Saturday, November 17, 2012

False Claims in Sustainability Reports

During my visit last week to Vienna and my discussions with the fabulous leadership of the Vienna University of Economics and Business Institute for Human Resources Management, we spent some time reviewing some (as yet unpublished) research that has been conducted by the Vienna team (in collaboration with Middlesex University London, with a team led by Dr. Sepideh Parsa and Dr. Ian Roper) on the differences between claims made in GRI Sustainability Reporting and what actually gets reported. 

The team had selected the 131 companies of the Forbes 250 list, which had published a Sustainability Report. Focusing on nine Labor Indicators (LA1, LA2, LA4, LA5, LA7, LA8, LA10, LA13,LA14) and six Human Rights Indicators (HR1, HR2, HR4, HR5, HR6, HR7), the Vienna team led by Professor Michael Muller-Camen,  analyzed which indicators were fully reported in all elements in line with the GRI Indicators and protocols, versus the claims made by companies in their GRI Index.
 
The results are quite astounding. Of 86.2% of companies that declared disclosure against the indicator LA1 (Total workforce by employment type, employment contract, and region broken down by gender), only 10.7% of companies were found to have a full and complete disclosure. The same story, give or take a few percentage points either way, applies to every single one of the LA Indicators, with an average of over 70% declared reported and an average of 12% actually reported in practice. The starkest difference was found in reporting against LA13 (Composition of governance bodies and breakdown of employees per employee category according to gender, age group, minority group membership, and other indicators of diversity.) where 90.8% of companies declared they reported against this indicator and only 1.5% were found to have fully reported. The LA indicator which was found to be fully reported most frequently is LA4 (Percentage of employees covered by collective bargaining agreements) with a full disclosure rate of 38.2% by companies.

In the area of Human Rights, generally, the level of declared disclosure was lower - between 50% and 69%, averaging 62%, and the average rate of full disclosure was also higher, averaging close to 20%. The indicator that was most frequently fully disclosed is HR6 (Operations and significant suppliers identified as having significant risk for incidents of child labor, and measures taken to contribute to the elimination of child labor.) with 31.3% of companies assessed as fully reported.  

Let me just repeat that so it's clear:
Labor Indicators: 86% of companies claim they report and only 11% actually do.
Human Rights Indicators: 62% of companies claim they report and only 20% actually do.

Doesn't something sound a bit wrong here?

I was chatting this week to one of the distinguished thought leaders in the sustainability arena, Richard Boele, founder and  principal of Australian-based Sustainability Consulting firm, Banarra. He mentioned some similar research that his company had conducted in 2010 on behalf of the CFMEU Energy and Mining Division, which is the leading union that represents workers in the mining, oil, gas, port and power industries. The CFMEU's interest in this research was shaped by a sense that unions and workers are vital stakeholders in the sustainability reporting process, but are generally not engaged in this process in the Australian context. The feeling was that reporting was not meeting the expectations of local stakeholders.

The results of this research using ten Australian Sustainability Reports matched almost exactly the findings developed by my colleagues in Vienna. There was a vast inconsistency in the claims made about what was disclosed and the actual disclosures. See the summary table below from Banarra's report.
 
 
Even reports which are GRI-checked and/or externally assured contain these inconsistencies.
 
Why tell lies in reports?
Why are companies making inaccurate and perhaps even deceptive claims in their Sustainability Reports? What interest do companies have in producing false reports?  We can speculate:
 
  • The reports are prepared in an unprofessional and sloppy way, without due attention to the detailed GRI protocols.
  • Company reporters, or their outsourced consultants, never read the protocols and simply don't know what's expected of them in reporting against each indicator.  
  • Companies are competing for the GRI A Level "accolade" and don't mind if they cut a few corners along the way.
  • Companies are being deliberately deceitful in order to achieve a reputation boost, without due consideration of the consequences of being found to be making false claims.
  • Companies don't think anyone will notice - no-one reads reports.
  • Companies don't care if anyone notices - the main thing is that they published a report.
  • Companies don't think it matters - what's a little inaccurate detail here or there? Hey. We are reporting. Isn't that good enough?
  •  
Did I miss anything? Whatever the reason, to claim you have reported, and then not report, is defeating the purpose of sustainability reporting, which is all about building trust. If companies cannot get this right, what trust can we have in them and their reports? Not more than 20% trust, apparently.
 
 
Is it enough to have a good framework?
Microsoft says that the browser is only as good as the OS it runs on. Hmm, they might have a vested interest there, I suspect. In reporting, the report is only as good as  the accuracy and relevance of its content. The GRI Framework was developed as a set of voluntary disclosure requirements that are generally found to be universally relevant to a representative range of stakeholders in the context of  the sustainability impacts of global business activities. If it's in there, it must be relevant and someone wants to know. But then, what's the point of having a leading global framework if companies are abusing it? How can the GRI Framework be credible if the reports that companies produce are not?  Can the GRI have absolutely no ownership for creating a situation in which companies are abusing the reporting framework, unknowingly, deliberately or for whatever reason? If you knew that every report you read is only 20% accurate, would you ever take the time to open another report again? Surely this cannot be the outcome that the GRI wishes to see.

