Is it time we sunset the GRI standards, and the thinking that made us adopt them?

In this article, I offer a provocative and perhaps controversial consideration: In order to save the world - and be able to conduct business in stable markets on a livable planet - we must sunset the GRI, and the thinking that made us buy into it in the first place.

I argue that the currently mainstream sustainability reporting guidance has very limited potential to actually work: not only does it not lead to progress towards real-world sustainability, but in practice, companies cannot comply with it in spirit. I also provide a few practical suggestions for what you can do, from the position of someone working in a sustainability function or as a sustainability consultant, to help set a positive change in motion.

The point of this article is not to attack the GRI, but to continue highlighting what the path for attaining real-world sustainability looks like, with a specific focus on the role that corporations need to play along this path. The closer one looks, the more the GRI appears to be a hindrance on the way, and I as such I suggest we circumvent it, for everyone’s benefit.?

Currently mainstream sustainability reporting guidance is guiding us an impossible path and counter-productive.?

Why is that the case??

You are likely aware that our present version of capitalism, focused on perpetual near-term shareholder value maximization, considers the negative impacts of business on the planet, people and economy “externalities” (meaning someone else’s problem): the costs are not borne by the businesses that accrued them in the process of generating revenue, but are subsidized via cyclical poverty of exploited human capital (i.e. people) - mainly in the Global South, and/or are passed onto governments to be potentially handled with current or future taxpayer money.?

Having an idea of how substantial these externalities are is essential when contemplating a company’s sustainability agenda - whether the core business has the potential to become sustainable with some pivots, or whether a radical shift towards an entirely new core business would be necessary. It is also essential for assessing the sanity of various approaches to corporate disclosures.

To get an idea, let us take a look at a few numbers. In her 2020 book Reimagining Capitalism, Harvard professor Rebecca Henderson and her team converted the GHG emissions of a select few companies into dollar value of damage caused:

Peabody Energy (the largest coal company in the US):

• 2018 revenue = $5.6 billion
• 2018 damage from emissions caused = $30 billion?

CEMEX (one of the largest cement companies in the world):

• 2018 EBIDTA = $2.6 billion
• 2018 damage from emissions caused = $4 billion?

Marks & Spencer (UK retail chain:)

• 2019 pretax profits: ￡670 million
• 2019 damage from emissions cased: $32 million.(1)

As another example, Assaad Razzouk recently demonstrated in a post that the net value created by the top 5 oil & gas giants was negative $58 billion:

• 2022 profits = $192 billion
• 2022 damage from scope 3 emissions = $250 billion

Crucially, when looking at the above numbers of net value created, keep in mind that:

1. The profits are shared with a narrow group of shareholders, while the damage is passed onto everyone else, so the first cannot offset the latter in practice - we will feel the full damage;
2. the above numbers only account for emissions, which are not the sole cause of human-induced climate change, and that?
3. climate change is only 1 of 9 planetary boundaries, of which 6 are already transgressed, of which 3 more severely so than the boundary of climate change (yes, in spite of the overwhelming share of attention climate change has been receiving, and in spite of the severity of the climate breakdown, it cannot be our sole focus)
4. Additionally, globally we are shortfalling on all 12 social foundations.?

This means that quantified negative impacts on all types of capital would result in much grimmer numbers. (If you have seen a comprehensive study on those, please ping me!) That would likely be the same for a number of industries such as energy generation, mining, agriculture, manufacturing, construction, timber and paper production, transportation and so forth.

In other words, let it be our starting point that a substantial part of the global economy is constantly accruing an ever increasing debt - the costs of the damage done while generating revenue, which business and its shareholders are currently not expected to pay for, but everyone else will. As Henderson puts it, these companies and industries are “actively destroying value”. This process, if unabated, would eventually lead to so-called decapitalisation - a state described by Peter Tunjic , in which other capitals have been depleted through the process of creating financial capital from other capitals at a loss, without replenishing (regenerating) them.?

