Monday, July 1, 2013

Alcatel-Lucent: G4-Ready >> Three Scoops

As our new G4-Future is apparently here to stay, I am busy doing G4-Readiness analyses for clients around the world. Frankly, it's not as simple as it looks and it takes quite some time to bottom out all the fine details of what needs to be reported using G4 versus what has been reported using G3. It's not as simple as comparing disclosures, because in G4 there are new disclosures that were not in G3, and some G4 disclosures have changed. It's also not as straightforward as counting up indicators, because in G4, Material Aspects determine the indicators, and not the generic framework. Similarly, G4 is about process, not just about materiality, so the entire start-point is somewhat different.

WARNING: This is a rather technical post, written for those who are really interested in the detailed workings of G4, so if you find it boring, just skip to the ice cream.
I thought I would share with you a sample G4 Readiness analysis. My guinea-pig is the first report on the  Featured Reports page on the GRI website, which just happens to be a GRI G3 A+ level report, which we would expect to be quite comprehensive in terms of transparency. It's Alcatel-Lucent's 2012 Sustainability Report.

GRIA+ GRI checked 242 pages
My bottom line:
This is a great report from a technical standpoint which covers the full range of sustainability disclosures. It's almost at G4 CORE level and reports well on issues identified as material. With the addition of general disclosures on governance and remuneration, and a few additional performance metrics, it could achieve G4 COMPREHENSIVE level. So, in terms of G4 readiness.... Alcatel-Lucent deserves a three scoop cone.
With 17 material issues, and a lot of non-material information, at 241 pages, this report is very loooong. The trees obscure the forest, and it's quite hard to get to the core of Alcatel-Lucent's significant impacts. The report is technically robust, but is low on inspiration and readability. To make this report more user-friendly, Alcatel-Lucent should cut some of the extremely hi-res but irrelevant detail and focus on making the really important aspects of its sustainability program and impacts stand out, while ensuring accountable and transparent reporting on a range of materially relevant metrics.  
Now, to the analysis. Non-techy people switch off now.
As you may already know, G4 splits into two (unequal) parts: General Standard Disclosures (GSDs) and Specific Standard Disclosures (SSD's). At CORE level, 34 GSDs are required and at COMPREHENSIVE level 58 GDSs are required.

Alcatel-Lucent reports on most of the GSDs required at CORE level:

This shows Alcatel-Lucent's alignment with CORE disclosures - green means disclosed,
yellow means partially disclosed, and red means not disclosed.
G4-1 is the CEO statement. In Alcatel's report, this statement is short, generic and not strategic. It does not include the key elements prescribed in G4.

G4-10 and G4-11 are former labor indicators in G3, LA1 and LA4. G4-10 requires specific statistics about workforce composition in more detail than was required in the G3 version, and G4-11 requires the number of employees covered by collective bargaining agreements. In order to respond fully to G4-10, Alcatel-Lucent would need to include data relating to supervised workers, a breakdown of employees by employment contract (permanent or temporary) and information about seasonality.

For G4-11, Alcatel would need to provide a response other than "this information is proprietary", which was how the company responded against this indicator in the 2012 report, which I found puzzling. What's proprietary about the number of employees covered by collective bargaining agreements? Usually a proprietary response would relate to something which could be legally problematic to disclose or which might seriously damage business competitiveness.  Alcatel Lucent has several collective bargaining agreements in force covering employees in different countries, and obviously a large number of employees are covered by collective bargaining agreements. A non-response to this disclosure will prevent Alcatel Lucent from being "In Accordance" with G4 even at the lower CORE level.

G4-12 is "describe the organization's supply chain". Alcatel-Lucent does this partially, mainly in reference to suppliers.

G4-19 is "list the material aspects". Alcatel Lucent has included a list of material issues, but these are not aligned to the Material Aspects prescribed in G4. Is this a little picky?

G4-26 is the former G3 4.16 and requires more detail of the way the company engages stakeholders and the frequency of this engagement. This is not exactly described in the report. Another slightly picky observation on my part, I guess.

G4-27 requires "key topics and concerns that have been raised through stakeholder engagement" - I was not able to identify a specific response to this disclosure in the G3 report, although several channels of stakeholder engagement are reported as well as a list of material issues in a materiality matrix.  If Alcatel-Lucent wishes to produce a G4 "In Accordance" report at CORE level, the company can probably elaborate here, and in general, meet the disclosure requirements with little additional effort.

At COMPREHENSIVE level, the picture is a little different:

This shows Alcatel-Lucent's alignment with additional disclosures required at COMPREHENSIVE level -
green means disclosed, yellow means partially disclosed, and red means not disclosed
Most of the non-disclosures are new G4 requirements at COMPREHENSIVE level, relating to governance and remuneration. Some of this may already be covered in Alcatel-Lucent's financial filings but I suspect, others would require substantial additional work. Alcatel-Lucent may not be ready for COMPREHENSIVE reporting at this stage.

