Wednesday, May 7, 2014

G4 reporting: what's wrong in the financial services sector?

How do you assess the quality of a G4 report? Sustainability reports are complex things and must meet a wide range of goals, objectives, stakeholder interests in qualitative and quantitative data, style, tone and conceptual elements and more. Some reports tell a great story, some tell too great a story, some are more authentic, some are less. Some reports reflect a maturity of sustainability approach and some reflect the first stages on what promises to be quite a long journey. Some get the message across, some actually get the message through. Reviewing sustainability reports is always a challenging task and often reflects more about the reviewer than the report itself. However, there is one aspect of G4 sustainability reporting that is not open to interpretation and that is quality. By quality, I refer to the way in which the report has adhered to the G4 guidelines. Not just quality in a general sense, whether the writing is of good "quality" by whatever standards you choose to apply, or if the data is presented coherently. I mean quality in the very specific sense of the extent to which the G4 report adhered to the G4 framework it declared. More like integrity. Whether the report does what it declares to do. If a company prepares a G4 report, and declares it to be in accordance with the core or comprehensive reporting level, then I expect to see the elements of the G4 core or comprehensive reporting level guidelines reflected in that report. Anything less is poor quality. Maybe even poor integrity. 

However, in the 100 day grace period - which for our purposes can mean the first G4 report issued - we can expect G4 to be a learning process. There are some aspects of G4 that require some interpretation and judgment - and others which are crystal clear. As anyone who has read my book Understanding G4: The Concise Guide to Next Generation Sustainability Reporting will know, a G4 report starts from a different place than the old generation G3 reports. We would expect to see G4 reports look different, not just G3 reports with a G4 index. G4 is a different ball game. It is to be expected that the first G4 reporting cycle, and maybe the first few, will contain some areas of learning, misunderstanding and inappropriate adaptation, no matter whether this is for all the right reasons or for all the wrong ones. 

The GRI Materiality Matters check, I must admit, is not all that helpful. While it focuses on checking disclosures against a core set of material indicators, it only goes half way. It checks whether certain general disclosures exist, it doesn't check whether the issues that are stated to be material are actually specifically reported. That's a shame. GRI could play a much bigger role in helping advance the quality of reporting, not just the quantity. This has been a problem I have raised several times, and have always failed to understand the reluctance of GRI to do more, notwithstanding the immense role GRI has had and continues to have in driving awareness and scaling reporting to unprecedented proportions, including through legislation. The quality of reporting is not keeping pace with the scale of reporting. We are in danger of getting more sub-quality reports faster.

The good news is that G4 has taken off and is fast becoming the standard. In my view, that is definitely a step in the right direction. Since the May 2013 launch, the GRI database shows more than 150 G4 reports that have been published to date. I expect that will triple by the end of this year.

Coming back to quality, the encouraging uptake of G4 has regrettably inherited the sloppy quality of G3. I selected the financial services sector with the largest number by sector of G4 reports published to date to do a quick review of how G4 is being applied in practice by these pioneering organizations. My analysis of 7 randomly selected reports from this sector is constructive criticism, I hope, and an opportunity to demonstrate how report quality can be improved. I will focus on the way material Aspects are reported.

Let's remind ourselves what G4 material Aspects are. Material Aspects are the sustainability topics that have been determined to be most material following an evaluation and prioritization process including input from internal and external stakeholders. Organizations may identify hundreds of sustainability topics and then, after due process, select a shortlist of topics that are representative of the organization's most significant impacts.  Once prioritized, topics are aligned with predefined material Aspects, of which there are 46 in 6 categories in G4 and more in the Sector Disclosure supplements. Where there is no alignment (i.e. the organization prioritizes an issue which is not one of the predefined Aspects), G4 provides for the organization to retain the topic as material and deal with it in the report in the same way it deals with Aspects. The GRI content index shows the location of disclosures relating to material Aspects, both the DMA (Disclosures on Management Approach) and the performance indicators. Where a topic that is not an Aspect is selected, the organization must still report a DMA and performance indicators.

Simply put: We should quickly be able to see what's material (Aspects) and how these are reported (DMA and indicators). The G4 Content index should provide the "audit trail" for these material disclosures, in the prescribed format. In this way, the material Aspect is the first identifier and then all the relevant performance indicators  should be reported in support of that Aspect disclosure.

Absa (Barclays Africa)

Barclays Africa publishes an Integrated G4 report, 163 total pages, with separate downloadable G4 Content Index. There is also a Citizenship Report 2013 which declares itself to be a G3 report, Application Level B, but refers to the GRI Index online which is actually a G4 Content index. A little confusion among the ranks at Barclays Africa, it seems to me. 

The Integrated Report is declared as in accordance with G4 core level, and the material issues are identified on page 10: 

Barclays Africa defines 24 material issues (topics) in five categories. Within the report, the bank discloses against these topics using its own Balanced Scorecard approach and performance indicators. There is no alignment here with G4 material Aspects. Barclays Africa provides a G4 content index, but this is not presented in a way which enables correlation between indicators reported and material issues. The material Aspects are not correlated to issues, they are just listed (as in a G3 report).

