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‚Unsubscribe dialog – subscribe collaboration’

To survive stakeholder dialog needs to transform to stakeholder collaboration and make use of new forms of IT

This is the fourth and last installment of a blog series covering crucial sustainability reporting issues on materiality, sustainability context, comparability and stakeholder inclusiveness.

Stakeholder Inclusiveness is one of the four core principles in the GRI G4 Guidelines that help to define report content that is material to the reporting organization and its stakeholders. Since GRI introduced the logic flow of how and when to use these four principles in the reporting process (first done in a Technical Protocol in 2011 and then only slightly amended for G4) it became clear that stakeholder inclusiveness means an ongoing and unstoppable process – in parallel and supporting the use of the other three report content principles. Clearly, stakeholder dialog would not be useful for only creating an organization’s sustainability report.

And here lies the problem: exactly THAT is done in many reporting organizations. This is due to various reasons, some of them are:

  • There are other existing feedback instruments like customer or employee satisfaction surveys. Sustainability seldomly gets included there; these survey services are often offered by external third parties and the sample of topics can’t be changed. Getting varying sustainability issue feedback through those surveys is difficult and the internal owners of these instruments are hard to convince that they should be changing or adding to what is ‚theirs’ and already ‚cast in stone’.
  • New product or service testing is mainly done when prototypes are out for market trials. Before that R&D is still mainly working behind closed doors, sustainability aspects are – if existing – mainly built in through regulation, internal design standards or specifications; potential customer reactions are only due when testing starts. Crowdsourcing is still in its infancy for many of those organizations that have built R&D fortresses and it’s hard to conquer the walls of overestimation of one’s capabilities, the billions of dollars invested in know-how, brains and internal think tanks weren’t in vein, weren’t they?
  • Investor relations still doesn’t take sustainability into their analyst briefings and bulletins, and why should they? Nobody’s asking! These colleagues have to entertain a very specific stakeholder group, engrained in their own mental stereotypes of how markets function and reward. Dozens of sustainability indicators? Well, spare me the white noise, give me one or two!
  • Top management wants information rather quick: if somebody is asking difficult questions in an interview (the questions are mostly precooked) or if top management needs input for a speech, turnover time to serve with answers is often less than 48 hours, so better have handy all necessary data and sound bites in or through the sustainability team.
  • Finally we hear so often that sustainability team members need to be careful, need to create step-by-step approaches, need to draw a fine line, have to be politically correct, need to know ‚the game’ or ‚how it works’ inside the company. Risk-averse approaches are the consequence. Being one of the most important internal strategy or board advisors – a role we would wish for the sustainability department to have – is much different. Go ask some companies how often the head of sustainability meets the board or the head of strategy! Prepare yourself for some disturbing answers.

These descriptions may sound a bit over-exagerating for some, but feedback from dozens of organizations we spoke to internationally in the last year or so paint a rather difficult picture of how especially internal stakeholders react to demands by sustainability departments to include sustainability into their daily working instruments, surveys and dashboard. Of course, there are organizations in which ‚integrated thinking’ as proclaimed by the IIRC for integrated reporting works better in the meanwhile, but for the majority of companies we still doubt it.

One consequence of these rather unsatisfying conditions is that a stakeholder dialog process is often done just through the sustainability department and – even more disturbing – just for the report that comes out. That again is input for some of the known rankings and ratings. Many sustainability department staff know the routine as they are both inviting and invitees (in other company’s dialog processes): once per year data is collected through existing niche software (or through some ERP system modules) or certain identified colleagues (issue owners) get an excel sheet into which they have to add data they are responsible for. Thank you, and until next year! Parallel to that a questionnaire is sent out to identified external stakeholders (often also from other companies), and of course the other usual suspects, including some internal stakeholders. After a max. 30 % feedback rate some statistics are pulled together. Usually, these are presented in one or several roundtables, sometimes in various countries (in the case of multinationals). Together with additional weighing factors a materiality matrix is then drawn up. Programs are set in motion to decrease the most negative impacts, and there goes your report and the shoulder clapping.

We expect that this sort of stakeholder dialog process will be dead in about 2-3 years. There are many indications for that:

  • Can this process convince to support and carry out reliable stakeholder input to really find out what the material issues are? In our view, it can show tendencies or possibly trends, but would you truly tell your top management that this is a proper assessment of the reality out there? As the availability of software and data is less and less of a threshold, one can demand a different quality and amount of data involved.
  • Hardly any sustainability department has organized stakeholder inclusiveness in a way that it is an ongoing process. There is anecdotal evidence at certain moments during the year and some have tried out standing stakeholder expert committees or panels to bridge that gap, but will that be seen as enough? Members of these committees are changing over time, so how stable is that interim solution?
  • Most corporate representatives are frustrated: having received many invitations to such rounds of questionnaires and roundtables from other companies, there is little excitement to go there more than once. Seen it, done it, had it, too little benefit to be involved. It also dawns on them that their own process will most likely face the same problem.
  • NGO representatives already face an ‚overflow error’ syndrom. Think about potentially up to 6.000 calls that Greenpeace will receive in 1-2 years based on the EU’s new Corporate Reporting Directive. No way! Same with most other NGOs, apart from the fact that they also already face the same frustration as mentioned above. Too little do they know what happened to their input and how far it lead to any transformation.

