June 2003

The Global Reporting Initiative

By Maef Woods

In recent years, the perceived gap between the information provided by the corporate reporting model and the information needs of those it serves has grown. Concerns continue to arise that, in spite of the unprecedented opportunities offered by private enterprise and global markets, these endeavors also lead to accelerating problems for humanity and the biosphere. In Accounting Today (April 16, 2001), Glenn Cheney noted that we are entering an age of corporate conscience, that companies are recognizing their social and environmental roles, and that information should be reported about performance in these areas. As an added benefit, analyzing how nonfinancial measures are associated with financial measures may assist companies in identifying new and different ways to improve overall performance.

Although many corporations include information about their social and environmental good deeds in their annual reports, standards for measuring and reporting such nonfinancial indicators do not exist. Cheney’s article suggests that a “balanced scorecard” tool is needed, one that companies can use in strategic planning, risk assessment, and public relations. This tool would provide information about a company’s economic, environmental, and social performance. These three factors are key elements in building sustainable societies, those that satisfy the needs of the current generation without compromising the opportunities for future generations. Such a report would cover sustainable activities that add value to the company, satisfy stakeholder and customer needs, and recognize and support improvement and innovation. The report would also link financial benefits to sustainable activities.

Global Reporting Initiative: Origin, Structure, and Purpose

The Global Reporting Initiative (GRI) is a long-term, multi-stakeholder, international initiative. Background information and the current version of the Sustainability Reporting Guidelines may be found at

The GRI was convened in the fall of 1997 by the Coalition for Environmentally Responsible Economies (CERES) in collaboration with the Tellus Institute, a nonprofit research and consulting organization focused on environmental stewardship and equitable development. The United Nations Environment Programme (UNEP) joined the GRI as a key partner shortly thereafter. A steering committee was established in early 1998 to guide the policies and general direction of the GRI. The steering committee, with members representing 17 organizations and seven countries, designed the overall governance structure of the permanent institution that received final approval from the GRI’s first board of directors on June 21, 2002. The new independent body, an official collaborating center of the UNEP, is a nonprofit foundation organized under the laws of the Netherlands and headquartered in Amsterdam.

The GRI’s new governance structure centers around a 16-member board of directors that has ultimate legal, financial, and fiduciary responsibility for the organization. The board is advised by a 60-member Stakeholder Council and a 10-to-15-member Technical Advisory Council, expected to become operational this year. The board’s work is carried out by a secretariat under the leadership of a chief executive.

Prior to establishment of the permanent institution, charitable foundations provided most of the GRI’s funding. The permanent institution expects to be self-sustaining in five to years by accessing four main funding sources: 1) subscription income from organizational stakeholders (enterprises and organizations that elect 60% of the Stakeholder Council), 2) contributions from companies reporting under the GRI Guidelines, 3) contributions from major accounting firms and companies offering assurance of GRI reports, and 4) income from the public sector, including contributions from governments, international financial organizations, regulatory bodies, and foundations.

The GRI’s vision statement avers:
To support global progress towards sustainable development, the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines will become the generally accepted, broadly adopted worldwide framework for preparing, communicating, and requesting information about corporate performance.

The GRI’s stated mission is to enhance responsible decision making by promoting international harmonization in reporting relevant and credible corporate economic, environmental, and social performance information. The GRI uses a process of open dialogue and collaboration to design and implement sustainability reporting guidelines in pursuit of its mission. Meetings are held in various parts of the world, interested parties are invited to participate in working groups, and working documents are posted on the GRI website. The GRI has tried to balance the principles of inclusiveness and full representation with the objectivity and rigor that information users demand.

The Guidelines

The GRI’s Sustainability Reporting Guidelines were released in a March 1999 exposure draft. A pilot test of 21 companies was conducted during 1999 and 2000. The comments received on the exposure draft represented perspectives from accountancy, business, environmental, government, human rights, religious, and other organizations. Revised Guidelines were released in June 2000 and again in August 2002.

