The Step Up To G4 – Part II

What are the anticipated changes to G4, the next generation of GRI reporting guidelines – what is their significance for businesses, and what should reporters be thinking about, or doing, in preparation for these changes?, asks Banarra Principal Paul Davies.

The key changes in G4 relate to the disclosures around boundary and value chain, management approach, supply chain, governance, anti-corruption and, of course, the central role of materiality. In the first instalment we looked at the new approach of G4 to describing your value chain, setting report boundaries and disclosing management approaches, and this second instalment focuses on expected changes to the supply chain aspects of the new GRI guidelines.

For many organisations, their biggest sustainability risks and opportunities reside in their supply chains. However, the management and performance of suppliers are also areas over which businesses have little direct control. There are celebrated cases over the last 20 years of high-profile, seemingly responsible businesses being dragged into the public gaze for their less than perfect supply chain performance, often in the labour practices area.

Business engagement with suppliers should be one of influence, aligning expectations and values, providing guidance and possibly also encouragement to do better. It is also one that is still sadly neglected by many corporates, often at their peril.

G4 is looking to stimulate both awareness and accountability around supply chain sustainability aspects and responsibility, for both the reporter and the report user’s benefit. It is addressing supply chain much more seriously than in previous versions of the guidelines and this is none too soon in our view.

The anticipated G4 supply chain disclosures will no doubt challenge some companies about what information they have on their suppliers, how reliable and complete that information is, and hopefully stimulate a change in thinking for many about this ‘Achilles’ heel’ of their overall business and sustainability management.

There are many new and amended disclosures relating to the supply chain that will likely be included in G4 (based on what was in the G4 exposure draft that was released late last year).

New disclosures regarding the supply chain include procurement practices, screening
and assessment procedures, as well as remediation practices. New definitions for supply chain and supplier are provided, and guidance will be included on how to apply the supply chain reporting requirements.

Reporters will need to more fully describe their organisation’s supply chain, including detail on the location of suppliers, changes in their relationships with suppliers, their selection and termination of suppliers, and the monetary value and volume of goods and services purchased directly from suppliers.

These supply chain additions are spread throughout the G4 disclosures and there are also likely to be substantive supply chain additions to the core performance indicators in G4.

The supply-related changes in G4 represent a deliberate intent by G4 to push or encourage reporters to consider and report their sustainable supply chain management and outcomes with greater rigour and content.

Some of these changes go a long way to address information shortfalls about suppliers in current reports, but some could go much further in terms of incentivising and supporting suppliers to get on board with sustainability, the issue of considering vulnerable groups in supply chains, how the integrity and robustness of the organisation’s supplier screening processes are ensured, and any decisions made by the organisation as a result of screening potential suppliers.

One thing that could have been also included is how the reporter is working with suppliers to enable more sustainable outcomes.

These considerations are perhaps for the next generation of reporting guidelines, as there is
already much in G4 expected to challenge reporters re their supply chain accountability.

The supply chain guidance provided in G4 appears useful and quite clear, but the problem for many reporters will be that they just don’t know or have this information yet, given that it is an area that most businesses still seem to have little visibility of, interest in, or resources to investigate. How reporting can strengthen this and improve supply chain sustainability over time could be one of the biggest impacts that this iteration of the GRI guidelines could have.

G4 is an obvious opportunity for GRI to reinforce the increasing importance of accounting for supply chain performance in reports, previously one neglected or paid lip service to by many organisations. This emphasis will likely create headaches for many reporters, particularly larger ones, but we think the timing of this is appropriate though in terms of reporter maturity and moving on from current comfort levels.

In the next instalment we will look at the likely governance and anti-corruption changes to G4 and how to understand and address them.

About the author: Paul is a Principal at Banarra and a certified GRI trainer, a member of the GRI G4 working group on management approach disclosures, a member of the GRI G4 Practitioner's Network, a member of the IIRC working group on the assurance of integrated reports, and one of a handful of Certified Lead Sustainability Assurance Practitioners worldwide.

He has written and contributed to four award-winning sustainability reports, assured more than 30 sustainability reports, and has also written, edited and produced over twenty Annual Reports. He has also delivered workshops on GRI, auditing, and materiality, both nationally and internationally.