GRI and SASB
The Oil & Gas Company selected for the purpose of completing this assignment is AltaGas, a North American energy infrastructure company located in Calgary, Alberta. The company specializes in the following business segments: utilities, midstream, power, and corporate (ESG Report 2021). The company, as evidenced in its 2021 ESG Report, remains committed to delivering “sustainable and compounding value for its stakeholders while setting goals to reduce its carbon footprint” (ESG Report 2021, p. 5). The company is further determined to reduce Scope 1 and 2 direct greenhouse (GHG) emissions by 40 percent by the end of 2030, specifically for Midstream businesses (ESG Report 2021, p. 7). As for Utilities businesses, AltaGas is committed to reduce Scope 1 and 2 GHG emissions by 30 percent (ESG Report 2021, p. 5). Therefore, if I were the Director on the Board of Directors of an Oil & Gas company such as AltaGas, I will choose GRI for the company’s sustainability reporting because it emphasizes the need for companies accountable for their shared impacts on the economy, environment, and people.
The Differences between GRI and SASB
General Philosophies
The Global Reporting Initiative (GRI) is an international independent standards organization, formerly introduced to guide businesses and governments on how to communicate their impacts on specific issues such as climate change. The Sustainability Accounting Standards Board (SASB), on the other hand, was founded in 2011 by Jean Rogers. As a nonprofit organization, SASB was introduced to develop sustainability accounting standards for reporting. SASB’s main focus is to develop and share sustainability accounting standards that guide corporations in disclosing material to investors (“A practical guide to sustainability reporting” 2021, p. 34). GRI’s main aim is to help organizations become more transparent and responsible for their impacts in an effort to create a more sustainable future.
The Standards
The Application of Materiality
GRI has a clear reporting framework that guides organizations in the process of selecting specific topics that addresses key economic, environmental, and social impacts. However, this must be done in consultation with stakeholders. Most of these topics revolve around issues that have significant financial and health material impacts on the people and organization as a whole. The same extends to the environment – it targets topics such as GHG emissions, Climate adaptation and resilience, Air emissions and Biodiversity (“Global Reporting Initiative Standards” 2021, p. 15). On the other hand, SASB’S approach to materiality revolves around a financially driven definition that meets the standards of the global capital market. The SASB standards identify sustainability topics that are likely to “impact corporate ability to create value over the long term” (“Sustainability Accounting Standards Board” 2018, p. 6). The SASB standards comprise of all disclosure topics around five sustainability dimensions: environmental, social, and human capital, business model and innovation, and leadership and governance.
The Type and Scope of Disclosure
GRI provides each industry specific standards for disclosure about significant issues. In total, GRI has 34 topic-specific Standards for disclosure with each standard targeting a specific industry. For example, GRI 11 applies specifically to Oil & Gas companies with topics ranging from 11.1 through to 11.22 (“Global Reporting Initiative Standards” 2021, p. 8). Each topic describes the industry’s most significant impacts and lists specific disclosures that are relevant for reporting. It is important to note that the disclosure is both qualitative and quantitative information. SASB, on the other hand, offers standards for 77 industries in 11 different sectors (“Sustainability Accounting Standards Board” 2018, p. 6). Each standard addresses specific sustainability issues likely to impact financial performance and long-term value of the company. Similarly, about 70 percent of the accounting metrics in the Standards are quantitative (“Sustainability Accounting Standards Board” 2018, p. 6). For instance, SASB has specific companies for “pure-play” E&P activities and other separate standards for Oil & Gas Midstream and Refining & Marketing industries. This explains why integrated companies are advised to consider disclosure topics from these standards.
Audience and stakeholder interests
The SASB conceptual framework was created to guide the process of developing standards regarding interests of stakeholders. SABS standards of reporting target investors and other providers of financial capital. The GRI standards, on the other hand, are used to report important material information to key stakeholders such as investors, labor, civil society, and governments. It therefore follows that SASB conceptual framework was designed to help companies maintain transparency by disclosing to stakeholders all the material aspects of the organization. On the contrary, GRI standards tend to take a broader approach – the disclosure includes general information about the company that strives to show the stakeholders about organization’s future growth.
