GRI: SASB: The Sector Specificity Question

So, since my last post broke the sound barrier with hundreds of reactions which mainly expressed support for the notion that collaboration rather than confrontation wouldn't be such a bad thing, I will delve a little deeper into one aspect of The Great GRI-SASB Showdown which didn't receive that much airtime in the multiple debates about mandatory or voluntary ESG disclosure. It's the question of specificity. Dr Madelyn Antoncic, SASB Chief Executive, made this point:

"SASB’s unique approach is well aligned with growing consensus among market participants that in order to integrate ESG matters into governance, strategy, risk management and performance monitoring, consistent with the TCFD recommendations, sustainability must be viewed on an industry specific level........ Indeed in order for any approach for corporate sustainability to be useful, it must address idiosyncratic, not systemic, risks. In other words, it must address not just climate change but climate change industry specific manifestations."

Now, I agree with this up to a point. I agree that business is done in industries and sectors, and each has their own specific material impacts. Having said that, business is done primarily by companies, and each company is unique in structure, geography, size, strategy, leadership etc., which means that its material impacts are also unique. So using pre-fab materiality à la SASB may well serve as a safety net to ensure relevant topics by industry are not overlooked, but it may not serve as a comprehensive basis for disclosure for every company in that industry. It also could lead to cutting corners where pre-fab materiality is blindly accepted without due process.

Nonetheless, SASB has done what GRI failed to do. Sector-based disclosures never reached the top of GRI's to-do list. In fact, I wrote about this back in 2013, in a post entitled "Will SASB make G4 redundant?" where I looked at the implications of the new SASB Standards on a specific sector basis. My closing line in that post is actually no less relevant today than it was then: ".....we perhaps ought to remind ourselves what Sustainability Reporting was designed to do in the first place. Account for company impacts on all stakeholders. Both GRI and SASB have an important contribution, I feel. The shame is that both appear to live on different planets, while the companies that are reporting are all on the same planet, and, more importantly, we are too!" Plus ça change.....

While SASB has developed standards for 77 industries in 11 sectors, GRI has 10 sector disclosures. There are differences in the approach to both - in fact, what GRI calls a sector, SASB mainly calls an industry. Oh dear, and I thought this was going to be easy....

I decided to see if I could substantiate the intuitive remarks I made in my last post: "Instead of debating which one is less perfect, whether they should be mandated or not and which definition of materiality should apply, GRI and SASB should roll up their sleeves and get down to some serious work with companies and with each other to help drive better implementation of sustainable development practices and disclosure. If we do nothing more than ensure existing standards are fully adopted by all companies, consistently, auditably and comprehensively, perhaps with a few tweaks here and there, we will have done a lot." In other words, let's work together with what we have and make it work. At some point, you just gotta stop checking if the oven works and make a start on the cooking. 

There is a small number of companies who use SASB Standards. Not quite enough yet to consider whether this enables sector comparability or even use of similar standards, but enough for me to handpick a few reports that cover both. I decided to check a few things out:

(1) Are SASB Standards really a useful tool? To what extent is there more information than that required by a GRI report which is well prepared? In checking the delta when reporting both SASB and GRI, what value does sector-specific SASB add over and above what is already in GRI standards?
(2) What does sector specificity actually add? Is there a meaningful level of specificity that makes it easy for companies to recognize themselves in the sector?
(3) Who needs to budge to turn this into one Standard that's useful for all? Haha. No-one wants to budge. But maybe they should.

I'll start with Bloomberg. With Bloomberg putting all their weight behind the development of the SASB Standards, it's clear that they would use them, even if as a privately held company, Bloomberg is not required to go the full Monty.

Bloomberg's 2018 Impact Report was prepared in accordance with (1) GRI Standards Comprehensive Option (including the Media Sector Disclosures) (2) SASB Standards (3) FSB Task Force on Climate-related Financial Disclosures (TCFD) guidelines and (4) "select content from CDP". That's four reporting frameworks. Convergence, anyone?

Supplementing this report, Bloomberg publishes a GRI Content Index (including the Media Sector Disclosures) and a SASB Disclosure. The SASB disclosure includes metrics from three separate SASB Standards:

• Internet and Media Services
• Media  and Entertainment 
• Professional and Commercial Services

Now, this is where the difference in approach start to show up. GRI's Media Sector Disclosures are integrated throughout the existing GRI Standard with some additional Sector-Specific Disclosures. In various sections throughout the GRI Standards, additional sector-relevant elements are integrated (noted by a little green + sign) or new elements are added (noted in green).  (NB: This still relates to G4, and has not been updated to reflect the changes in GRI Standards, but the approach is the same).

