Saturday, March 5, 2011

Context in context

This post a response to Mark McElroy and Henk Hadders. Both have been urging me to "pronounce" on the subject of context, or lack of it, in sustainability reports, in particular following  my outline of the way the GRI guidelines and integrated reporting will be progressing over the next few years.

Mark McElroy is the founder of the Center for Sustainable Organizations, and has been working tirelessly for over 10 years to advocate for context-based sustainability reporting for which he has developed a particular methodology. I chatted to Mark on the phone yesterday.

The GRI relates to the question of context in the GRI guidelines, as one of the reporting principles for defining content. The guidance on the principle of context states that reports should present the organization's sustainability performance in the wider context of sustainability. This is the explanation: "The underlying question of sustainability reporting is how an organization contributes, or aims to contribute in the future, to the improvement or deterioration of economic, environmental, and social conditions, developments, and trends at the local, regional, or global level. Reporting only on trends in individual performance (or the efficiency of the organization) will fail to respond to this underlying question. Reports should therefore seek to present performance in relation to broader concepts of sustainability. This will involve discussing the performance of the organization in the context of the limits and demands placed on environmental or social resources at the sectoral, local, regional, or global level." This is rather broad and of course, the degree to which context is reported in detail is left open to interpretation. The GRI offers nothing more specific on this subject. Mark McElroy, however, sees context in a very specific way. These are the tenets of the Context Based Sustainability Reporting approach a la Mark McElroy.

Mark says that whilst the GRI does a good job of structuring reporting, it doesn't go far enough in defining and requiring context in reporting. He says it's like leaving the costs out of a financial report. According to Mark, the issue of context can be described as the need for standards of performance when talking about sustainability. You are either sustainable or you are not, according to an agreed standard. The question is, who defines what that sustainable performance standard is? Companies measure themselves against their own past performance or their targets, or even their peers, but what is really needed is some absolute measure of sustainability so that companies can report whether they are on track, behind or ahead. Sustainability performance, then, according to Mark, should be measured in terms of vital capital resources which are required for our sustainable wellbeing such as:  natural capital, social capital (social networks etc.), human capital (personal health, knowledge, skills and experience) and constructed capital (physical infrastructures etc.). The sustainability performance of an organization is a function of the organization's impacts on these vital capital resources. In plain language, if there is only so much water available in a particular country, (water levels can be calculated with some accuracy), this needs to be divided between all the stakeholders that use that water. Some of these stakeholders are individuals, some are also people who work for companies. Everyone has a ration, or an allocation based on a calculated quotient. A company's allocation might be related to the number of people it employs. So by doing all these calculations, using precodified values, it is possible to say that company X's rightful allocation of water was Y cubic meters out of the total amount of water available. If the company used more than Y, its performance was not sustainable. I likened this a little to food rations in war time. There is only so much to go around, so everyone gets an allocation. The tricky thing in all of this, of course, is who decides the allocations and on what basis? In the case of a company, which contributes value to society in many different ways, it might be appropriate to give a greater allocation than to a private individual. This step hasn't been bottomed out completely yet, but remains the subject of ongoing research. If you want to see this methodology in more in more detail, take a look at this presentation, which is called the Social Footprint Model.

The theory here is that reporting in a vacuum gives us no indication that a company is sustainable, because, even though it may have been reducing emissions, energy, water and other materials consumption, as well as investing in the health and wellbeing of employees and communities, it still might have been be using more than its "fair" share of resources and therefore the company's performance might not have been all that sustainable after all. Mark believes that stakeholders have a right to know this, and even if the methodology is not 100% complete, it's a basis for debate and gets closer to providing tangible tools to deliver change, and should be included in sustainability reports.

This is a great approach. If only the world's resources could all be parceled up into neat packages that we could all share out according to a mutually agreed formula, life would be so much more simple. However, despite trying hard to understand this approach and wanting to believe that it can work, I am afraid I don't. I believe we would spend so much time arguing about the definition of the quotient and the formula for the allocation that this methodology in itself would not be sustainable. I don't believe it's possible to separate all the combined factors that influence the sustainability performance of a company at local and/or global level and reduce them to over-quotient or under-quotient in every specific impact area. Mark believes this is possible. He may be right. But I don't. Not for quite a few years anyway. I see how companies are struggling just to understand and report their own data, let along trying to contextualize it in such a specific way.

