Explainer: The Global Reporting Initiative and the GSSB’s sustainability reporting standards – what you need to know
Learn more about the work of the Global Reporting Initiative and the Global Sustainability Standards Board’s sustainability reporting standards.
The Global Reporting Initiative (GRI)’s sustainability reporting standards are those most commonly used by the world’s largest companies and are used by over 10,000 organisations worldwide. The standards seek to hold companies accountable for their impacts on economies, the environment and people. Their popularity stems from recognition that the success of companies depends on stakeholder support, being trusted and getting a heads up of likely problems down the track. The globalisation of business that occurred in the latter half of last century and the pollution and exploitation of lesser developed countries, as well as the exploitation of labour and human rights that followed, made this accountability a must-have. This need is reinforced by almost daily press reports of corporate wrongdoing.
The GRI has a track record spanning over 20 years. It was founded in the late 1990s and issued its first set of guidelines back in 2000. In 2016, the fourth set of guidelines (G4) were transitioned into the “Standards”. A substantial revision of these standards was undertaken in 2021. This year also saw the announcement that GRI is co-constructing sustainability reporting standards for the European Corporate Sustainability Reporting Directive (CSRD) alongside the European Financial Reporting Advisory Group (EFRAG). The CSRD will apply to approximately 50,000 companies.
A robust governance structure
The transition to the GRI Standards in 2016 saw a revised governance structure modelled on financial reporting standard setters, but with multi-stakeholder input reflecting broad stakeholder interest in sustainability reporting. This led to the establishment of the Global Sustainability Standards Board (GSSB) to replace the previously established technical working group. A Due Process Oversight Committee and Independent Appointments Committee were also formed.
The GSSB has sole responsibility for setting the GRI Standards – there is a ‘firewall’ between it, the GRI Board, the 50-strong GRI Stakeholder Council and funding sources. The governance bodies are multi-stakeholder and have global representation. Together with GRI’s presence across the world, this facilitates the global relevance of the standards.
The GSSB oversees the standards development work of GRI’s Standards Division.
Standards issued by the GSSB
There are three ‘Universal Standards’ that apply to all organisations.
GRI 1 sets out the reporting principles that must be followed. The principles of accuracy, balance, clarity, comparability, completeness, timeliness and verifiability will be familiar to accountants. The principle of ‘sustainability context’ requires that the organisation reports “information about its impacts in the wider context of sustainable development”. This involves considering the ability of future generations to meet their needs; drawing on scientific consensus on the limitations of environmental resources; reporting in relation to the UN Sustainable Development Goals (SDGs); and,considering societal expectations.
GRI 2 sets out required disclosures about the entity, its activities, governance structure, strategy and policies with respect to sustainable development and approach to stakeholder engagement.
GRI 3 sets out the process for determining and managing material topics – those where it has the most significant impacts on the economy, environment and people.
The GSSB has started the development of 40 sector standards to replace the G4 sector disclosures with the first one focussed on the oil and gas sector. These sector standards help organisations identify their material topics and the topic standards tell you what to report.
There is flexibility in where information is disclosed – there is no requirement to develop a separate report for all the information. A content index records the location of each required disclosure for ease of reference.
Key points for stakeholders to note are set out below.
The requirement to disclose processes for engaging stakeholders and determining and managing material topics often enhances management’s due diligence. Engaging with stakeholders and identifying what matters to them builds trust. The requirement to provide a statement about the relevance of sustainable development to the organisation and its strategy facilitates the consideration of risks and opportunities in strategy development. External assurance (under the purview of audit and risk committees) can provide additional confidence and with appropriate governance oversight the organisation is well placed to thrive amidst the increasing complexity that sustainable development challenges bring.
The impacts of organisations on the economy, environment and people often have financial consequences, sometimes through reputational damage, operational risks or strategic opportunities. In many cases it is almost impossible to know when, how or how much the financial consequences to a business would be. Consequently, investors are interested in the processes that organisations use to identify stakeholder interests and material impacts, and prevent and mitigate them along with governance oversight thereof.
Accountants and auditors
Accountants have valuable knowledge and experience to guide their organisations in developing appropriate data protocols, internal controls, the scope for external assurance engagements and the selection of assurance providers (see GRI 1).
There is increasing demand for external assurance of sustainability reporting. As it is increasingly mandated in some jurisdictions for some organisations, demand will increase even where not mandated.
Voluntary reporting of the impacts of organisations on the economy, environment and people has been fraught with greenwash and researchers have long called for mandatory reporting. The governance structure of the GRI was designed to facilitate adoption of the GRI Standards by legislators. The standards are aligned with authoritative intergovernmental instruments on the conduct of business and on human rights. Their use aids national governments in tracking their contribution to sustainable development and fulfilling their commitments to the UN SDGs.
The IFRS Foundation
In its response to the announcement Accounting for Sustainability (A4S) noted: “The Global Reporting Initiative (GRI) currently sets the most widely-adopted standards in this area, and it is therefore critical that the ISSB collaborates with GRI to ensure that both sets of standards are consistent and aligned with one another. This is important not only to avoid confusion and duplication of effort, but also because an organization’s impact on the world can quickly ‘bite back’ to hit financial performance if not addressed.”
Collaborating with GRI and seeking to support GRI Standards issued by the GSSB becoming mandatory would bring credibility and context to the IFRS Foundation’s new sustainability-related financial disclosures aimed at investors. It will also speed up the process of developing them as the GRI Standards have developed for over two decades and offer substantial knowledge and experience.
You might be interested in the ICAS-hosted discussion on sustainability reporting with Sir David Tweedie and Professor Mervyn King.
Carol Adams CA is Chair of the ICAS Sustainability Panel and Professor of Accounting at Durham University UK. She served as member of the GRI Stakeholder Council during 2013-2019 and as Chair for the final two years. The views expressed are her own.