What will be the alternatives? Sure, there’s one big vision already on the horizon: the possibilities of Big Data for stakeholder involvement. In the coming years new data and information-based technologies will contribute to the development of new ways to collect, analyze and visualize bigger and so far unconnected sustainability data. Smart cities, infrastructure, sensors, the Internet-of-Things, portable and cognitive technologies, as well as new business models around Big Data will contribute to this development. Additionally, new interfaces between earth system science, satellite-based data and personalized technologies will emerge. IBM’s Watson and Smarter Planet are first examples of how enterprises prepare themselves for these changes. A bridge too far for the moment for most of us, we would say.

But there are also intermediate solutions to start already now. It all begins with a change of mindset. Like already mentioned we can be sure that stakeholders will more and more unsubscribe from the current approaches, simply because that sort of stakeholder ‘dialog’ is not fulfilling. In combination with a) the growing data availability and b) a further integration into corporate strategy development, stakeholder dialog needs to be replaced with ‘stakeholder collaboration’. That in our view is only possible if the different parts of the organization, those that are not yet connected (or willing to connect, see above), will tune in. Here’s how:

  • Employee and customer satisfaction insight need more than questionnaires with some extra questions on sustainability. We need offers to contribute instant feedback, ideas, openings to focused discussion forums. It is clear that stakeholders want quick feedback, want to know what happened to their input, and how it was used to support change. That data can very well be used to indicate material sustainability issues.
  • Crowdsourcing and crowdfunding are important, yet underestimated feedback instruments, not just to develop products & services, they are also indicators for the reputation of the organization on many fronts, the willingness to co-create and re-think by stakeholders, and the buy-in for potential new products and/or services developed and used by stakeholders. Best new recruits could stem from those sources.
  • Investors need new and aggregated data that can quickly show the ‚ThriveAbility’ of a company, both for investment decisions and for their own reputational buffer. The ThriveAbility Foundation (thriveability.zone, going live soon) has started the development of an aggregate ThriveAbility Index as well as a ThriveAbility Assessment (designed to check organzational capabilities to being thrival) and ThriveAbility Pathways (a tool to assess leadership capabilities for becoming thrival). Thrival in short means the ability to instigate a net positive value creation process, the future precondition to have a right to grow and to get fresh capital.
  • Top management can get infomation instantly if new software tools like e.g. VERSO Workbook (verso.info) are used, to our knowledge the first holistic plan-do-check-act support tool that covers data aggregation, workflow management, facilitated discussion on issue-specific communities, communication and publication of sustainability information as well as coverage and use of all mainstream social media tools for stakeholder involvement. Think about your top management having access and all relevant information just 2-3 clicks away?
  • Sustainability departments can strengthen their role and need to be embedded in corporate strategy. The development of new qualities of materiality matrixes will be a growing field, but needs to be done differently. Virtual dialogue and online engagement platforms will increasingly fill this need, given the cost and carbon-intensity of in-person engagement, the scheduling nightmare of multi-party conference calls and webinars, and the inefficiency and isolation of individualized outreach to stakeholders. Convetit (convetit.com), the online stakeholder engagement platform co-founded by Bill Baue and Tom O’Malley, helps solve these problems by hosting asynchronous online dialogues. Most recently, Convetit introduced an interactive Materiality Matrix tool that enables stakeholders to plot the importance of material issues on a matrix that the platform then aggregates and averages to paint a collective picture of stakeholder sentiment.

Other new tools using Big Data approaches will be arriving on the market soon and will have promising propositions: Take e.g. the startup eRevalue (www.erevalue.com) that analyzes external sources from the internet and provides business intelligence to companies. Through objective output analysis – screening sources that were published by third parties – companies can make an informed decision as to what issues to focus on. This depends per sector, per region, per operational structure, supplier locations etc.. Their software will help determine which sustainability issues are most relevant to a particular business. It uses a set of key topics (“semantic ontology”) related to environmental issues, social issues and corporate governance. This set of key topics creates a common language for companies to use for strategic decision-making.

It is time to get real on the new realities stakeholder collaboration demands. The earlier the new possibilities are used, the quicker we will see results. The technology is there, it will be polished, fine-tuned and upgraded by the growing amount of users. Together with the Big Data developments that we will be seeing within just a couple of years, old-fashioned stakeholder dialog for sustainability reports as we knew it will be history. If you are interested to get to know all these and even more players, don’t miss the 2nd International Annual Reporting Conference in Berlin, October 6/7, see www.reporting3.org.