Reporting Accountability
In the most recent  GRI's own GRI 2011-2012 Annual Report,  CEO Ernst Ligteringen, opens with: "Sustainability reporting is a rapidly growing practice, and GRI provides guidance and support to all organizations worldwide that want to report their sustainability performance. We see a vital shift in sustainability reporting, moving from an experimental practice of pioneering companies to a rapidly widening adoption in the mainstream." More importantly, he goes on to say that the range of users of sustainability is widening. More reports, more interest. There is no mention of the quality and integrity of the reports that are published and this doesn't appear as a material issue in the GRI's own materiality analysis. While I have heard the GRI in the past say that it is not their mandate to  "police" reports, I continue to believe that complete avoidance of the issue of report quality is not sustainable. This is like tobacco companies saying they are have no responsibility for the people who get sick or die after using their products. Perhaps the GRI should aspire to be the Unilever of Sustainability Reporting - changing consumer behavior so that the way their products are used can make a more positive contribution to sustainable society.

In the run-up to G4, the proposed "In Accordance" threshold creates demand for even broader disclosure and more disclosures and indicators to report on. What chance does G4 have of changing the world if the reality is that G3 is not being used reliably?

The Stakeholder Police Force
The GRI might say that it's the stakeholders who should be picking this up. Stakeholders who perform research on reports may do this, as the two examples I mentioned above. The stakeholders should be the police. But are they? Can they be? If every stakeholder has to double-guess every report, and spend hours checking whether the indicators are correctly reported, then we are going backwards not forwards. In this case, voluntary reporting could be deemed a Big Flop.

The solution?
The solution should be that companies take responsibility and ensure their reports are accurate. Utopia. You do not need a Ph.D. to understand the GRI Framework protocols and apply them correctly, though it is possible to make mistakes or overlook some detail or other. In this case, companies have the option of seeking external support.  This could come in the form of external verification or part of an assurance process. Similarly, my consulting company, Beyond Business, offers a Sustainability Report pre-publication review service in which we analyze every aspect of a report prior to publication including detailed compliance with the GRI (or other) frameworks. Invariably, this exercise identifies inconsistencies which can be corrected before publication. Companies which do this are demonstrating accountability - they want their report to be accurate. 

The other current option for reporters is the GRI Application Level check. This is an easy option because it covers only a sample of disclosures and indicators reported. It is not a complete check, but the GRI Statement which is issued to companies which "pass" the check says: "GRI Application Levels communicate the extent to which the content of the G3 Guidelines has been used in the submitted sustainability reporting. The Check confirms that the required set and number of disclosures for that Application Level have been addressed in the reporting and that the GRI Content Index demonstrates a valid representation of the required disclosures, as described in the GRI G3 Guidelines." Ahem, it seems that in many cases, this statement is not correct either.

Maybe it is time for the GRI to bite the bullet and offer reporting checks which confirm that every disclosure and indicator has been reported in the correct and complete way, as defined in the GRI Framework, when claimed to have been reported by the reporting company. Anything less is misleading and serves to perpetuate this report-bad-feel-good euphoria that Sustainability Reporting seems to have succumbed to.  

The Big Picture
I hear some of you object: Surely this is cosmetic? Reporting is not about ticking boxes. The Framework is an enabler, not a shackle. The contents of reports often include far more information than the GRI Framework requires. Shouldn't stakeholders focus on the Big Picture, rather than nitpicking about GRI accuracy? That's one way of looking at it. Another way would be to say that sloppy or careless or misleading reporting is not good enough. Even if the report contains the fanciest materiality matrix in the world, this does not compensate for inaccuracies in the application of the GRI framework. False reporting breaks trust. Period.

Trust
One of the most difficult dilemmas of Sustainability Reporting has always been the degree to which we can place our trust in the voluntary disclosures of companies. If companies are  not telling the truth about what they have not reported, how can we be sure they are telling the truth about what they have reported? Using the GRI Framework is not mandatory. The choice to use the GRI framework implies a responsibility to do so correctly. Companies who want to have their ice-cream and eat it are damaging both their own reputation and that of Sustainability Reporting in general. As a frequent report reviewer for CorporateRegister.com and for Ethical Corporation, one of the first things I check is whether the company has accurately used the GRI framework. If I find an inconsistency, my trust in that company plummets.

The Future
There is a lot of hype about Integrated Reporting as the universal solution to the inadequacies of today's sustainability reporting. Perhaps, instead of Integrated Reporting, we should be aiming for Integrity Reporting.
 
 
elaine cohen, CSR consultant, winning (CRRA'12) Sustainability 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  (Beyond Business Ltd, an inspired CSR consulting and Sustainability Reporting firm)

3 comments:

Global Reporting Initiative said...