My definition of context in terms of what I like to see in a sustainability report is closer to the way the GRI frames it. Context should explain why a company adopts a particular sustainability strategy and invests its resources in doing certain things. An energy company, moving to renewables, might state the broader context of finite levels of non-renewables. An IT company investing in emerging economy infrastructure might talk about the impact of digital inclusion on sustainability. A food company might talk about population projections and food security requirements. A pharma company might talk about health risks and trends. Companies might state local factors which are crucial to their business sustainability such as population demographics or dominant environmental factors. Their sustainability strategies should be related to these external realities in a way which stakeholders can understand. This is high level context and wouldn't meet the criteria for Mark McElroy's detailed context-based reporting, but I tend to see a company's performance in terms of the company's contribution to global sustainability, rather than its performance relative to a pre-defined level of expected impacts. If a company has consistently reduced absolute resource consumption over time, then it appears to me they are in the right direction.

Is this is enough? Well, we probably know already that it's almost never going to be enough. In the absence of regulation which imposes limits, such as the UK Climate Change Act, each company with its own individual considerations must make an assessment of its own sustainability (will resources continue to be available to a company at the level required to maintain operations?) as well as its contribution to global sustainability. The Unilever Sustainable Living Plan was hailed as one of the boldest commitments any company has ever made to sustainability. In this plan, Unilever committed to halving the environmental footprint of their products. Is that enough? Is that sustainable? I don't know. I am not sure any methodology will enable us to accurately answer that question.

Anyway, there it is. I have pronounced on context. I would like to see more context in Sustainability Reporting, as many reports don't even meet my fairly general expectation. Whilst I can appreciate they may be  merit in the visionary context-based approach proposed by the quotient methodology, I am not sure it is  possible to achieve a general consensus on the quotients and the allocations, and companies are still at such a basic level in sustainability metrics management that it's  like wanting to be able to land on the moon back in the 1960's. Ah, but we did that, right? So I guess anything's possible.

elaine cohen, CSR consultant, Sustainabilty Reporter, HR Professional, Ice Cream Addict. Author of CSR for HR: A necessary partnership for advancing responsible business practices Contact me via www.twitter.com/elainecohen  on Twitter or via my business website www.b-yond.biz/en  (BeyondBusiness, an inspired CSR consulting and Sustainability Reporting firm)

11 comments:

Ralph Thurm said...

Dear Elaine,

Is this really a case of either/or? I witnessed all of these discussions while leading the principles workstream of the G3 development, and let's not forget this was in 2005 and 2006. The GRI network of stakeholders, represented by the participants in the workstream, the stakeholder council, the technical advisory council, the board, and all the participants in the public comment period were not able to make a decision to take the ecological footprint as a contextual marker to assess the real performance of a company against global and/or regional boundaries. Times are changing and we might be a step closer for the G4 development process. So, in the spirit to seek contextual information where possible and agreeable through passing the GRI due diligence process, the GRI community can definitely make staps to integrate more context-based indicators. Again, important to remark here is that the GRI is not the people in headquarters in Amsterdam, its all of us that take part in the process in whatever form!

The question though here is: is the GRI the right place to set the context? Does a reporting requirement drive political and civil society will? Well, it can create demand for it, and the GRI stakeholders have become more vocal. But in the end the GRI can only include it if the right steps, e.g. through legal requirements or globally accepted methodologies, are there.

The G4 process will demand more context alignment as well as using the technological progress made in information aggregation and delivery. But it will also only be a testimony of what the state of possible contextual delivery is for late 2012. It will articulate further need for more since we will not have all contextual boundaries handy, but it will be again a step forward. In that sense the GRI process is a litmus test of how far the people of this planet are to wanting to measure their real impact. The GRI can do its bit and consolidate these views and - as they do now - demand more mandatory reporting, but it is US that need to make the change!!!

Mark W. McElroy said...

