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GRI Reloaded – redefining the matrix for disclosure on sustainability performance – #GRI2016 conference reflections

It’s the week after the GRI Conference, the week when we attendees all return to our desks and reflect what we heard and learned. Clearly, GRI has set important steps, has changed its strategy towards becoming a standard setter, and has entered the digital age in earnest, finally. And yes, it was the networking that was valuable and to me it felt like a family gathering. There is no doubt about that. But are we convinced? Is this the big next thing?

Let me take you on my personal journey, and note my background with GRI from 1998 onwards, including time as a GRI staff member from 2002 until 2008. I am probably one of the very few that have been actively involved in developing all 4 generations of the GRI Guidelines. My feelings about GRI come deep from the heart, I sometimes joke about GRI as being a child going through its childhood and puberty, and now leaving home to truly build a life on its own, exploring new relationships, independent from the family’s own past. I’d like to present my thoughts in three sections:

Atmospheric distortions

In the run up to the conference I spoke to many people that I suspected going to GRI’s conference. I learnt that many of them decided not to go this year. When asking why, the answers were quite mixed, but they addressed various issues, and this continued in conversations at the conference as well:

  • The glamour is gone: earlier conferences had highlights that were missing this time. GRI had Al Gore, Queen Rania of Jordan, Michael Porter and BBC news anchors in the past. Seems like these ‚sustainability celebrities’ are indeed attracting numbers of participants and GRI might have purposefully decided not to approach such people this time, for various (good) reasons.
  • GRI’s communication about the new strategy, the new GOLD model of participation, the ‚exclusive clubs’ (Leader’s Group, Technology Collaboration, certified GRI practitioner process) isn’t yet resonating well with many, taking into account that most reporting organizations are also part of minimally half a dozen and up to a dozen other initiatives and networks. It all becomes complicated and hard to follow. Many out there who I talked to were surprised not to be ‚Organizational Stakeholders’ any more.
  • A feeling of cold commercialization of what was supposed to be a community that embraced its members, involved its stakeholders for a common purpose (and I’m not even touching the pricing strategy for the conference, especially the huge amount of ‚exclusive’ sessions and to-be-paid-for masterclasses). The true multi-stakeholder nature has moved a bit into the background. A new set of standards is now presented to the world, designed by the GRI staff and the GSSB. ‚Hold on a minute’, I heard often: ‚wasn’t there a working group process designing this? There suddenly is a public comment period about something I wasn’t even aware would come?’ Of course, just restructuring G4 into a set of standards doesn’t need a full multi-stakeholder process I said, but it wasn’t clear to many and a sign that information overload takes its toll.
  • The notion that GRI’s conferences tend to lose focus on the reporting aspect. Many sessions are broad discussions about sustainability with little rigor or facilitator focus to bring it back to reporting and/or disclosure, at least at the end of the sessions. Is it helpful to have sessions about who to trust more (governments or NGOs or corporations) when all of them have a role to play in adding and consuming data? While I thought this year’s conference was more focused when looking at the session’s titles, the discussions themselves often remained less focused.

Summing up this part, the words of a former high level representative of GRI’s governance bodies still rings in my ears, saying ‚GRI is losing its soul!’. Indeed, some say GRI starts to copy/paste what SASB has been doing in past years, has a strong bias with financial market players (although hardly present at the conference), is very North America and Europe focused, and communicates less with its (former) community. My own experience is that there’s now at least as much talk in conferences why not to follow GRI any more as there is talk to position it in the overall reporting regime, including IIRC’s integrated reporting approach, SASB’s industry specific disclosures, the EU Directive’s requirements, the rating organization’s questionnaires and the requirements of stock exchanges. I think we are at the point where GRI’s growing number of younger staff starts to forget about the roots of the organization, where the different departments within GRI have their own means of communication and that indeed some ‚soul searching’ would be recommendable. If 1.200 participants (including 200 speakers and GRI staff) mean ¼ less participants at the confernce (noted by many), it points to some homework to be done in re-emphasizing the true purpose of GRI. To many it isn’t so clear any more, before and after the conference, at least for those who went.

Necessities

A lot of what GRI presented at the conference makes a lot of sense to me. The move from Guidelines to standards helps to generate a more constant work rhythm for the GRI Secretariat, creates the ability to make changes to individual standards, given the advances of science or technology, becoming more strict in defining requirements besides recommendations and guidance. This could strengthen stock exchange requirements, legal requirements, governance aspects, assurance processes and simply enhance additional clarity away from blurry descriptions. It would also hopefully reveal still existing greenwashing in reports.

GRI finally also moved into the world of digital technology and data. The Technology Consortium – as was announced at the conference – will be broadened through the ‚Digital Reporting Alliance’, called to be the ‚vanguard of the next phase of sustainability reporting’. I agree with the need to ‚liberate’ data from pdf’s and use new technology to make the data available for everyone’s use. In the end, it’s the impact that data make, so the number of sustainability reports per se doesn’t really define the success of sustainability reporting. Rather, it’s the transformational capacity these data entail; it’s what the data reveals about those affected by corporate actions and how companies and their stakeholders alike can use these data to drive such transformation. This needs new approaches and open source platforms, like WikiRate, that have the ability to not only liberate data, but also to democratise the accuracy and use of data and put them into context through open data indicator development. It holds the power that an emission scandal like Volkswagen could be detected before it actually goes through the roof. eRevalue, a narrative screening ‚vacuum cleaner’ data service has shown that disclosure of emission data has gone down in the majority of corporate sustainability reports of automotive companies in the last years, except Ford Motor Company. Look at what has come out over the last half year and who is now accused of using emission control software and who is not: Ford Motor Company is amongst the few in the latter category. The power of data is just at the beginning of an explosion, so GRI’s aim to support data liberation through partnerships is important. Various sessions during the conference focused on data and transparancy.

The uncovered to-do’s

GRI’s conference took place at an important moment in time. After COP21 in Paris and all the follow-up happening to get countries adopting the agreement, and after the SDGs got accepted and are now waiting for the processes to best implement them internationally and country-by-country, GRI looked at these from the perspective of making necessary links (GRI, WBCSD and UN GC already published the SDG Compass last year). Of course GRI was also involved in the preparations of both these events, within the limit of its mandate. These themes were of course captured in important sessions at the conference.