Authors: Ralph Thurm is the Founder & Managing Director of A|HEAD|ahead, Nick de Ruiter is partner at Sustainalize. Transparency disclaimer: Ralph is involved in VERSO and in that role has contact to a whole array of new tools for stakeholder collaboration. He is also curating the Reporting 3.0 Platform and is a Co-Founder and Technical Director of the ThriveAbility Foundation.

 

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Comparability of sustainability information – slaughtered on the altar of materiality?

The GRI content principles – sustainability context, materiality, stakeholder inclusiveness and completeness – are forming a balanced set to give guidance on how to define what a ‚good’ sustainability report should cover. The focus of work pulling G4 together was on making that balance and the process of how to get to such reporting even more clear and crisp. While our last blogs were digging deeper into the need of putting real teeth into step 1 – defining sustainability context better – another principle from the report quality section, namely comparability, has started to be discussed. The reason for that is that most communication of GRI under the banner ‚what matters, where it matters’ zooms heavily into materiality, and questions start to arise on what that means for the other important reasoning for standardized reporting – producing information that can actually be compared. This discussion has a strong connection with our earlier plea on getting more clarity around sustainability context and working on micro-macro-linked indicators. The discussion around a potential lack of comparability is making painfully clear that not having worked on these potential indicators in the G4 development process will most likely break open a whole plethora of uncomparable information. We have enough experience how certain information was presented in sustainability reports so far: take SOMO’s 2013 study on energy companies disclosure, Transparency International’s 2012 study on reporting on anti-corruption indicators, or Deloitte’s 2012 study on zero impact growth strategies that examplified dozens of ways in which companies described their CO2 target-setting. Either information was presented in many different absolute or relative ways, or different information than asked for was published (should we call this pretending?), or no information was published at all, or no context was given on what was published (how would we call that then?). Our view here is: without micro-macro-linked indicators comparability will heavily suffer. The loop to our sustainability context plea and the need for ‚different’ indicators as we have them right now becomes clear when we consider the text in the Guidelines around comparability, the core sentences here are: „Comparisons between organizations require sensitivity to factors such as differences in organizational size, geographic influences, and other considerations that may affect the relative performance of an organization. When necessary, report preparers should consider providing context that helps report users understand the factors that may contribute to differences in performance between organizations.“ Together with the wording of the sustainability context principle we really doubt that consistency in reporting can be delivered in a way that comparability will at all become realistic with the current indicator set. In total, we think that the dilemma between focusing on materiality on the one hand, and delivering comparable information on the other hand, can’t be solved without micro-macro-based indicators. The existing indicators will not cut it, we have seen this all before! Work on micro-macro-based indicators will be necessary, the denominators of these indicators will need to help defining comparability, not the voluntary, company-by-company target setting (whose long-term basis is normally not disclosed – most likely because it doesn’t exist at all?). This status quo has several consequences and effects, and it is interesting to look at least at some of them:

  1. The work of rating & ranking organizations will continue to produce more confusion. As we continue to have information about how organizations became ‚less bad’, the more than 120+ different rankings & ratings will continue to produce ‚best-in-class’ champions, for none of them we know what that really means, since we don’t know what is feasibly ‚good enough’. We have seen first attempts of rating organizations to get out of this dead-end-street, e.g. Climate Counts or Inrate who themselves start to make the link to macro-based goals by simply setting them. As GISR also puts sustainability context clearly into the focus of ‚good’ ratings, the need to also consider macro-based information on global, regional and/or local level will also continue here. More comparability will most likely be the outcome.
  2. The lack of focus on micro-macro-based indicators will produce competition for GRI. A whole set of organizations already work on such indicators, first and foremost the Natural Step-based approach on the ‚Future-Fit-Benchmark’, an approach that includes Bob Willard and a set of sustainability reporting veterans. The Sustainability Context Group, around 120 members strong, has several members that actively work on other alternatives of context-based indicators, their plea to work on them together with GRI has been noted down there, but with no outcome so far. WBCSD has started to team up with the Stockholm Resilience Centre (and the various other players connected to them) to see how Vision 2050 can be supported by an Action 2020 and how ‚values-based reporting’ can be set up. Worthwhile to mention here is that this approach also includes tooling and accounting methods, so gets to a deeper level than to just think about reporting indicators, but also how to create the processes. WRI, CDP and WWF now work on ‚science-based target setting’ and has invited to several workshops. Also here, an increase in comparable information will be a foreseeable outcome.
  3. At this moment we also observe the development of the Sustainable Development Goals, to be presented in 2015. It will be interesting to see how they will develop further; as it stands right now they seem to be more sort of ‚corridors’ of change in 16 different issue areas, and it is not yet sure how interdependencies (nexus effects) will play out on this variety of areas. In our view it would be much more effective to take a step back and first develop a set of principles (based on the probably most important ‚North Star’ question: what will really make up a succesful green & inclusive economy?) and then define action areas with a special view on interconnectedness of effects to define clear and actionable roadmaps or adaptation plans on how to get there. Targets could be defined per region, taking into account the various cultural and mindset calibrations as well as timelines necessary to measure progress. These could be built into a comparability approach for defining indicators of change with actionable items where each company can define a positive impact (instead of concentrating on the reduction of negative impact). See it a bit like the approach Unilever took when they connected their mid-term target setting with main sustainability issue areas. It is no wonder to us that Unilever’s approach scores extremely well in certain ratings, e.g. the latest GlobeScan and SustainAbility Leaders Survey, published just a couple of days ago.
  4. As a side effect the lack of comparability also creates a revival of the discussion around what was supposed to be called ‚Beyond GDP’. First of all there is the question if GDP should be used as a denominator in order to increase comparability in micro-macro-based monetary and relative comparisons, but much more important there is also again increasing discussion about the usefulness to use GDP at all as a means to measure a valueable contribution of a single company. In our view this is a must-have discussion that will sparkle ideas on what ‚success’ really means for a society at large, it seemed to get stuck around the idea of happiness in the last couple of years, which in our view is a very individual mindset and difficult to standardize. Hence, there is a glimpse of hope, and it is good to see that GRI is also one of the partners in one of these projects, called ‚Measure what matters’, with amongst others the Green Economy Coalition, Accounting for Sustainability (who are the initiators of many good developments, e.g. IIRC as well), the Stockholm Environment Institute (SEI) and IIED.
  5. We are still amazed to see how little companies are interested in defining what a ‚green & inclusive economy’ or ‚resilient economy’ actually means for themselves. That is mainly due to the lack of real comparison opportunities to give this vision real meaning. And it will remain like that as long as we don’t define the expected minimal and/or positive contribution per company and stakeholder. We refer to our last blog on the ‚mindset gap’ for further depth there. Comparison and target setting will be the most interesting pathways for competition in the future, so again ask yourself what all that focus on materiality will help if comparability possibilities will suffer from that in this heavily interconnected world in which nexus effects will be part of the comparability agenda, to be analyzed when thinking about sustainability context.

