Cutting Through the Complexity of GRI G4

WINTER 2014 Cutting through the complexity of GRI G4: A roadmap to the December 2015 deadline.

NOW

Cutting through the complexity of GRI G4

INSIDE

The GRI G4 deadline is looming and in this issue of Directions, we look at the first movers, frame the problem and break the decision down into a series of next steps to ensure that the transition is seamless a nd timely.

DECEMBER 2015

A roadmap to the December 2015 deadline

Cutting through the complexity of GRI G4

SHOULD I STAY OR SHOULD I GO? FAY HOGG Head of Reporting

INTRODUCTION

hen the GRI G4 guidelines were first released, the implementation deadline of the end of December 2015 seemed a long way off. Now that we are heading towards the final year of reporting under the GRI G3 and 3.1 guidelines, the decision to go early or wait until the final countdown is vexing quite a few reporters. In this issue of Directions, we look at first movers, frame the problem and break the decision down into a series of next steps to help ensure that the transition is seamless and timely.

Looking globally at industries, brands and countries, we can clearly see a move towards G4 adoption and the role that governments and exchanges play in encouraging reporting transparency and disclosure.

For a few brave reporters who have already taken the plunge, it has been a journey of discovery. My conversation with some of these early adopters provides some first-hand insight and advice.

We know you might be wondering whether to go for GRI G4 or not. That’s why we’ve created a decision tree, to answer some of the key questions you may have, as well as case studies to help inform your own roadmap to the December 2015 deadline.

CONTENTS 1 Introduction 2 First movers 3 Decision tree 4 Brands who have made the journey 6 Conclusions 7 About SALTERBAXTER MSLGROUP

1

Cutting through the complexity of GRI G4

FIRST MOVERS So far in 2014, more than 35% of GRI reporters have made the leap to G4. Depending on government-, market- and sector-led initiatives, we can see how reporters in some parts of the world have come further than others.

BY COUNTRY, THERE ARE A FEW SURPRISES

What about countries like France, South Africa and Denmark, who also have extra financial reporting requirements for listed or state-owned companies? Many reporters in these countries are considering the additional value of developing their reporting to meet international standards against simply being compliant with local legislation.

Countries such as the United States, Colombia, Brazil, South Africa and the Netherlands are leading the way. The US has market- and government-led initiatives to address corporate disclosure requirements; they also have a lot of big companies.

Brazil and the Netherlands both have market- and governmentled reporting initiatives, respectively. But Colombia? Yes, that’s a surprise. Back in the late 90s their government decided that a Green Economy could give them a competitive advantage.

National policy followed that specifically promotes the disclosure of information using the GRI guidelines. Colombia is also one of the GRI’s Focal Points that were set up to actively engage organisations in the development of sustainability reporting. Those efforts appear to be paying off.

TOP 10 GRI REPORTING COUNTRIES % of GRI reports that are G4 (total GRI reports in brackets)

The truth is: governments have a key role in setting the baseline for companies to report on social and environmental issues.

Many work in collaboration with the GRI in drafting legislation.

Some stock exchanges actively promote the GRI framework for guidance. The move towards rules-based reporting is gaining ground, and alignment with the GRI framework puts organisations in a good place should environmental and social reporting legislation become mandatory.

NETHERLANDS 33% (70)

CANADA 29% (65)

UK 30% (44)

GERMANY 17% (69)

SPAIN 32% (75)

UNITED STATES 35% (165)

SWITZERLAND 27% (67)

COLOMBIA 56% (43) BRAZIL 34% (97) SOUTH AFRICA 42% (43)

2

30 17

33 14

16 14

13 9

ICT & TECHNOLOGY

RETAIL

20

HEALTHCARE AND PHARMACEUTICALS

39

25

CHEMICALS

34

TELECOMMUNICATIONS

34

51

FOOD AND BEVERAGE PRODUCTS

54

MINING AND MATERIALS

55

66

CONSTRUCTION AND ENGINEERING

Source: Reports listed on the GRI database and published in 2014 and correct as of 21st October 2014

62

150

FINANCIAL SERVICES

In the sector table, industry heavies who take on the lion’s share of impacts and regulatory requirements are producing the highest number of G4 reports. This is more or less proportional to the inter-industry take-up of the GRI framework.

164

ENERGY AND UTILITIES

TOP 10 INDUSTRIES (Based on total GRI reports)

G4 reports G3 or G3.1 reports

Cutting through the complexity of GRI G4

DECISIONS, DECISIONS...

Have you decided?

Here’s the full journey.

YES

There are two ‘in accordance’ options to choose from: Core and Comprehensive.

