This is the fourth post in the exclusive read-only-on-the-CSR-Reporting-Blog unraveling of the GRI Universal Standards Exposure Draft that is now open for public comment. At 106 pages, the draft may seriously turn lockdown into meltdown. That is, of course, unless you give the technobabble a miss and skip to the juicy nuggets. Thanks to Wes Gee for this tweet.
Check out the first posts here: The overview. The human rights spotlight. The materiality clarity. Or dive straight into today's ton of juicy nuggets ... all about probably the part of sustainability reporting that most reporters find intensely boring...governance! How many really exciting and fun governance disclosures have you spotted in sustainability reports?
(One of the most colorful and human presentations of governance disclosures I have seen recently is in the Del Monte Pacific 2019 Sustainability Report - makes you think that governance might not be so boring after all!)
Anyhow, the thing you might unwittingly overlook if you have been a regular GRI Standards Core Level reporter, is that the new proposed In Accordance rule now includes ALL the general disclosures on governance. Currently, at Core level, all you need to do is report Disclosure 102-18 on covering governance structure and Board Committees, including those with responsibility for economic, environment and social topics. Generally, this information is reported anyway by public companies in their annual reports, so a brief reference in the sustainability report often did the trick. Not overly stretching, and not overly transparent either.
The new Universal Standards Exposure Draft changes all that. There are no less than 15 governance disclosures that organizations wishing to remain In Accordance must report, with no acceptable omissions.
All these disclosures require more than easy-to-draft one-liner responses – they almost all have several parts requiring comprehensive responses. (There is a little loophole here, that is, if you do not have something in place such as a policy or committee or process, then you can report that this does not exist, and that would meet the requirement for disclosure. The disclosure does not come with an obligation to implement new actions, but to report those that are in place. A bit of a double-edged sword, but it may provide some relief to those who do not have extensive governance structures in place, maybe suitable for smaller or privately-owned companies.)
Now, although GRI is saying that this is a simplification from 22 separate disclosures in the current Standards to 15 disclosures, in practice, several have been combined, resulting in a governance section that is almost a report in itself. In my view, many of these disclosures are part of mandated corporate financial reporting, and rather superfluous to sustainability reporting.
For example, GOV-6 Conflicts of interest: The organization shall:
a. describe the processes for the highest governance body to ensure that conflicts of interest are avoided and managed;
b. report whether conflicts of interest are disclosed to stakeholders, including, as a minimum, the following conflicts of interest: i. Cross-board membership; ii. Cross-shareholding with suppliers and other stakeholders; iii. Existence of controlling shareholder; iv. Related parties, their relationships, transactions, and outstanding balances.
For a sustainability-focused stakeholder who assumes that conflicts of interest are addressed and disclosed as part of fundamental corporate governance, this is just noise. I think it’s unnecessary to burden the sustainability reporting process with this additional content.
Or this one: GOV-7 Role of the highest governance body in setting purpose, values, and strategy: The organization shall: a. describe the role of the highest governance body and of senior executives in the development, approval, and updating of the organization’s purpose, value or mission statements, strategies, policies, and goals related to sustainable development topics.
Sorry, but, frankly, who cares? Do we really need a load of unnecessary verbiage saying the Exec Team had a discussion and then the Board had a discussion and then they all had a discussion and then they agreed on the purpose, values and strategy? Since Disclosure GOV-11 covers the role of the highest governance body in sustainability reporting in which the purpose, values and strategy are disclosed, what’s the point of another disclosure adding who said what and who agreed?
GOV 13 and GOV 14 require detailed descriptions of remuneration processes for the Board – all this is covered in other corporate governance reporting. I think it’s irrelevant here.
Similarly, what does it help us to know “the ratio of the annual total compensation for the organization’s highest-paid individual in each country of significant operations to the median annual total compensation for all employees (excluding the highest-paid individual) in the same country” (GOV-15). It’s all very nice for those who want to cap CEO compensation (and there is some merit in this thinking) but frankly, this is not about sustainability impacts and not even really about ethical conduct. It’s about capital market forces that enable or even encourage these types of compensation processes. I would leave this to other corporate reporting platforms and leave it out of the sustainable development dialogue at this level of detail.
Personally, I suggest slimming down the mandated governance content to three or four disclosures related to Board accountability for sustainability topics that are not typically reported anywhere else.
I covered this in my conversation with GRI experts, Bastian Buck, Chief of Standards and Laura Espinach, Head of Technical Development.
ME: Does this now significantly increase the reporting requirement for companies who reported Core to date? Is this a deliberate new focus on governance? Won’t this make reports longer 😟?
BASTIAN: “When we first introduced the governance disclosures, in G4, I think we were ahead of the curve. At the time virtually no company was disclosing this information. But today, many already disclose more than what’s required to be In Accordance at Core level. If you look at all the data providers that send ESG queries to companies and at the regulatory domain where governance disclosure has become a lot more comprehensive, you see a clear trend of investor interest and demand towards more structured governance disclosure in both the financial and ESG reporting domains. As this became a more commonplace expectation, so companies went beyond the minimum disclosure. The GRI Global Sustainability Standards Board (GSSB) often wrestled with the question of whether this is too much – but input we received confirmed that this is important from a governance best practice perspective and interestingly enough, none of the other standards in the ESG space features these disclosures. It still holds true that you can reference other reporting you already publish – as long as this adequately fulfills the requirement of the GRI governance disclosures.”
