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GRI Update Enforces Imperative of Transparency Around Businesses’ Impacts on Human Rights

GRI’s new materiality and impact requirements help businesses realign their priorities to address interlinked issues around shareholder value creation and ESG. Without assessing risks and impact on both ends, businesses have and will continue to fail.

The Global Reporting Initiative updated its Standards in 2021 by integrating the UN Guiding Principles on Business and Human Rights. This revision to its 2016 Standards was made with a clear goal to push businesses for more transparent reporting on their social impact and human rights-related issues. GRI's primary motivation in creating this revision was to make companies respond to global regulatory developments in human rights, due diligence and responsible business conduct.

The revision

The revision came at an unprecedented time. The COVID-19 pandemic highlighted many gaps in understanding the impact of our supply chains on social structures and communities; revealing deep inequities in capacity and access to health worldwide in both developed and developing economies. It also shed light on how marginalized communities face injustices during crises.

The pandemic made it clear that all of these human rights issues add more risks to the reputation and viability of businesses. Addressing human rights issues helps reduce global threats; and businesses and communities alike thrive in environments where human and civil rights are respected. Stakeholders, especially investors, recognize that promoting workers’ rights and respecting fundamental human rights increases productivity and profitability while improving relations with local communities and civil society. Hence, in November 2022, the European Parliament adopted new reporting rules for multinationals and other businesses — including the Corporate Sustainability Reporting Directive — to make transparency on environmental, social and governance matters the norm among large businesses. This law has been in the making since the pandemic, pushing GRI to update itself due to growing regulatory pressure.

The GRI aims to eliminate this gap with its updated version, which went into effect January 1, 2023. The organization has made it clear that instead of businesses focusing on how the economy, environment and people affect their organizations, GRI-compliant reports will need to show how each company impacts those key stakeholders this year and beyond.

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Will GRI’s latest revision make greater transparency on social and human rights issues necessary? KPMG’s latest Survey of Sustainability Reporting shows that 78 percent of the biggest 250 companies by revenue (G250) adopted the GRI Standards for their sustainability reporting in 2022 and that 78 percent of the G250 will do additional reporting on their actual and potential social impacts.

Understanding the new Standards

The changes to the Standards include key revisions to GRI 1: Foundation, GRI 2: General Disclosures and GRI 3: Material Topics.

GRI 1 focuses on impact, material topics, due diligence and stakeholder engagement — all concepts that have been expanded to include the outward materiality of a company’s impact on the economy, environment and people; with reporting principles focusing on quality and presentation of information. Another critical revision is removing companies' options to report using GRI; the new version ensures that there is only one way to report in accordance with the GRI Standards.

Revisions to GRI 2 include the requirement of more in-depth information on reporting practices, activities and workers, governance, strategy, policies and practices, and stakeholder engagement; while new disclosures include reporting on policy commitments for responsible business conduct — including respect for human rights and due diligence — and how these commitments are embedded in the organization. Another key addition is reporting on compliance with laws and regulations.

Lastly, the revised GRI 3 includes a broader approach to materiality that incorporates the concept of due diligence. In the 2021 version, GRI even shifted the focus of materiality and now defines material topics as those that “represent the organization’s most significant impacts on the economy, environment and people, including impacts on their human rights.” In addition, the new version also offers guidance on determining materiality. While the revised definition of “material topics” may seem simpler, the actual value of the report will come in explaining the process used to determine these topics. Hence, GRI requires businesses to share the method used to determine and manage each material topic.

Impact on businesses

The latest revision will significantly challenge businesses to measure and report on social impact and human rights-related issues beyond their boundaries. However, due to substantial stakeholder awareness, companies are shifting their perspective on human rights and measuring its impact. They also recognize this opportunity to be transparent about their impacts to improve their brand image and remove hurdles and disconnects within their global supply chain structures.

Since the update went into effect in January, several businesses of varying sectors have released their report in accordance with the latest GRI version and are adhering to the new requirements.

For example, Philips released its Annual Report of 2022 focusing on “creating value with sustainable impact.” The company complied with the requirements of the latest edition by including a thorough explanation of its materiality analysis and relevant changes to its materiality and more data on its social impact than the previous reporting year. In addition, Philips appears to recognize the value of transparency in its historical reporting: It has included data on social impact beyond reporting requirements, as expected from a company with operations in more than 100 countries with several thousand employees.

Other examples include ERM — a global EHS and risk consulting services company — which has also included a greater focus on materiality, with a renewed focus on environmental and social impact, in its latest Sustainability Report. Additionally, Finnish multinational IT company Tietoevry’s recent report adheres to the revised GRI Standards. Recognized by CDP three years in a row for its exceptional sustainability record and active support of a clean-energy future, Tietoevry’s reports — even from previous years — go beyond reporting requirements; but in its latest report, the company shared its significant progress in human rights (specific to gender balance) and ambitions for its environmental stewardship. The report meets all of GRI’s revised requirements, details on its materiality process, and impact analysis.

The way forward

The companies mentioned above are just the first movers and leaders within their relevant industries when implementing the newer regulatory requirements and complying with GRI’s revisions. Within the year, we can expect several businesses to follow suit. First, however, it is essential to recognize and reaffirm GRI’s reasoning behind the revision.

Simply issuing sustainability reports and engaging in standard ESG practices will not help companies win over their stakeholders — especially not the present-day investor. Instead, businesses must integrate their ESG efforts within their strategy and operations using a trickle-down effect starting from their executive leadership. They need to establish the new norm — that ESG, including social impact, must be prioritized as a key business issue and not just a requirement for a checklist. With this, businesses must strike a precise balance between shareholder value creation and ESG. GRI has aimed to strike that balance with its latest revision. When used appropriately, the renewed requirements on materiality and impact analysis help businesses realign their priorities to address both shareholder value creation and ESG. Most of these issues are interlinked; and without assessing risks and impact on both ends, businesses have and will continue to fail.