Friday, May 31, 2013

G4: It's NOT about materiality

If you attended the global GRI conference in Amsterdam, 22-24 May 2013, you probably couldn't move more than a couple of meters without hearing the word materiality. In fact, almost every single post and article that I have read that covers take-outs from the conference (at least 10 different articles from different commentators / practitioners / bloggers) has started off explaining the new G4 by describing the technical changes to G4 reporting requirements, disappearance of A,B,C, new disclosures, changes to indicators, new Boundaries, different boxes to tick, all the while making clear that materiality is at the center. And then why. Reports should be more focused, more relevant, more aligned with the most important impacts of the company. All true. Materiality will be the centerpiece of the thousands of G4 reports we will see raining down on all us stakeholders starting, probably, this year. Materiality will be so present, that pretty soon, no-one will ever remember having written a report without it. G3 will be so antiquated that companies will cringe at the thought of the primitive materiality-challenged approach to reporting which they have been doing for years. G4 and its materiality focus, will become our new map of the world, and one which will help us all understand who actually is doing what to whom, and where. When you open an In Accordance report, you will naturally gravitate to material issues. You won't have to look for them. They will hit you smack in the face. All this is good. Very good. It's real progress.  A positive transformation. It might even be a revolution.
There's just one little thing that everyone has forgotten in this euphoric rush to put the materiality-driven center of G4 on a pedestal. That little thing is called PROCESS.
In G4, what is even more important than materiality, is the PROCESS by which materiality was determined. G4 sets out a very clear process for determining material issues. It's the Identification, Prioritization, Validation and Review Process (See the Implementation Manual, pages 31-42.)
You start with a long list of relevant topics that have any sort of impact on stakeholders or the organization. This is Identification. Fit these topics into the list of pre-prepared Aspects where possible. Aspects are those issues found through the multi-stakeholder process which are most likely to be relevant to the widest range of organizations. In other words, most organizations should be able to identify at least some of these Aspects as being important to their organization. If there isn't a pre-defined Aspect, that's ok, you can create your own. But remember, Aspects and issues can occur WITHIN the organization our OUTSIDE the organization.
Then, you rearrange this potentially long list in order of importance, based on an assessment of the extent to which they reflect the organization’s significant economic, environmental and social impacts or substantively influence the assessments and decisions of stakeholders. This is PRIORITIZATION. 

Armed with your prioritized list, you then decide the reporting threshold. That is, how many of the Aspects and Topics are material. Not every issue will be material. You have to draw a "threshold", above which the Aspects become Material Aspects and the Topics become Material Topics. These Material ones are those you should include in your spanking new G4 report. The prioritized issues, on a matrix, might look something like this graphic from the G4 Implementation Manual. (You can use your own color scheme) :)

Mandatory disclosure G4-19 requires you to list these material issues.

Then, with your Material Issues above the threshold clearly defined, you have to VALIDATE them, that is, make sure they represent a balanced mix, that stakeholder voices have been appropriately reflected and that the range of issues is reasonably complete. Oh, and the Material Issues should be approved by the Big Bosses in your organization. Now you are ready to write your Disclosure of Management Approach for each Material Aspect or Topic, and provide performance data against the relevant indicators (one for Core, all for Comprehensive, for each material issue).

(The final phase in this process is the REVIEW phase, but this takes place after the report has been published, as a learning exercise for the next report).

Actually, this process is not entirely new. It existed in G3, but an organization was not asked to disclose the entire list of material issues identified. Standard Disclosure 4.17 did ask companies to list "key topics and concerns that have been raised through stakeholder engagement, and how the organization has responded to those key topics and concerns, including through its reporting." but this is not quite the same as the new G4-19, in which the prioritized list of material Aspects and Topics should be reported. Relatively few companies included a materiality matrix in their G3 reports, and often, if they did, the report content was not aligned with those same material issues listed in the matrix.

So. PROCESS is important in G4. Very important. And PROCESS drives OWNERSHIP.

This is both the risk and the opportunity of G4. In its purest state, G4 demands a maturity of reporting that takes the sustainable business model seriously, both for the benefit of business and for the benefit of stakeholders. G4 demands that companies work harder in the upstream stages of reporting... engaging with stakeholders, doing deep analysis, really working on what's most important and facing up to the demands of reporting all this transparently... instead of what has tended to be the de facto approach to date, with emphasis on the downstream part of reporting, working from the indicator list backwards, and seeing how many metrics you can fill in. G4, in addition to the materiality process, offers many other choices to companies about how they report what they report, with some General Standard Disclosures allowing broad berth for a range of different reporting styles.. more on this in future posts .... while setting a minimum expectation for disclosure in some form. This, I believe, is the transformational aspect of G4, not the materiality focus per se. Subtly, G4 places a much greater burden of choice, responsibility and ownership on reporting companies. In its purest form, a G4 report cannot be written without involvement and commitment.

The risk is that companies will look to see how they can get away with the minimum, through sticking to the letter, and not the spirit, of G4. The risk is that companies will write G4 using a G3 mindset. These companies will lose the transformation that G4 can bring. They will also risk showing up as less credible as stakeholders reset expectations.

That's why I believe that ownership is the true center of G4, not materiality. Ownership will drive better business, and better reporting. Ownership is at the heart of the business transformation - and by consequence - the reporting transformation - we all seek. Companies need to own their reporting, not respond on auto-pilot to a rigid set of framework requirements. I like to call this materiality maturity. I think G4 offers great possibilities to help us all achieve materiality maturity - both report writers and report readers. As readers, we must look for process, alignment, dialog and the way companies make choices, not just the choices they make. We must look behind the boxes ticked, not just bemoan the absence of ticks, or be satisfied when there are lots of them. As readers of reports, we also need to become more mature.

Right now, perhaps as the exhilaration of the G4 launch in Amsterdam is still fresh, I am optimistic that we will all rise to the challenge. Let's change our mindset about reporting. Let's own G4. I think it's worth a try. 

elaine cohen, CSR consultant, winning (CRRA'12) Sustainability Reporter, HR Professional, Ice Cream Addict. Author of Sustainability Reporting for SMEs: Competitive Advantage Through Transparency AND CSR for HR: A necessary partnership for advancing responsible business practices Contact me via   or via my business website   (Beyond Business Ltd, an inspired CSR consulting and Sustainability Reporting firm)

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