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

27 May

This is the third of four installments of a blog series covering crucial sustainability reporting issues on materiality, sustainability context, comparability and stakeholder inclusiveness.

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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4 Comments

Posted by on May 27, 2014 in Sustainability Reporting

 

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4 responses to “Comparability of sustainability information – slaughtered on the altar of materiality?

  1. Antonio Vives (@tonyvives)

    May 27, 2014 at 20:00

    The more I read your series of articles the more I think you have a very narrow view of “corporate sustainability”, concerned almost exclusively with environmental sustainability issues and even within this, on carbon emissions and at best impact on water. Please read your article and think “social” and “governance” and see if the discussion applies. Please tell me I am wrong.

     
    • aheadahead

      May 27, 2014 at 22:05

      Antonio, thanks for your comments. Rest assured that my view on sustainability is broad, possibly even more than you think. Please have a look at my blogs around ‘ThriveAbility’ on this website as well; you will find out that my views even go beyond of what is now called sustainability. However, you are right that much of what I am discussing tends or could seem to focus mainly on the environmental side. That has to do with the fact that much is happening there, and the social side is a bit more disconnected because many people tend that ‘zero impact’ in the usual disclosure areas (labor, human rights, community, anti-corruption) seems to look like the ultimate success. I think the discussion around net positive impact will help to get us to understand that there is also a great deal of positive impact that can be achieved, but that needs different sort of indicators as well. I hope that satisfies !?! ;-)

       
  2. Dwayne Baraka

    May 30, 2014 at 18:02

    Ralph,

    Isn’t this a tension we have to live with? I grappled with this in a blog post of mine last year: http://www.dwaynebaraka.com/blog/2013/06/17/gris-g4-materiality-transparency-comparability-fight/

    If we focus on materiality, we lose comparability, even within sectors. If we focus on comparability, we lose materiality.

    Things like Project Delphi and others that are looking at standardising ESG metrics are good and useful and probably increase comparability, but also at the risk of not increase transparency or overall disclosure.

    Looking forward to your reply!

     
    • aheadahead

      May 31, 2014 at 09:40

      Hi Dwayne, I tried to approach the question from two levels. On the micro-side we will lose comparability if we keep on going with the sort of indicators we have while increasing materiality, and knowing from the past how these indicators are used. G4 won’t change too much here. On the macro-side I am confident we can more and more start to use macro-information to create what is called ‘science-based goals'; those would translate into the micro world and form in my view a new kernel of indicators that – most likely – will become material to each and every organization that reports on their performance towards their goals. In the end it means we have less but material indicators, but the kernel will be fully comparable. It would help to balance the dilemma between materiality and comparability.

       

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