A side note for sustainability champions and employee activists out there: if you would like to replicate Henderson’s math for your own company and have a GHG inventory done (or at least estimated), follow this ratio for a rough approximation, keeping in mind that the number will differ greatly per region:?

1 tonne of CO2 ~ $40 healthcare costs, at minimum.(2)

How does this value destruction by some of our major industries relate to sustainability reporting?

GRI, supposedly the “golden standard of sustainability reporting”, is the most widely adopted sustainability reporting instrument in the world (at least in its pre-2021 version), which most companies new to sustainability aim to adopt without questioning its value (at times at the advice of sustainability consultants). It has heavily influenced the design of the ESRS too.?

Imagine what it would look like if companies in the damaging industries I listed above not only adopted the GRI but attempted to comply with it in spirit: to go all the way.

As per the GRI, such companies would conduct a sustainability due diligence process to identify all their negative impacts across the supply chain, score and prioritize these impacts in the subsequent materiality assessment per their significance (salience)*, and then would be expected to keep mitigating the impacts until they are no longer the most significant, repeating scoring and re-prioritisation annually, if possible. This process should logically, in time, result in having no or negligible negative impacts on the planet, people and economy.

Hence, if they were to follow the GRI in spirit, since companies in these industries seem to be causing such substantial damage in “externalities”, they would likely have to be eventually mitigating their negative impacts with spendings higher than their revenue, or be left with very low margins at best(4) - and that’s all the while looking only at the damage accrued in the given financial year, ignoring historical damage traded for shareholder riches. (And remember, the numbers in the example above looked at only the damage from emissions, not damage vis-a-vis all planetary boundaries and undershot social foundations.)

Obviously, it is very doubtful any company would do this in practice. Most will (consciously or not) stop at a threshold of comfort with sacrificing shareholder value for reducing negative impacts. Their net effect on the capitals will decidedly still be negative - they would still be making money by passing the costs onto everybody else.?

This example should sufficiently demonstrate the logical fallacy of what I call “high maturity incrementalist sustainability” (or in other words, of being very invested into doing sustainability in opposition to an unsustainable core business ). Attempts at taking this route will hit an impasse. Not only that, not being able to see how the movie ends in advance, companies embarking on high maturity incrementalist action may make public pledges and declare ambitions targets - only to realize later there is no appetite for investing into attaining them, and no obvious path forward (unless they become aware of science-aligned sustainability action). At that point, greenwashing may be the only viable option for delivering an illusion of progress (greenlighting), or concealing or justifying the lack thereof (greenrinsing and greenshifting, respectively; see the Greenwashing Hydra ). Having said that, one could argue that following the GRI guidance in spirit unintentionally elicits greenwashing.

This is a frustration that many sustainability champions face.

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The example should however also help us see the flaws of the GRI, SDGs, ESRS and other current or future reporting instruments defined by high maturity expectations:?

Either they are conceptually insufficient (in addition to defying available sustainability science, which clearly tells us that incremental improvements on the status quo will be inconsequential for averting global collapse scenarios): their authors may not have been able to envision the practical business implications that whole-heartedly adhering to their advice would carry - that it will create a mission impossible for exactly the parts of the global economy where we need to see the most change, the fastest.

Or perhaps the standards setters never expected businesses to comply with the spirit of the guidance. In the case of the GRI, this is not implausible. The GRI has built its legitimacy on the assertion of being “the most widely adopted”, and it neither quality-checks sustainability reports that claim to have been produced “in accordance with” the GRI standards, nor is it addressing poor reporting outputs (mind I do not mean accurate reporting of poor performance here). It is not far-fetched to assume that doing so might lead to a drop in the standards’ adoption - and hence legitimacy - and in turn affect revenues from GRI certifications and advisory services. (Especially so since the 2021 update that increased nominal expectations towards reporters.)

One might object that the examples I picked for my argument represent industries with some of the heaviest negative environmental impacts. They indeed do. And that is why they are a great illustration. If a solution is to help us become more sustainable, should it not work first-and-foremost where it is most needed??