Overall, we expect that the discussion about comparability will become as vital as the one on materiality today, simply because more materiality will not automatically lead to more comparability of information (we fear even less), and more comparability focus will not simply lead to more materiality. There needs to be a balance as both are of critical importance to understand, define and act on these urgently needed adaptation plans towards the economic blueprint of the future, the ‚green & inclusive economy’. Authors: Ralph Thurm is the Founder & Managing Director of A|HEAD|ahead, Nick de Ruiter is partner at Sustainalize.

 
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Posted by on May 27, 2014 in Sustainability Reporting

 

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The mindset gap in addressing sustainability context

Around two weeks ago we discussed the ‚sudden materiality shock’ here and received many comments and recognitions for the points discussed there. In addition, we spoke at various events and explained the need to make the connection between the importance of sustainability context for defining materiality and the need to develop a reporting mechanism that captures this specific performance that could eventually best be described as ‚micro-macro-linked’.

What became painfully clear through these last events is the considerable distance of people working in sustainability to be able to make that connection, several reasons to be discussed below. Obviously, we need to first address that ‚mindset gap’ that keeps us artificially busy and away from the ‚greater good’ – achieving a green & inclusive economy together – before getting down to the core of how to address sustainability context through purposeful and future-oriented disclosure in reporting, including feasible strategic discussions and – like it or not – a different sort or set of indicators as we have them right now. So why is there such a distance to seeing sustainability context in a corporation’s setting? Here are various observations:

