Our 2nd installment on this series (click here for Part 1), dives deeper into the primary reporting frameworks in use today, the GRI, as well as new entrant SASB, and explains the key differences and features between them. Part 3 will then offer some insights into how to best take advantage and apply them in this upcoming reporting cycle.

Digging Deeper into the frameworks

The GRI has for a longtime been the go-to framework for comprehensive reporting on Sustainability (with a big ‘S’). With the launch of the G4 version, one of the key steps that guides sustainability reporting is to identify the Environmental, Social and Governance (ESG) topics that are relevant to the organization and prioritize those topics that are “material”. The concept of ESG materiality requires a company to determine which of the multiple dimensions of sustainability may have an impact on and may influence the economic decision making of the company’s stakeholders, and importantly to align external disclosure expectations with the critical measurement and reporting practices that assist management in improving company performance.

Over the course of the last decade, CDP has emerged as one of the most recognizable reporting protocols and programs, even though it is exclusively focused on carbon, energy and water issues. In a recent Greenbiz survey, 67% of the respondents cited CDP as the most valuable voluntary sustainability reporting frameworks (followed by GRI, 49% and the Dow Jones Sustainability Index (DJSI) 45%). However, with the first SASB standards recently launched, and subsequent sector specific modules in process, many are expecting the sustainability reporting landscape to change dramatically.

The SASB is currently developing industry- and US-specific sustainability disclosure standards for over 80 different industries, the first of which for Healthcare has been released, with a comment period currently open for the Financials and Information Communications and Technology sectors. SASB aims to promote consistent and accurate reporting on material sustainability issues in US public companies’ Form 10-k reports, To support adoption of the standards, SASB announced a pilot program to help companies use them to disclose material environmental, social and governance issues in their annual filings to the SEC for the Healthcare and Financials sectors. Ten companies will be selected in advance of the pilot program launch in the first quarter of 2014 and over the next three years, SASB, in collaboration with Bloomberg and other partners, will run pilot programs for a total of 10 sectors.

While CDP remains focused on energy, carbon and water impacts for corporations (while broadening its reach for example, to cities and forests), SASB and GRI, and a handful of other emerging frameworks or assessment tools (such as the IIRC or B Lab's B Corp Impact Assessment) seek to provide a basic structure for how to define and report on material issues. . in addition to these reporting frameworks, there remain dozens of rankings, surveys and awards programs and organizations which use these frameworks, as well as their own custom (and sometimes black box) methodologies to evaluate, compare and rank corporate performance. More on these, perhaps, in a follow up post.

Understanding key differences between GRI and SASB

Both the GRI and SASB focus on developing a corporate position of materiality to guide corporate disclosure and subsequent strategy development and implementing programs that deliver operational performance. However they differ quite dramatically in how they do this.  There has been great coverage already on changes to G4 and announcements about SASB, so what follows is what we think matters the most.

The GRI is built upon an explicit focus on engaging stakeholders and frames materiality as a combination of two dimensions: issues that will have a significant financial impact on the organization and its future success (i.e. issues that are relevant to investors) and issues that will influence the assessments and perspective of other stakeholders. This two-by-two model of materiality has become common in the sustainability reporting field over the past seven to 10 years, even though the x- and y- axis titles may differ among companies. GRI leaves the definition of materiality completely up to the reporting organization, to report only what matters most to them, Of note, the G4 now requires companies to capture impacts of entities not owned or controlled, but impacted by the organization (for example human rights in the supply chain).

The SASB standard takes the definition of materiality a step further.  At the sector level, the SASB is identifying those issues it considers most likely to be material for companies in the sector and is defining a consistent set of sector level KPIs to support disclosure. Thus, the standards are much more focused on the end-product (the disclosure) rather than the process behind it, which is the focus of GRI G4. SASB insists it is not pushing regulators to broaden their interpretations of materiality, rather, it is providing companies on a sector basis with a basic framework of what it (and its working groups comprised of investors, corporations and industry experts) deems material for a sector on the basis of evidence that certain sustainability issues are material in certain industries under existing securities law, adhering to the definition of material information which governs disclosure in mandatory filings to the SEC.  While SASB suggests that the final determination of materiality is the onus of the corporation, its guidelines offer a fairly tight list of issues to report upon. In determining whether a particular piece of information is material, the company should take the perspective of the reasonable investor because in litigation over whether the company met its obligation to disclose material information, the court will assume the perspective of the reasonable investor, rather than any other stakeholder. There is an important distinction here between the SASB goals and focus, and that of the GRI which considers a much broader set of stakeholders.