Note that this flaw in the GRI does not, on its own, explain why we have seen so little progress on attaining real world sustainability outcomes. Here, incrementalism (the practice defining our ambition level based on internal appetite for improvement on past performance, as opposed to defining it in science-aligned ways) being the current mainstream in corporate sustainability is the cause. Without mainstreaming science-aligned, context-based sustainability ambition and action levels , we will not make any progress towards attaining real-world sustainability. GRI did not invest incrementalism, it just made the choice of adopting the approach and catering to it.

Let the conclusion be that the GRI is not helping us create a system that thrives within planetary boundaries while granting all fellow citizens of the world the dignity of respecting all social foundations (thriving within our means, not at someone else’s cost). As such, I argue it is a distraction worth sunsetting, even for companies unaffected by the ESRS mandate.?

How can we collectively avoid the trap of high maturity incrementalism??

The most effective solution would indeed be policy change: Regulators making multi-capital accounting and context-based sustainability reporting (definitions contained for example here ) the norm. This could mean, for example, evolving the ESRS by incorporating sustainability thresholds and allocations of responsibility into its definition of sustainability and all its individual standards (see r3.0’s public letter to EFRAG on the same ), and analogical instruments being mandated around the world.?

Some will argue “we don’t need more reporting, we need more action”. First, I do not advocate for more reporting. I advocate for reporting that is fit-for-purpose. Yes we need immediate action. But if a business has not done the math to determine what type of and how much action it must take to ensure it is not net negative vis-a-vis systems value, the action will not be of consequence.

Until then, awareness building, advocacy, employee activism and consulting activism are key.

What can you do now??

This is not an exhaustive list, and focuses on simple actions that may have bigger ripple effects throughout the system.

Sustainability champions within companies:

1. Learn about triple bottom line accounting and advocate for it within your company. Use the upcoming launch of Triple Bottom Line Accounting certification (later in 2023, by the Center for Sustainable Organizations) to build momentum (early adopters versus laggards). Triple bottom line accounting is a prerequisite for high maturity integrated reporting, and integrated reporting now seems to be becoming a buzzword again. Deploy sophisticated Horizon 1 weapons(3): speak of industry trends, best practice, the opportunity to identify hitherto inconceivable opportunities. This in itself will not transform your company into a sustainable business, but it would provide leadership and other employees with access to the data with a true image of the enterprise’s relationship to value. How much it creates, how much it damages, what is the net effect. This can push some of those currently suppressing cognitive dissonance into action, and be a foundation for a mindset change.
2. If you have any near the authority to do so, suggest your company drops the GRI. You can use the following argument: Compiling with it (at least in the spirit) carries significant costs, and there are few tangible benefits - following it will not make your firm a sustainable business (or result in a plausible pathway for becoming one), nor will it deliver real-world sustainability; what is worse, it will lead you to a trap and make you prone to greenwashing. (Even if you report to multiple standards or rating providers, at least the cost of recurring due diligence inside-out materiality assessment should be purely attributable to GRI 2021 requirements - unless you are already working towards ESRS readiness). If the requirement for GRI reporting comes from your B2B buyers, launch an awareness campaign to educate your downstream and drive an industry-wide shift. (Reach out if you need help with the latter.
3. Dropping the GRIs should logically raise the question of: what should we do instead? This is a great opportunity to bring up the UN SDPIs - currently the reporting instrument out there that adopts science-aligned, context based approaches while looking at more than a single planetary boundary, and aiming to eventually cover all ecological ceilings and social foundations. It launched last year. You can use the SDGs as a segue, saying the UN has now produced its own method for measuring progress (but tread lightly since the SDGs themselves are not science-aligned). You can also argue the UN SDPIs are a good way to keep abreast of future ESRS requirements and developments (see a comparison of the two by Bill Baue here ). I personally remain hopeful that the European standard will evolve towards a more science-aligned direction in the future - and stakeholder pressures can help that happen.
4. If you use a consulting firm for guidance, ask them for a quote for a context-based materiality assessment and guidance through adoption of the SDPIs. Unless you are in a highly bureaucratic environment, you may be able to do this regardless of whether there is genuine appetite or readiness inside the firm to take such action. You can argue you need the approximate quote for business case building. This, if done by enough firms, will send shockwaves through the mainstream consulting world and alert them they need to start looking beyond their comfort zone of incrementalism and science-defying green growth narratives. This could have an effect on transforming the whole arena.
5. In relation to points 1-3, you could use this opportunity to suggest an internal training session, and can use materials I have previously shared (here , here , here and here ) to raise internal awareness: starting with a clear differentiation between ESG and sustainability, and then between incrementalism and science-aligned sustainability approaches. Highlighting the opportunity in being among the first market entrants in value propositions and business models focused on system value creation may wet an internal appetite for further exploration - perhaps with a professional awareness building session, or a gap/readiness analysis. Also, subtly hinting that your company’s current action levels are science-defying may trigger some healthy concern for future litigations, and help build the momentum further. You can say “science-agnostic” approaches instead, if you think your audience is sensitive.
6. If you are allowed to do so by company policy, speak publicly about the deficiencies of the ESRS in its current version vis-a-vis science-aligned sustainability. About its lack of prospects to deliver real-world sustainability, in spite of the costs that compliance will mean for companies. If you are not allowed to speak up publicly, circulate the writing of experts such as Ralph Thurm among your peers privately. Public awareness and pressures would accelerate the ESRS’ evolution towards an instrument of authentic sustainability reporting.

