Thursday, September 12, 2019

SASB: Hot air. GRI: Cold shower.

The stage at the Asia Sustainability Reporting Summit was sizzling last week, despite Arctic temperatures in the conference room, as SASB and GRI battled it out in a fight entitled: My Standards are Bigger and Better than Yours. 

In contrast to the restrained, optimistic rhetoric we have been used to over the past few years, SASB burst forth with a whoosh of self-aggrandizement, leaving GRI doing a jelly-wobble in disbelief. Of course, we shouldn't be all that surprised. SASB received a setback earlier this year when U.S. SEC Chairman Jay Clayton rejected ongoing and heightening pressure to make listing contingent upon (SASB-based) ESG disclosure:

"In a blow to several investor groups, SEC Chairman Jay Clayton recently said that he does not believe public companies should be required to disclose information concerning environmental, social, and governance (ESG) matters in a standardized format. Clayton was especially opposed to requiring publicly-listed companies to use ESG standards developed by organizations like the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI), which some companies voluntarily use."

Denied SASB the dream, it was perhaps predicable that SASB, having based its entire strategy on becoming THE ESG disclosure tool for U.S. based companies, would not accept this without a fight. 

At the Summit, which ran under the theme of "Is mandatory better?", both GRI and SASB came out forcefully in opposite corners of the two pivotal questions: Should ESG disclosure be mandatory? and Should ESG disclosure be based on the concept of financial materiality (rather than sustainability materiality)? 

The showdown started as Tim Mohin, GRI's Chief Exec, took center stage, presenting GRI's position. He made the case for increasing mandatory instruments around the world, with 544 instruments tracking some form of mandated ESG disclosure in 85 countries and quoted a McKinsey study that showed 82% of investors and 66% of corporate executives surveyed preferred companies to be required to disclose by law. He explained that voluntary mechanisms are seen to work too slowly and don't cover enough of the market. Tim also quoted a study that indicated that mandatory disclosure has led to more efficient boards, less corruption and improved corporate credibility.

This was all going so well until he reverted to something that sounds like wishful thinking: "There is a belief in the marketplace is that there is confusion (around ESG disclosure standards). In fact, there is a lot of convergence....." Tim explained convergence by referencing the widespread use of GRI standards. But this is not convergence. It's a sort of Hobson's Choice: there is actually no other general standard for broad-based sustainability disclosures, and in any case, the quality of implementation varies so widely that it's hard to assess just how effectively GRI Standards are being used. At the same time, companies using or sort-of using GRI are also deploying other forms of disclosure, including CDP, TCFD, SASB, UNGC, sector-based standards and even SDG, to mention just a few. So let me be clear. THERE IS NO CONVERGENCE. It's time to stop saying that.

Tim went on to explain his testimony to the U.S. House of Representatives Committee on Financial Services earlier this year where he said that (1) ESG information is essential for the operation of capital markets and free trade; (2) This disclosure must be mandated and must be based on international, independent multi-stakeholder standards and (3) The concept of financial materiality does not work for ESG disclosure.

He said "I don’t think I need to convince anyone in this room that ESG disclosure is essential. We know that investors are demanding this information as it becomes more critical to investors and free trade. The last point is most important. We cannot rely solely on the test of financial materiality. If ESG issues were financially material, we would not have ESG issues. In fact, these issues are very hard to monetize. When we do monetize these issues, they often do not make the test of financial materiality." He has a point.

Tim Mohin even went into print this week (post-summit) to reinforce how increasingly worried he is that SASB has upped the ante:

"The movement to limit corporate disclosure on environmental, social and governance (ESG) issues to financially material topics (already legally required for public companies), has gained some momentum. If it catches on, it could roll back decades of progress. Even more troubling is that the advocates of this position brand themselves as working for environmental and social causes. Could this be a clever Trojan Horse to put the brakes on corporate responsibility?"  Ta-da!

Following the GRI keynote, the Summit delegates then turned their attention to hear a very different story from Dr Madelyn Antoncic, SASB's new Chief Exec. SASB's proposition is about financial risk, market forces that incentivize corporations to make the choices that will cause investors to allocate capital to them. SASB believes that it is not regulation that will cause companies to improve and disclose ESG performance, but market forces and the promise of investor attention.  

