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Putting materiality to the test

October 2013

Business in 2013 is increasingly aware that it is no longer possible to be competitive without being sustainable. But sustainability reporting in 2013 is about more than transparency and accountability alone. Whether it be risks in the supply chain or the effects of resource scarcity, sustainability issues are strategic issues for businesses as well as their stakeholders – from investors to the communities in which they operate. In this sense the reporting of non-financial information not only informs and empowers; it has the capacity to transform, preparing businesses for the sustainability challenges that the economy of tomorrow will bring.

But in order for sustainability reporting to live up to this promise, it is crucial that the information contained within sustainability reports is focused and relevant, and that it addresses the sustainability-related issues that are most critical to businesses and their stakeholders, in order to drive change.

For this reason, sustainability reporting must continually evolve. In May 2013, GRI launched the next generation of its Sustainability Reporting Guidelines - G4. The launch marked the culmination of two years of extensive stakeholder consultation and dialogue with a diverse constituency of experts from across the world. The aim of G4 is simple: to help reporters prepare sustainability reports that matter – and to make such robust and purposeful sustainability reporting standard practice.

A sustainability report conveys disclosures on an organization's impacts – be they positive or negative – on the environment, society and the economy. Yet a robust sustainability report is far more than a data gathering or compliance exercise. By making abstract issues tangible and concrete, reporting helps organizations to set goals, measure performance, and manage change. The insights generated can have direct relevance for C-suite decision making, with the potential to spark operational improvement and innovation, and inform core business strategy.
To support organizations on this strategic journey, G4 places the concept of materiality at the heart of sustainability reporting. This means encouraging organizations to provide only disclosures and indicators that are material to their business, on the basis of a dialogue with their stakeholders.

This will result in sustainability reports that are centered on the issues that are really critical in order to achieve the organization’s goals and manage its impact on society - reports that are more strategic, more focused and more credible. In short, G4 reports should concentrate on what really matters, and the process of compiling them will require companies to think and act strategically. This in turn should help to curtail greenwashing, as reports produced following the materiality principle are less likely to camouflage problems among good news stories and initiatives.

Sustainability reporting is a journey. It is not a question of ‘pass’ or ‘fail’. In a world of complex challenges in which change is sometimes the only constant, no organization has all the answers at any one time.
G4 is designed to reflect this. It is quite possible that an organization may identify material topics for which it does not yet have a policy or even a monitoring system. A report that acknowledges this, identifying and disclosing risks, and outlining transparently the challenges that the company faces and the steps it needs to take to address them, is entirely consistent with the goals of G4.

The key here is integration into the business strategy and business model. G4 encourages organizations to view sustainability as a major strategic issue and an operational imperative, and to embed sustainability considerations into the everyday life of the business.

The transition to this way of thinking may require some companies to re-evaluate their approach to reporting. But it will also empower them. GRI is convinced that by taking a more strategic and materiality-based approach, reporting organizations - and their stakeholders - will get much greater value out of reporting, and a greater return for the resources they invest.

Ernst Litgteringen, Chief Executive of the Global Reporting Initiative

Global Reporting Initiative | Global | Reporting

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