But what struck me most was what was not discussed, and given the fact that about 90% of the global multinationals are still not reporting on their sustainability achievements (partially based on the fact that a huge amount of these companies are privately held and still sneak out of mandatory reporting requirements), we are still far from mainstream. As the conference subtitle was ‚shaping reporting for the next 20 years’ GRI missed addressing a list of things that will have at least as much influence on the future success of GRI than the steps now taken. Here are my top 5:

  • As sustainability reporting sort of goes with the flow and – while mentioned in the Guidelines – chronically forgets about sustainability context, we remain at an incremental stage of disclosure. We are missing the benchmarks of getting closer to the real deal: disclosing when a company can call itself a ‚sustainable company’. While environmental ceilings and social floors are known, global footprints are defined up to local level, and more data about the condition of the world are available than company-internal data, the discussion around context was close to absent. Just a glimpse of that came up in a session about linking corporate data with national statistics data on the SDGs. I highly doubt that the national statistics offices will excite corporations to make the necessary data links and suddenly push innovation.
  • Redesigning dislosures based on a more capitals-based approach. The basic assumptiom of building accounts around a ‚systemic contribution’ to society will need to answer the question about value creation. There isn’t any better litmus test than to disclose in how far financial capital has been built on the back of any other capital. This doesn’t mean total monetization of all capitals, but starting to discuss conventions and directions on how to count and account, working towards qualities such as the ‚Total Contribution’ concept of the Crown Estate in the UK. Realizing that net positive and gross positive approaches are possible beyond what is now seen as sustainable (doing no harm) seem to be so far away from mainstream that GRI doesn’t give these truly commendable approaches a stage. As such the needed collaboration with accountants – not very active in rethinking accounting from throughput to circular – isn’t a programmatic area of GRI, but will be the Achilles heel of the purpose of sustainability disclosure if it wants to stand the litmus test.
  • The word ‚innovation’ was high up on the agenda. The opening session carried a set of three innovative entrepreneurs (potentially none of them producing a sustainability report), that aimed to somehow make a sort of connection to innovation, but in the proceedings it boiled down to the forthcoming standards and data aspects that seemed to be the only real news in reporting. Of course, communication, XBRL (if ever used mandatory) and open source data can make a big difference, but it’s the combination with data that are not yet in GRI’s terrain that can empower stakeholders to new qualities of dialog (at this moment often in a degenerating stage due to boring processes) that will potentially revitalize dialog, meaning empowering stakeholders to be well informed to talk to corporations at the same eye-level.
  • The systemic component of how to create a longer term roadmap involving macro, meso and micro level, defining a truly serving purpose of reporting, linked with innovations in accounting, data management and new business model reporting demands, was little to non existing. The conference emphasized once more the need to go beyond the reporting standard setting world to overcome the inherent problem of standard setting – a too short scope to be able to deliver on future-ready reporting. The Reporting 3.0 Platform, now in its 4th year of existence (reporting3.org), has recently announced the ‚Blueprint Projects’, a set of 4 projects that develop and cross-pollinate the different necessary constituencies in the reporting landscape: reporting (clarifying the principles and serving function of reporting that truly supports a green & inclusive economy), accounting (based on a multi-capitals approach), data (taking into account the internal and external data sources to deliver on the litmus test question of being sustainable), and new business models (and their demands to disclose in principal ‚handprint’). Will we be able to deliver on reporting ‚for the next 20 years’ without any of these areas fully embedded?
  • Lastly, are we actually asking the right questions? The predominant focus on ‚footprint’ isn’t exciting for the majority of companies on this planet. We totally forget forging ‚handprint’ information. Instead of not doing harm, doing good isn’t structured in sustainability reporting, so all reporters are asked to figure that out themselves. The new circular, sharing, collaborative businesses are bluntly absent from the disclosure through existing standards, but it would be them to learn most from. Also, there are no data and benchmarks that would aim to describe the organizational transformation capabilities and socio-cultural leadership capabilities of an organization, adding to the litmus test question described above. We’re not even touching the sustainability context gap in its totality, and we’re missing two major components of necessary disclosure (see the work of the ThriveAbility Foundation to learn more about that, thriveability.zone).

Summing up this last headline, GRI needs to of course balance the needs of the mainstream and take reporting organizations from where they are at to where they should be, but the conference didn’t deliver on a good sketch of ‚the next 20 years’, embedding the SDGs into disclosure and liberating the data seemed to be the maximum presentable to conference participants.

Of course, one can argue that first things come first and that we are expecting too much. I know so very well from my own GRI past that ‘globally applicable and globally acceptable’ was and is the mantra for disclosure items to be added to GRI’s list. There will be another 5 GRI conferences until 2030 where more of this could be discussed, but do we have the time to wait? The absence of at least a statement of what’s still needed to deliver on the mission of GRI and a roadmap that offers a back-casting of the next steps for the next couple of years, concerned many of us at the conference. Now was the time to address and embed these necessary enhancements, but it seems we have to wait until the 2019 edition of the conference to add these points to the reporting matrix. The least we can do is to continue to work with GRI to show what is possible until then.

 

 

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Integral Thinking & True Materiality – Part 4/7: Success Definition For True Future Value Creation

This 7-part series has been first published on Sustainable Brands between late January and early March 2016 as a 6-part series and a follow-up by Bill Baue, co-founder of Convetit and the Sustainability Context Group. It captures the essence of my thinking I was able to gather through the extraordinary work of the Reporting 3.0 Platform, GISR and the ThriveAbility Foundation in 2015. What came out is a structure that I called a ‘new impetus embracing purpose, success and scalability for thriving organizations’. I am reposting the original 6 parts here and add a part #7 with reflections of others. This is part 4/7.

In this part of the series, we will focus on another very important aspect for the new reporting impetus that can serve the needs of a green & inclusive or regenerative economy – the question of how we define success. We are at this moment not able to truly claim when an organization is ‚sustainable’ (as laid out in stage 3 of the strategy continuum Diagram 4 in Part 3 of this series), and that just being ‚minimally good enough’ to indeed sustain the organization – and the real-world systems it operates within. Most reports aren’t giving a proper ‚world view’ or scenario context to their long-term targets.

Bildschirmfoto 2016-03-08 um 10.37.58

Diagram 5: Integral thinking and true materiality need a renewed focus on the definition of success to create True Future Value for the economy we want to live in.