Madelyn said: "At first flush, it may be easy to jump to the conclusion that companies won't do the right thing when it comes to sustainability, especially when it will have short term negative impact on their bottom line. As an economist, however, I challenge that view. As I know that on occasion, economic agents, people, whether acting as individuals or on behalf of on behalf of organizations, or institutions, are motivated by incentives."

According to SASB, current sustainability disclosure does not cut it. (That's not a new assertion by SASB.)

Madelyn added: "Yet while sustainability reporting has become near ubiquitous in recent years, the practice has widely been criticized for lacking the rigor of traditional financial reporting. A recent PWC report shows that 100% of corporations polled felt confident in the quality of their ESG information reporting while only 29% of investors polled were confident in the quality of that same information that they were receiving. More than 60% of corporations but only 8% of investors polled by Bank of America and Merrill Lynch during a recent congress thought that the ESG disclosure allowed for comparison among companies and peers."

My summary of SASB's view of the world is:

(1) Investors need corporations to provide reliable, consistent, auditable ESG information that is financially material by sector and by industry
(2) If they get this, they will act to allocate capital most effectively, rewarding good corporate citizens who show they are managing ESG risks
(3) The carrot of earning investor favor will keep corporations focused on good ESG performance and disclosure while the stick of higher risk and loss of reputation will do the same
(4) When all this happens, everybody wins.

Madelyn summarizes: "When we transform markets, we transform the world. .... What’s needed are incentives. Corporations need to be incentivized, to do the right thing because to do the alternative will negatively hit their bottom line. And only with consistent disclosure of financially material information, can investors be effectively the policing mechanism which will drive positive outcomes for the environment and society at large."

Ultimately, my reading of this is: Place your trust in investors. Let the money-makers and the money-takers decide what's best. Let money be the deciding factor in assessing corporate citizenship. If investors incorporate selected ESG factors in their decisions, so they can minimize financial risk, it will be good for everyone.

Well, sorry, but in my work in sustainability, I missed the bit where money was THE motivator for doing the right thing. I missed the bit where corporate transparency was ONLY about helping people make more money. I missed the bit where sustainability reporting has only ONE stakeholder group. When SASB was first formed, as an organization designed to deliver standards for financially material ESG disclosure in corporate annual reports, I could understand it. It was about helping investors understand and evaluate risk more holistically (even if they still don't quite know how to do it). It seems I am now hearing that voluntarily giving investors better ESG information is the key to delivering sustainable development and solving social and environmental issues. That's rather a lot of responsibility on the shoulders of those who are (only) managing financial assets.

The debate continued in the opening panel discussion which mainly focused on the chasm between GRI and SASB  (sidelining the others present on stage). It went something like this:

He said: 
"Let’s face it, this movement started from a very different place – of activism, of trying to do the right thing, we call it corporate responsibility and now, because it has become quite clear that these non-financial matters have financial implications, we have the interest of the financial markets, But as I said, the fact is that externalities are not properly valued, and when they are, a lot of times they are still not financially material. There is a subset of ESG issues that are financially material, and frankly, in every jurisdiction I am aware of, financially material ESG issues ALREADY have to be disclosed, it's the law. Ethics, gender diversity, Scope 2 and Scope 3 carbon, water... many of these things just don’t ring the bell of financial materiality, but we know that they are absolutely critical"

She said:
"I would challenge that because at the end of the day, ethics, if you aren’t an ethical company, you go out of business, gender diversity, sooner or later, you go out of business, so that’s why they are called non-financial risks, I think it’s a ridiculous statement, non-financial becomes financial. The reason we look at financial materiality is the comparability – so many reports are now coming out in the ESG space, where investors say we can't make heads or tails out of this, and I can't compare one company versus the other, because they are not tied to some financial metric, that one company can be compared and therefore the capital can allocate to the different companies that are being good corporate citizens."

