This is the second of four installments of a blog series covering crucial sustainability reporting issues on materiality, sustainability context, comparability and stakeholder inclusiveness.
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:
- 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?
- 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:
- 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.
- 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).
- 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.
- 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.
- 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.
- 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.