The options reflect compliance with guidelines rather than business performance.

DO YOU BASE YOUR CURRENT REPORTING ON MATERIAL ISSUES? Do the criteria for prioritising the material issues identify those that: • Reflect the organisation’s significant economic, environmental and social impacts; or • Substantively influence the assessments and decisions of stakeholders

NO

Materiality is a pivotal principle of the GRI G4 guidelines. See our publication ‘Beyond the Matrix’ for further insight on tackling materiality.

Conduct a gap analysis against the GRI criteria. This is helpful to get ready for the December 2015 deadline.

G4 CORE

‘Core’ contains the essential elements of a sustainability report: its economic, environmental, social and governance impacts. New elements of G4 include disclosures on strategy, governance, ethics and integrity.

G4 COMPREHENSIVE

Builds on ‘Core’ by requiring additional disclosure on strategy, governance, ethics and integrity.

You must report on the Disclosures on Management Approach (DMA) and all indicators for each identified material aspect.

Direct Management Approach and at least one indicator for each material aspect

G4 NOT YET READY

You can include the following statement in your report: ‘This report contains Standard Disclosures from the GRI Sustainability Reporting Guidelines’, along with a list of the disclosures and their location.

Include a statement in report

As ‘Core’ and all indicators for each material aspect

PREPARE REPORT

YES

IS YOUR REPORT EXTERNALLY ASSURED?

IS YOUR SECTOR COVERED

BY ONE OF THE 10 SECTOR DISCLOSURES?

The Sector Disclosures have been reorganised to fit this structure but contain no new content.

A reference to the external assurance statement should be included in the Content Index for each Standard Disclosure Item.

YES

These are: Airport operators, Food processing, Construction and real estate, Media, Electric utilities, Mining and metals, Event organisers, NGO, Financial services, Oil and gas.

NO

No further action required.

3

NO

Consider the value of assurance or other ways to validate the report, e.g. independent expert panel review or include stakeholder feedback.

Cutting through the complexity of GRI G4

BRANDS WHO HAVE MADE THE JOURNEY TO GRI G4 STANDARD BANK, KARIN IRETON, HEAD OF SUSTAINABILITY MANAGEMENT, SOUTH AFRICA Standard Bank is a leading African financial services provider, based in South Africa. Market-led initiatives there, have paved the way for the bank’s transition to G4 reporting at a core level.

STORA ENSO, TERHI KOIPIJÄRVI, HEAD OF GLOBAL RESPONSIBILITY, FINLAND The Finnish wood pulp, paper and packaging producer has been reporting using the GRI framework since 2003.

For their 2013 report, published in February of this year, they took a practical approach to move to G4 reporting, in accordance with the ‘comprehensive’ level.

The King Code is South Africa’s definitive approach to good corporate governance. Now on its third iteration, the journey to King III has put listed companies in a strong position when it comes to governance and stakeholder engagement because they are required to produce an Integrated Report.

“This reporting context has definitely ‘helped’ their transition to G4,” says Karin Ireton, Head of Sustainability Management at Standard Bank.

Having reported for a decade using G3, Stora Enso took the decision to go for G4 ahead of the deadline. The company’s ambition is to be a frontrunner in sustainability, and in reporting, and it acknowledges that the new G4 framework brings with it interesting developments to move their reporting forward.

Karin chaired the Stakeholder Council convened for the G4 consultation process, so she knows the content of the G4 well. Even still, with the country’s market-leading approach and experience on both sides, she says “the process can be daunting”.

Terhi Koipijärvi, Stora Enso’s Head of Global Responsibility, explained that the company took a practical approach to moving to G4. “We conducted a gap analysis to see what was needed, and then systematically went through each of those areas with content owners,” she explained. Materiality was, of course, central to the process, along with incorporating the results of an internal project around value-chain thinking.

With a team of two, step one was a complete gap analysis.

From this, Karin said, they could see what criteria they were already meeting and which aspects were not material.

‘Taking it step-by-step made the whole index a lot less frightening’. Some of the indicators are complex with multiple parts: ‘the supply chain indicators, for example, are a little scary’. For companies with complex supply chains, the breakdown by type or product and service, by point of origin and by quantum can assist the honing and decision on the most material issues, Karin advises. By analysing the types of suppliers and the amount of spend, it became clearer and a little less scary, Karin explained.

Stora Enso conducts a thorough materiality review, using an online advisory panel. In 2013, the company reached over 600 stakeholders in over 40 countries using this tool, with a majority of those being external stakeholders. In addition, the company analysed feedback from investors, customers and the global and social media landscapes.