Dear Elaine:

First, thanks so much for the time you spent with me yesterday and now for your thoughtful post in response. Of course I do not agree with your conclusions, which, as you might imagine, I've heard many times before. A few things come quickly to mind here.

The first is the presumed need for consensus as a basis for action. Not once have I claimed that agreements on context or on allocations of resources are required as a precursor for doing context-based sustainability. To me that is big red herring that serves only to perpetuate context-free sustainability reporting, as if everyone must agree on everything before we can proceed - an excuse not to take action.

The fact is we do not need consensus in order to proceed. Indeed, clients of mine have done so in the complete absence of consensus - successfully. Not everyone will agree on the decisions they've made as to how much water should be allocated to them, or what their greenhouse gas reductions should be, etc. But so what? Are their attempts to manage the sustainability of their water use any less genuine? Are the sustainability reports of other companies that fail to even attempt to include context any less context-free and therefore devoid of sustainability content, per se?

As I said, it is far better to have debatable standards of performance (context) than no standards at all. You seem content to live with the latter; I am not. And it frankly puzzles, and deeply disappoints, me that an advocate of sustainability would tolerate such a thing when other options exist. Companies that are trying to do the right thing by including context in their sustainability programs should be encouraged to pilot, test and evaluate their ideas about how to do so, not told by sustainability pundits that they should wait for consensus to arrive before they do so. Are you willing to live with the consequences if it doesn't?

In holding off on your support for context-based sustainability until consensus arrives, it is you, no I, who is asking for the impossible. And while we wait, thousands of sustainability reports will continue to be produced that tell us little or nothing about the true sustainability performance of organizations, and countless instances of unsustainable performance will continue to occur (and sustainable ones, too) because you and others must have consensus in order to proceed.

Let me ask you this, Elaine, if we had the kind of consensus you are looking for, would the consensus view, whatever it is, necessarily be the correct one? What if it's not; and given the possibility it might not be, what is the point of waiting for it? Isn't it possible that context-based management efforts today could be legitimate even in the absence of consensus? Or is it consensus for its own sake you are looking for? Or consensus because the consensus is always infallibly correct? Funny, I thought we were talking about sustainability, not group think.

Regards,

Mark

Anonymous said...

Dear Elaine,

Nice post, seems to me however that your position on "context" hasn’t crystalized yet: “This is a great approach, …I don’t believe its possible, ..I’m not sure… (not for quite a number of years),….I guess anything is possible.” We are talking here about the evolution and development of Sustainability Measurement & Reporting systems and tools, of which GRI is the defacto standard in this world. You pointed out, that organizations are not ready and having enough problems “to understand and report their own data” (= their own actual outcomes and impacts), let alone to contextualize them. In short, they have to develop and evolve, but I’m puzzled why you (as a thoughtful CSR and GRI leader) didn’t formulate a “Man on the Moon” statement and vision for the next generation of Sustainability Reporting, and for the GRI community as a whole, regarding “context”. Something to collectively strive for, with all the trial & error that goes with it! To get inspired and be authentic!

As you seem still puzzled about McElroy’s efforts to operationalize the GRI-notion of “context”, you come up with your own “Context a la Elaine Cohen”. For you it is sufficient, in the next developmental stage of Sustainability Reporting, that “context” explains why organizations adopt a particular sustainability strategy and invest in certain things. This means that they should “talk” about this in their reports. But for me this is no development or something NEW (one can find these “talks” in all mainstream reporting). Is this the progress from context-free sustainability reporting towards more context-based sustainability reporting ……Storytelling? For me this isn’t sufficient, and shouldn’t all this be about Measurement, measuring the (positive, negative or neutral) impacts of organizational activities on the world? As you mentioned the Ecological Footprint of Unilever, …you Elaine of all people…, must know one has to able to quantify and measure context in order to use this tool in a meaningful and purposeful way.

