GRI G4 Guidelines: Beauty in the Details

October 15, 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 second in a series of posts focusing on the Global Reporting Initiative's proposed G4 Guidelines.

In a twist on a time-tested adage, sometimes it's important not to miss the trees for the forest.

That's what comes to mind as I look at some of the key elements of the Global Reporting Initiative's (GRI) G4 Guidelines. Given sweeping changes, expansive new boundaries and dozens of added disclosures, it's easy to stay focused on G4 from 20,000 feet. But the beauty of G4 lies in the sometimes dense but typically sturdy principles that add dimension and value to sustainability reporting. Two, in particular, have taken root in my mind:

Mapping the value chain is an exercise more closely associated with lean manufacturing and operations than sustainability reporting. That alone should hint at the business benefits. This new first step in determining materiality offers a view of economic, environmental and social impacts that goes beyond ownership and significant influence.

Applied as directed, mapping the value chain may transform sustainability report content more than all other changes combined. And, I would argue, should elevate the business value of GRI reporting. By helping companies visualize their impacts, both upstream and down, this process is bound to reveal not only additional risks, but also great new opportunities.

A good example is Enterprise Holdings, owner and operator of the Alamo, Enterprise and National car rental brands and, in full transparency, a Fleishman-Hillard client. As much as 97 percent of its carbon footprint comes from customer use of its rental fleet. Recognizing this, Enterprise looks upstream through its strong partnerships with automobile manufacturers to find innovative solutions for reducing fossil fuel usage and, ultimately, the downstream impact of providing mobility to millions of customers worldwide.

New supply chain disclosures are woven throughout the G4 Guidelines. Through this lens, a company's sustainability performance is linked more closely than ever to the actions of its suppliers. For example, in the Organizational Profile section, in which companies describe themselves, a newly required Standard Disclosure is DI 12: “describe the organization's supply chain.”

Many of the new indicators cover supplier screens for fair wages, environmental impacts and basic working conditions. More than simply rendering “not my problem” unacceptable, these screens help protect the reporting company. But my favorite of the bunch is an economic indicator that stresses accountability to the supply chain: “Time taken to pay suppliers.”

Few issues are more disruptive to company operations than constrained cash flow, especially in times of tight credit. So when companies agree to pay suppliers for goods and services within a certain timeframe – say, within 30 days – but then take much, much longer than that to actually do so, some smaller companies may have a hard time making payroll or keeping up with employee health insurance premiums. So what starts off as an economic issue quickly takes on social consequences – and can create a devastating ripple.

I ran my own small business for many years. Almost invariably, the companies that paid us on time were those that had healthy revenue growth and stock prices. Chicken or egg, it matters little which comes first to a company that's faced with layoffs, or worse, because their invoices sit on someone's desk for months. It will be interesting to see if performance on this indicator serves as one more important proxy for a company's overall economic and social performance.

In business we're encouraged to look at the big picture. But as we evaluate the G4 Guidelines, it's also useful to remember the words of Chanakya, ancient philosopher and a pioneer of classical economics: “… a whole forest becomes fragrant by the existence of a single tree with sweet-smelling blossoms.”