He said:
"The judgement of what is material can't be made by somebody else, it can't be made in the rear view mirror, it has to be made with a multi stakeholder approach, up front, that’s looking at a horizon that is typically much further than companies look at, not next quarter or next year, that’s not what ESG issues are about. We would never have looked at things like gender diversity – how do you value such things? We don’t have gender diversity in the SASB standards. Scope 2, Scope 3 carbon are not financially material. These are things that if we don’t get a handle on, our society will be so much worse."

She said:
"I think there is a misunderstanding. Financial materiality, the way we look at it, it’s not next quarter, that’s the whole point and that’s what I mentioned, it’s about the long term. I think that any one of these issues that you mentioned .. of course.. sooner or later they are financially material.. and you mentioned that something is not in the SASB standards. Well, the SASB standards were only issued last November and now we are going through to look where we can improve.. as you know, these things evolve. I commend what your organization has been doing all these years and that’s great, but I think the world moves on. That doesn’t mean what we are doing today is wrong, it means we have built on the shoulders of what's been done, but we have to look at it now in a different way. Financial materiality and industry specificity makes it comparable .. and that’s why you see all these data providers coming up with their own interpretation and that’s why you see more and more of these so called standard setters -  because no one can come up with a way that investors can make use of the information. It’s about how you come to the use of that information so we can mobilize all that capital."

He said:
"It’s just not true that this information isn’t getting to corporate boards and CEOs. I have done it personally. If you think Tim Cook doesn’t know about the supply chain issues at Apple, I can tell you I have personally briefed him many times. It is difficult and many companies aren’t in a position to understand this, it’s like trying to teach a fish to ride a bicycle. One of the things we're doing is forgetting about a key player in the marketplace and that’s analysts. Most of the analyst work is done on the back of GRI Standards, and it's used to compare companies."

She said:
"I didn’t say that Boards are not aware that they have supply chain issues. I am saying that the reports are not being done under the same standards as financial reports which means they are not signed off.  As far as analysts are concerned, yes, there are lots of these data analysts, that’s the point, they are popping up all day, why? Because there are not robust reports that investors can use.. that’s why there is Sustainalytics, and RobecoSam and MSCI… and the list goes on. The reason is that the information is not consistent, it is not comparable, therefore these data providers are making inferences about what companies are doing and using analysts and coming up with the wrong answers. What we say is: use SASB standards, comparable, auditable. If the solution was what we currently have, without naming names, we wouldn’t have all these other things popping up."

He said:
"There is a lot of misleading information about the lack of comparability among analysts. In fact, in fact, it’s not meant to be comparable .. you can't just add up ethics, climate change and supply chain and come up with a number .. a lot of analysts cut it one way or another and they come up with different information because they are looking at different things. By design."

And by this time, the hundreds of delegates in the audience are starting to squirm a little at the way GRI and SASB are openly taking shots at each other (especially as the whole public rhetoric to date has been coochy-moochy harmonization and common purpose - remember the joint op-ed by Tim Mohin and the former SASB CEO, Jean Rogers?) In this dialogue of the deaf, both GRI and SASB are hyping themselves to their own downfall and missing the point. We do not need better standards. WE NEED BETTER IMPLEMENTATION. 

GRI Standards could provide a good degree of comparability IF companies applied the standards in a quality way. The problem has always been that  GRI has avoided any form of intervention in the way the standards are actually used and there is no consistent watchdog covering reporting accuracy or quality.

SASB Standards, which have not yet reached critical mass (any mass?) yet in terms of the number of companies fully using them, will only enable investors to get what they want IF the standards are IMPLEMENTED in a quality way. It's a little early for SASB to sing its own praises. 

And if GRI and SASB and the other parties in the rather useless Better Alignment Project of the totally superfluous Corporate Reporting Dialogue pooled their resources to help companies apply GRI and/or SASB Standards in a complete and proper way, we would all get much further, much faster. 

And as for mandatory, I think both GRI and SASB are wrong. They see the world too simply. One says YES to mandating ESG disclosure, the other says NO. I believe the answer is in the middle. Some things absolutely have to be mandated or they will never happen consistently across companies, industries and sectors. Others can be left to market forces, peer pressure, competitive appetite, stakeholder demands, investor self-interest. The real question here is not whether mandatory is better, but how much mandatory and which elements of mandatory would be truly effective. But GRI and SASB cannot see past their own ego and beyond their current legacy. GRI's overly positive hype about the status quo won't help us move forward. SASB's dismissal of everything that's not SASB is arrogant and misplaced. 