Progress in defining ‚micro-macro’ links

Discussions in recent years show progress on defining ‚micro-macro’ links between companies’ impacts and the health of the broader systems they operate within. The elaborations about context-based reporting, science-based target setting, together with Kate Raworth’s Doughnut that defines environmental ceilings and social floors, has added vision and revealed depth as to the ‚devil in the details’ of measuring them in relation to the corporate context, and splitting them up into local, regional or global ‚allowances’, raising the profile of around thresholds and allocations.

Also, the link to the economic system thinking around the usefulness of GDP as the leading success factor has been called into question through the discussion around ‚Beyond GDP’, the Global Footprint Network, and the enhanced (yet mostly unconnected) indicator systems around National Sustainable Development Strategies of regions (like the EU). We see combinations of indices – e.g. country Ecological Footprints versus the Human Development Index – revealing the corridor in which countries should end up being sustainable. The problem here is that the ‚micro-macro’ link is not expressed at the corporate level, so companies take note of these data, but don’t know how to apply them in their specific case. The bigger and the more diversified a company is (crossing national borders), the more difficult it becomes.

The SDGs are an interim step to help fill that ‚micro-macro’ gap by dividing the global challenges into silo’ed aspects of problem articulation. There is merit to see the SDGs as a valuable attempt to induce companies to consider their contribution to a threshold through science-based goal-setting and context-based reporting. The problem is that, while the SDG areas are interconnected, the performance indicators aren’t. We already see companies start to think about picking and choosing some of the SDGs closest to them and define contributions they could make, without taking the step of developing a worldview (see Part 3 on purpose) that articulates responsibility for helping achieve the SDGs. We should not think that the SDGs will get us to any economic system transformation through voluntary contributions by the world’s millions and millions of companies. But without this transformation, there won’t be regeneration, let alone sustainability.

A stable solution for the next couple of hundred years?

We are in an experimentation phase, I fully admit, but I also claim that now is the time to not only set conventions for delivery indicators for the SDGs by 2030, but something that we can use for the next couple of hundred years, and that gets me to … accounting systems. Jane Gleeson-White already proclaimed the ‚third accounting revolution’ in her bestselling book Six Capitals, or can Accountants save the Planet?, cutting through double entry bookkeeping that was invented in the 15th century for the throughput economy, towards multi-capital bookkeeping. We now need an accounting system that prepares us for the green & inclusive economy.

The litmus test question of success that needs to be answered, both for each and every single SDG, and also as the basis to define what we will define below as ‘true future value’ simply is: does an organization have a license to grow by showing that it hasn’t built financial capital on the back of any other capital – or, quite the opposite, that it has built business models that regenerate all capitals? If yes, this would be sustainable, and possibly gross positive (ThriveAble) over time (stage 5 in the Strategy Continuum in Diagram 4 in Part 3).

In order to get there, though, we will need to renew our accounting system from double-entry to multi-capital-based. Why?

  • Simply because accounting is how economies and executives, boards and supervisory boards tick and answer questions: is my company successful? Where can I be more efficient? Do I deliver on my purpose? On my targets? On my benchmarks? Did my incentives work? What information does controlling need from accounting? What can I externally assure? Interesting how shy our community is to create this missing reporting link – also for the SDGs. We sorely need accountants to raise their voices on the need for multi-capital accounting!
  • A multi-capital accounting system aims to cover all sets of potential performance calculations: on SDGs, for context-based reporting, for science-based targeting, for value cycle efficiency. An outcome capital of the supplier can be an input capital for the next phase of such cycle, so it can serve as ‘docking station’ in a seamless review of value cycles – if all partners agree on the necessary convention on how to account and disclose in what the recently published UNEP Raising the Bar report calls “Collaborative Reporting”.
  • The structure of multi-capital accounting gives space to the necessary formulation of conventions (that’s what an accounting system mainly is, it’s not a 100% accurate discipline) and structuring of the discussions we need to have: what can be monetized? Is it necessary to monetize everything? How to link to local/regional/global thresholds? E.g., water has a different, more local or regional threshold basis than carbon emissions. How to implement threshold based and capital-absorbing indicators into corporate dashboards, into national statistics, into a ‘global pulse’ of how we are doing altogether.
  • Finally, the painful and often repeated mistake is that we think we can create indicators without proper data architecture in mind, where aggregation and disaggregation are possible and where slicing and dicing of information for multiple aspects is possible. A multi-capital based systematic approach can support that, like activity-based costing does in controlling for a long time.

Multi-capital accounting to create ‘True Future Value’

Multi-capital accounting shifts from measuring value to measuring ‘True Future Value’. The ThriveAbility Foundation adds a forward-looking focus on true future value, assessing not only the ongoing viability of the organization and the systems it operates in (science-based thresholds), but also its potential for breakthrough innovation to reduce (and ultimately eliminate) negative environmental footprints while maximizing and optimizing social handprint value creation. It uses 7 capitals, adding relational capital as a separate capital to the group of 6 capitals as proposed by the IIRC.

Bildschirmfoto 2016-03-11 um 09.22.40Diagram 6: High-level formula for deriving at ‘True Future Value’; a more detailed version with all variables can be sent by the author on request.

Here are some of the advantages of using a multi-capital basis to create ‘true future value’ (TFV) results:

  • CONTEXT SENSITIVITY – TFV is a context-sensitive methodology, which works on the basis of progressive approximation to arrive at a best-estimate based decision. The context of the decision/s being made is the very first factor taken into account when applying the equation;
  • TRUE BENEFIT/COST – TFV is a holistic equation that measures the ratio of the value created in any human activity through synergies between human, relational, social and knowledge capitals (or “anthrocapitals” that generate thriving and benefits), relative to the natural and manufactured capitals costs associated with that value creation activity;
  • THREE CORE VARIABLES – TFV includes three key terms – on the denominator we have Science Based Thresholds (social floors and environmental ceilings) divided by a Sustainable Innovation Factor (including, for example, circular economy/C2C, green chemistry, renewable energy, biomimicry and micro-biome based innovations); and on the numerator we have the Value Creation Capacity of the anthrocapitals that generate thriving;
  • ALL EXTERNALITIES INCLUDED – TFV includes both positive and negative externalities in terms of metrics that measure both impacts and value/thriving, in such a way that context based sustainability thresholds are honored;
  • THRIVEABLE DECISION BENCHMARKS – TFV provides a benchmark for decisions of all kinds through which a “thriveable” decision can be made, taking into account a full seven-capital, multi-stakeholder analysis of the true costs and true benefits of a particular investment, program or action.