Terhi points to some clear benefits of moving early to G4. “Our environmental reporting has been made more concise, while we have given more attention to the social responsibility aspects that were emphasised by our stakeholders.”

Materiality is also one of the harder areas to crack. Not because of the concept itself, which is familiar to them: it’s applying the materiality lens in practice to filter what you actually report on. Karin says: “you need confidence to determine which parts are applicable to your business and to decide when you have adequately met the requirements of a particular indicator”.

Stora Enso took a practical approach to the transition to G4.

Terhi’s advice? “Gain leadership commitment to the process, conduct a gap analysis, and invest time in the materiality analysis up front,” she says.

Karin’s advice: “The direction you take depends on where you’re starting from, and very few companies have a clean slate to start with”.

4

Cutting through the complexity of GRI G4

BRANDS WHO HAVE MADE THE JOURNEY TO GRI G4

CONTINUED

Todd Camp believes GRI G4 is a part of the journey towards integrated reporting and welcomes GRI’s contribution towards unified reporting standards.

M&S, ROWLAND HILL, SUSTAINABILITY AND REPORTING MANAGER, UK

For Hershey’s the main benefit was bringing reporting to a higher global level, something their stakeholders expect from them. It also helped break through the paradigm of compliance and developed a platform that demonstrated how to integrate sustainability into the core of Hershey’s business strategy.

The UK retailer’s adoption of GRI G4 did not aim to be in accordance, rather it used the framework to cross-check its own reporting strategy ‘Plan A’. The process generated better indicators for carbon and energy and allowed M&S to improve their Plan A 2020 vision.

“The process is well worth the time and effort requirement,” Todd argues. “It will require some internal communication and change management, but ultimately it’s about identifying critical risks and main opportunities – and demonstrating how our company is addressing these items.”

For M&S, sustainability reporting has always been primarily structured around Plan A. Having a strong reporting strategy in place, the GRI G4 guidelines were used as a secondary navigation tool.

“Moving to G4,” Rowland says, “didn’t pose a problem because we’re not aiming to be ‘in accordance’ and it has no impact on our judgements of materiality.”

The main benefits were using the GRI G4 indicator for carbon and energy, together with the gap analysis that needed to be done. The process also started a debate around materiality that turned out to be very relevant and improved the work on integrated reporting.

INTEL, LINDA QIAN, CORPORATE SOCIAL RESPONSIBILITY COMMUNICATIONS, US

Rowland’s advice to first-timers? “Get an accurate benchmark of what your competitors are doing and don’t be afraid to experiment with GRI. There are lots of issues and problems with both GRI and regular reporting. The key is to follow a logical trajectory.”

Intel is one of the world’s best-known technology brands. As a mature reporter, they’ve been using the GRI framework for the past 10 years. Implementing the G4, in accordance with the comprehensive level, was just the next step on their reporting journey.

As a highly visible company in its sector, Intel fully appreciates the principles of stakeholder engagement and materiality. Linda Qian, CSR Communications at Intel, explains: “Intel has had a robust CSR materiality process for many years, and we know who our stakeholders are and how to engage them in the materiality process. The focus on reporting material issues also means that we can narrow our reporting to key issues.”

THE HERSHEY COMPANY, TODD H. CAMP, SENIOR DIRECTOR, CSR AND COMMUNITY RELATIONS, THE HERSHEY’S COMPANY, US The American chocolate giant Hershey’s adopted GRI G4 as a step in the right direction to bring sustainability reporting to a higher global common denominator. For Hershey’s this was a ‘natural step’ in harmony with their brand values.

The only sticking point with G4, Linda explains, is with newer indicators, for example, with remuneration. It can be challenging to get executive buy-in on indicators like these, which are not as material from a CSR perspective, and are not required from a regulatory standpoint in the US. Other aspects are much easier to achieve: “we helped inform the changes in the G4 guidelines on supply chain,” Linda reveals.

Having used GRI since their first CSR report and with a commitment to increase disclosure and transparency, it was an easy decision for Hershey’s to adopt the framework early.

Regular meetings with internal data owners and legal team helped to develop a smooth process of collecting data.

Support from Hershey’s senior leaders made it an easy choice without pressure from government or industry requirements.

Linda’s advice: See the transition as an opportunity: “the G4 guidelines put as much emphasis on the process and governance of CSR as they do on non-financial reporting and increased disclosure. Think about how you can better leverage the reporting process with key stakeholders internally and externally to move your CSR practice forward.”