  1. For too many in our community sustainability and strategy are still two different things or are still completely or partially disconnected. If sustainability managers tell that working in scenario teams or being closely involved in strategy development and subsequent R&D/innovation efforts is simply not what they are paid for, we are disappointed by the little mindset progress we made. Honestly, we hoped we went beyond the idea that the sustainability manager or head of sustainability simply just orchestrates compliance towards laws & regulation, standards or guidelines. What we still sense is a deep hesitation to overcome certain thresholds towards an integrated approach, using careful tactics to not ‚overstretch it’, deep fear to be seen as the ‚activist’, so better remaining the ‚lobbyist’ for what is good for the company and the individual position on short-term. As this has been a rather successful approach in the past, why change it? Most global problems are mentally and physically still far away, and most colleagues that do not work in sustainability wouldn’t want to understand them anyway (too complicated, scientifically not 110% proven, disturbing, etc.). So, why bother about megatrends?
  2. We specifically observed how companies react to the macro-based information out there, ranging from the work TEEB did, the Global Footprint Network produced, The Global Nature Fund collected, and to the dozens of reports that are produced and macro scenarios that are presented by institutes, issue groups and initiatives. The basic response is close to denial, using the argument that the way this information is presented doesn’t help companies to translate this into concrete tooling, so in the end they couldn’t do more than just to take note, and that’s it. When we then asked why certain companies seem to be able to use this information and work with these data, denial level two kicks in: either these were special companies with a specific or fitting product/service portfolio, or they would have a size not too big, so that working with these data wouldn’t be too complex for them. Also, this sort of work shouldn’t be done by a single company anyway since level playing fields would be needed when introduced on broader scale, but these wouldn’t exist today. Puma’s e-p/l is great, but hardly any other company tried it out since Puma came out with it in 2011, the number of excuses to not dig into it is too long, and the argument ‚it will come one day, so better be prepared’ (playing the risk managemnt card) doesn’t work either. Too much workload, too short the horizon, too low the incentives, too high the fear to stick out the neck. And that leads directly to the next point:
  3. Fortunately, not all companies are like that, and that has to do with leadership. We see a constant pattern that only those companies that have an enlightened leader or leadership group get to a level of commitment that these – let’s call them ‚experiments’ – are wanted, a certain ‚trial-and-error’ attitude is giving some breath to sustainability managers involved. Also, those leaders actually encourage cross-functional project groups around long-term performance targets based on scenarios and the idea of an integrated strategy. It is interesting to see that these companies in most cases don’t have a sustainability strategy, they just have ‚a’ strategy. Dealing with context information in these companies is a no-brainer and the necessary tools are normally ‚created’ right there and not ‚delivered by others’. These companies see external advisors as a positive stretch and challenge to their own knowledge base and encourage infusions, external advisors can even become a separate stakeholder group. The triangular project setup that includes a company, an NGO and a consultant in a team setting seems to work, as well as the willingness to work with other companies in cross-industry learning environments, initiatives, labs, etc.
  4. Another constant part of that ‚mindset gap’ is that many sustainability strategies are based on effects of (not closer discussed) root causes. Doing work with leaders we first try to observe the whole set of often intermingled action areas, something that one can actually already start from the existing materiality matrix of issues that companies use in their reporting. Sustainability strategy areas are normally based on the GRI Guidelines aspects or industry-specific action areas, and many of them derive from root causes like environmental degradation, demografic effects, world trade shifts, urbanization, technological developments and transparency gains, but none of these root causes are addressed in the G4 Guidelines and therefore remain out of focus of the sustainability personnel, so going back that one step to the root cause level actually falls out of the scope of sustainability experts (supported by what was discussed under point 2).
  5. As a consequence this reduced approach just based on the existing GRI Guidelines leads to ‚less bad’ target setting, and very often disconnected with the main impact through products and/or services. Have a look at the GRI Guidelines and ask yourself how often the Guidelines talk about products and/or services, apart from product stewardship in the social section!?! One can argue that this would actually be the job of sector disclosures, but then there would be the need to focus work on a complete set of them more throroughly, an approach not followed by GRI for several years now. A sustainability regime based on effects or symptoms instead of the real root causes mentally restricts to go ‚to the real core’ and making the connection to the real opportunities a company has in sustainability. Instead, there is a more risk-based tendency to reduce harm, and not to increase positive impacts. That is the real reason that an idea like ‚becoming a net-positive impact’ company is still lightyears away for the majority of companies, they find a million reasons and ‚yes, buts…’ instead of accepting that working on this ultimate business case for sustainability should be started today, and not one day later.
  6. In consequence the G4 content principle on sustainability context is the most neglected one, while the wording there clearly defines the need to address context from a root cause base, think about opportunities, ambitions and positioning of the company’s strategy vis-à-vis these root causes, and only then define the necessary boundaries to decide which impact reduction strategies actually make sense in the light of a positive impact focus.
  7. A further cause for relaxed thinking about sustainability context is the smooth way IIRC has taken on the idea of the six capitals that are part of the Framework Version 1. While we personally commend the IIRC to sticking to this generic model (called the ‚octupus’) from the moment it presented its first discussion paper, we were hoping for a way more rigid use of the idea of the capitals. In our view the capitals form a great link to and present a great structure of introducing proper context and value-creation ‚docking stations’ for the above presented approach of starting from root causes to strategy development. Instead, we face a situation where IIRC mentions the capitals as an area ‚for inspiration’ in order to ‚not forget potential impact areas’. That is too weak and doesn’t sound like ‚important’, so again not too much time is spent on assessing the capitals. The work of the 100-companies-strong IIRC pilot group has focused mainly on ‚integrated thinking’, wheras ‚holistic thinking’ would have been way more appropriate. If the capitals model isn’t taken serious we will remain on symptoms and effects level instead of addressing the real route causes.
  8. To finish off, the work of the Thriveability Consortium (of which Ralph is one of the founders) has been an eye-opener over the last two years with regard to the levels of human consciousness for the development of a ‚world view’ within an individual or corporate mindset. The idea of ‚spiral dynamics’ that emerged over the last 20-30 years clearly differentiates various levels of human consciousness development, and also differentiates between first and second tier awareness, decribing their ability or disability to create the world we need. Only second-tier individuals and organizations will be able to really develop the idea of a world view through the inherent different ways of interconnectedness and organizing codes and principles needed in a sustainable world. We are generally positive that we will be able to level up more companies to the second-tier level. Those organizations will see the ‚macro-micro link’ as a no-brainer. Those companies will be winning, but for a big group of tier-one ompanies life will become tough.