True Future Value as the Basis for a ThriveAbility Index

Going a step further, the ThriveAbility Foundation has designed the ThriveAbility Index model in which the components of the TFV are embedded (see Diagram 7).

This model picks up on the idea of the three gap model in Part 2 of this series, and measures the gap closure in all three dimensions, and by that explaining where an organization stands in the continuum from surviving to thriving. It represents a different way to assess and report on the overall fitness of an organization. This is a completely new quality in helping to define the profile and positioning of an organization in a three-dimensional fitness space and probably represents the most holistic performance measurement. The argument that ‘sustainability’ or ‘thriveability’ can’t be summarized in one indicator, something the sustainability community has always declared impossible (and by that has kept the interest of multiple financial market players on a low simmer), can be overcome. This high level fitness indicator, to be developed for 10 cluster industries through the ThriveAbility Foundation by 2017 to 2019 (with the aim the have it ready to use in 2020), can be disaggregated into its three components, used for True Future Value Creation of any contextual area of interest (such as the SDGs) and offers high potential for a new quality of corporate, city, country or global performance dashboards. It can be used by Rating Organizations to produce a new generation of sustainability or ThriveAbility fitness ratings. It can be used by regions (e.g. counties) or national statistics offices as a meta- performance structure.

Bildschirmfoto 2016-03-08 um 10.39.04

Diagram 7: Three axis model of the ThriveAbility Index model that corresponds with the three gap model assessing progress in all the gap areas (Source: A Leader’s Guide to ThriveAbility, page 38).

Will we get there?

We may need new and different networks to build what’s needed. I fear the existing standard setters alone won’t cut it, the UN system alone won’t succeed, the governments alone won’t deliver, the accounting standard setters need support, IT companies needs an architecture meta-structure to work in consortiums and open source (liberated data), and the majority of corporations in the mainstream will anyway only respond to legal requirements or ‘cookbooks’ that give them a step-by-step delivery template.

Reporting 3.0, mentioned in Part 1, a networked community of several hundred interested individuals has recently proposed a set of blueprints to recommend the necessary ‘glue’ between those defining a green & inclusive economy and those in reporting, accounting, IT and new business models.

The ThriveAbility Foundation offers masterclasses, pilot projects and a multi-year business plan to deliver on TFV and the ThriveAbility Index and invites partners into the Index development.

GISR offers principles and an accreditation scheme to align with the principles, many of them in support to ingredients mentioned here for reporting and accounting. The Labs, one of the components of their CORE program, offer space for joint creation of the basics for thriveable ratings.

 What to do in the short term?

 So, let’s again imagine a sustainability and/or integrated report that showcases a reporting organization’s contribution through a success measurement involving a multi-capital accounting approach (e.g. as showcased by The Crown Estate, UK, in their integrated reports on Total Contribution). What would a reader expect to see answered? Here are examples of what I would find substantial in that area, taking into account that it still takes time to report back in a complete and structured manner as described above.

Measurement:

  • To what degree does the company inventory shows its impacts from the different levels of its value cycles (instead of value chain, reflecting the need for a circular economy)?
  • Is the internalization of external effects seen as part of a ‘True-Value-Screening’ an option to better understand the value-creation process?
  • Does one differentiate between various capitals and are these integrated in the success measurement? Does the company therefore know its value-creation potentials and weaknesses better? Does the company address the consequences from these outcomes?
  • Does the company identify one or more SDGs to align measurement methodology that looks at context-based or science-based thresholds, and does it aim to develop multi-capital assessments about their contributions to these SDGs?
  • Does the company also collect data about the organizational transformation capacity and leadership capacity, taking into account the 3-dimensionality of achieving ThriveAbility, responding to the 3-gap-problem?

 Target setting:

  • Are there defined target corridors for the sustainable use of different capitals?
  • Are ‘science-based-goals’ assessed and context used for connecting to ‘social floors’ und ‘environmental ceilings’ when targets are defined?
  • How are long-term targets defined and then used to backcast mid- and short-term targets?
  • How are data of organizational transformation and leadership capacity used in defining targets also for these categories?
  • How are potential scenarios linked to target-setting?

Incentives:

  • How does the company incentivize sustainable performance? How does it punish unsustainable performance? Is this based on the measurements as mentioned above?
  • How does the company trigger and incentivize better leadership and transformational capabilities?

The combination of multi-capital approaches in internal accounting and controlling as well as external reporting, combined with experimenting their interconnections through True Future Value Calculations, and adding transformational and leadership capacity factors into measurement, target-setting as well as incentive structures, could help tremendously to report on the future readiness of an organization’s business model(s).

 

 
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Posted by on March 11, 2016 in Thriveability

 

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Integral Thinking & True Materiality – Part 3/7: Purpose Defines Connectedness

This 7-part series has been first published on Sustainable Brands between late January and early March 2016 as a 6-part series and a follow-up by Bill Baue, co-founder of Convetit and the Sustainability Context Group. It captures the essence of my thinking I was able to gather through the extraordinary work of the Reporting 3.0 Platform, GISR and the ThriveAbility Foundation in 2015. What came out is a structure that I called a ‘new impetus embracing purpose, success and scalability for thriving organizations’. I am reposting the original 6 parts here and add a part #7 with reflections of others. This is part 3/7.

In Part One of this series, Diagram 1 showed an overview of the three main areas of the proposed change need for integral thinking and true materiality; Part Two explained why we need this new impetus. Part Three now tackles the upper section of the triangle – the need for chrystalizing purpose to better show connectness to the problems that need to be solved in interrelated ways.

Bildschirmfoto 2016-03-08 um 10.37.37Diagram 3: Integral thinking and true materiality need a renewed focus on the purpose of the organization and connectedness to the economy we want to live in.

It has been interesting to see how the discussion about ‚the purpose’ of an organization or an economy has moved into the forefront in the last 1-2 years. The 2015 numbers of the Global Footprint Network (GFN) or from UNDESA on population, consumerism and the environment [insert link] are just telling one striking story: as a species, we humans are on a slow death path.

