How GRI Standards Are Redefining Corporate ESG Transparency • Convolut

Enhancing Business Transparency and Investor Attractiveness

Aware of the added value that ESG initiatives could bring to the business environment, several market players call for greater transparency and consistency in the data collected by companies on their Environment, Social and Governance impacts and how they communicate them. [1]. This is where ESG reporting frameworks come in.

By accurately recording and concretely assessing their performance in the three focal areas, companies can improve attractiveness from an investor perspective, thereby catching their attention and consequently boosting revenues. In addition, by conveying ESG accomplishments measurably and reliably, firms can demonstrate to which extent resilience orientation and risk mitigation are embedded in their business. This is an essential requirement for long-term financial return, as has been ascertained in Convolut’s report “ESG: The new global paradigm of investing“.

Nowadays, the disclosure of non-financial data in companies’ annual reports, among which sustainability information plays a predominant role, is required by both legal requirements and socially accepted norms. These norms arise from the fact that the whole world is aware of the precarious situation to which we are all subjected when it comes to environmental risks [3]. For what concerns legal requirements, companies active in the UK for instance, are often required to report on environmental matters in accordance with the Companies Act 2006 (CA 2006), focusing specifically on greenhouse gases, energy, and carbon. [4]

This article provides an overview of how companies should adopt and use a specific ESG Reporting Framework to build a robust reputation and demonstrate their commitment to environmental, social, and governmental objectives.

73% of the world's 250 largest companies have adopted the GRI Standards for ESG Reporting

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GRI: The Gold Standard in ESG Reporting

Although only one of several existing frameworks, the Global Reporting Initiative, known as GRI, is one of the most used, especially for ESG reporting. A study conducted by KPMG ascertained that 73% of the world’s 250 largest companies have adopted these standards. [5]

The GRI Standards include various modules linked to each other that give companies information on how to structure their reports on the impacts their activities may have on fronts such as the environment, society, and governance. The standards allow for transparency and correctness, essential for communicating these pieces of information to stakeholders. [6]

They can be used by any type of organization, regardless of size, geographic location, or profile. Internal reporters can use them to disclose reliable information on their organization’s environmental impact, and external companies or investors can use them to assess how committed a company is to the environment.

Composed of universal, sectoral, and thematic standards, GRI provides users with guidelines and recommendations on computing the metrics and creating a cohesive non-financial report.

Note that Topic Standards could refer to many thematic areas. The Figure shows the graph showing the case when GRI standards are used to report performance on ESG.

But why are they preferred over other types of frameworks? Here are some competitive and distinctive advantages [7].

The intrinsic benefit of using a “standard framework”, is the use of universally valid parameters, in the case of GRI standards, reporting parameters. This enables all actors to have a common and clear understanding of the environmental impacts of the reporting companies.
Ensures clarity and thoroughness, which makes comparing one’s data with those of competitors significantly more consistent.
GRI provides deliverables, broken down by area of interest, that enable companies to learn more about their business’s impact on the environment, society, and corporate governance. As a result, companies can better identify their KPIs, thanks also to the 34 topic-specific standards that allow firms to focus exactly on the specific case pertaining to them.
The GRI framework includes 34 topic-specific standards from which to tailor reports, so any company can find the most suitable ones.
It adheres to intergovernmental guidelines such as the UN Sustainable Development Goals (SDGs), allowing a direct link between the two measures. The GRI also conforms to the standards of organizations such as ISO, OECD, UN Global Compact, and UNEP to ensure their compliance with global development trends.
Promotes the participation of diverse stakeholders. Inclusiveness is one of the framework’s fundamental principles, ensuring that the expectations and interests of all parties are met.

The reporting process

Understand system and key elements of the GRI Standards

First, companies should adhere to the requirements and fundamental principles outlined in the GRI, which serves as the foundation for implementing the framework and producing a well-structured report in the appropriate format.

Identify and assess impacts, and determine material topics

After making sure that the company complies with GRI1, the reporting process, based on the adoption of GRI standards, focuses on identifying and prioritizing the company’s impact in specific areas. This impact may be either harmful or beneficial. This process requires a thorough understanding of the company’s operating context. GRI2 provides detailed support by specifying different disclosures related to various aspects of a company’s business. Once the impacts are identified and prioritized, it’s important to divide the company’s core business into topics. This last step is known as ‘Material Topics‘, which determines the focus of the company’s reporting. The GRI 3 provides a step-by-step guide on how companies can categorize activities based on topics.

Report Information

The company should then collect data to be able to deploy disclosures on Universal, Sector, and Topic Standards.

Prepare GRI content index and statement of use

Lastly, reports that aim to be perceived as clear and reliable, should include a GRI Content Index, a useful navigation tool that provides a structured overview of the content of the relevant disclosure documents. The guide explaining how to compile the index can be downloaded directly from the GRI website [8]

Conclusion

In summary, if a company wants to attract more investments, it would be beneficial to adhere to the most reliable and transparent reporting standards, to which GRI certainly belongs. Consistency and more reliability are what the market longs for [9]. This set of features, which can be achieved through the correct use of the GRI framework, can also allow investors and companies to overcome common issues related to the sustainability reporting process in general. Most of the time, these issues refer to deficiencies such as inconsistency, not comparability, and lack of alignment in various types of standards. It goes without saying that the only way to eradicate them completely would be to find a single common framework, but this is a long-term goal.

To sum up, if a company wants to attract more investments, it could be helpful to stick to the most reliable and clear reporting standards, to which GRI certainly belongs.

References

[1] Sphera’s Editorial Team, What Is ESG Reporting, and Why Is It Important?, Sphera, 12 April 2021.
[2] Convolut, ESG: The new global paradigm of investing, December 2022
[3] D. Haklová, M. Gallovič and E. Vitálošová, ESG reporting and preparation of a Sustainability Report, PwC Slovakia, 2020.
[4] legislation.gov.uk, Companies Act 2006, 2023
[5] GRI News Center, GRI reporting best prepares companies for new EU standards, Global Reporting Initiative, 07 December 2022
[6] GRI Standards, A Short Introduction to the GRI Standards, Global Reporting Initiative, 17 November 2022
[7] M. Dimapilis, Your Comprehensive Guide to GRI Standards for ESG Reporting, Convene, 03 August 2022
[8] GRI Standards, GRI Standards and Resources, December 2021
[9] S. Bernow, J. Godsall, B. Klempner and C. Merten, More than values: The value-based sustainability reporting that investors want, McKinsey Sustainability, 7 August 2019

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About the Author

Francesco di Cugno

Managing Director

Francesco is a Technology Director with a proven track record in building customer-centric solutions using the latest technological innovations. He works with global organisations to realise their strategic vision and goals.

How GRI Standards Are Redefining Corporate Transparency