There is no easy way to correlate these disclosures to the material issues stated, nor understand if the issues have been reported in full. The GRI content index makes reference to the Citizenship Report but no GRI-based performance indicators are included in this report. After spending quite some time going back and forth, I conclude that the Barclays Africa report does not meet the requirements of a G4 core report. That's not to say it's not a transparent report, and there is a certain logic to Barclays Africa presenting its performance using the company's own Balanced Scorecard system. Performance measures are noted in each section and data is disclosed. However, this Integrated Report declares itself to be in accordance with G4 core, and I do not believe it is.

Australian Ethical Investments Ltd

Australian Ethical published a Sustainability Report for year ending June 2013, G4 comprehensive level with a Materiality Matters GRI check. It is 61 pages. 

The company has identified nine material Aspects and these are listed as: compliance (product responsibility), product portfolio, active ownership, governance, ethics and integrity, client experience, shareholder confidence, responsible and ethical investment and climate change. You may notice that these material Aspects do not entirely align with the G4 prescribed material Aspects list, but my expectation was that the company would provide DMA and performance indicators for each nonetheless. 

Australian Ethical created a separate appendix for DMA disclosures and used the content index for performance indicators. However, in the content index, only four material issues are noted, including one which was not stated as material. Australian Ethical reports against the material Aspect Employment, but this was not noted as a material Aspect by the company.

In addition, three material issues  - compliance, product portfolio and active ownership  - are reported but the remaining five issues identified as material are not. This report reflects the company's sustainability performance in many ways and presents quite some detail. However, there remains a disconnect between what is stated as material and what is actually reported. Therefore, in my analysis, I would not confirm this report as in accordance with G4.

Banco Bradesco

Banco Bradesco of Brazil published an Annual Report 2013 which is "in accordance" with G4. It's a 130 page report in Portuguese - the English version does not seem to be available just yet. While I don't speako the lingo mucho, I was able to get the gist of this report. The first thing that struck me was that I couldn't find any declaration that this report is in accordance at core or at comprehensive level. G4-32 requires this to be stated, because if it is not, the report is not in accordance. Banco Bradesco's response to G4-32 in the G4 content index says this is disclosed but I couldn't find it. This is especially surprising as this report has been assured twice! Alongside the self-declarared in accordance, both assurers, DNV and KPMG, also declare this report as de acordo, and even, em totos os aspectos relevantes. Here are the statements. Please tell me if the language barrier is misleading me here, because if it is not, and Google Translate is doing its job, the assurers apparently are not. 

In this report, Banco Bradesco declares seven material issues and aligns them to "Aspectos GRI G4" although not all of these actually seem to align with the G4 Aspectos, as far as I can tell. I am not even sure they align with the Financial Services Sector Supplement. 

Banco Bradesco's G4 content index is G3-style - a list of indicators and a list of responses. No reference to disclosures on management approach (DMA). No linkage between the Aspects and the G4 content index.

Another one bites the dust. Apparently.

Danske Bank Group

Danske Bank published its 2013 Corporate Responsibility Report, a G4 core report of 64 pages, with a separate online only G4 content index. The report shows 19 material issues.

However, Danske Bank does not disclose performance indicators for any of these issues. None of the issues are aligned with the G4 predefined material Aspects. In fact the content index is rather a waste of time.

The DMA disclosures are one-liners that could have been written by almost any company and offer little value to the reader of this report. They are rather poorly written. The reason equal opportunity and non-discrimination is material is stated as "Attaching any significance in work-related contexts to differences in nationality, religion, sexual orientation and gender, should be avoided." Duh. Equal opportunity is a material Aspect in the Labor Practices and Decent Work category, and the required performance indicator for a G4 report is G4-LA12. "Composition of governance bodies and breakdown of employees per employee category according to gender, age group, minority group membership, and other indicators of diversity." The content index refers us to pages 48 and 49 of the Corporate Responsibility Report and to the company website (where the same information is duplicated). In neither case is the information supporting G4 LA-12 reported. Some supplementary information is provided (but not referenced) in the separate Corporate Responsibility Fact Book, but even so, this does not meet the requirements of G4-LA12. Here again, Danske Bank may have done an interesting job in delivering another sustainability report full of facts and figures and interesting information, but it is not in accordance with G4 core.

I will take a quick time-out to highlight a nice touch in the Danske Bank report. It includes several dilemma pages - issues the bank faces that provide particular challenges in sustainability terms. It's a nice way of demonstrating that finding the best way forward to address complex challenges is not always so simple. All companies go through this. I like the way Danske Bank presents these dilemmas and helps us understand the issues.

dunia Finance

This 99 page 2013 Sustainability Report is a self-declared G4 core report. It is dunia's first sustainability report and should therefore be applauded. Clearly, significant efforts have gone into its production and it contains a lot of interesting and important information. However, the organization has not quite grasped the meaning of the G4 guidelines and the in accordance declaration. No material issues are stated anywhere in this report. In response to G4-19, page 5 is indicated as the disclosure location.
This is page 5. There are no material issues and no mention of any process for identifying material issues.