The fact that the ‚human’ role in sustainability now gets back into the focus simply shows that it dawns on us that we forgot to take people on board of the sustainability journey, in companies as well as in private circumstances. Sustainability is not exciting for the majority of human beings. We see constant shoulderclapping about reports in which we are told how much less bad a reporting entity became, without any ‚North Star’ that could tell us what is ‚minimally good enough’, or what would lead to an envisioned future beyond just having a ‚zero negative impact’; this was sucked up by our frugality of installing sustainability departments that took care of policies, management systems, reporting and assurance. The ‚three gap problem’ as discussed in Part Two of this series led to a reduced understanding of sustainability in which essential aspects of sustainability like ‚people, planet and prosperity’ became ‚people, planet and profit’ and intergenerational equity fell by the wayside.

In consequence, Sustainability Context still remains the most neglected Content Principle of any GRI-based sustainability report. Seldom does a reader understand the ‚world view’ of a company, its leadership advocation to change the economic system towards serving a green & inclusive economy, and how the product & service spectrum offered makes a positive contribution (instead of less negative impact), alone or in collaboration / co-creation with others.

It is amazing to see how disconnected sustainability or integrated reports are with ‚the whole’ which we are contributing to (or not). Reporters typically claim it’s too complex to envision a different economic model, exploring a new level playing field in which market mechanisms can automatically work towards an aimed-at state of being regenerative and inclusive. Isn’t that what scenario analysis was invented for?

We developed our current economic model as one set of conventions, and it is up to us to change that for the better. Haven’t we already decided to aim for a green & inclusive economy at Rio+20 in 2012? So where are we with that? There are indeed some positive prompters here:

  • There is a whole set of macro datasets that show the ‚global pulse’ of our continued negative pathway, which means a better understanding of the interconnectedness of our doing and its effects on the planet is more and more possible. Various IT networks, data providers and technology firms work on making ‚the whole’ visible, up to artificial intelligence (AI) approaches (see a variety of these in the Reporting 3.0 2015 conference report, http://www.reporting3.org). The main issue here is to translate that into data clusters that corporations can use for their ‚micro-macro’ impact interpretation.
  • A variety of companies and development organizations work with the idea of Creating Shared Value (CSV) as proposed and vividly defended by Porter and Kramer for years. While definitely a good learning approach, CSV doesn’t yet prove to be able to either move the concept beyond the ‚feelgood’ areas of collaboration and co-creation; the nasty issues aren’t really solvable since they need new ‚rules of the game’, a normative approach to global change. And secondly, CSV aims at optimizing within an existent frame of economic system boundaries. We won’t get to a sustainable or regenerative economy without also tackling those economic system boundaries to create new level playing fields in which industries can transform. Porter and Kramer, it seems, remain in the 1990s thinking of enlarging competitive advantage with creating (extra) shared value.
  • The Sustainable Development Goals are an interim step towards learning to understand thresholds in a context-based sense, leading to less-bad impact, probably a planet of ‚Zeronauts’ (to stress John Elkington’s brilliant book from 2012). The translation to apply and measure contributions in the corporate world, in local and regional circumstances as well as globally, is still to be developed. A plethora of initiatives are underway to find out, and hopefully it will be a training area to explore the possibility of thriveable, gross positive impact as the greatest innovation boost ever. Each company needs to define where they stay in the continuum that the ThriveAbility Foundation has offered, see the following diagram:

Bildschirmfoto 2016-03-10 um 11.13.50Diagram 4: The strategy continuum to assess a company’s position in a world that needs to leapfrog from surviving to thriving (Source: A Leader’s Guide to ThriveAbility, page 18).

  • Kate Raworth’s ‚Doughnut’ model, showing environmental ceilings and social floors, has given us a 2-dimensional picture of interconnectedness, but only good enough to get us from suffering to struggling – it misses the ‚operating system’ to create real thriving. This model needs adaptation to become 3-dimensional, adding the component of human transformation to accelerate positive change. This is what the ThriveAbility Foundation recommends to get us from stage 1-3 of the above diagram to stages 4 and 5, and in consequence appeals to a change from an ‚ESG Push’ towards a ‚GSE Pull’, addressing authority, decision-making and accountability in one stringent approach. This needs leadership in ways that until now only a Ray Anderson (Interface), Paul Polman (Unilever), Sir Ian Cheshire (ex-Kingfisher) and some other corporate leaders have shown. Only through this advocacy will we get to economic system boundaries change addressing the ‚macro-micro change area’, mainly though the combined integration of external effects into cost accounting, translation into pricing mechanisms, and counterbalancing those effects by a drastically changed tax and subsidies regime on a global scale. The work of Trucost, the True Price Foundation, Ex’tax and others in this area are therefore essential to get this masterplan done over time, together.

So, imagine a sustainability and/or integrated report that showcases a reporting organization’s contribution through a chapter on purpose and connectedness. What would a reader expect to see answered? The below are examples of what I personally would find substantial in that area.

On Contextualization:

  • Does the company have a ‘World View’ and a long(er)-term idea of positioning in the continuum from ‘Compliance’ to ‘Thriving’ when it comes to impacts and outcomes across the multiple capitals? Where does it want to be in the future?
  • Is there one strategy, or does the company have a separate sustainability strategy (which should be avoided, as it signals sustainability as a side issue)?
  • Is the corporate strategy based on affecting the root causes of global non-sustainability, or is the strategy just based on curing symptoms of non-sustainability (like the majority of companies do at this moment)?
  • Are there various scenarios in which the company is testing its possibilities to impact and gets addional insight into its long-term positioning?

On Leadership:

  • Is the socio-cultural leadership gap addressed (part of the three-gap problem)?
  • Are company leaders assessing the transformation blockages in the sustainability gap (also part of the three-gap problem)?
  • How is sustainability visible in the organizational hierarchy? Is sustainability integrated in strategy and governance so that the sustainability team could veto non-sustainable corporate decisions?
  • To what extent is the leadership group aware about a responsibility for sustainability above and beyond the legal construct of the organization?
  • What does the company contribute to asks or campaigns to change the unsustainable boundaries of our current economic system, e.g. trade barriers, unsustainable subsidies, political lobbying, testing new ‘level playing fields’ through the combination of true costing, true pricing, true taxation?