SASB Standards are all standalone. So, when Bloomberg decides to report against three SASB Standards, it is actually duplicating several pieces of information. For example, you can find data on workforce diversity included three times in the same Bloomberg SASB disclosure document - one for each of the three SASB Standards that Bloomberg identified as relevant to their business.

And the funny thing is, that all this data is reported as well already in Bloomberg's GRI Content Index:

I worked through every single Bloomberg SASB disclosure against all three SASB Standards to try to establish the delta. I found that there is extremely little in the SASB disclosures that is not already reported in the GRI Content Index, or would have been reported if the GRI Content Index were applied in full. Environmental data... it's in both; data privacy - it's in both; data security - it's in both - although there are a few metrics that SASB includes that are not in GRI. On the topic of employment, SASB asks for employee engagement measures (that GRI does not specifically cover). All in all, it would take very little to combine these GRI and SASB Standards to achieve sector-specificity with no duplication and enable relevance for all stakeholders including investors.

Here's another report. Apache Corporation 2018 Sustainability Report

Apache's report follows (1) GRI Standards, Core Option (2) Oil and Gas Industry Guidance on Voluntary Sustainability Reporting (2015) developed by IPIECA (3) SASB’s Oil and Gas Exploration and Production Standard and (4) the Disclosing the Facts framework which is an annual investor scorecard ranking of the 30 largest oil and gas companies engaged in hydraulic fracturing.

Again, I analyzed the SASB disclosure to assess if it includes more than is delivered by a regular GRI-based Sustainability Report. Note that, in this case, Apache does not use the GRI Oil and Gas Sector Disclosure, which, as with the media sector, integrates disclosures throughout the Standard and adds sector-specific additional topics.

So, what about the delta? For several metrics, such as GHG emissions, biodiversity impacts, community relations, and health and safety etc., there is no meaningful difference between the Standards. In others, there are differences. For example, on the topic of indigenous peoples: GRI focuses on violations of indigenous rights in the main GRI Standard, and on disputes in the additional sector disclosure:

SASB focuses on operations in proximity to indigenous lands and engagement processes.

Apache does not report these indicators, neither GRI nor SASB. Interestingly, APACHE does report against an IPIECA indicator relating to indigenous peoples, with a Statement on Indigenous Peoples representing Apache's approach.

So, while Apache has made significant efforts to deliver high-quality transparency, it is clear that the multiple standards and frameworks cause duplication and fragmentation of reporting requirements. However, Apache reports neither Standard in full, disclosing against 13 of the 27 metrics in the SASB Oil and Gas Standard, and 17 of the 33 Topic Specific Standards of GRI and none of the sector-specific topics. The SASB Standard offers some fine-tuning of disclosures for this industry, but nothing that is monumentally significant versus a fully reported GRI Standards-based disclosure.

One more? Let's try a different sector. Food. I LOVE food (especially ice cream).

Kellogg's 2018-2019 Corporate Responsibility Report also uses multiple sustainability disclosure frameworks:

• GRI Standards including the Food Processing Sector Disclosures (downloadable Content Index)
• SASB Food Processing Standard (downloadable index)
• CDP Climate and Water Disclosures
• Cross-references in the GRI Index to SDGs and the UN Global Compact Principles

Should we count that as six frameworks?

Here again, this company has worked hard to address the multiple reporting demands of different frameworks and organize disclosures in the least confusing way for stakeholders. Not an easy task to avoid the duplication and fragmentation that we have already seen in the two reports above.

Again, my focus here is on the delta between SASB Standards requirements and GRI. In this sector, there are some significant differences. For example:

Food safety: This is material for Kellogg's, and also highlighted in the GRI Food Sector Disclosures, SASB includes two indicators that link to external audit by the Global Food Safety Initiative (GFSI) GRI on the other hand references external standards certified by an independent third party according to internationally recognized food safety management system standards, leaving companies to choose which certifications.
Food waste: This is noted as material for Kellogg's but appears neither in the GRI Standards nor in the SASB Standard.
Climate change: This is not included in SASB Standards for this sector. Energy management is included, but not climate change impacts. As Kellogg's has noted climate change as material, then GRI Standards requires disclosure on climate change impacts. I find it hard to understand how investors assessing a company such as Kellogg's would not be interested in climate change data.
Diversity and inclusion: This is stated as material for Kellogg's but is not included in the SASB Food Processing Sector Standard. It is part of GRI Standards.
Packaging lifecycle management: This is included in the SASB Standard and is a relevant addition for this sector.  It is not included in GRI Standards (beyond regular disclosures about waste) although Kellogg's CR Report contains information about the sustainability of its packaging and lifecycle impacts.
Animal Welfare: The GRI Food Processing Sector disclosure is the only standard that points this out specifically. The SASB standard does not address this and Kellogg's maintain it is not material to their business.

