The relevance of impact: no shortcuts on journey to a global sustainability reporting baseline

Published date: 08 August 2023

A central premise to the GRI Standards is to ensure the provision of reported information that enables an organization and their stakeholders to effectively assess the sustainability impacts of the entity – on the economy, the environment and people – and make informed choices as a result. The Global Sustainability Standards Board (GSSB), the independent entity that sets the GRI Standards, safeguards this multi-stakeholder relevance by ensuring the perspective of stakeholders is built into the standard-setting DNA. 

Every technical committee and working group involved in the development and update of GRI Standards contains representatives from investor, business, labor, civil society and mediating organizations. This approach is important, not only because achieving sustainability requires partnerships and collaboration (SDG 17), but also because an organization’s impacts give rise to risks and opportunities for that organization over time.

Why investors want to know about impacts

The combined impacts of multiple organizations, over time, lead to risks and opportunities for individual organizations in the future. Who knew 50 years ago that cumulative effects of business-led emissions would lead to a climate crisis? We are already seeing numerous emerging crises, which organizations have contributed to – such as food security, biodiversity and human rights. In all these examples, impacts need to be understood for risks to be effectively managed and mitigated.

The impacts of an organization matter to any investor that invests over the long term, such as pension funds and superannuation fund members. Most, if not all, impacts give rise to risks and/or opportunities which are financially material over time. Of course, an increasing number of investors and assets managers are investing to make a positive impact on society and the environment as well as making a positive financial return. Impacts matter.

Determining material topics from an impact perspective

GRI 3 guides organizations on how to decide their material topics, based on their impacts. The steps involve understanding the organisation, its activities, business relationships and stakeholders, and the sustainability context in which it operates. (The GRI and ESRS approaches are strongly aligned as discussed here.)

The GRI Sector Standards can be used to understand the sustainability context. Developed with multi-stakeholder input and rigorous consultation, they identify the most significant impacts for organizations in a particular sector. But an organization must still engage with its own stakeholders and experts to identify additional impacts specific to the organization. These can then be reported on using GRI Topic Standards.

Assessing the significance of the impacts involves considering their severity and likelihood. GRI 3 supports reporting organizations through this process. As a result, an organization is well placed to identify risks and opportunities that arise from its impacts.

An organization that has not gone through a rigorous process to identify its impacts cannot know, with confidence, what its risks and opportunities are. Investors in an organization that is not taking this approach for determining its most significant impacts, and that is not reporting on how it manages those impacts, cannot be confident that reported risks and opportunities are complete.

The GRI Standards and a global baseline

Getting to a comprehensive ‘global baseline’ for sustainability reporting means first addressing how an organization is determining and managing its most significant impacts. This is the approach we take through the GRI Universal Standards: GRI 1 (Foundation) and GRI 2 (General Disclosures), and GRI 3 (Material Topics). The GRI 3 disclosures are critical as they provide confidence to investors and other stakeholders over the completeness of reporting on risks and opportunities. That confidence is increased where this process is included in the scope of an assurance engagement.

Deepening the relevance of reporting using GRI Standards

According to KPMG, the GRI Standards are used by 78% of the world’s top 250 companies and an average of 68% of the top 100 companies in 58 countries (68% of 5,800 leading companies). And as revealed in recent IFAC research, information disclosed using the GRI Standards is assured more often than any other reporting framework or standard.

The widespread voluntary adoption by organizations and their stakeholders underscores the importance of achieving alignment with GRI Standards in the interests of reporting entities and their stakeholders, investors included. This is something the GSSB is firmly committed to, as demonstrated by our engagements with the European Financial Reporting Advisory Group (EFRAG) and the International Sustainability Standards Board (ISSB). Protecting the long term interests of people and planet is important to capital markets. Afterall, there are no returns on a dead planet.

Carol Adams is Chair of GRI’s Global Sustainability Standards Board, a Chartered Accountant, Professor of Accounting at Durham University, and a leading researcher in sustainability reporting.