On Ambition Level:

  • What’s the company’s view on growth? How does it differentiate sustainable from non-sustainable growth?
  • How does the company define its ambition level and how are short-term targets derived from succeeding its long-term ambition level (e.g. through back-casting)?
  • How are all employees included in defining the purpose and connectedness of the corporate strategy to sustainability?
  • How does the company differentiate efficiency gains, productivity gains and their respective rebound effects vis-à-vis the need for sustainable innovation?

It is these questions that build the ‚glue’ and segway into the vision of performance beyond just doing the minimum needed. It would add to the idea that current approaches don’t add up altogether and that technology alone won’t cut anything without the humans on board. This is tough work in hierarchical structures and even tougher in multinational companies. But it honestly the only way we can deliver. It is time for new conventions.

 
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Posted by on March 10, 2016 in Thriveability

 

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Integral Thinking & True Materiality – Part 2/7: The Need for a New Impetus

This 7-part series has been first published on Sustainable Brands between late January and early March 2016 as a 6-part series and a follow-up by Bill Baue, co-founder of Convetit and the Sustainability Context Group. It captures the essence of my thinking I was able to gather through the extraordinary work of the Reporting 3.0 Platform, GISR and the ThriveAbility Foundation in 2015. What came out is a structure that I called a ‘new impetus embracing purpose, success and scalability for thriving organizations’. I am reposting the original 6 parts here and add a part #7 with reflections of others. This is part 2/7.

Those of us who have been working in the areas of corporate sustainability and integrated reporting struggle to reconcile the gap between our aspirations for a world we envision, and the current world that falls short of sustainability and integration. More precisely some of the following aspect have also lead to the raison d’être of the three initiatives that I presented in Part 1. Here are the most important ones:

  • the fact that existing standards (GRI, IIRC, SASB, etc…) fall short of enabling if and when an organization will actually be ‚sustainable’. We call this the Sustainability Context Gap, which the Sustainability Context Group has been addressing with the major standard setters for years. Many Sustainability Context Group members are actively engaged in Reporting 3.0 as well as the Sustainable Brands community of practitioners.
  • the failure of linking corporate performance with social floors and environmental ceilings in ways that lead to organizational transformation and pioneering leadership. The ThriveAbility Foundation calls this a ‚three gap problem’, and, if not tackled all together, there is little chance of success that the reporting entity will ever be sustainable.

Bildschirmfoto 2016-03-09 um 11.07.01

Diagram 2: The 3-Gap-Problem defines the lack of ‚integral thinking’ (Source: A Leader’s Guide to ThriveAbility, page 33).

  • the still diverse understanding of materiality. Allen White, co-founder of GRI described this in a recent virtual dialogue, held to prepare the 2015 Reporting 3.0 conference: ‘Corporate reporting must keep pace with the realities of an economically and ecologically interdependent world. The narrow scope and short-term horizon of financial reporting is increasingly detached from the complexities and multiple performance drivers of 21st century organizations. It is a moment for leading initiatives to find common ground, synergies and win-win situations in laying the groundwork for the next decade of innovation and mainstreaming a new form of corporate reporting. It is time to remove the artificial distinctions between internal and external materiality’. In other words, companies need to address both what’s material when considering the interests of their own organization, and what’s material when considering broader societal interests.
  • the contracted notion of what is now called integrated reporting. This way of applying what the IIRC advocates for as ‘integrated thinking’ lacks two main components. First, integrated thinking is mainly used to increase the collaboration of departments within an organization and often still lacks fluid interaction with various sets of external stakeholders around the multiple capitals, which is traditionally addressed through old-fashioned dialogue, but has become less and less prevalent and truly functional as of late; and secondly, this sort of thinking misses out on two of the three gaps as described by the ThriveAbility Foundation, namely really instigating organizational transformation and pioneering leadership. Integrated thinking as articulated by IIRC falls short on these fronts, and thus fails to be truly ‘integral’.
  • the fact that accounting isn’t yet ready to shift toward multi-capital bookkeeping (even in trial pilot form). The litmus test of ‚integral’ approaches in accounting needs to showcase that financial capital hasn’t been built on the back of any other capital (natural, maufactured, social, human, relational, intellectual). Based on that the ThriveAbility Foundation offers the idea of ‚True Future Value’ as a new business equation of success, to be discussed in part 4 of this series.
  • the fact that many organizations pursue sustainability as a goal isolated from other aspects of the business. For example, most organizations focus on negative footprint reduction, and have yet to learn how to increase their positive impacts (handprints) and how to scale them up through their products and services, through collaboration, through advocation of their leaders, and by organizing their own operation around flexflows instead of hierarchies. Scalability of what works well and how it can be combined through yet unknown possibilities are often far out of sight.

In consequence of this list of struggles, strategy, organizational dynamics, data management, accounting and finally reporting need a new impetus if we want to tap the ‚transformational potential’ to become thriving organizations. We need trust, innovation and resilience as the outcome of a combined approach to renew the discussion around purpose, success and scalability, as shown in diagram 1 in Part 1 of this series. Part 3-5 will pick up on each element – purpose, success and scalability, while part 6 will look at the wanted effects – trust, innovation, resilience. Together, they define the future agenda of reporting as a trigger for sustainability – to create the future we envision.

 
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Posted by on March 9, 2016 in Thriveability

 

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Reporting for the ‘future we create’ – shaping next-generation transparency

Recently the report of the October 6/7 Reporting 3.0 Platform Conference ‘Reporting at the crossroads – ensuring purpose, practicability, performance’ was posted at http://www.reporting3.org, together with a great video summary, a repository of presentations as well as an event gallery that wonderfully highlights the spirit and buzzing enthusiasm of the 170 participants from 4 continents and 13 countries. Please find the report attached here as well: R3_Conference_Report

I had the honor to curate the design and facilitate the conference on both days, together with a great team of BSD staff and voluntaries, and also wrote most parts of the conference report. During the whole process in the many months of preparing the conference (that included working on two Transition Labs and two Regional Roundtables), post-conference writing and thinking about how to shape Reporting 3.0 for 2015, I often wondered how much more would already be possible in reporting through a combination of existing vision, methodologies and tooling. Reporting 3.0 brought the majority of influencers together, so a glimpse of the possible was clearly visible already during the two days of the conference.