We are on a journey. It is not enough to approach the abyss with 40 miles per hour instead of 60 miles per hour; we need to find the brake and turn around the vehicle. Awareness of the need for that turnaround, timing still available and definition of a new direction will become essential. There is no useful sustainability reporting or integrated reporting without this information, defined for the individual business case per company. Sustainability context is therefore an absolute core. The more companies get out of the avantgarde and into the mainstream, the sooner we will get there. ‚It’s time to be steered by the stars, and not by the light of each passing ship’, said Omar Bradley decades ago. Today this is more true than ever.

Authors: Ralph Thurm is the Founder & Managing Director of A|HEAD|ahead, Nick de Ruiter is partner at Sustainalize.

 
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Posted by on May 13, 2014 in Sustainability Reporting

 

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The sudden ‚materiality shock’

Spring 2014 seems to be the moment in time where ‚materiality’ suddenly appeared on the screen of corporate sustainability reporters. At least one could wonder why within a couple of weeks countless workshops popped up around the world, webcasts were announced and books were published just on this one single issue of the sustainability reporting agenda. One author even declared a calm ‚war on materiality’. But wait a minute, the issue of defining what is material in sustainability reports isn’t by far new, so what’s the reason for this sudden shake-up? Several reasons could be mentioned:

  1. Since the publication of GRI’s G4 Guidelines in May 2013 materiality went to the forefront of communication items around the new Guidelines. The reports based on G4 should show ‚what matters, where it matters’. For that reason GRI visualized the application of the four report content principles as one seamless workflow. But is this new? The answer is no, because the same process was already pulled together in a resource document in 2010, but now got finally included in the main document, the G4 Guidelines, without considerable changes. Also, GRI’s certified training program presented a five-step process since its inception years ago that followed this logic, and thousands of practitioners around the world were trained for doing exactly that – defining what is material.The reason for the extra attention lies elsewhere: the combination between impact definition, boundary setting, transparent stakeholder dialog and the level of disclosure that GRI is demanding in this thematic triangle adds rigour and demands a much more crisp process. Gone are the times when a mentioning of stakeholder dialog was enough, a materiality matrix could be presented without further process description on how this was pulled together, and the legal shortcut of 50%+1 share was enough to cut off responsibility in reporting due to the one boundary chosen by the legal counsellor. So, for some ‚what matters, where it matters’ now suddenly means ‚what hurts, where it hurts’, especially for those that define sustainability as an additional topic that needs to be addressed through a separate report, and where the corporate strategy isn’t that much connected with sustainability thinking.
  2. Another reason for the new level of attention can easily also be detected when looking through the outcomes of KPMG’s 2013 international report quality survey amongst the biggest 250 companies, many of them call themselves leaders in sustainability. Just a couple of numbers to clarify the problem: 13% of the reports do not identity megaforces that affect business at all, and from the other 87% at least some megaforces are identified, with climate change only affecting 55% of businesses, ecosystem degradation is a just a problem for 18% of the G250. One can only wonder how identifying ‚what matters, where it matters’ is at all possible if so little sustainability context analysis is done in the beginning of the materiality definition process. When looking at information how often companies do assess materiality, 58% do not give any indication and 19% indicate a limited assessment of materiality. That means that just 23% of the G250 have a thorough process in place to assess matariality. This is shocking evidence. Stakeholder inclusiveness is another painful area to look at. For only 45% the process link between stakeholders and the materiality process is clear, for the majority stake of 55% the process is not yet clear (34%) or not explained at all (21%). Finally looking at target setting one might expect that material issues would also lead to clear targets, but the opposite is true. 13% of the G250 haven’t declared any targets, 28% of the reports carry some targets with no clarity on how they relate to material issues. 23% of the reports carry information that links to less than 50% of material issues, and finally 36% carry targets that relate to more than 50% of the material issues. The shortcomings of these data explain very clearly why the pocess of cutting through from sustainability context information through stakeholder dialog to material issues now needs to get more rigour. Companies just did what needed to be done, just little of them did more than absolutely necessary. We leave it up the reader to contrast this information with the many CEO speeches that tell us how much sustainability is in the genes and DNA of their organization.
  3. A new level of recognition of materiality is surely also due to the growing number of frameworks and guidelines around corporate reporting. Whereas GRI addresses materiality from the perspective of all stakeholders, the IIRC clearly defines materiality from the point of view of the providers of financial capital. SASB just replicated the definition of the U.S. Supreme Court, focusing on shareholders only. And that whole array of different definitions seems to be confusing, especially as many users see these documents as standards. It is therefore time to step back and again recognize that none of these documents are ‚standards’ or ‚cooking books’. They are recommendations as they present guidance and framing. Not more, not less. Furthermore they are still all voluntary instruments to trigger thinking about the inclusion of sustainability into an organization’s core – the business model and the strategy. If this is managed well we think the discussion on materiality will by definition become a no-brainer.
  4. Lastly, there is new fuel to the fire of mandatory sustainability reporting through the positive vote of the European Parliament to amend the European Transparancy Directive and make sustainability reporting compulsary for roundabout 6.000 listed companies in Europe, with a size of more than 500 employees. The Directive passed the European Parliament on April 15, 2014. The Directive needs to be translated into member-states laws and regulation, so that the application is only expected to start in 2017 for reporting year 2016, maybe even one year later. In short, material issues of importance need to be reported in annual reports or sustainability reports on corporate level. Discussion arises mostly on the point of the EU’s definition of CSR, saying it entails all voluntary action of companies above and beyond what is legally already demanded for. In our view this definition is counterproductive to the real meaning of materiality, and therefore misleading to help describe the core of the issue. Nevertheless, the fact that many companies are now demanded to report on their sustainability risks and opportunities, covering a range of issues that is nearly 100% overlaping with the UN Global Compact 10 core principles, has put new emphasis on the materiality discussion in companies.