This is the G4 content index for performance disclosures. dunia has selected some performance indicators and notes page ranges where disclosures and DMAs can be found. There are just a few.
 Great intention, but this is not an in accordance G4 report. Another one not.
Grupo Santos Seguros
This was one of the very early G4 reports, the Reporte de Sustenabilidad 2012/2013, a 99 pager at G4 core level. First, there is a table of material issues and the corresponding material Aspects in G4. There are 12 material issues, and the relevant G4 Aspects are noted by material issue. Very clear presentation.
The G4 content index is presented in order of the material Aspects defined by G4, supported by selected performance indicators for each with the enfoque de gestion (DMA) identified for each material Aspect.  This makes it rather difficult to correlate actually what indicators related to what material issues.
Also, there are several material issues without performance indicators, either because the G4 content index refers to general disclosures, which are not actually performance indicators, or because there are none. For example, one of the material issues which is about programas sociales relaiconados a la prevencion y seguridad con la sphere de influencia doesn't appear to be associated with any material Aspect or performance indicator at all.

Now, the Grupos Seguros report is a massive undertaking in transparency, scope, detail and data. It aligns with G4, UNGC and ISO26000.  In fact, it makes so many links and cross-references that you lose the storyline completely and the report becomes a nightmare in navigation. In any language. In accordance with G4 - extremely borderline.... probably not in the strictest sense.
OP-Pohjola Group
Op-Pohjola Group has published a Corporate Social Responsibility report for 2013 of 60 pages in accordance with GRI G4 comprehensive level and containing the Materiality Matters check logo. Op-Pohjola has identified 23 material issues, shown in a matrix in the body of the report, and later, by G4 relevant categories (with 30 material Aspects). 

This has the advantage of not over-facing the reader with G4 jargon in the report narrative - enabling the reader to follow the flow while ensuring alignment of material issues to the G4 material Aspects. Unfortunately, however, both these versions don't match, and it is not clear in the structure of the report itself where what has been disclosed. Not only this, but the report does not include Disclosures on Management Approach in full. For example, the first and most material issue is Customer Privacy. While G4-PR8 has been reported under the heading "Product Responsibility", there is no DMA relating to privacy. The G4 content index is a list of indicators unrelated to the material Aspects presented. Therefore, in order to follow the "audit trail" of material issues to Aspects to performance indicators, you need to be somewhat of a detective. Here again, while this report does present a range of relevant sustainability information, G4 exactly it is not quite. Despite the Materiality Matters check!
So, what does all this tell us?

First, the companies are delighted to adopt the G4 guidelines but their behavior doesn't appear to have changed all that much. G4 is a paradigm shift. It says: decide what's most important and restructure your thinking, strategy, actions and reporting all around that. It's not just about doing what you always did and reordering the paragraphs of your sustainability report. Of the reports I have reviewed above, there is no real evidence of this shift in thinking. Instead of using the materiality driven approach, companies in this sector seem to be doing what they have always been doing and adding in a materiality matrix or list in order to tick the box. Not the kind of quality we hoped for when G4 was launched.
Second, there is a certain appeal in delivering a G4 report, and even in achieving the Materiality Matters check. It shows you are a leader. But what's the point of leading if you don't lead well? If you do not understand, or do not want, or cannot get organized effectively enough to deliver a G4 report in the proper way, then stick with G3 until you can. Or get a GREAT consultant, haha, just saying.
Third, let's be clear, all sustainability reporting is progress and this analysis does not ignore the fact that all the reports analyzed above are very impressive in many ways, and include many disclosures that are important, relevant and even material. In many cases, they may well meet stakeholder information needs and provide valuable insight into responsible and sustainable business practices. This post is not intended to  undermine such positive practice. However, there is no good way to point out opportunities to improve without highlighting opportunities to improve. 
And to end off on a positive note, one of the few admirable  examples I have seen of a G4 report that links material issues to performance indicators in a coherent way (aside from the ones I have supported writing :)) is Vodafone India 2012-2013 Sustainability Report.
This report is structured around the core material issues. See the issues and the content list >>>>

And the performance indicators are aligned with these issues and material Aspects, quite clearly, quite transparently, and quite cleverly.

The report design is pretty cool as well. All in all, G4, simple, straightforward and clear. Evidence of deep thinking and integral strategy. Short, compact, coherent report. It can be done. 

So, what went wrong in the financial services sector?

elaine cohen, CSR consultant, winning (CRRA'12) Sustainability Reporter, HR Professional, Ice Cream Addict. Author of Understanding G4: the Concise guide to Next Generation Sustainability Reporting  AND  Sustainability Reporting for SMEs: Competitive Advantage Through Transparency AND CSR for HR: A necessary partnership for advancing responsible business practices . Contact me at   or via my business website   (Beyond Business Ltd, an inspired CSR consulting and Sustainability Reporting firm)

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