Across both the SASB and the GRI Food Processing Sector Standards, and Kellogg's own list of material topics, there is a significant degree of overlap, but also some areas of difference. Does the SASB Standard add much? In this sector, the metrics are a little more industry-focused though it strikes me as odd that there are no SASB metrics relating to people, labor or human rights.

Kellogg's own material topics, SASB's Food Processing Standard topics and GRI Food Processing Sector Disclosures (additional to and incorporated in the general GRI Standards)

Back to my three questions:
(1) Are SASB Standards really a useful tool? 
(2) What does sector specificity actually add? 
(3) Who needs to budge to turn this into one Standard that's useful for all?

And my three answers:

(1) I cannot speak for the investor community, for whom SASB standards were devised. If the idea was that all the topics in the SASB Standards are "financially" material, then it's rather odd that very few of the SASB metrics I have seen actually correlate to any sort of financial measure. My observation is that where a company reports GRI in full, including any available sector disclosures, the additional disclosures required by SASB may not add a lot. For a company not using GRI, and using SASB for sustainability disclosures in its annual report, then it may not be enough. Having said that, the overview of what's most important by industry is a useful reference for any company conducting a materiality assessment.

(2) Sector specificity is a worthy pursuit, especially when companies are not rigorous in their materiality assessments. Kellogg's, for example, presents what I feel is a balanced and representative set of material topics, covering both the operational and purpose-driven aspects of its business. Apache's material topics are more generic, so the SASB Standard could be a useful safety net. However, in this case, as is the case in several other sectors, there is another reporting framework developed by the industry itself, IPIECA which tends to address the sector-specific requirements.

(3) I think both GRI and SASB need to budge. As can be seen from just 3 examples, reporting is fragmented, duplicated and yes, confusing. Just working out who reports what against which Standards was a nightmare. All three companies made valiant efforts to navigate these frameworks and deliver robust disclosures. We should not let the question of financial materiality divert us from the real questions of who should report what. There is room to develop a set of jointly-owned GRI-SASB Standards that would include (1) a core of disclosures and metrics on universally critical sustainability topics that every company should report, material or otherwise (2) a menu of core sector specific disclosures that all companies in a particular industry should report (3) a menu of optional metrics and indicators that companies can disclose in addition, if they or their stakeholders define them as material. What's important here is not only what to report but how to report, that is, by prescribing the methodologies required for each metric reported. That would enable the rigor and comparability that SASB maintains is so lacking. And in each industry, the industry associations, such as IPIECA, have an important role to play as well.

Ultimately, I think we have everything we need - except a spirit of collaboration. Combining the best of GRI, SASB and industry-specific experts can be an exercise in cooperation, not reinvention. By working together, we can totally simplify the landscape and make it much easier for reporters to report and users to use the information. Why is this such a big deal? Why is it so contentious?

But that's only the first step. The second step is doing more to encourage companies to fully implement these simplified reporting Standards in a consistent and auditable way. I don't mean through external assurance but through internal rigor and accountability. Both GRI and SASB are far too eager to hype up the numbers of how many companies are using their Standards. Neither is prepared to really buckle down and assess the way the Standards are being implemented or call out companies that are doing a pick'n'mix job of reporting what's easy or available or irrelevant.

The GRI-SASB Game of Thrones Showdown I witnessed at the Asia Sustainability Reporting Summit earlier this month did not offer much hope of collaboration. Apparently, the comfort zone is exactly where they are. Unfortunately, it's a very uncomfort zone for everyone having to deal with the fallout.


elaine cohen, CSR consultant, Sustainability Reporter, HR Professional, Ice Cream Addict. Owner/Manager of Beyond Business Ltd, an inspired Sustainability Strategy and Reporting firm having supported 100 client reports to date; author of three books and several chapters on Sustainability Reporting and the Human Resources connection to CSR; frequent chair and speaker at sustainability events and judge in several sustainability awards programs each year. Contact me via Twitter , LinkedIn or via Beyond Business     

SASB: Hot air. GRI: Cold shower.

The stage at the Asia Sustainability Reporting Summit was sizzling last week, despite Arctic temperatures in the conference room, as SASB and GRI battled it out in a fight entitled: My Standards are Bigger and Better than Yours. 