I  didn't look in too much detail at whether Material Aspects were aligned to their Boundaries inside or external to the organization (G4-20-G4-21). I assumed this was more or less clear but a rigorous analysis should examine this more deeply.

Moving on now to Material Aspects and Performance Indicators. As you may have understood by now, G4 requires first a selection of Material Issues and then selection of one performance indicator per issue at CORE level and all performance indicators related to the specific issue (Aspect) at COMPREHENSIVE level. Material issues come in categories and each individual issue is called a Material Aspect. "Energy", for example, is a Material Aspect within the Environment category. G4 identifies 46 Material Aspects which are ones which are most widely relevant across all industries, and each Aspect has its own set of Performance Indicators. G4 reporters should fit their Material Issues into this framework, so that it is clear what performance indicators are required for reporting, by material issue. If the reporting company has material issues which are not covered by the Material Aspects in G4, then the company can use its own material issues.

In the 2012 G3 report, Alcatel-Lucent selected 17 material issues out of a possible 42 topics identified as relevant to the Alcatel business, and then reported on each of the 17 issues, as being the most important out of the total 42. These 17 issues were not specifically aligned to the new G4 list of Material Aspects, so I did a little work and joined the dots. In the table below, the first column (left) is how Alcatel described the material issue. I used my judgment to allocate each issue to a G4 category and Aspect, showing which indicators are required in each one. The column called Reporting Status shows how Alcatel reported in 2012 against these, now G4, indicators. The Material Aspect shaded red is the only one in which Alcatel-Lucent's 2012 report would not meet the G4 "In Accordance" requirement, not having provided the data required for any of the Performance Indicators relating to that Aspect. (Sorry for quality of image)

This table therefore shows that, for the Material Issues selected by Alcatel-Lucent, most can be aligned with G4 Material Aspects, and Alcatel-Lucent has provided performance data for at least one of the performance indicators per Aspect, with one exception. This means that, with the exception of Talent Development, where Alcatel-Lucent did not disclose any data, all other Material Aspects are reported. Therefore, in this section of the report, G4 CORE level "In Accordance" is within reach. In several cases, Alcatel-Lucent responded to all indicators in the Aspect, making this section of the report fairly close to G4 COMPREHENSIVE. In addition, Alcatel-Lucent defined some specific additional material topics, and reported on these in one way or another.

There is one part I didn't check in detail and that's the Disclosures on Management Approach (DMAs). In Alcatel's G3 report, DMAs were included for all the GRI aspects except for biodiversity. The DMA required for each Material Aspect in G4 is more prescriptive than its former counterpart in G3. I only made a sample check of one DMA and this seemed to me to be more or less in line with the new G4-style DMA. If there are a few gaps here, I would expect it's not a major issue to complete the disclosures as required by G4. 

In summary, Alcatel Lucent's G3 report is very close to being "In Accordance" with G4 in terms of General Standard Disclosures, DMA and Specific Standard Disclosures. It is not a million miles away from being "In Accordance" at COMPREHENSIVE level, though some stretch could be required.

One thing that Alcatel apparently has in its favor is some good work the company has already done on materiality. The materiality process is key to G4 and Alcatel reports that the Materiality Matrix was developed in a process involving over 50 executives and external customers. There may be room for a more robust materiality process, involving external voices from other stakeholder groups, but in general, I believe Alcatel-Lucent's 2012 approach demonstrates the right spirit required for G4. 

I think this analysis proves two points:

(1) GRI G3 A+ reporters may be well on their way to G4 reports, either at CORE or at COMPREHENSIVE levels.

(2) Even for A+ reporters, G4 still requires some change and additional effort.

Would Alcatel-Lucent's G4 Report be any shorter? Yes, I believe it certainly would be much shorter at G4 CORE level, and somewhat shorter at G4 COMPREHENSIVE level, unless the company intentionally includes additional elements that meet other reporting framework requirements (such as the UN Global Compact, for example, where Human Rights is a core principle, but not stated as material for Alcatel Lucent). This is the delicate balance that companies must address when considering how to report with G4.

I hope this was helpful as an insight into how to analyze G3 reports in a G4 way. In a future post, I'll take a look at a lighter-weight report. Will our conclusions be any different? Stay tuned.

Oh, and watch out for my upcoming G4 book, "Understanding G4"... hitting the online bookstands in the next few weeks :)


elaine cohen, CSR consultant, winning (CRRA'12) Sustainability Reporter, HR Professional, Ice Cream Addict. Author of Sustainability Reporting for SMEs: Competitive Advantage Through Transparency AND CSR for HR: A necessary partnership for advancing responsible business practices Contact me via   or via my business website   (Beyond Business Ltd, an inspired CSR consulting and Sustainability Reporting firm)

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