I think it's time to refocus and reframe. We need to spend more time looking at the quality of what companies are reporting and less time in slanging matches about which standard is better. No current standard is perfect to meet the needs of a broader audience that uses ESG disclosure, not just investors. Instead of debating which one is less perfect, whether they should be mandated or not and which definition of materiality should apply, GRI and SASB should roll up their sleeves and get down to some serious work with companies and with each other to help drive better implementation of sustainable development practices and disclosure. If we do nothing more than ensure existing standards are fully adopted by all companies, consistently, auditably and comprehensively, perhaps with a few tweaks here and there, we will have done a lot. 

GRI, SASB.... gauntlet over to you.  

elaine cohen, CSR consultant, Sustainability Reporter, HR Professional, Ice Cream Addict. Owner/Manager of Beyond Business Ltd, an inspired Sustainability Strategy and Reporting firm having supported 100 client reports to date; author of three books and several chapters on Sustainability Reporting and the Human Resources connection to CSR; frequent chair and speaker at sustainability events and judge in several sustainability awards programs each year. Contact me via Twitter , LinkedIn or via Beyond Business      

Sunday, September 1, 2019

GRI: Still in the lead?

GRI  remains the most widely used global standard for sustainability reporting - though I find myself wondering if that's something that still counts for something. Are GRI Standards still a worthy leader of sustainability reporting frameworks? Or is it time for a fundamental review of GRI as the baseline set of standards for sustainability reporting (on a timescale that assumes most of us will still be alive before it's complete)?

There are several things I would consider revisiting:   

The first is that GRI largely remains a standard for measuring direct accountability. The concept of material impacts which is so central to GRI standards is not borne out by the overriding focus on measures (topic-specific disclosures) that address mainly direct impacts. Almost all of the 200, 300 and 400 Standards measure direct operational performance and not impacts on stakeholders. Reporting on resource consumption, adherence to labor standards, anti-corruption etc. is all well and good, and necessary, but most of these are not the true currency of sustainable business today. Stating year after year in your sustainability report that you do not employ child or forced labor or that you paid no fines for non-compliance are no longer the key proof points of a sustainable business.

The indirect impacts of a business reach much further than their direct impacts. We all know that a pharmaceutical company has a far more meaningful impact on healthcare and access to medicines than the amount of carbon emissions the company saves in its operations. Internet providers have a far greater role to play in keeping children safe online than in managing resource consumption of optic fiber cables. We know that food producers affect how we lead healthy lifestyles in ways that are far more significant than the amount of fuel saved by increasing logistics efficiency. And we probably know that the public expects companies to take a stand on human rights, environmental health and social justice and have an impact on policy in areas where governments are not doing the job.

If we want standards that truly reflect how companies are affecting our lives, I think we need to think differently about what such standards ask companies to report. I am reminded of one of the transformational books I read many years ago and often reference: The High Purpose Company, by Christine Arena, one of the first sustainability experts, I believe, to highlight purpose as the core of sustainable business, purpose being the positive impact on society beyond making money. Sustainability then is about two things: driving positive impact (a purpose-driven business) and doing business ethically (an accountable business). GRI focuses on the latter. What about a Standard that focuses on the former? 

Some companies currently make their sustainability reporting about their core social purpose and the bulk of their disclosure is about how they make a difference through the business they do. The GRI Content Index then fills the transparency gap for how companies operate in a resource-efficient, socially responsible and ethically viable manner. Many companies haven't reached this realization yet: they use GRI as a rigid framework, selecting material topics from the limited number of GRI-prescribed options (the Standards), failing to link to their bigger picture. Currently, GRI Standards do not expressly encourage purpose-driven thinking.

The second review of GRI Standards that I would consider concerns the challenges of reporting on materiality.  GRI Standards offer a definition of a material topic as one that: reflects a reporting organization’s significant economic, environmental and social impacts; or that substantively influences the assessments and decisions of stakeholders. How long is a piece of string?