GRI's response on this article

GRI would like to thank the Sustainable Business Forum for sharing its research results in the article 'False claims in sustainability reporting' ( http://bit.ly/V8ZMXg ), and also for expressing its concerns, particularly on the publishing of incomplete information.

GRI started developing Sustainability Reporting Guidelines to guide organizations on what to disclose, as well as how to disclose and manage the underlying process. It is critical for organizations and their stakeholders to have relevant and correct information in a sustainability report. Externally, incomplete or incorrect information leads to a decline in trust; and as internal management information, flawed information does not help to make the right decisions either.

While uptake of sustainability reporting has grown around the world and there are excellent reports from all continents, there are many that are not. However, GRI cannot police or control quality of all reports. We strongly encourage organizations to engage stakeholders in the development of their report; and we also encourage stakeholders to stay engaged and challenge reporting organizations on their sustainability goals and their reported performance.

The Application Level Check is a support service to confirm the level at which the Guidelines are used. Launched with the G3 Guidelines in 2006, GRI introduced Application Levels to assist organizations in communicating their degree of transparency against the GRI Guidelines. The interest in this service has increased significantly in the past years and GRI continues to work on improving the service. In 2011, for example, an electronic Content Index and Checklists were developed for reporting organizations to fill in before submitting their reports for checking. Through Application Level Checks, GRI often identifies incomplete information and prompts organizations to improve their report, but this does not take the end-responsibility for the information away from the reporting organization.

GRI is aware of misunderstanding and “abuse” of the application level system and checks. When GRI becomes aware of incorrect use of the Application Levels and the Application Level Check, we reach out to the respective reporting organization. Furthermore, we are currently reviewing the process, statements and communications about the service to increase clarity on what an Application Level Check is, and what it is not.

Currently, GRI is developing the next generation of the GRI Guidelines – G4. From June through September 2012, the public provided record level feedback on the exposure draft of G4 which also proposed changes in the Application Levels. The feedback is now being analyzed to progress the Guidelines. G4 will be launched at the 2013 Global Conference on Sustainability and Reporting in May 2013 ( www.griconference.org ).

elaine said...

Thank you GRI/Marjolein for your reply. As you know, I am a fan and staunch supporter/stakeholder of the GRI and promote use of the framework at every opportunity. I find it painful, however, that this framework allows itself to be abused in such a way. I do not agree that the GRI cannot "control or police the quality of all reports" insofar as this refers to Application Levels - especially if you narrow this down to those reports which were sumitted to and "passed" the GRI Application Level Check, and where, despite this, information is absent when it is claimed to be reported. The GRI ALC is a stamp of quality. The GRI owns that stamp. If the ALC is to be meaningful, it must cover all the indicators in the entire report. I believe the same problem will exist in with G4, if the GRI introduces the "In Accordance" threshold. Any "In Accordance" check must be a full and not a partial check. This is in everyone's interest - if the check becomes more of a serious quality standard and less of a hit-and-miss, I believe it will be far more attractive to reporting companies.

Best

Elaine

Liad Ortar said...

Let me start with recalling of some memories from 2006… we were several hundreds of people, sitting in a medium size hall in Amsterdam, all excited about the coming launch of the G3 Guidelines ( there were dancers coming down) and waiting to hear Al Gore, then the global Guru and Mega- preacher against Global Warming. It was an amazing event and the expectations were sky rocketing. Something new was in the air and a true sense of an investable change for the better of humanity and planet earth.

Look what happened from then… The financial crisis, the revolutions in the Arab world, Occupy wall street, Europe is fighting to survive austerity, the developing countries (BRIC) are turning to be the most influential financial super powers and the world has given up on the effort to build a global scheme to combat climate change. We buried the Kyoto protocol with nothing to replace it. And… let us not forget the daily tragedy and massacre that is happening in front of our eyes in Syria. We, the citizens of the world are looking with deep frustration on those who were empowered by our nations to morally lead us. They all failed and we all pay the price. The bottom up approach of global governance has went bankrupt with no clear alternative being presented. We can see the first sprouts of a new bottom up global movement supported by The Internet of Things , mobile apps, social networks etc. something is happening and it will spread out.

From my humble point of view, the GRI basically embraced a global governance approach as represented by the UN institutions and offered a one single global reporting hub. I am fully aware of the translation efforts (and even was one of the firsts with translating it to Hebrew) and the setting up of local offices. Maybe it was fine when there were several hundreds of reports being published with low level of public scrutiny, but now… it is simply not good enough.

The GRI did start few years ago a very important initiative to develop country annexes to the G3… but sadly it was stopped. I thought that it was a great idea and even lead a multi stakeholders process here in Israel and wrote a draft for our own county annex. The same should have been done with the verification process to create a publicly accepted validation process . For it to truly become a global tool, I recommend that the GRI consider a more decentralized approach, harnessing governments to the issue and together with them and other stakeholders, referring efforts on setting up local verification centers. It's time to wake up to almost forgotten term of Glocalization in the setting up a Global Governance System for Sustainability Reporting.

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