make are an “organisational firewall” between standard-setting activities and operational activities; the safeguarding of its multi-stakeholder principle; and the establishment of what’s termed an “independent public funding base”.

The Amsterdam-based organisation said: “While GRI has long been accepted as the de-facto standard setter in providing sustainability reporting guidance, formal recognition of the GRI’s standard role needs to be further strengthened.” The GRI is seeking comment on the changes until July 9.

Since its launch in 1997, the GRI says that between 4,000 and 5,000 companies worldwide have adopted its standards for sustainability, underlining its claim to leadership on this issue.Yet the last few years has seen the emergence of other corporate sustainability reporting bodies such as the San Francisco-based Sustainability Accounting Standards Board (SASB) and the London-based International Integrated Reporting Council (IIRC).

SASB’s mission is to develop its own sustainability standards for listed companies that report to the Securities and Exchange Commission (SEC). With the investor in mind, SASB groups its standards according to industry sector. The IIRC, meanwhile, champions the integrated report combining financial and sustainability reporting.

Increasingly, some major corporates are moving away from using GRI standards towards Integrated Reporting. For example Unilever’s £250m (€308m) green bond earlier this year was based on the consumer goods giant’s internal integrated reporting data, Sabina Nealon, the firm’s Finance Director Sustainability, told RI recently.

In terms of progress, SASB says that around 1,600 investors and companies have been involved in the development of its standards, while the IIRC says that 100 companies and 35 investors worldwide have participated in its project.

So are the GRI’s governance changes a direct response to the challenge posed by SASB and the IIRC? Experts say that while SASB, and to a lesser extent, the IIRC, have likely accelerated the restructuring, the changes were expected and very much overdue.

“We have to be careful not to compare apples with oranges,” said Allen White, who was the GRI’s first Chief Executive, serving until 2002. “The GRI is a multi-stakeholder reporting initiative with worldwide recognition, whereas SASB focuses on investors and operates within the context of US securities law.

The IIRC is distinct, but complementary to both, offering a framework that seeks to break the siloed thinking that divides corporate sustainability and financial reporting.”

White also described SASB’s progress since its launch as impressive, citing as an example its systematic identification of key performance indicators (KPIs) for sectors that meet the SEC’s materiality requirements. “SASB is developing roughly 1,000 KPIs for more than 80 sectors, and many of the KPIs did not exist two or three years ago.
Even after filtering for redundancies, the numberprobably still will approximate 500 KPIs,“ White told Responsible Investor in a phone interview.

One question is how the SEC views SASB’s reporting standards and whether it will make them mandatory. SASB’s position is that they already fully compliant with US securities law – indeed that was the point of its initiative. SASB, which now has two former SEC chairs in its senior ranks, deliberately looks to mirror the US’s Financial Accounting Standards Board (FASB), which like SASB is not a government entity but a private, non-governmental organisation. Over to you, SEC