In contrast to the restrained, optimistic rhetoric we have been used to over the past few years, SASB burst forth with a whoosh of self-aggrandizement, leaving GRI doing a jelly-wobble in disbelief. Of course, we shouldn't be all that surprised. SASB received a setback earlier this year when U.S. SEC Chairman Jay Clayton rejected ongoing and heightening pressure to make listing contingent upon (SASB-based) ESG disclosure:

"In a blow to several investor groups, SEC Chairman Jay Clayton recently said that he does not believe public companies should be required to disclose information concerning environmental, social, and governance (ESG) matters in a standardized format. Clayton was especially opposed to requiring publicly-listed companies to use ESG standards developed by organizations like the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI), which some companies voluntarily use."

Denied SASB the dream, it was perhaps predicable that SASB, having based its entire strategy on becoming THE ESG disclosure tool for U.S. based companies, would not accept this without a fight. 

At the Summit, which ran under the theme of "Is mandatory better?", both GRI and SASB came out forcefully in opposite corners of the two pivotal questions: Should ESG disclosure be mandatory? and Should ESG disclosure be based on the concept of financial materiality (rather than sustainability materiality)? 

The showdown started as Tim Mohin, GRI's Chief Exec, took center stage, presenting GRI's position. He made the case for increasing mandatory instruments around the world, with 544 instruments tracking some form of mandated ESG disclosure in 85 countries and quoted a McKinsey study that showed 82% of investors and 66% of corporate executives surveyed preferred companies to be required to disclose by law. He explained that voluntary mechanisms are seen to work too slowly and don't cover enough of the market. Tim also quoted a study that indicated that mandatory disclosure has led to more efficient boards, less corruption and improved corporate credibility.

This was all going so well until he reverted to something that sounds like wishful thinking: "There is a belief in the marketplace is that there is confusion (around ESG disclosure standards). In fact, there is a lot of convergence....." Tim explained convergence by referencing the widespread use of GRI standards. But this is not convergence. It's a sort of Hobson's Choice: there is actually no other general standard for broad-based sustainability disclosures, and in any case, the quality of implementation varies so widely that it's hard to assess just how effectively GRI Standards are being used. At the same time, companies using or sort-of using GRI are also deploying other forms of disclosure, including CDP, TCFD, SASB, UNGC, sector-based standards and even SDG, to mention just a few. So let me be clear. THERE IS NO CONVERGENCE. It's time to stop saying that.

Tim went on to explain his testimony to the U.S. House of Representatives Committee on Financial Services earlier this year where he said that (1) ESG information is essential for the operation of capital markets and free trade; (2) This disclosure must be mandated and must be based on international, independent multi-stakeholder standards and (3) The concept of financial materiality does not work for ESG disclosure.

He said "I don’t think I need to convince anyone in this room that ESG disclosure is essential. We know that investors are demanding this information as it becomes more critical to investors and free trade. The last point is most important. We cannot rely solely on the test of financial materiality. If ESG issues were financially material, we would not have ESG issues. In fact, these issues are very hard to monetize. When we do monetize these issues, they often do not make the test of financial materiality." He has a point.

Tim Mohin even went into print this week (post-summit) to reinforce how increasingly worried he is that SASB has upped the ante:

"The movement to limit corporate disclosure on environmental, social and governance (ESG) issues to financially material topics (already legally required for public companies), has gained some momentum. If it catches on, it could roll back decades of progress. Even more troubling is that the advocates of this position brand themselves as working for environmental and social causes. Could this be a clever Trojan Horse to put the brakes on corporate responsibility?"  Ta-da!

Following the GRI keynote, the Summit delegates then turned their attention to hear a very different story from Dr Madelyn Antoncic, SASB's new Chief Exec. SASB's proposition is about financial risk, market forces that incentivize corporations to make the choices that will cause investors to allocate capital to them. SASB believes that it is not regulation that will cause companies to improve and disclose ESG performance, but market forces and the promise of investor attention.  

Madelyn said: "At first flush, it may be easy to jump to the conclusion that companies won't do the right thing when it comes to sustainability, especially when it will have short term negative impact on their bottom line. As an economist, however, I challenge that view. As I know that on occasion, economic agents, people, whether acting as individuals or on behalf of on behalf of organizations, or institutions, are motivated by incentives."

According to SASB, current sustainability disclosure does not cut it. (That's not a new assertion by SASB.)

Madelyn added: "Yet while sustainability reporting has become near ubiquitous in recent years, the practice has widely been criticized for lacking the rigor of traditional financial reporting. A recent PWC report shows that 100% of corporations polled felt confident in the quality of their ESG information reporting while only 29% of investors polled were confident in the quality of that same information that they were receiving. More than 60% of corporations but only 8% of investors polled by Bank of America and Merrill Lynch during a recent congress thought that the ESG disclosure allowed for comparison among companies and peers."