The GRI’s aims in publishing the Guidelines were to help organizations report information that—

The Guidelines consist of five parts: Introduction, “Using the GRI Guidelines,” “Reporting Principles,” “Report Content,” and a Glossary and Annexes. The introduction explains the motivation for and benefits of sustainability reporting. The second part provides basic information about the nature of the Guidelines, describes the GRI family of documents, and gives general information about reporting expectations and design. The third part, which addresses reporting principles, should be of particular interest to the accounting profession. The fourth part of the Guidelines gives detailed information about the content of a GRI report. The final section of the Guidelines includes background information about the GRI and supplemental information that may be helpful in preparing GRI reports. One annex includes guidance on assurance of GRI reports and may be of special interest to the accounting profession.

Fundamental Accounting Concepts

The 2000 Guidelines presented the principles underlying GRI reporting as being the reporting entity, reporting scope, reporting period, going concern, conservatism, and materiality. Relevance, reliability, clarity, comparability, timeliness, and verifiability were posited as the major qualitative characteristics of GRI reports. The 2002 Guidelines combine and extend these underlying principles and qualitative characteristics into 11 reporting principles: transparency, inclusiveness, auditability, completeness, relevance, sustainability context, accuracy, neutrality, comparability, clarity, and timeliness. Although several of these principles resemble those adopted by FASB, a number are noticeably unique. The principles are grouped into four clusters and form a hierarchy, as shown in Exhibit 1.

Transparency, inclusiveness, and auditability provide the framework of the GRI report. Transparency requires full disclosure of the processes, procedures, and assumptions embodied in the reported information. Examples include information on the stakeholder engagement processes and data collection methods used.

Inclusiveness recognizes the diverse views and information needs of stakeholders and requires that an organization systematically engage its stakeholders in order to focus and enhance report quality. Auditability requires that data and information be recorded, compiled, analyzed, and disclosed in a way such that internal auditors or external assurance providers are able to attest to its reliability.

Completeness, relevance, and sustainability context address report content. The completeness principle requires that all information material to assessing the entity’s economic, environmental, and social performance be reported. The GRI’s concept of completeness has three dimensions: operational boundary, scope, and time. Operational boundaries relate to the range of entities for which information is gathered. These boundaries may be defined by financial control, legal ownership, business relationships, or similar considerations. Thus, GRI reports do not necessarily follow the traditional boundaries used for financial accounting and reporting. Scope refers to the specific aspects of sustainable activities included in the report. Although a full GRI report covers economic, environmental, and social activities, the GRI permits incremental adoption of the Guidelines provided that the incremental adoption is fully disclosed. Incremental application is allowed because companies may find preparing a complete report too difficult, time-consuming, or expensive. Partial application is seen as an appropriate first step toward a full GRI report. For example, American Home Products Corporation issued its 2000 Environmental and Safety Report following the GRI Guidelines, with the report’s scope limited to environmental and safety performance. This was the company’s first effort at sustainability reporting, and the company’s vice president for environmental affairs and associate general counsel’s introductory comments expressed excitement about undertaking this new communication initiative. The temporal dimension of completeness requires that reportable activities, events, and impacts be presented in the reporting period in which they occur or are identified. Forward-looking trends are deemed as important as historical trends, and thus attention should be given to the organization’s ability to fund necessary remediation activities, the impact of prospective legislation, and similar issues.

Relevance concerns the importance assigned to a particular aspect, indicator, or piece of information and represents the threshold for determining that information is sufficiently significant to merit reporting. Thus, relevance for GRI reporting is related to FASB’s concept of materiality. GRI reports should include information that is relevant to both the reporting organization and its external stakeholders. Because different stakeholders may disagree on what is relevant, reporting organizations are directed to research user needs and interact with stakeholders on a continuing basis. As expressed in SFAC 2, FASB views materiality as a matter of individual judgment, either by those who make accounting decisions or those who serve as auditors. To the auditing profession, materiality is a matter of professional judgment. While materiality from a financial accounting perspective is highly quantitative, relevance from a GRI perspective has a significant qualitative component to be determined by interaction between preparers and users.

Sustainability context refers to placing performance information in the larger context of social, ecological, and similar constraints in order to render the reported information more meaningful. This concern with macro-level issues is a distinct characteristic of sustainability reporting.

