An Application Level By Any Other Name

October 4, 2012

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The evolving framework for voluntary sustainability reporting will have an impact on the way companies build and communicate their sustainability strategies and commitments. This is the first in a series of posts exploring the Global Reporting Initiative's proposed G4 Guidelines.

“You don’t know what you’ve got till it’s gone.”

That sums up how I feel about the Global Reporting Initiative's (GRI) proposal to gut the current Application Level system from its reporting framework. Introduced when GRI made its last major revision to the Guidelines in 2006, Application Levels allow companies to become and remain GRI reporters even if they're not ready, willing or able to tackle the full set of disclosures.

While far from flawless, it was a brilliant idea. More important, it worked – contributing to “a dramatic increase in the number of sustainability reports produced,” according to GRI.

So, what's the problem? Well, two major issues come to mind.

What's in a name?
Application Levels are divided into three tiers – A, B and C – reflecting the extent to which GRI indicators have been incorporated into a given report. Unfortunately, from the get-go they've been misunderstood as being a “grade” on sustainability performance or on the report itself. And who among us aspires to getting a “C”, even if it does represent a significant level of transparency? Clearly a change is needed to end the confusion, but tossing the baby out with the bath water seems extreme.

A check-box mentality?
A central and worthy goal of G4 is to “offer guidance which leads to material reports.” The knock on Application Levels is that they encourage companies to engage in “box-checking,” including indicators, even superficially, to attain the “grade” they want.

The trade-off for eliminating the levels is that companies will no longer need to report a set number of indicators to be “in accordance” with GRI – only those that they deem material to their business and key stakeholders. Presumably that will inspire more reporters to actually conduct the materiality analysis that's always been part of the GRI framework. That would be a good thing, of course. It's an invaluable exercise for any organization, independent of sustainability reporting.

But it's a complex and time-consuming process and, if done right, it opens up the organization to outside scrutiny. And under G4 that all gets magnified. Probably less than half of GRI reporters are doing a formal analysis now, relying instead on the multi-stakeholder input of GRI as a de facto version.

Additionally, G4 introduces more than 30 new profile disclosures, all of which are predetermined to be material and, as such, mandatory – an almost paradoxical nod to the type of check-box reporting that G4 is trying to discourage. Given the nature of some of these requirements, and the fact that they won't be subject to the extensive materiality analysis called for in G4, a lot of companies are likely to pass on being “in accordance.” That could mean a big step backward in terms of report quality and data comparability.

So what's the solution? Continue to give companies the latitude to report partially or to adopt the Guidelines incrementally. In other words, keep the Application Levels, but tweak them to reflect some of the great concepts found in G4. This will go a long way toward advancing the cause of meaningful, transparent reporting, which, in turn, will help companies capitalize on the opportunities that flow from being more focused¦ more engaged¦ more sustainable.

Oh, and change the nomenclature. An Application Level by any other name – particularly one that doesn't connote a “grade” – will work even more sweetly.