ME: As GRI Standards are supposed to apply for all organizations, including private companies, SMEs, nonprofits etc., is it reasonable to expect that all organizations will report on all these governance disclosures? Some of these disclosures will be extremely awkward for all but the largest corporations - is it GRI’s intention to reduce the number of companies that can report In Accordance?
BASTIAN: “Let’s be clear that the requirement to disclose does not mean you have to put in place mechanisms that do not currently exist. It’s perfectly acceptable to disclose the absence of certain governance aspects. It’s understandable that certain organizations may not have all these governance processes in place that are required for large companies.”
ME: Another point: I note that many continue to include governance as a material topic. But, as the materiality definition has changed to focus on impacts of the organization, does it follow that governance should not be included as an IMPACT but part of the organizational approach and due process? Would a company including governance as a material topic then not be In Accordance with the Standards?
LAURA: “What is important is that in the GRI Standards as proposed, governance is relevant to all organizations and all will therefore have to report all governance disclosures. Governance cannot be subject to a materiality assessment. But there is nothing that prevents an organization identifying governance as material (in addition to reporting the disclosures in GRI 102) as long as they can identify the impacts of governance and can justify the impacts in the context of the GRI standards.”
Let’s do a little poll: please read the question below and select the response that most reflects your view:
Question: Do you think several of the governance disclosures in the Exposure Draft are unnecessarily detailed and nitpickingish and do little to enhance our understanding of an organization’s commitment or capability to manage its impacts?
Answers:
Good, glad we got that sorted. Prepare for governance galore in the next iteration of the GRI Standards. If you like this, or do not like it, have your say before it gets locked down in the publication of the new Universal Standards sometime in the near future. The Exposure Draft is open for comments until 9th September 2020.
Stay tuned for the next post in this series which is all about the rebirth of Sector Standards. YAY!
Stay safe, stay well, stay optimistic! And eat lots of ice cream 🍦🍧🍨🍦
Check out the first posts here: The overview. The human rights spotlight. The materiality clarity. Or dive straight into today's ton of juicy nuggets ... all about probably the part of sustainability reporting that most reporters find intensely boring...governance! How many really exciting and fun governance disclosures have you spotted in sustainability reports?
(One of the most colorful and human presentations of governance disclosures I have seen recently is in the Del Monte Pacific 2019 Sustainability Report - makes you think that governance might not be so boring after all!)
Anyhow, the thing you might unwittingly overlook if you have been a regular GRI Standards Core Level reporter, is that the new proposed In Accordance rule now includes ALL the general disclosures on governance. Currently, at Core level, all you need to do is report Disclosure 102-18 on covering governance structure and Board Committees, including those with responsibility for economic, environment and social topics. Generally, this information is reported anyway by public companies in their annual reports, so a brief reference in the sustainability report often did the trick. Not overly stretching, and not overly transparent either.
The new Universal Standards Exposure Draft changes all that. There are no less than 15 governance disclosures that organizations wishing to remain In Accordance must report, with no acceptable omissions.
- GOV-1 Governance structure and composition
- GOV-2 Nomination and selection of the highest governance body
- GOV-3 Responsibilities for sustainable development topics and delegation
- GOV-4 Stakeholder consultation on sustainable development topics
- GOV-5 Chair of the highest governance body
- GOV-6 Conflicts of interest
- GOV-7 Role of the highest governance body in setting purpose, values, and strategy
- GOV-8 Collective knowledge of the highest governance body
- GOV-9 Evaluation of the performance of the highest governance body
- GOV-10 Identification and management of impacts
- GOV-11 Role of the highest governance body in sustainability reporting
- GOV-12 Communication of critical concerns
- GOV-13 Remuneration policies
- GOV-14 Process for determining remuneration
- GOV-15 Annual total compensation ratio
All these disclosures require more than easy-to-draft one-liner responses – they almost all have several parts requiring comprehensive responses. (There is a little loophole here, that is, if you do not have something in place such as a policy or committee or process, then you can report that this does not exist, and that would meet the requirement for disclosure. The disclosure does not come with an obligation to implement new actions, but to report those that are in place. A bit of a double-edged sword, but it may provide some relief to those who do not have extensive governance structures in place, maybe suitable for smaller or privately-owned companies.)
Now, although GRI is saying that this is a simplification from 22 separate disclosures in the current Standards to 15 disclosures, in practice, several have been combined, resulting in a governance section that is almost a report in itself. In my view, many of these disclosures are part of mandated corporate financial reporting, and rather superfluous to sustainability reporting.