The principles of accuracy, neutrality, and comparability relate to ensuring the quality and reliability of GRI reports. Accuracy enables users to make decisions with confidence. For qualitative information, accuracy is determined primarily by the degree of clarity, detail, and balance of presentation; for quantitative information, accuracy depends on sampling methods and similar issues. The GRI principle of neutrality goes beyond the traditional notion of freedom from bias. The nature of the information presented is important, as well as whether its selection, omission, or presentation is intended to influence the user. Comparability maintains consistency in report boundary and scope and enables comparison against the entity’s earlier performance and the performance of other organizations. Changes in boundary, scope, and content should be disclosed, and, to the maximum practicable extent, previously reported information should be restated so that comparisons are reliable and meaningful.

The principles of clarity and timeliness deal with the accessibility of GRI reports. While financial reporting is based on the premise that users possess reasonable knowledge with which to evaluate the information provided, GRI reporting is directed at a diverse audience. Therefore, the clarity principle requires that organizations strive to produce reports understandable to a wide range of users, and to provide appropriate context or benchmarks to make information useful. Like financial reporting, GRI’s principle of timeliness strives to ensure that users are able to effectively integrate reported information into their decision-making processes.

Report Content

The 2002 Guidelines include significant changes to the content of GRI reports. Performance indicators grouped under the three sustainability dimensions (economic, environmental, and social) are identified as being core or additional. Core indicators are required for reporting “in accordance” with the Guidelines, while additional indicators may be used to enrich a report.

Economic performance indicators address the entity’s direct and indirect impacts on its stakeholders’ economic resources as well as local, national, and global economic systems. These indicators include items such as wages and benefits broken down by country or region, geographic breakdown of markets, taxes paid broken down by country, and cash and in-kind donations to community, social, and similar groups. This element includes, but is not limited to, financial information, and covers both qualitative and quantitative measures.

Environmental performance indicators cover items such as energy use; materials use; water use; emissions, effluents, and waste; land use and biodiversity; and the environmental issues associated with use of the company’s products and services.

Social performance indicators include items such as health and safety practices, nondiscrimination, training and education, child labor, forced labor, freedom of association, human rights, security, customer health and safety, and the social issues associated with use of the company’s products and services. Although the current Guidelines do not identify a standardized set of integrated performance indicators, reporters are encouraged to develop appropriate integrated measures in conjunction with stakeholders.

To be considered issued “in accordance” with the Guidelines, a report must meet five conditions:

Many items typically found in a corporation’s annual report are also to be included in a GRI report. What makes a GRI report unique are the breadth of issues addressed and the emphasis on how reported information relates to, and is integrated with, economic, environmental, and social performance. Inclusion of the auditability principle in the 2002 Guidelines reflects the GRI’s recognition that assurance processes may enhance the consistency, quality, and credibility of sustainability reporting when stakeholder expectations have been determined to support such processes. However, no widely accepted or global standards currently exist for providing assurance on sustainability reports, and the GRI’s mission does not include setting such standards. The GRI views its role as fostering multi-stakeholder dialogue about the development and standardization of assurance methodologies. Assurance guidelines are likely to incorporate concepts and methodologies from traditional financial auditing and other disciplines. Nine components to be included in an assurance report are outlined (see Exhibit 2); many resemble elements included in a financial statement auditor’s opinion.

Hussey, Kirsop, and Meissen examined 23 sustainability reports published between 1995 and 2000 by 10 companies in three target industries (Environmental Quality Management, Autumn 2001). One suggested revision to the Guidelines was the addition of audit provisions to distinguish between third-party audits and self-audits. The authors concluded that third-party certification adds little value or credibility to the reporting process unless an agreed-upon standard exists and the certification agency is trusted.

The Accounting Profession’s Role

The need for assurance guidelines is increasing. Lars-Olle Larsson and Fredrik Ljungdahl observed that professional accountants are increasingly being asked to provide assurance about nonfinancial information in areas outside of their traditional domain (Accountancy, July 31, 2001). The European Federation of Accountants (FEE) has worked on developing guidance for various aspects of environmental reporting and published a discussion paper in 1999 titled Providing Assurance on Environmental Reports. A discussion paper addressing sustainability reporting, Providing Assurance on Sustainability Reports, was released in April 2002.

