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Reforming sustainability reporting: for and against

11 Apr

This blog was first posted on the Guardian Sustainability Business Blog on March 11, 2013. I am posting a copy of the blog and a collection of responses as soon as the response window for comments has closed on the Guardian site (so you are enabled to continue here ;-)). Thanks to all that responded, tweeted, sent Linkedin or Facebook likes or forwarded links to the blog, and these were many!

Reforming sustainability reporting: for and against

Eight reasons put forward by defenders of the status quo for making only incremental changes to sustainability reporting – and eight counter arguments

A furious debate has started over whether the burden of sustainability reporting is in danger of reaching unbearable proportions. This comes ahead of the release of the Global Reporting Initiative’s new G4 guidelines in May and the IIRC framework consultation draft due in April.

Remarkably, this discussion is largely dominated by the defenders of the status quo, rather than by those who have a vision of what the scope and purpose of reporting has to be in relation to the global challenges in front of us.

A closer look at the arguments used reveal support for incremental progress, a misunderstanding of how to use the guidelines, and a lack of consciousness of what will be needed to collectively thrive in a one earth economy:

“Reporting becomes too burdensome”: Much of the current criticism has to do with the number of indicators expected and the inclusion of value chain assessments in order better define an organisation’s broader negative and positive impacts. Critics say this is too complex for multinationals and too burdensome for smaller organisations.

But this argument completely neglects the fact that reporting is a journey and that the process towards ‘good’ reporting is a learning trajectory. GRI has always been flexible and offered a “comply or explain” approach, allowing reporters to set multi-year targets, and use omissions where needed, so that the reader can understand the reasoning behind specific shortcomings in reporting. It is hard to understand that the absolute number of indicators that the GRI guidelines carry is still seen as a burden; they are and always were a recommendation of how to report on material issues.

“We don’t have the data”: This was a valid and often used omission in the past, especially with regard to supply chain reporting. But seven years after the release of GRI G3 we live in a very different world. Lack of data has been replaced by ‘big data’, and the cost of getting reliable information has dramatically gone down, thanks to information technology. Actually, there is already a growing business of ‘making sense’ of the enormous amount of available data. This doesn’t mean that there aren’t problems in getting good data from suppliers, but there is today way more willingness to reveal data if supply chain strategies are based on collaboration instead of pure price pressure and mandatory codes of conduct.

“Value chain assessments are too complex”: The G4 draft for public comment is a clear reaction to areas of non-delivery of reporters since the release of G3 in 2006, namely the failure to go beyond legal boundaries. Is it really any wonder that the multi-stakeholder community working on G4 would not accept this any longer? Sure, value chain assessments are complex, especially for organisations with various product groups and business models. But why not start with one example and set targets for a couple of years and learn from the pilots? It is somehow strange to accept that an organisation that has developed its business model wouldn’t be planning to look at the positive and negative impacts of their business upstream and downstream. That’s especially true today, where we start to think of a circular economy, shifts from ownership to use, scarcity of resources and supply of a capable workforce.

“Sustainability reporting is too costly”: What do we do with an organisation that says that sustainability reporting would be too costly? I have seen companies that spend $50m on their annual report, which is often not read page by page by more than 200-300 industry specialists and some important shareholders. But the same companies find $500,000 too much for the sustainability report, which tends to be downloaded and read way more. Hopefully with integrated reporting, this discussion may fade away, but reporters should be aware what they signal when they use this argument.

“Too many indicators”: The report process principles in the GRI guidelines normally avoids the use of more indicators than necessary and is in line with the completeness principle through the use of omissions. The much bigger question for the GRI and also the IIRC, however, is whether the indicators are the right ones. There is now much more information available to start building ‘impact-based reporting’ by developing micro-macro-link indicators on those areas defined for example by the Stockholm Resilience Center or through the Sustainable Society Index (SSI) published by the The Hague Center for Strategic Studies. Every reporter that thinks about value cycle impacts can start to develop a better picture of whether they are part of the problem, part of the solution, or most likely still, part of both. So reporting needs an impact-based meaning that closes the existing sustainability context gap in order to be meaningful. The discussion about the number of indicators in the GRI Guidelines is simply ridiculous.

“We need to please ranking and rating organisations”: There are more than 100 rankings with 100 different results on a yearly basis. They add to the confusion of what is ‘good’ sustainability performance by only focusing on no-context, best-in-class comparisons. Consolidation in this market is inevitable, and ‘rating the raters’ has now become an interesting discussion, fueling a whole programme at SustainAbility, and led to new initiatives such as the Global Initiative on Sustainability Ratings (GISR) or the US-focused Sustainability Accounting Standards Board (SASB). Organisations that are burdened by ‘questionnaire fatigue’ should really assess how much they’d like to continue to play this zero sum game or better put their effort into the development of more impact-based, North-Star-oriented disclosure towards ‘good’ performance.

“Top management isn’t ready for more disclosure”: We more and more realise that a crisp understanding of the position of the organisation towards sustainability, long-term targets and the right tone from the top are delivering wonders when it comes to motivate the organisation and build reputation with customers and other stakeholders. Integrated thinking needs integrated boards and top managers.

“Capital markets need condensed information to understand sustainability reporting”: just a couple of years ago I listened to discussions at ESG conferences where asset managers wanted not more than three indicators on sustainability that could be added to their standard assessment; more wouldn’t be possible given the need to benchmark and understand between 100 and 200 companies in an industry portfolio. That time is gone given the work of many important enabling players, including the CDP, UNEP FI/PRI, the Global Footprint Network, and others. Every journey starts with the first step.