The report therefore also focuses on three main messages and gives a whole plethora of insights and examples:

1. The ingredients of the ‘green & inclusive economy’ are becoming much clearer and more tangible for corporate decision makers, investors and leading thinkers from academia and the civil society; 

2. New approaches, standards and benchmarks are under development or will be developed to close the ‘sustainability context gap’ in reporting; 

3. Information technology and respective providers offer new solutions for big data management and algorithms as well as applications that enable a new level of sustainability driven decision-making by corporate managers, investors and consumers.

As a teaser to read the full conference report I am also posting parts of my pre-conference speech that I held at the speakers dinner the day before the conference officially started here, shedding light on intentions, focus and ambitions.

“Let me start off by quoting Otto Scharmer, the author of Theory U, who once said, ‘We cannot transform the behaviour of systems (and the people in them) unless we transform the quality of attention that people apply to their actions within those systems, both individually and collectively’. I think this already comes quite close to what we want to achieve with Reporting 3.0, both the conference, but also the platform. We started off from three basic ideas: 1) that we will take serious the plea to achieve a green & inclusive economy and the design for a capitalism achieving that, made at Rio +20 in 2012; 2) that we believe that reporting has a trigger function to create necessary change (many from us come from the early days of sustainability reporting when that was indeed the case); 3) that reporting with that trigger function to achieve a green & inclusive economy will need to be different from what it is today, and most likely it is needed within just one decade.

Reporting 3.0 can change the ‚quality of attention that people apply to their actions towards an envisaged system’ through various pathways: 1) By taking note of the various developments that surround reporting, especially around new business models (circular, sharing, regenerative, restorative), and the enhanced role of (big) data, data architecture, and IT capabilities; 2) By assessing the necessary consequences of the idea of a green and inclusive economy to accounting, given the fact that these new business models need different accounting rules, and that accounting will need to embrace a grand design as well: true costing, true pricing, and even more necessary, true taxation, to balance the burdens to consumers and communities, and to allow to set new economic system boundaries in which market mechanisms can work towards the right direction, on a better and global level playing field; 3) By embracing the idea that measurement needs to much stronger close the sustainability context gap, meaning that macro-data and micro-data allow for assessing performance from a future-readiness perspective and give stakeholders confidence that what an organization says and does is good enough or in the right direction to achieve a green & inclusive economy.

Looking at the vast variety of players with different backgrounds, all knowingly or unknowingly part of the ‚grand design’, and many not from the reporting terrain, reporting more or less logically rather comes at the end of the thinking, if it comes up at all. And those in the reporting space often don’t have the time, capacity, capability to convene formats that deliver insights with these forward-looking players. They normally convene with other experts in the reporting field. The early infusion of knowledge to build the ecosystem for forward-looking reporting is rather uncovered terrain, reporting at this moment adapts to the unavoidable, and doesn’t deliver on a ‚grand design’.

To be clear, we already do benefit from what has been produced so far. There are indeed strong shoulders of that little child Reporting 3.0 to sit on! And still, not enough has been thought of, produced or tried out to sketch the new reporting landscape and to build a ‚grand design’, stemming from the North Star, the green & inclusive economy.”

 

 
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Posted by on December 18, 2014 in Sustainability Reporting

 

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Transition from GRI 3.1 to G4 – 10 reasons why there is no time to waste!

– By Ralph Thurm, A|HEAD|ahead, and Nick de Ruiter, Sustainalize –

The Global Reporting Initiative published their G4 Guidelines in May 2013, but at the same time announced that G3/G3.1 reports and the application level check services would be accepted until the end of 2015. In consequence, companies that want to continue reporting based on the requirements of the GRI Guidelines have time until 2016 to declare either core or comprehensive ‚in accordance’ with the G4 Guidelines. Does this indicate that companies would have ample time to transition towards G4 and more than 2 years still to go with G3/G3.1?

In our view this is a dangerous perception, both based on the different – and sharpened – requirements G4 poses and a critical reflection of the time needed to build the necessary understanding, internal buy-in and systems readiness to be able to comply. Also, an incorrect application of G4 makes that your report becomes too broad, too thick and lacks in relevancy. Here’s a variety of 10 reasons why we think there is no time to waste – working on the transition needs to start now!