Larsson and Ljungdahl also noted that all of the then–Big Five accounting firms employ specialists who, as multidisciplinary teams, provide assurance on environmental and sustainability reports. Most often, the methodology used is based on a traditional financial audit approach. However, additional techniques are necessary to deal with the multidimensional nature of sustainability issues and with corporate information collection and reporting systems not yet designed to fully support sustainability reporting. According to Larsson and Ljungdahl, KPMG’s Swedish practice has used a stakeholder consultation process as part of its assurance methodology. This process has enabled the assurance provider to plan and perform the engagement more effectively and to identify discrepancies in the report that pertain to issues stakeholders considered important. As a result, the quality and efficiency of the assurance work improves and might narrow the expectations gap between the assurance provider, the client, and the client’s stakeholders.

The Sustainability Task Force has been considering development of a marketable assurance service on sustainability reporting and has been working with other organizations to ensure that criteria for sustainability reporting meet the requirements of the AICPA’s Attestation Standards. This task force is a joint effort involving the Business Assurance and Advisory Services Executive Committee, the Auditing Standards Board, and the Canadian Institute of Chartered Accountants. The September 2002 CPA Letter announced that information about sustainability reporting and greenhouse gas emissions trading had been added to the AICPA’s website.

A Growing Trend

A February 8, 2001, Financial Times article reported the results of the Global Reporters survey, the first international benchmark study of companies’ efforts to address the “triple bottom line” in their reporting. Sustainability reporting was most prevalent in the oil and pharmaceutical industries and least prevalent in the automotive and chemical industries. Sustainability reporting by North American companies lagged behind other parts of the world. The study concluded that, despite some encouraging trends, only a small fraction of major multinational corporations seriously report on sustainability issues. The second Global Reporters survey, published November 18, 2002, addressed trends and best practices in eight business sectors as well as current issues facing companies and users of sustainability reports, such as accountability and assurance, brands and reputation, and corporate governance. A survey conducted by Corporate Social Responsibility of 100 of the world’s largest businesses found that 21% of financial services companies included environmental and social reports in their annual reports (Investment Adviser, July 2, 2001). This compares to 7% for the previous year. The results of KPMG’s International Survey of Corporate Sustainability Reporting 2002 showed that 45% of the top 250 companies of the global Fortune 500 and 28% of the top 100 companies in 19 countries issued environmental, social, or sustainability reports, compared to 35% and 24%, respectively, in 1999. As of March 2003, the GRI’s website listed 206 companies issuing sustainability reports under the Guidelines, compared to 160 as of December 2001. The March 2003 list included 34 companies from the United States.

Wall Street has also embraced the idea of sustainability. Dow Jones established a family of global sustainability indexes on September 8, 1999. The group comprises a composite index plus five narrower, specialized indexes excluding companies that generate revenue from gambling, alcohol, tobacco, and firearms ( European indexes were established on October 15, 2001, indicating growing interest in sustainability issues.

Voluntary Reporting

Reporting under the Guidelines is voluntary. Although the GRI suggests that sustainability and financial reporting may be merged in the future, it claims that GRI reports are intended to complement, not replace, other reporting standards and practices. By providing information that goes beyond that included in traditional financial reports and by addressing issues such as technology development, human capital, quality of management, and environmental concerns, sustainability reports help to provide a more complete picture of corporate performance and meet the evolving information needs of a diverse group of users. The Guidelines take an additional step by emphasizing the importance of dialogue between the organization and its stakeholders to enhance progress toward sustainability goals. Whereas most financial and governmental reporting requirements are applied at the corporate or organizational level, GRI reports may address a variety of subunits as well as the overarching entity.

Although sustainability reporting may be unfamiliar territory for most accountants, this will not be the case for long. Heightened interest in sustainable development, coupled with increased demand for nonfinancial information, can only enhance awareness of and demand for more widespread sustainability reporting. The development of assurance guidelines will be crucial. The accounting profession has an opportunity to play a significant role in establishing assurance guidelines and in providing assurance services to companies issuing sustainability reports. Forward-looking accountants can position themselves to reap the benefits of this growing trend by becoming familiar with the GRI and its work.

Maef Woods is a master’s in accountancy candidate at Wright State University, Dayton, Ohio.

Robert H. Colson, PhD, CPA
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