We need to understand that we live in the early days of the greatest disruption that industries and society will experience in the next two to three decades, and reporting based on measured value cycle impact should become an enabler of change, not a lagging and compliance-driven instrument in which the legal department has the last say. Integrated thinking only works when it is inspired by a ‘North Star’ and developed through a clear view on how a company aims to contribute to a thriving world today and, more importantly, tomorrow. The quicker we disrupt incremental reporting patterns and add useful context-based information in reports that triggers collaboration and fuels innovation, the smoother the transition will be.

Link to the original blog: http://www.guardian.co.uk/sustainable-business/reforming-sustainability-reporting-pros-cons?INTCMP=SRCH

5 responses were posted until the response deadline was reached:

3sisters4bros

Discussion about pros and cons of reporting mirror discussions of quality management reporting. Often it is seen as expensive, a distraction from operations and a threat to management.

System thinking respects the need for feedback. While leadership in the short term needs decisive decision making, trends and material risks need tracking. The global financial crisis highlighted lack of checks and balances so reporting will become more contestable. Sustainability of systems requires more than financial measures due to the resource requirement.

The World Economic Forum recognised food, water and debt priorities and each may have a material impact on performance in the short, medium and long term. In fact, recent UN Security council meetings have discussed these as a threat to international peace. Globalisation has linked operating systems to the point that threats to any part of the supply chain, whether in a company’s own industry or not, can impact on revenue.

While companies risk detection leading to bad PR, it can also disrupt supply chains or quickly reduce demand. Very few predicted food would lead to the Arab spring, just as loans to US homes would reduce access to capital markets, or global warming impact on fresh water supply. If all stakeholders , including the corporate, not for profit and public sectors fail to consider their impact, lack of measures on these and adherence to human rights, pollution, and other Global Reporting sustainability issues, we should prepare for disruptions to be more frequent, and potentially unrecoverable in the short term.

For the most part, most argument on the worth on the reporting centres around actions that result from this. By understanding our linkages in the value chain, and the sustainability issues, we can react more decisively when disruptions do occur, but also can also place the company brand alongside efforts to manage and prevent reoccurrence. Most often, these challenges lead to new understanding and innovation. We build resilience by skills and knowledge and seek to influence authority of the priorities.

For those companies out there with scale, be prepared for a challenge to the status quo. With resources such as food and water already under strain, expect your impact to be systematically reported for you with every tremor. “If you do not change direction, you may end up where you are heading”(Lao Tzu).

TeMrising

The final shape of G4 has yet to be revealed, what is clear is the need to be progressive. Understanding sustainability context informs us there is a gap between the world as it is now, and the world as it needs to be. The development of G4 reflects some excellent practices and processes that already help drive some of our better businesses. The GRI Frameworks has always been an opportunity to make the ceiling of today the floor of tomorrow through consensus.

In addition GRI recognise the ‘How to do’ and ‘what to do’ issues in response to which there is a raft of support including benchmarking databases, Certified Training Partners; that show organisations large and small how to coordinate the whole reporting process, and ‘linkage documents’; which provide guidance for using GRI reporting in combination with other standards such as OECD, CDP, UNGCP, ISO 26000, optimising GRI relative to other ranking and rating organisations. These are just a few of the ways that all types of organisations can be supported in making the transition.

GRI is a collaboration and a public for good seeking a sustainable global economy. The world knows its time to act, and act fast, so we should all strive to race for the top and be glad of the availability of a common and consistent framework where we are free to choose those elements that are material to our organisations.

For many there is a fear of change and we would need an age just to study that, yet we do not have an age, in any case people and habitats are dying now. The pleasing aspect of the discussions is the level of interest, but really, the pace setters are already doing what we all already know is the right thing not only to do, but to aspire to achieve.

Never Give up. Transforming The Future. Climatic records are being broken daily, challenging times need challenging responses.

Kye Gbangbola MBA FCIOB MIEMA. Total Eco Management Ltd.

WillHenley

Excellent analysis of some of the thorniest issues still associated with sustainability reporting. How far we have come in just a few years.

Everlearn

Awesome recap of the arguments for delay and dilution. As Ira mentions, this appears to ignore the flexibility for progressive improvements; no one expects perfection in a day, if every. It also reflects a world that is no longer current… this data will be data needed to be developed, collected and analyzed if these corporations are going to continue to be relevant in the future. Analysts are looking for more information; insurance companies are delving more deeply to properly assess risks; investors AND customers want more complete disclosure. Companies may leverage the learning afforded by GRI to “get with the times,” or be left in the dust by those more agile and quick to recognize the competitive advantage of knowing more about one’s processes and seeing – due to better data – ways to improve product and process faster.

pedrosfaria

Good article. I’m always surprised how some companies – even some thought leaders – seem to think it is OK to have thousands of concepts for financial reporting, but then with only hundreds of them to deal with environmental and social aspects, that is too much. Just by looking at the amount of concepts, it is visible that financial, environmental and social aspects are not being equally considered. Of course these are challenging aspects to report on – but they are also in strong demand and in great need. Leaders of tomorrow will be the one’s that are able to make sense of all this reporting and what the data implies to the creation of their truly competitive and sustainable edge.

 

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