In our view there is only one useful way of dealing with the issue of materiality, and that is to step one step back from the idea of standards that would tell us what clearly has to be done. We see materiality in the closest of all possible meanings: all areas in which the company affects or is affected by those areas of sustainability it can influence by its existence and through its doing, through products, services, as enablers and advocates of positive change. The measurement of ‚Net Positive Impact’ will therefore become the future litmus test of the right to exist for companies. It would be good for companies to already follow in the footsteps of those frontrunners that aim doing exactly this ambitious step.

Authors: Ralph Thurm is the Founder & Managing Director of A|HEAD|ahead, Nick de Ruiter is partner at Sustainalize.

 
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Posted by on April 26, 2014 in Sustainability Reporting

 

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‘A journey to the North Stars’ – Ralph’s newest column in forum Nachhaltig Wirtschaften (in German)

The latest column is following up on the column ‘Leaving the cuddly corner’ in forum edition 4 of 2013, clarifying what sustainable innovations really are, seen the macro-developments that undermine a shift towards a more green & inclusive economy. The new column covers the ingredients towards true sustainable transformation and presents a mental mind shift model in which corporate culture and systemic thinking are preconditions to allow moves towards a ‘net positive impact’ commitment. The examples of Kingfisher, InterfaceFLOR, and recently IKEA, Unilever or Puma are signposts of this coming mind shift. Both columns 4/2013 and 1/2014 round up and describe first thoughts that lead to the idea around ThriveAbility, more can be found here in the category blog posts under the heading ‘Thriveability’, and more in-depth material can be found at http://www.embeddingthriveability.org.

The pdf of this latest column of ‘Der T(h)urmblick’ can be found here: FNW_2014_01_Thurmblick.

 

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Recalibration of sustainability – welcome ‚ThriveAbility’

The below article has been published in the January 2014 edition of the China Quality Magazine. This goes to more than 30.000 readers I’ve been told. I thank the editors of the China Quality Magazine for the opportunity to make their readers familiar with the ThriveAbility concept.

More than 400 quality managers and executives were gathered in Tallin in the middle of 2013 on the occasion of the yearly EOQ Conference, and for the first time the participants were confronted with a new term – Thriveability. Here’s why:

2012 marked the 20th anniversary of the first Earth Summit in Rio de Janeiro. The sequel of the Earth Summit was again held in Rio, so consequently that Summit was called Rio+20. The attending corporate world, represented by hundreds of companies, as well as the political leaders, agreed on the vision of a ‚Green & Inclusive Economy’.

Sustainability as it is used in companies today has only little to do with what the Brundtland Report in 1987 and the Rio Declaration from 1992 remind us of: a company’s doing has to be put in context, enabling human beings to live a healthy life in harmony with nature, as well as enabling a development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs. This in summary is often also called the triple bottom line, a term coined by John Elkington in his 1998 book ‚Cannibals with forks’.

In a way sustainability management has adopted a lot from the quality movement: in the interest of efficiency gains a higher level of transparency has moved in, and the proactive companies have harvested the low hanging fruit in the first years. We have seen sustainability management support from ISO, starting with ISO 14000, and later ISO 26000. We have seen reporting standards like the Global Reporting Initiative, a rather generic umbrella to discuss the most material sustainability issues and align performance indicators alongside this focus, or more issue-specific reporting like the CDP (covering carbon and water now, and probably even more in the future). The sustainability movement has also adopted the idea of awards, general and sector-specific. More than 120 ranking and rating schemes, mostly methodological black boxes, have seen the light of day. But is that enough? By far not, and China already does feel the consequences every day.

What we can conclude more than 20 years after the first conference and more than 25 years after the Brundtland report is simply unsatisfactory, even more it has cemented our path to a slow death of humans on this planet. Ban Ki-moon, UN Secretary General already addressed this in front of the World Economic Forum’s corporate leaders by saying ‚Our current economic model is a global suicide pact. We mined our way to growth. We burned our way to prosperity. We believed in consumption without consequences. Those days are gone’.