My summary of SASB's view of the world is:

(1) Investors need corporations to provide reliable, consistent, auditable ESG information that is financially material by sector and by industry

(2) If they get this, they will act to allocate capital most effectively, rewarding good corporate citizens who show they are managing ESG risks

(3) The carrot of earning investor favor will keep corporations focused on good ESG performance and disclosure while the stick of higher risk and loss of reputation will do the same

(4) When all this happens, everybody wins.

Madelyn summarizes: "When we transform markets, we transform the world. .... What’s needed are incentives. Corporations need to be incentivized, to do the right thing because to do the alternative will negatively hit their bottom line. And only with consistent disclosure of financially material information, can investors be effectively the policing mechanism which will drive positive outcomes for the environment and society at large."

Ultimately, my reading of this is: Place your trust in investors. Let the money-makers and the money-takers decide what's best. Let money be the deciding factor in assessing corporate citizenship. If investors incorporate selected ESG factors in their decisions, so they can minimize financial risk, it will be good for everyone.

Well, sorry, but in my work in sustainability, I missed the bit where money was THE motivator for doing the right thing. I missed the bit where corporate transparency was ONLY about helping people make more money. I missed the bit where sustainability reporting has only ONE stakeholder group. When SASB was first formed, as an organization designed to deliver standards for financially material ESG disclosure in corporate annual reports, I could understand it. It was about helping investors understand and evaluate risk more holistically (even if they still don't quite know how to do it). It seems I am now hearing that voluntarily giving investors better ESG information is the key to delivering sustainable development and solving social and environmental issues. That's rather a lot of responsibility on the shoulders of those who are (only) managing financial assets.

The debate continued in the opening panel discussion which mainly focused on the chasm between GRI and SASB  (sidelining the others present on stage). It went something like this:

He said: 

"Let’s face it, this movement started from a very different place – of activism, of trying to do the right thing, we call it corporate responsibility and now, because it has become quite clear that these non-financial matters have financial implications, we have the interest of the financial markets, But as I said, the fact is that externalities are not properly valued, and when they are, a lot of times they are still not financially material. There is a subset of ESG issues that are financially material, and frankly, in every jurisdiction I am aware of, financially material ESG issues ALREADY have to be disclosed, it's the law. Ethics, gender diversity, Scope 2 and Scope 3 carbon, water... many of these things just don’t ring the bell of financial materiality, but we know that they are absolutely critical"

She said:

"I would challenge that because at the end of the day, ethics, if you aren’t an ethical company, you go out of business, gender diversity, sooner or later, you go out of business, so that’s why they are called non-financial risks, I think it’s a ridiculous statement, non-financial becomes financial. The reason we look at financial materiality is the comparability – so many reports are now coming out in the ESG space, where investors say we can't make heads or tails out of this, and I can't compare one company versus the other, because they are not tied to some financial metric, that one company can be compared and therefore the capital can allocate to the different companies that are being good corporate citizens."

He said:

"The judgement of what is material can't be made by somebody else, it can't be made in the rear view mirror, it has to be made with a multi stakeholder approach, up front, that’s looking at a horizon that is typically much further than companies look at, not next quarter or next year, that’s not what ESG issues are about. We would never have looked at things like gender diversity – how do you value such things? We don’t have gender diversity in the SASB standards. Scope 2, Scope 3 carbon are not financially material. These are things that if we don’t get a handle on, our society will be so much worse."

She said:

"I think there is a misunderstanding. Financial materiality, the way we look at it, it’s not next quarter, that’s the whole point and that’s what I mentioned, it’s about the long term. I think that any one of these issues that you mentioned .. of course.. sooner or later they are financially material.. and you mentioned that something is not in the SASB standards. Well, the SASB standards were only issued last November and now we are going through to look where we can improve.. as you know, these things evolve. I commend what your organization has been doing all these years and that’s great, but I think the world moves on. That doesn’t mean what we are doing today is wrong, it means we have built on the shoulders of what's been done, but we have to look at it now in a different way. Financial materiality and industry specificity makes it comparable .. and that’s why you see all these data providers coming up with their own interpretation and that’s why you see more and more of these so called standard setters -  because no one can come up with a way that investors can make use of the information. It’s about how you come to the use of that information so we can mobilize all that capital."