5

Cutting through the complexity of GRI G4

CONCLUSIONS A popular myth holds that if you ask the people of Maine for directions they will likely say, “You can’t get there from here.” Well I’m with the Maine folks. The first step in any journey is to fully appreciate your starting point and maybe move to a more advantageous point of departure.

A main objective of the new G4 guidelines is to focus on the most material issues to ensure the report is both relevant and concise.

For other reporters, GRI G4 is not the destination but the compass. It is a useful navigation tool to ensure that they are on track, but their goal is to communicate the value or impact of their business beyond the confines of reporting protocol. The ability to report against the guidelines but stopping short of full ‘in accordance with’ requirements will ensure that GRI guidelines are also relevant for those that adopt this approach, such as M&S with Plan A.

Materiality, as we have suggested in our decision tree, becomes the starting point of the journey towards more meaningful reporting. However, there is a subtle nuance in the description of materiality in G4 compared with G3 and that is determining whether issues are likely to substantively influence the assessments and decisions of stakeholders.

For new reporters and those in developing markets, a readymade framework that is actively promoted by governments and exchanges around the world also extends the appeal of these guidelines.

This suggests a much more in-depth stakeholder engagement process and this is an area where new technologies can be a great help in reaching wider audiences. New requirements to validate these findings with senior management will also help strengthen the credibility of GRI reports.

All these factors are likely to ensure that the GRI guidelines remain the de facto global standard for sustainability reporting for the foreseeable future.

MINUS THE PLUS

GLOSSARY OF KEY TERMS

The GRI recommends external assurance but does not require it to report ‘in accordance with’ G4. The omission of the + sign, that in G3 denoted whether or not a report had been externally assured, would seem, at first glance, to weaken the argument for, and take-up of, external assurance. But this is not the case, according to Katherine Lampen, Director of Sustainability Services at Deloitte LLP, London. In fact, Deloitte are receiving more requests for external assurance rather than fewer, from G4 reporters. Katherine attributes this to the requirement to clearly show in the content index whether each Standard Disclosure Item has been externally assured and, if it has, to include the page reference for the External Assurance Statement in the report.

• Aspects: the list of specific subjects covered by the G4 Guidelines in each of the Economic, Social and Environmental categories • Material Aspects: subjects that reflect the organisation’s ‘significant economic, environmental and social impacts’ or that substantively influence stakeholder decisions and assessments • Reporting Content Principles: stakeholder inclusivity, materiality, sustainability context and completeness • Reporting Quality Principles: includes balance, clarity and accuracy

“This is actually a better way to show the scope of the assurance.

Before, you could include a + sign even if only a small part of the report had been externally assured. Now the content index shows explicitly the areas that have been assured and those that have not. This is driving more, rather than less, assurance.”

• Disclosures on Management Approach (DMA): explanation of how the organisation is managing its material aspects – why it’s material and how it’s managed

6

Cutting through the complexity of GRI G4

ABOUT SALTERBAXTER MSLGROUP We work where business strategy, sustainability and creative communications meet, creating strategies and stories for some of the world’s leading businesses and brands. Our aim is to help business perform better; communicate better and deliver better long-term outcomes. We call this Ideas for Better Business.

With an in-depth knowledge of both corporate and sustainability reporting, we work with some of the world’s leading businesses and brands to deliver powerful, individual reports that people want to engage with. Whether in print or online, we help our clients think through strategic challenges, cut through the complexity of regulation and best practice, and show you solutions that bring your story to life. Below, you will find a few examples of our recent reporting clients.

Anglo American

Sustainable Development Report 2013

De Beers

Annual Report 2013

OUR CLIENTS Absolut adidas Group Allianz Anglo American ArcelorMittal BP BSkyB BUPA C&A Coca-Cola Enterprises

De Beers Diageo Giorgio Armani GlaxoSmithKline H&M Harrods ING Jaguar Land Rover Kering L’Oréal

BP

Allianz

Sustainability Report 2013

A-Z Sustainability Journey – Climate Change

GSK

M&S

LEGO Group Maersk Group Marks & Spencer Philips Premier League PVH RSA Standard Chartered Toyota Europe Viacom

Corporate Responsibility Report 2013 Annual Report 2013 Plan A Report 2013

Report to Society 2013

CONTACT US Jeff Sutton Business Development Director jsutton@salterbaxter.com Fay Hogg Head of Reporting fhogg@salterbaxter.com

SALTERBAXTER MSLGROUP The Dome, Level 4 Whiteleys Centre 151 Queensway London W2 4YN Tel +44 (0)20 7229 5720 www.salterbaxter.com @salterbaxterMSL