For example, GOV-6 Conflicts of interest: The organization shall:
a. describe the processes for the highest governance body to ensure that conflicts of interest are avoided and managed;
b. report whether conflicts of interest are disclosed to stakeholders, including, as a minimum, the following conflicts of interest: i. Cross-board membership; ii. Cross-shareholding with suppliers and other stakeholders; iii. Existence of controlling shareholder; iv. Related parties, their relationships, transactions, and outstanding balances.
For a sustainability-focused stakeholder who assumes that conflicts of interest are addressed and disclosed as part of fundamental corporate governance, this is just noise. I think it’s unnecessary to burden the sustainability reporting process with this additional content.
Or this one: GOV-7 Role of the highest governance body in setting purpose, values, and strategy: The organization shall: a. describe the role of the highest governance body and of senior executives in the development, approval, and updating of the organization’s purpose, value or mission statements, strategies, policies, and goals related to sustainable development topics.
Sorry, but, frankly, who cares? Do we really need a load of unnecessary verbiage saying the Exec Team had a discussion and then the Board had a discussion and then they all had a discussion and then they agreed on the purpose, values and strategy? Since Disclosure GOV-11 covers the role of the highest governance body in sustainability reporting in which the purpose, values and strategy are disclosed, what’s the point of another disclosure adding who said what and who agreed?
GOV 13 and GOV 14 require detailed descriptions of remuneration processes for the Board – all this is covered in other corporate governance reporting. I think it’s irrelevant here.
Similarly, what does it help us to know “the ratio of the annual total compensation for the organization’s highest-paid individual in each country of significant operations to the median annual total compensation for all employees (excluding the highest-paid individual) in the same country” (GOV-15). It’s all very nice for those who want to cap CEO compensation (and there is some merit in this thinking) but frankly, this is not about sustainability impacts and not even really about ethical conduct. It’s about capital market forces that enable or even encourage these types of compensation processes. I would leave this to other corporate reporting platforms and leave it out of the sustainable development dialogue at this level of detail.
Personally, I suggest slimming down the mandated governance content to three or four disclosures related to Board accountability for sustainability topics that are not typically reported anywhere else.
I covered this in my conversation with GRI experts, Bastian Buck, Chief of Standards and Laura Espinach, Head of Technical Development.
ME: Does this now significantly increase the reporting requirement for companies who reported Core to date? Is this a deliberate new focus on governance? Won’t this make reports longer 😟?
BASTIAN: “When we first introduced the governance disclosures, in G4, I think we were ahead of the curve. At the time virtually no company was disclosing this information. But today, many already disclose more than what’s required to be In Accordance at Core level. If you look at all the data providers that send ESG queries to companies and at the regulatory domain where governance disclosure has become a lot more comprehensive, you see a clear trend of investor interest and demand towards more structured governance disclosure in both the financial and ESG reporting domains. As this became a more commonplace expectation, so companies went beyond the minimum disclosure. The GRI Global Sustainability Standards Board (GSSB) often wrestled with the question of whether this is too much – but input we received confirmed that this is important from a governance best practice perspective and interestingly enough, none of the other standards in the ESG space features these disclosures. It still holds true that you can reference other reporting you already publish – as long as this adequately fulfills the requirement of the GRI governance disclosures.”
ME: As GRI Standards are supposed to apply for all organizations, including private companies, SMEs, nonprofits etc., is it reasonable to expect that all organizations will report on all these governance disclosures? Some of these disclosures will be extremely awkward for all but the largest corporations - is it GRI’s intention to reduce the number of companies that can report In Accordance?
BASTIAN: “Let’s be clear that the requirement to disclose does not mean you have to put in place mechanisms that do not currently exist. It’s perfectly acceptable to disclose the absence of certain governance aspects. It’s understandable that certain organizations may not have all these governance processes in place that are required for large companies.”
ME: Another point: I note that many continue to include governance as a material topic. But, as the materiality definition has changed to focus on impacts of the organization, does it follow that governance should not be included as an IMPACT but part of the organizational approach and due process? Would a company including governance as a material topic then not be In Accordance with the Standards?
LAURA: “What is important is that in the GRI Standards as proposed, governance is relevant to all organizations and all will therefore have to report all governance disclosures. Governance cannot be subject to a materiality assessment. But there is nothing that prevents an organization identifying governance as material (in addition to reporting the disclosures in GRI 102) as long as they can identify the impacts of governance and can justify the impacts in the context of the GRI standards.”
Let’s do a little poll: please read the question below and select the response that most reflects your view:
Question: Do you think several of the governance disclosures in the Exposure Draft are unnecessarily detailed and nitpickingish and do little to enhance our understanding of an organization’s commitment or capability to manage its impacts?
Answers:
- Yes
- Affirmative
- Definitely
- Absolutely
Good, glad we got that sorted. Prepare for governance galore in the next iteration of the GRI Standards. If you like this, or do not like it, have your say before it gets locked down in the publication of the new Universal Standards sometime in the near future. The Exposure Draft is open for comments until 9th September 2020.
Stay tuned for the next post in this series which is all about the rebirth of Sector Standards. YAY!
Stay safe, stay well, stay optimistic! And eat lots of 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 107 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
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