He said:

"It’s just not true that this information isn’t getting to corporate boards and CEOs. I have done it personally. If you think Tim Cook doesn’t know about the supply chain issues at Apple, I can tell you I have personally briefed him many times. It is difficult and many companies aren’t in a position to understand this, it’s like trying to teach a fish to ride a bicycle. One of the things we're doing is forgetting about a key player in the marketplace and that’s analysts. Most of the analyst work is done on the back of GRI Standards, and it's used to compare companies."

She said:

"I didn’t say that Boards are not aware that they have supply chain issues. I am saying that the reports are not being done under the same standards as financial reports which means they are not signed off.  As far as analysts are concerned, yes, there are lots of these data analysts, that’s the point, they are popping up all day, why? Because there are not robust reports that investors can use.. that’s why there is Sustainalytics, and RobecoSam and MSCI… and the list goes on. The reason is that the information is not consistent, it is not comparable, therefore these data providers are making inferences about what companies are doing and using analysts and coming up with the wrong answers. What we say is: use SASB standards, comparable, auditable. If the solution was what we currently have, without naming names, we wouldn’t have all these other things popping up."

He said:

"There is a lot of misleading information about the lack of comparability among analysts. In fact, in fact, it’s not meant to be comparable .. you can't just add up ethics, climate change and supply chain and come up with a number .. a lot of analysts cut it one way or another and they come up with different information because they are looking at different things. By design."

And by this time, the hundreds of delegates in the audience are starting to squirm a little at the way GRI and SASB are openly taking shots at each other (especially as the whole public rhetoric to date has been coochy-moochy harmonization and common purpose - remember the joint op-ed by Tim Mohin and the former SASB CEO, Jean Rogers?) In this dialogue of the deaf, both GRI and SASB are hyping themselves to their own downfall and missing the point. We do not need better standards. WE NEED BETTER IMPLEMENTATION. 

GRI Standards could provide a good degree of comparability IF companies applied the standards in a quality way. The problem has always been that  GRI has avoided any form of intervention in the way the standards are actually used and there is no consistent watchdog covering reporting accuracy or quality.

SASB Standards, which have not yet reached critical mass (any mass?) yet in terms of the number of companies fully using them, will only enable investors to get what they want IF the standards are IMPLEMENTED in a quality way. It's a little early for SASB to sing its own praises. 

And if GRI and SASB and the other parties in the rather useless Better Alignment Project of the totally superfluous Corporate Reporting Dialogue pooled their resources to help companies apply GRI and/or SASB Standards in a complete and proper way, we would all get much further, much faster. 

And as for mandatory, I think both GRI and SASB are wrong. They see the world too simply. One says YES to mandating ESG disclosure, the other says NO. I believe the answer is in the middle. Some things absolutely have to be mandated or they will never happen consistently across companies, industries and sectors. Others can be left to market forces, peer pressure, competitive appetite, stakeholder demands, investor self-interest. The real question here is not whether mandatory is better, but how much mandatory and which elements of mandatory would be truly effective. But GRI and SASB cannot see past their own ego and beyond their current legacy. GRI's overly positive hype about the status quo won't help us move forward. SASB's dismissal of everything that's not SASB is arrogant and misplaced. 

I think it's time to refocus and reframe. We need to spend more time looking at the quality of what companies are reporting and less time in slanging matches about which standard is better. No current standard is perfect to meet the needs of a broader audience that uses ESG disclosure, not just investors. Instead of debating which one is less perfect, whether they should be mandated or not and which definition of materiality should apply, GRI and SASB should roll up their sleeves and get down to some serious work with companies and with each other to help drive better implementation of sustainable development practices and disclosure. If we do nothing more than ensure existing standards are fully adopted by all companies, consistently, auditably and comprehensively, perhaps with a few tweaks here and there, we will have done a lot. 

GRI, SASB.... gauntlet over to you.  

elaine cohen, CSR consultant, Sustainability Reporter, HR Professional, Ice Cream Addict. Owner/Manager of Beyond Business Ltd, an inspired Sustainability Strategy and Reporting firm having supported 100 client reports to date; author of three books and several chapters on Sustainability Reporting and the Human Resources connection to CSR; frequent chair and speaker at sustainability events and judge in several sustainability awards programs each year. Contact me via Twitter , LinkedIn or via Beyond Business      

GRI: Still in the lead?

GRI  remains the most widely used global standard for sustainability reporting - though I find myself wondering if that's something that still counts for something. Are GRI Standards still a worthy leader of sustainability reporting frameworks? Or is it time for a fundamental review of GRI as the baseline set of standards for sustainability reporting (on a timescale that assumes most of us will still be alive before it's complete)?