Sustainability consultants:

• If you have been prescribing GRI to all clients - take a step back. If you consider the whole spectrum of possible ambitions in ESG and sustainability (here and here ), you may arrive at the same conclusion as me: that except for those whose ambition level is high maturity incrementalism, GRI has little relevance.
• Reflect on the shortcomings of high maturity incrementalism, and assuming you find them valid, advise your clients against settling at this ambition level, except for during a brief transition, while systematically building internal readiness for a science-aligned sustainability transformation. If your clients are expected to report in accordance with the GRI by their own B2B customers, offer awareness building with those.
• Become familiar with multi-capital reporting and the triple bottom line certification (see point 1 for sustainability champions).
• Apply as many of the steps from “7 measures of consulting activism for beginners ”, and then leverage the nascent awareness and interest built with your current or potential clients to argue your firm needs to start developing corresponding capabilities for providing science-aligned sustainability advisory and guidance, including reporting under the UN SDPIs.

If there are more action items you can think of? please share them with me (below or via private message), I can add them here for everyone’s benefit.

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Footnotes & References:

* the correct industry term is salience (rather than significance), which is a combination of scale, severity, remediable character, and impacts on human rights. I use “significance” here to make the article accessible to a wider audience.

(1) Rebecca Henderson, Reimagining Capitalism: How Business Can Save the World, Penguin Books, 2020

(2) (Henderson quoting WHO, “COP24 Special Report: Health and Climate Change” 2018; Irene C. Dedoussi, et al. “The Co-Pollutant Cost of Carbon Emissions: An Analysis of he US Electric Power Generation Sector,”, Environmental Research Letters 14.9 (2019): 094003; J Lelieveld et al, “Effects of Fossil Fuel and Total Anthropogenic Emission Removal on Public Health and CLimate”, PNAS 116, no. 15 April 9, 2019): 7192-7197.

(3) Horizon 1 as in the framework of Three Horizons of innovation and culture change , developed by Bill Sharpe et all

(4) These is an obvious simplification at play here, in assuming that undoing the damage would cost approximately the same as the nominal value of the damage caused, which may not be the case; In some cases taking preventative measures to avoid future damages may cost less than the value of the damage avoided, in other cases remediating the damage already done may cost more than the nominal worth of the damage, or may be impossible in the first place. This simplification would work flawlessly if companies were simply compensating for the damage, rather than mitigating the damage. However, I still think it holds enough validity for the argument presented here.