The Relative Benefits of Reporting
Sustainability reporting, especially one that is embedded in the investment process, benefit investors. It informs the investors about issues such as positioning, management, environment, and potential risks – this leads to better decision making for investors. Most importantly, by providing information to stakeholders such as consumers, investors, or value chain partners, reporting helps improve and maintain long-term relationships (Skouloudis, Chrisovalantis and Panayiotis 2019, p. 888). The key stakeholders for AltaGas include utilities customers, midstream customers, government and regulators and communities including indigenous communities. Some of the information AltaGas provide its stakeholders include how they are committed to environmental stewardship – this is through complying with existing laws, regulation, and standards. According to Skouloudis, Chrisovalantis and Panayiotis (2019, p. 888), integrating sustainable and impact reporting have a particularly positive effect on returns in emerging markets. Skouloudis, Chrisovalantis and Panayiotis (2019) further noted that sustainable reporting, with a focus on material issues, tend to deliver better social, environmental, and financial outcomes for companies. Such companies, in the end, benefit from lower costs of capital due to better management of risks. Most importantly, sustainability reporting for Oil & Gas companies such as AltaGas helps improve their margins and enhance brand value. Other benefits of reporting are as highlighted below:
- Creating better awareness of risks and benefits of the business
- Reducing the risks associated with social, environmental and governance issues
- Reducing the cost of operations
- Emphasizing the existing connection between financial and non-financial performance
- Ensuring timely and informed legal compliance
- Helping organizations set accurate goals and develop evidence-based strategies to help them become more sustainable in the future
The Relative Costs of Reporting
It is important to note that the relative costs of implementing sustainability of report vary depending on the type of industry. According to Buallay (2019), the cost “will depend on the company’s choices to implement ESG sustainability reporting” (Buallay 2019, p. 345). Firstly, companies may opt to hire professionals to help ensure sustainability reporting is more effective – this requires a lot of financial resources. However, companies such as AltaGas rely on a team from current employees to help implement the reporting. Secondly, companies sometime incur costs when gathering, data, analyzing and generating reports. Most company tends to invest more in sustainable management software – this is designed to make the process easier and efficient. Thirdly, manufacturing companies often incur equipment related costs. The last category of costs incurred relate to training which is necessary in order to make sustainability more effective. Companies such as AltaGas that rely on internal employee are sometimes required to provide training. However, the cost here will depend on the size of the team and nature of training.
Perception of the Purpose of Sustainability Reporting
The purpose of sustainability reporting is to ensure companies remains reputable and stay close to society. However, to achieve this requires firms to focus more on developing and maintaining strong relationships with stakeholders. Buallay (2019, p. 345) observed that sustainability reporting, specifically on environmental, social, and economic, serves the purpose of improving the firm’s credibility and visibility– it also gives firms a competitive advantage over others. Furthermore, implementation, monitoring and disclosure of environmental policies adopted by firms, as evidenced in the AltaGas 2021 ESG Report, helps create environmental reputation. X research further confirms that “environmental reputation is positively related to firm performance”. The authors further noted that even companies with weak environmental performance can still develop sustainable reporting as sign of the commitment to improvement – disclosure is sort after as a way of improving corporate reputation. It is understood that cooperate reputation is critical to Oil and Gas companies since it creases significant business opportunities – this helps the company a lot when negotiating with stakeholders. The overall perception of the importance of sustainability reporting relates to the fact that information shared helps stakeholders identify the most important material that are worth investing in.
Bibliography
A Practical Guide to Sustainability Reporting Using GRI And SASB Standards (2021). Produced by GRI and SASB, with support from PWC, the Impact Management Project, and Climate Works Foundation. Web.
Buallay, Amina. “Between Cost And Value: Investigating the Effects of Sustainability Reporting on a Firm’s Performance.” Journal of Applied Accounting Research 77 (2019): 345. Web.
ESG Report (2021). AltaGas. Web.
Global Reporting Initiative Standards (2021). GRI 11: Oil and Gas Sector
Skouloudis, Antonis, Chrisovalantis Malesios, and Panayiotis G. Dimitrakopoulos. “Corporate Biodiversity Accounting and Reporting in Mega-Diverse Countries: An Examination of Indicators Disclosed in Sustainability Reports.” Ecological Indicators 98 (2019): 888-901. Web.
Sustainability Accounting Standards Board (2018). Oil & Gas – Exploration &
production. Extractives & Minerals Processing Sector