There are several things I would consider revisiting:   

The first is that GRI largely remains a standard for measuring direct accountability. The concept of material impacts which is so central to GRI standards is not borne out by the overriding focus on measures (topic-specific disclosures) that address mainly direct impacts. Almost all of the 200, 300 and 400 Standards measure direct operational performance and not impacts on stakeholders. Reporting on resource consumption, adherence to labor standards, anti-corruption etc. is all well and good, and necessary, but most of these are not the true currency of sustainable business today. Stating year after year in your sustainability report that you do not employ child or forced labor or that you paid no fines for non-compliance are no longer the key proof points of a sustainable business.

The indirect impacts of a business reach much further than their direct impacts. We all know that a pharmaceutical company has a far more meaningful impact on healthcare and access to medicines than the amount of carbon emissions the company saves in its operations. Internet providers have a far greater role to play in keeping children safe online than in managing resource consumption of optic fiber cables. We know that food producers affect how we lead healthy lifestyles in ways that are far more significant than the amount of fuel saved by increasing logistics efficiency. And we probably know that the public expects companies to take a stand on human rights, environmental health and social justice and have an impact on policy in areas where governments are not doing the job.

If we want standards that truly reflect how companies are affecting our lives, I think we need to think differently about what such standards ask companies to report. I am reminded of one of the transformational books I read many years ago and often reference: The High Purpose Company, by Christine Arena, one of the first sustainability experts, I believe, to highlight purpose as the core of sustainable business, purpose being the positive impact on society beyond making money. Sustainability then is about two things: driving positive impact (a purpose-driven business) and doing business ethically (an accountable business). GRI focuses on the latter. What about a Standard that focuses on the former? 

Some companies currently make their sustainability reporting about their core social purpose and the bulk of their disclosure is about how they make a difference through the business they do. The GRI Content Index then fills the transparency gap for how companies operate in a resource-efficient, socially responsible and ethically viable manner. Many companies haven't reached this realization yet: they use GRI as a rigid framework, selecting material topics from the limited number of GRI-prescribed options (the Standards), failing to link to their bigger picture. Currently, GRI Standards do not expressly encourage purpose-driven thinking.

The second review of GRI Standards that I would consider concerns the challenges of reporting on materiality.  GRI Standards offer a definition of a material topic as one that: reflects a reporting organization’s significant economic, environmental and social impacts; or that substantively influences the assessments and decisions of stakeholders. How long is a piece of string?

Material can mean anything from generic topics, such as climate change, to specific topics, such as increasing use of renewable energy - one being so much broader than the other. If materiality means "what matters most", listing a set of any-company-anywhere sustainability topics as material undermines the intent. With such generic lists, everything matters most. In the early days, it might have made sense for GRI to get materiality on the map with a light touch, by leaving the process for determining materiality wide open and the constituents of materiality somewhat vague. In today's world, where materiality seems to be anything you want it to be, more prescriptive guidance might be worth considering.

How confident can we be of all those materiality matrices that are floating around out there? What tools do companies use to define materiality and what makes an internal and external stakeholder engagement process robust enough to deliver a materiality outcome that's meaningful, relevant and balanced? Some companies interview select stakeholders. Some conduct broad online surveys. Scoring and ranking mechanisms are a black hole. I think this is one of the big paradoxes of materiality. Despite materiality being the pivot of sustainability disclosure, it's still a black box of often rather arbitrary selections, delivered through an imperfect process, skewed by an often random collection of opinions. And even then, despite the selection of material topics, companies report on everything anyway, except those things that they prefer not to report, and conveniently call not material.

I think it's time for an overhaul that prescribes a certain number of data points for all companies to report as a baseline (what I call Operational Materiality)  The more meaningful indirect impacts, which are a more effective measure of most companies' impacts (what I call Precision Materiality or Differential Materiality) should be company specific - and companies need to get better at measuring these in some way. GRI calls this Mission Effectiveness, adapting its own guidance on materiality to create something GRI Standards do not reference anywhere. GRI's 2018 Material Topics use the term "other sustainability topics" for those indirect impacts, the most significant in terms of GRI activities,  that are not captured in the GRI Standard sets.

GRI's Disclosures on Management Approach (GRI 101-103) for these other topics are rather general without  precise ways of measuring performance in these areas. GRI's creativity in applying its own framework shows that the standards have not stood the test of time. In its 2015-2016 report, GRI's material topics were entirely direct (see matrix below), indicating that GRI's thinking has moved on (which is good) but the Standards have not.