  1. Understanding materiality is crucial. A company’s impact, related boundaries and focus on materiality are much more strongly emphasized in G4, some of them described in more depth below, but the consequences of that push by GRI go much deeper. While GRI G4 is out now and the requirements become slowly clearer (G4 is nicely designed, but still no easy read), companies need to ‚delearn’ G3/G3.1 first. Ignoring materiality could quite easily lead to an irrelevant and a report which is too broad. The flexibility of interpreting and reporting on certain indicators, the lax regime on the use of omissions, the 3 applications levels, and the comfortable, reductionistic and legalistic boundary setting, these days are gone.
  2. Sustainability needs to be part of your strategy. In order to better understand a company’s impact(s) – which in consequence will help to define boundary setting and material aspects for reporting– there needs to be a willingness of top management to look at sustainability in a more strategic way. For existing businesses we know that this can be a layered, multi-year process, and is demanding a personal openness of top managers and a willingness of letting go of certain mental stereotypes. Some of them are
    1. Short-termism driving hectic actionism for quick successes;
    2. Sustainability as merely risk management, thereby ignoring the fact that sustainability can be positioned as a means to distinguish yourselve from competitors;
    3. the avoidance of mid- to long-term (SMART) target setting including a clear positioning of the legacy and right to exist (today and in the future);
    4. data and performance become a goal in itself. The lack of the ability to accept that relationships will drive success and not over-ambitious targets that lead to customer dissatisfaction, stressed-out employees, and – in the worst case – neglect of aspects like human rights, environmental protection, and anti-corruption.
  3. You need to analyse and understand your impacts. While top-management commitment is necessary and needs to go further than just words, the ability to understanding a company’s impact needs to include various actions, amongst them
    1. understanding impact based on root causes, including environmental degradation, demographic effects, technological changes, world trade developments, urbanization and transparancy development and how the company is affected by this nexus as well as how the company itself affects others and these root causes. Many sustainability strategy development projects visibly have not gone through this important step, e.g. a simple ‚reduction of CO2 emissions’ target without a program of how to tackle different route causes will remain on the symptoms level and risks any effectiveness, and more dangerously could lead to wrong decisions, think of simple outsourcing of effects into the supply chain and where effects can even be worsened.
    2. the willingness to work on various scenarios that can describe a company’s reaction to the effects identified and where they occur in the value cycle (that in contrast to the value chain which is a concept based on a throughput economy). This includes an active exchange or even shared work with partners up and down the value cycle.
    3. The willingness to gather data about impacts and therefore prepare a readiness to discuss with stakeholders from an informed perspective.
  4. The number of disclosures have been expanded. While the abovementioned steps are in our view necessary actions to define a sustainability strategy, GRI G4 is urging to also make early decisions about the ‚in accordance’ level. While both levels – core and comprehensive – put a materiality focus on top, there is a huge difference in disclosures. If a reporter is aiming for comprehensive reporting, the level of information that needs to be ready is considerably higher and should be reported for multiple years. Examples are disclosures on governance and remuneration, supply chain, anti-corruption, GHG emissions as well as ethics & integrity. It is therefore necessary to prepare the necessary data spectrum early on and define necessary ‚owners’, both with regard to responsibility as well as for the disclosures.
  5. Boundary setting has been changed. The G4 Guidelines have also changed the approach to boundary setting. While G3/G3.1 still allows a rather legalistic-reductionist approach based on ownership structures, G4 now asks for the definition of boundaries based on the underlying impacts. This is the reaction to the neglection of impacts down the supply chain – most companies never got beyond a policy level in their interaction with suppliers in the quest of reduced impact – and is now a major challenge internally in terms of data availability and enforcement of targets and policies.
  6. The stakeholder dialogue becomes more important. It is to be expected that the stakeholder dialogue process will see a change in depth and quality due to the new requirements of G4. Not only does the reporter have to clarify how the involvement of stakeholders was organized, but also how the dialogue has lead to the selection of material aspects. Obviously the company needs to be well prepared for this dialogue. It is recommended to use the sustainability context insight derived from a thorough impact-based assessment as a necessary precondition to have an informed and effective dialogue about the material aspects. This means that a proper stakeholder dialogue is less of a simple ‚negotiation’ between the company and its stakeholders, but a shared and joint point of view and therefore less confrontative, but more collaborative.
  7. Understanding the sustainability context is essential. Meaningful reporting demands a clear view in how far a company contributes – positively and/or negatively – to the most urging problem areas on this planet (or aspects in the language if GRI G4). The G4 guidelines demand certain disclosures, but many of them simply describe efficiency increases (in relation to earlier reporting periods), relative changes or compliance and quality in following a certain due dilligence (audits done, shortcomings recorded, mitigation measures taken). Overall, many of the indicators do not give the reader the impression that what a company has done is at least ‚good enough’ in the light of the global urgencies. This shortcoming in G4 (which also existed in G3 already) has been called the ‚sustainability context gap’ and refers to the requirements of the sustainability context principles in G4. Every company needs to have a good view on their micro-performance against a macro dataset (e.g. the ecological footprint, data from TEEB, etc.). This enables companies in setting focused strategies, it makes communication about real impact possible and facilitates readers in reviewing and understanding the actual performance.
  8. There will be less room for omissions. Another point to start working on the transition to G4 now, is the use of omissions as common in the GRI 3/3.1 Guidelines. GRI G4 has put a halt on the use of number of omissions as well as not allowing any omission without proper reasoning. With just 4 specific ones that are allowed (indicator not applicable and why, confidentiality constraints, legal prohibitions, and unavailability of data with a reference until when the company expects to have the data available). The use of a larger number of omissions may lead to a ‚invalidation’ of the claim for core or comprehensive in accordance reporting. It is not yet clear what process the GRI will adopt in the light of the new regime, but it is to be expected that companies claiming a certain level will at least need to notify GRI about it.
  9. Sector specific information is integrated in the reporting requirements. Sector supplements will be become an integral part of the reporting requirements both for core and comprehensive in accordance with GRI G4. This means that a reporting approach needs to take that fact into account from the start of the reporting process design. The luxury to just use feasible sector supplement indicators to obtain the highest grading (A/A+ in GRI 3/G3.1) will disappear.
  10. There are more frameworks, ratings and guidelines evolving. Additional frameworks like IIRC’s Framwork for Integrated Reporting, sector specifications as proposed by SASB (the Sustainable Accounting Standards Board) and GISR (Global Initiative of Sustainability Ratings) and the consequences of their focus, logic, requirements and information enlarge the plethora of reporting requirements. IIRC’s capital model, SASB’s industry-specific indicators, and at a later stage the recommendations by GISR on how to safeguard quality in ratings are maturing and will become evident in the coming two years (well within the timeline until GRI G4 will require in accordance statement by reporters). Together with all abovementioned reasons we think there is no time to waste to start using the combined set of requirements for the design of a continuously improving reporting regime.

Authors: Ralph Thurm is the Founder & Managing Director of A|HEAD|ahead, Nick de Ruiter is partner at Sustainalize. This is their first joint blog post and is posted on both blog sites.

 
 

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Der T(h)urmblick 1/2013 – Denial is not an option anymore (a 2012 year in review summary)

Dear readers, welcome back in 2013. I’ll kick off this year with a new edition of ‘Der T(h)urmblick’, just published in Forum Nachhaltig Wirtschaften 1/2013. Again, this is in German, but in essence this column summarizes my idea that 2012 has been a turning point in which sustainability reached the collective mind of people on this planet. I am looking at the effects of Rio+20, and although heavily criticized, this conference to me marks the beginning of the end of capitalism as we knew it, if – and only if – we seriously analyze what we meant by uniformally asking for a green & inclusive economy. I am also looking at the more and more shared view that debt is the essence of most of the malfunctioning of the existing economies (this time not focusing on true costs, true prices and true taxation ;-)). Finally, as a true believer in the power of transparency I again claim that reporting – if we are able to finally close the sustainability context gap by adding micro-macro-links into the indicator systems we develop – is a valuable driver of change, with integrated reporting (and as intermediate step GRI G4) needing to prove its potential. Thanks to all that followed me in 2012, I hope that you will experience my 2013 blog entries as useful as in 2012. Many thousands of clicks last year can’t prove wrong, right?

See: FNW_2013_01_Thurm

 

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