I’m afraid, your position will get you stuck at the present evolutionary stage or level of Sustainability Reporting, embracing how GRI G3 now frames the notion of “context” and thereby preventing something new to emerge in the future. Personally, I don’t see this as a development to a higher level, if this should remain unchanged in GRI G4, as you would like it to be! To me this would seem a rather (pathological) fault in GRI’s development ;-)

You see a company’s performance in terms of its contribution to global sustainability. Right, but this is no different from evaluating performance with a normative knowledge claim of stakeholders, what they expect the impact of the organization to be. But is it possible to do more context-based sustainability measurement & reporting, by comparing actual impacts of an organization on the world with stories they tell about the world? Haven’t we heard enough fairy-tales!? This will continue to legitimize producing “Thin Value” (Umair Haque), instead of measuring the “Thick Value” needed by people, communities, societies, the natural world and the future generations! I absolutely disagree with you, that lower absolute resource consumption over time should be a sign of moving in the right direction!

The issue of “consensus” (about the quotient and the formula of allocation), suggested your struggle with the “fact-value dichotomy”, where finding “truth” is easier while discussing objective, scientific facts than subjective and normative values and knowledge claims of stakeholders. For me, it’s possible to agree on standards of performance with organizational stakeholders, even when scientific knowledge is missing on a specific area of impact (and using the Precautionary Principle). I will stop now, but there are many other issues to address, like what is Global Well-being or Global Sustainability and what is Global Well-Being Governance (is it handing out coupons at a global level, like during the war or not?).

Best wishes,
Henk Hadders

elaine said...

Hi Ralph, thanks for your insights. The issue for me isn't really about whether the GRI is demanding context-based reporting according to the quotient methodology, or not. It's more about whether the quotient methodology really does move us forward on the sustainability path in a meaningful and manageable way. As you can see from my post, whilst intuitively I can see some merit in this approach, I havent quite absorbed the potential of this yet, not least because there is so much work to do to get to first base. This is the change I focus on in my work and writings.
warm regards, elaine

elaine said...

Hello Mark and Henk, yes, I anticipated your reactions and am glad to provide a platform on my blog for this debate. I understand that you have both invested much time and energy in considering the quotient approach and are convinced that it is the right way forward. Thank you for taking the time to familiarise me with the methodology and for the discussion. I did my best to reflect your position on my blog in a fair way. I will be interested to follow, not lead, this discussion going forward, and reserve the right to change my view (and I might!) as and when I am convinced that the quotient methodology is a meaningful and manageable way to advance both business and global sustainabililty.
warm regards, elaine

Mark McElroy said...

Dear Elaine:

Thank you, as well, for diving into this. Two short follow-ups, if I may:

One is that I find it interesting to observe that no one is really denying the importance or relevance of context-based sustainability (CBS) to sustainability measurement and reporting. Instead, the debate seems to be more about the approach and timing. How ironic it is, then, that we all agree that measurement and reporting in its present form is context-free and fails, therefore, to express sustainability performance in any sort of literal or genuine sense, and yet the global community of sustainability practitioners, standards-makers, etc. puts up with and promulgates it, nonetheless, as if it did (including GRI).

Second, to be clear, the quotients approach, as you cite it, is only one possible implementation of CBS. It is merely the one I developed and advocate. But it should not be confused with CBS, per se - the real subject of interest here - which can take other forms, as you know. One I mentioned when we spoke is the Ecological Footprint Method. Others include just about every environmental permitting system around the world, whose permits are tied to the carrying capacities of local ecosystems. These are all instances of CBS, many of which do not involve quotients at all, and most of which have not made any real inroads in corporate sustainability management, per se. Hence my push that we all take steps to do so.

Regards,

Mark

Bill Baue said...

Elaine,

Thanks so much for making the commitment to educate yourself deeper on the issue of context-based sustainability. I have to agree with Ralph, Mark, and Henk that your pragmatic assessment that it will take too long to get consensus on thresholds side-steps the bigger question of the need for context.

I just posted a blog on this issue encapsulating my perspective (and coining the term "sustainability footprint"), so I please check it out and let's continue the dialogue.

http://murninghanpost.com/2011/03/10/stepping-toward-corporate-sustainability-footprinting/

Best,
Bill Baue

elaine said...