What does make ThriveAbility different from our current management of sustainability? Two main areas need to be mentioned:

At first, Thriveability is aiming at closing the so-called ‚Sustainability Context Gap’. By that it starts to reclaim the focus of sustainability. At this moment companies are mainly telling us how much ‚less bad’ they have become, with a focus to decrease negative impacts and with little up to no ideas how to improve positive impacts through their daily sales of products and/or services. Focusing on ‚net positive impact’ as a balance of the total behavior towards the environment and society and developing a positive legacy, would be a great ‚North Star’, but hardly any company can answer at this moment in how far their doing is endangering the ability of next generations to live a decent live with the same opportunities as the current generation.

We recognize that sustainability strategies are often aligned to symptoms, not to root causes, and that leads to narrowly focused action. For example, a company that focuses on a reduction of CO2 normally makes little effort to go beyond its own production facilities, and is not looking at the opportunities that the megatrends causing the global or regional CO2 rise may have for their core business. We have identified that a combination of six megatrends needs to be analyzed in depth to understand the nexus implications on a company’s (sustainability) strategy: environmental degradation, demographic changes, urbanization, shifts in world trade, shifts in technology, shifts in transparency. This discussion helps to develop a ‚world view’ and can be the starting point for building an opportunities-based roadmap towards thrival.

Secondly, ThriveAbility needs to also regain excitement. Talking to companies on a daily basis it is shocking to see the little willingness to go ‚the extra mile’, simply because it would make business sense. As there is no sustainable company on an unsustainable planet, we need to move away from sustainability as the ‚Sword of Damocles’, and back to enthusiastic engagement. We observe that the combination of sustainability (with regained meaning as mentioned above), innovation, design, and beneficial leadership (based on the work done around spiral dynamics, flourishing and mindfulness) can open up new gates towards a thriving economy.

A ThriveAbility Dashboard would pull together four quadrants of information:

  • Information about the level of change for the transformation towards a thriving business model, by that enabling the ‚possibility’ for thrival;
  • Current performance based on the ‚footprints’ (negative impacts) and ‚handprints’ (positive impacts) of actions and creations;
  • North Star information about the carrying capacity of a flourishing world;
  • Predictive models that pull the information of the first three quadrants together and allow a clear picture of where a company stands vis-à-vis set micro-macro targets and where it may still need to move towards in the future.

The quality movement can become a great enabler if it understands that quality has an inside-out and an outside-in component. As said, what is inside quality worth if it can’t help to make the outside world better? What if efficiency and quality gains are realized by burdening natural capital, human capital, intellectual capital or societal capital? It is time for the quality movement to give itself a new ‚North Star’! Be part of the change, ThriveAbility will be a great gateway to redefine that particular scope.

Here’s the link from China Quality Magazine 1 2014 Article Ralph Thurm (in case you are able to read it ;-))

 
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Posted by on January 13, 2014 in Thriveability

 

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TEDxRSM: Ralph Thurm on ‘how to move from a global suicide pact to a thriving econonmy’

November 2013 saw the first edition of TEDx at the Rotterdam School of Management. I was invited to speak due to my ideas about ThriveAbility that I am also teaching at Erasmus University’s Executive Program on CSR in a module about sustainability and innovation. It is the idea that sustainability in the way it is used today – reductionistic, technocratic, mechanistic, and therefore not inspiring to most in organizations – needs to regain it’s meaning. This is only possible through the reactivation of what it was made for, especially intra- and intergenerational balance and equal opportunities for human beings, and combining it with the learning from innovation, design and advanced knowledge on human consciousness (e.g. beneficial leadership, spiral dynamics, integral theory).  Structuring this in a feasible methodology will help us to design a thrival world and an economic system reflecting this. The ingredients are all there, we just need to get it done! See how in Ralph’s TED talk here.

Bildschirmfoto 2013-12-04 um 11.25.21

I would like to thank the organizers of TEDxRSM for the opportunity to speak. Not one economist in the room thought that our current economic system serves the needs of the existing generation and future generations to come. This is the biggest challenge for the next two to three decades and I am asking my fellow economists to seriously go out and be part of the change to a thriving world for all human beings, while finally accepting that growth is limited, costs and prices don’t tell the truth, and taxes and incentives mainly go into the wrong direction. Take ideas like the circular economy seriously and adapt accounting and reporting accordingly. Join those that want to change education towards thrival. Only then we are able to realize the dream of a ‘Green & Inclusive Economy’!

Anybody interested in being part of the journey, feel free to go to www.embeddingthriveability.org to learn more, or contact me directly at ralph.thurm@kpnmail.nl.

Additional thanks go out to my fellow founders of the ThriveAbility Consortium (Robin Wood, Chris & Sheila Cooke) for their wonderful companionship and belief that something really necessary needs to see the light of day – our regained inspiration to make this world a thrival place!

Bildschirmfoto 2013-12-04 um 11.19.17

 
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Posted by on December 16, 2013 in Thriveability

 

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