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October 23, 2020 06:15 AM

Update from the EAA Stakeholder Reporting Committee – Responses to the GRI Universal and Sector Standards Project

Posted by Charles Cho and Ian Thomson, on behalf of the EAA Stakeholder Reporting Committee (EAA SRC)

In March 2019 the Global Sustainability Standards Board of the Global Reporting Initiative initiated a review of universal and sector (oil, gas and coal) standards project. The public comment and consultation period seeking input on each first exposure drafts was June-September 2020 and July-October 2020 for the universal standards and oil and gas sector standards, respectively.

The EAA SRC submitted its response to the issues raised in the survey (see attached PDF files).

Highlights of responses for Universal Standards

With regards to the revised definitions of “material topic” and “stakeholders”, the EAA SRC is supportive of these changes and of the general shift to impact-based reporting. There is a potential problem with inconsistency with other standards and their definition of stakeholders. The new GRI definition is more restrictive than others and may reduce perceptions of stakeholder saliency/agency, but this is balanced by the increased prominence of material topic selection and changes in the universality of the standards/shifts in reporting concepts. Further clarity and guidance are required in order to determine boundaries to an organization’s responsibilities and the impacts it is accountable for. However, we note that that the definition of “material topic” still favors and prioritizes the financial & economic impact, at least in order of the listed impacts.

On the identification and reporting of material topics, the EAA SRC is not clear about how to specify organization-specific sustainability norms, or standards of performance, against which such impacts are reported to have occurred (context-based principle). The interpretation of impacts is limited to only those that are actually occurring.  Thus, the standards do not address impacts that ought to be occurring, but which may not be, or impacts that are occurring, but which should be occurring to greater or lesser extents, or in altogether different ways. While the SRC does see some efforts for assessing context, it remains broad and general.

On the reporting of material topics, the EAA SRC is supportive of the requirement that if there are topics listed in a GRI Sector Standard that an organization in that sector does not deem to be material, the organization should be required to identify these topics and explain why they are not material organizations identify these topics and explain why they are not material. This would allow for greater comparability between businesses in the same sector. This information can also be collated by the GRI to monitor the effectiveness of their sector standards and form the basis for any subsequent revision. Similarly, the GRI should monitor additional material impact disclosures which are not included in their sector standards. However, the EAA SRC wonders how an organization in a given sector “deems” a topic material (or immaterial) and is concerned about subjectivity. At the very least such evaluation should be thoroughly explained. Also, sector reporting should not allow any loopholes.

Highlights of responses for Oil and Gas Sector Standards

About the clarity of how a Sector Standard should be used within the GRI Standards system, the EAA SRC finds this description difficult to follow and finds that organizations have much latitude and discretion as to what to report – particularly in the choice of topics – leading to subjectivity issues.

The EAA SRC believes that the draft provides a clear and complete scope and range of activities of the oil and gas sector, and reflects the most important impacts that organizations in the oil and gas sector have on the economy, the environment, and people. However, the issues that seem to be missing are legal challenges, regulatory breaches, convictions, legal cases, reputation challenges, campaigns, shareholder motions from shareholder activists and negative media coverage.

Whereas list of sector topics seems to represent the likely material topics for the oil and gas sector, the EAA SRC finds that there is a significant lack of clarity about materiality—much scope for misinterpretations, confusing logics and nested conditionality. Overall, and in contrast to the draft on universal standards, there seems to be a switch towards allowing non-disclosure and making all topics voluntary.

If there are topics listed in a Sector Standard that an organization in the sector does not deem material, the EAA SRC strongly supports that organizations should absolutely be required to explain why these topics are not material. There appears to a lack of coherence and disconnect with the narrative in the topic descriptions and the company seems to have all the discretion not to disclose much or anything without a requirement to justify it. There is also ambiguity in the scale and context for determining materiality. The SRC finds that the text in Section 3.2 is confusing and misleading – “an organization to which the exposure draft applies needs to review each topic described and determine whether it is material for itself”. In fact, materiality is based on external impact on others and ecosystems, not “for itself.

Specific to disclosures included in “GHG emissions” and “Climate resilience and transition”, the EAA SRC finds that Scope 3 downstream would be challenging to report. However, this could be helped by providing guidance on how to provide estimates (e.g., using standard sector scenarios on technologies). This sector has the knowledge and resources for this as it remains a leader in the development of scenarios in reporting/accountability.

 

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