Hi Bill, thank you for your response. I have read your post also with interest. I note that you write: "the world lacks commonly agreed thresholds across the broad spectrum of factors that determine sustainability." I agree. And I wonder about the value of individual corporations trying to adopt this approach in the absence of such agreed thresholds. I agree that great visionaries have never waited for consensus before pursuing a vision. However, at the present time, my interest lies more with helping companies to quantify and improve their direct and indirect impacts, which I believe must be done more consistently, more transparently and more professionally by many more businesses. Perhaps that does not reach your ultimate vision of context-based sustainability reporting, but it is certainly a necessary step towards achieving it, in my view. Happy to continue thinking and talking about this
warm regards, elaine

Bill Baue said...

Elaine,

Thanks for reading my blog over on MurnPost. As you noted, I advocate for creating consensus on sustainability thresholds by which companies can consistently measure progress. AND, I also advocate for companies to move forward creating their own definitions of thresholds. I don't see this as an either/or, but rather a both/and.

Just like companies are moving forward with integrated reporting before IIRC has come up with even a preliminary framework. It is these first movers who play a vital role in testing and refining practice in an iterative process.

You say your focus is "helping companies to quantify and improve their direct and indirect impacts, which I believe must be done more consistently, more transparently and more professionally by many more businesses." Bravo! You infer a contradiction between doing this, and encouraging companies to take a sustainability footprinting / context-based / thresholds approach.

I respectfully disagree, and believe that you can help move the ball forward best by supporting companies to comply with commonly-agreed practices and frameworks where they exist, and where they don't yet have consensus, to encourage companies to consider and experiment with a context-based method that tells themselves and the world more about their actual sustainability footprint.

Indeed, if companies and individuals always waited around for consensus, there would be no progress in the world. I believe progress is best made through a balance of compliance with existing standards and pushing the envelope where standards are still in development.

I look forward to hearing your take -- and please consider chiming in on the very active comment thread on MurnPost!

Best,
Bill

Cody Durant said...

I am fairly new to sustainability discussions, especially those around reporting; however I have been thinking about this topic for some time now and have a few comments I would like to post in response to Elaine's piece as well as the other comments and posts.

Context-based reporting (in my mind) is something of a new concept to the CSR world. It is my impression that reporting in general hasn't been around for that long and follows trends through the evolution of business. Context-based reporting is the new CSR of our day and age. It is the mechanism with which the public are able to understand and be informed about the companies in which they participate with in their daily lives.

In my own view, it is essential to the public because without context-based metrics in place, how would you really know and understand the performance of a company? By having a determined (yet variable due to changes and time) value for whatever resource or metric you are measuring, the company is able to accurately report themselves against it. It would seem to me that this should be a priority among all companies who claim to be sustainable.

With consideration about sustainability however, I would like to point out that there is no one definition of sustainability. This is an ever changing term with our ever changing world and needs to be a dynamic term rather than static. The world we live in is dynamic therefore the terms with which we attempt to define it must be the same.

That being said, because there are limits intrinsically placed upon us, it is up to companies and industries to understand and recognize said limits in order for them to act in a "sustainable" manner. It is my impression that most wouldn't want to do this, however if we as the investors and consumers demand this type of information, they would comply.

I have to make a side comment here: I am very pleased to have stumbled upon this blog and discussion. This type of discussion isn't found in most everyday dialogues and it is refreshing to hear others thinking about these things.

Anonymous said...

While a little late to the discussion table, I wanted to send some empathy your way Mr. McElroy. I spent a little over a decade trying to persuade companies to augment their mandatory financial reports with voluntary disclosures on the health of their intangible assets. I argued that it didn't make sense to wait for consensus on reporting standards or regulatory requirements to do so.

Our current accounting system was designed about 400 years ago and hardly anyone would argue that it provides investors with the insights they need to determine the underlying health of an organization and its long-term potential today. And yet the debate about intangible asset reporting has lasted at least twenty years. However, some companies have distinguished themselves by reporting on intangible asset management and are realizing lower capital costs as a result.

It seems to me that one way to influence more publicly traded companies to adopt context-based sustainability practices and reporting is to influence large institutional investors to demand it and reward it.

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