Another aspect of GRI Standards that could do with a refresh is the way standards reflect the changing dynamics of business. In 2016, with the introduction of GRI Standards, we were promised an agile set of standards that could be quickly adapted to changing realities and new requirements. Since then, a new Water Standard and a new Standard on Occupational Health and Safety have been published. One new Standard on taxes is scheduled to be published in 2019, and some additional Standards revisions are scheduled for 2020. This may be progress, but it's slow progress. And in the meantime, realities are changing. For example, one of the issues I frequently encounter in reporting on employees is that gender can no longer be a simple reference to women or men. Today, gender identity includes, for example, transgender. All of GRI's employee demographics reporting requirements are based on a gender split, and in some cases, specifically women and men. 

In general, GRI's Diversity and Equal Opportunity (Standard 405) may not go far enough to reflect today's higher aspiration of equity rather than equal opportunity. Other aspects of doing business today come to mind, such as the circular economy, regenerative business, democratization of technology, data security and more, that are hardly addressed by GRI Standards. For GRI Standards to remain in the lead, the pace of change must accelerate to create standards that show how companies are responding to today's sustainability challenges, not only those that were identified 20 years ago.


I am an admirer of the work of  Dan Esty, Hillhouse Professor of Environmental Law & Policy at Yale, whose research has exposed shortcomings in corporate sustainability disclosure. Developed from a perspective on sustainable finance with a focus on investors (but don't let that put you off 😉), his paper on Corporate Sustainability Metrics: What Investors Need and Don’t Get   is a sensible approach to sustainability disclosure. While I may not agree with everything, the following summary of issues in current sustainability disclosure makes sense to me.

Dan Esty  writes:

"One of our core observations is that repurposing ESG metrics that worked for the “values”  investors of the past does not work for the sustainable investors of today. Mainstream investors now want a more comprehensive  and  carefully curated perspective on the companies in their portfolios – which existing ESG data sets so often cannot provide."

He also recommends a government-mandated framework of ESG methodologies to underpin disclosures that are common to all or most companies. It's not by chance that I am pondering this question at this time, because, next week, the third annual Asia Sustainability Reporting Summit (register here 😀 ) which I co-chair, will run under the theme of Is mandatory better? Among other things, I will facilitate two panel discussions with prominent and accomplished Chief Sustainability Officers, regulators, analysts and academics on this subject.

Another brilliant academic whose work I admire, Professor Guler Aras (Integrated Reporting Network Turkey Executive Chair and Yildiz Technical University Finance Governance and Sustainability Research Center Founding Director), will be an expert voice on a panel next week. She has proposed a multi dimensional sustainability model in her research article which was published in Journal of Cleaner Production. She says: "In addition to the traditional sustainability components, finance and governance components allow businesses to maintain healthy and continuous performance over a long period of time and provide benefits to all stakeholders. Hence, apart from the economic, environmental and social dimensions of corporate sustainability, a good governance structure and financial factors should be integrated to properly evaluate firms’ sustainability." Prof. Aras's diagram below illustrates a multidimensional comprehensive corporate sustainability disclosure model.

This is worth mentioning because, mostly, the link to overall business results is a missing element in sustainability reporting. While finance (Economic Performance GRI Standards 200), and governance (GRI General Disclosures 102-18 - 102-39) are part of GRI-based reporting, there is often a disconnect in reporting between economic and governance factors from a sustainability perspective and actual business results. More direction in sustainability reporting standards could be considered to help companies define how sustainable practice impacts their own business through risk mitigation, employee engagement, customer loyalty, cost benefit and new business opportunities, to name just a few. But that's probably a whole other discussion....

Voluntary or mandated, corporate sustainability disclosure needs to get with the times, deliver the need and be more useful to not only investors, but to all of us whose lives are affected by the actions of corporations, in positive and less positive ways. Whether the new declaration of the Business Roundtable on the Purpose of a Corporation, that commits to delivering value to ALL stakeholders inspires or depresses you, there seems to be a consensus that we need better frameworks for measuring and disclosing sustainability impacts. With leadership comes responsibility to stay in the lead. As an established leader in driving sustainability disclosure, GRI has the capability to help transform sustainability reporting standards into more meaningful, comparable and useful tools for sustainable development.



P.S.  I you got to this point, you deserve a double ice cream. 🍦🍦 

elaine cohen, CSR consultant, Sustainability Reporter, HR Professional, Ice Cream Addict. Owner/Manager of Beyond Business Ltd, an inspired Sustainability Strategy and Reporting firm having supported 100 client reports to date; author of three books and several chapters on Sustainability Reporting and the Human Resources connection to CSR; frequent chair and speaker at sustainability events and judge in several sustainability awards programs each year. Contact me via Twitter , LinkedIn or via Beyond Business