Material can mean anything from generic topics, such as climate change, to specific topics, such as increasing use of renewable energy - one being so much broader than the other. If materiality means "what matters most", listing a set of any-company-anywhere sustainability topics as material undermines the intent. With such generic lists, everything matters most. In the early days, it might have made sense for GRI to get materiality on the map with a light touch, by leaving the process for determining materiality wide open and the constituents of materiality somewhat vague. In today's world, where materiality seems to be anything you want it to be, more prescriptive guidance might be worth considering.

How confident can we be of all those materiality matrices that are floating around out there? What tools do companies use to define materiality and what makes an internal and external stakeholder engagement process robust enough to deliver a materiality outcome that's meaningful, relevant and balanced? Some companies interview select stakeholders. Some conduct broad online surveys. Scoring and ranking mechanisms are a black hole. I think this is one of the big paradoxes of materiality. Despite materiality being the pivot of sustainability disclosure, it's still a black box of often rather arbitrary selections, delivered through an imperfect process, skewed by an often random collection of opinions. And even then, despite the selection of material topics, companies report on everything anyway, except those things that they prefer not to report, and conveniently call not material.

I think it's time for an overhaul that prescribes a certain number of data points for all companies to report as a baseline (what I call Operational Materiality)  The more meaningful indirect impacts, which are a more effective measure of most companies' impacts (what I call Precision Materiality or Differential Materiality) should be company specific - and companies need to get better at measuring these in some way. GRI calls this Mission Effectiveness, adapting its own guidance on materiality to create something GRI Standards do not reference anywhere. GRI's 2018 Material Topics use the term "other sustainability topics" for those indirect impacts, the most significant in terms of GRI activities,  that are not captured in the GRI Standard sets.

GRI's Disclosures on Management Approach (GRI 101-103) for these other topics are rather general without  precise ways of measuring performance in these areas. GRI's creativity in applying its own framework shows that the standards have not stood the test of time. In its 2015-2016 report, GRI's material topics were entirely direct (see matrix below), indicating that GRI's thinking has moved on (which is good) but the Standards have not.

Another aspect of GRI Standards that could do with a refresh is the way standards reflect the changing dynamics of business. In 2016, with the introduction of GRI Standards, we were promised an agile set of standards that could be quickly adapted to changing realities and new requirements. Since then, a new Water Standard and a new Standard on Occupational Health and Safety have been published. One new Standard on taxes is scheduled to be published in 2019, and some additional Standards revisions are scheduled for 2020. This may be progress, but it's slow progress. And in the meantime, realities are changing. For example, one of the issues I frequently encounter in reporting on employees is that gender can no longer be a simple reference to women or men. Today, gender identity includes, for example, transgender. All of GRI's employee demographics reporting requirements are based on a gender split, and in some cases, specifically women and men. 

In general, GRI's Diversity and Equal Opportunity (Standard 405) may not go far enough to reflect today's higher aspiration of equity rather than equal opportunity. Other aspects of doing business today come to mind, such as the circular economy, regenerative business, democratization of technology, data security and more, that are hardly addressed by GRI Standards. For GRI Standards to remain in the lead, the pace of change must accelerate to create standards that show how companies are responding to today's sustainability challenges, not only those that were identified 20 years ago.

I am an admirer of the work of  Dan Esty, Hillhouse Professor of Environmental Law & Policy at Yale, whose research has exposed shortcomings in corporate sustainability disclosure. Developed from a perspective on sustainable finance with a focus on investors (but don't let that put you off 😉), his paper on Corporate Sustainability Metrics: What Investors Need and Don’t Get   is a sensible approach to sustainability disclosure. While I may not agree with everything, the following summary of issues in current sustainability disclosure makes sense to me.

Dan Esty  writes:

"One of our core observations is that repurposing ESG metrics that worked for the “values”  investors of the past does not work for the sustainable investors of today. Mainstream investors now want a more comprehensive  and  carefully curated perspective on the companies in their portfolios – which existing ESG data sets so often cannot provide."

He also recommends a government-mandated framework of ESG methodologies to underpin disclosures that are common to all or most companies. It's not by chance that I am pondering this question at this time, because, next week, the third annual Asia Sustainability Reporting Summit (register here 😀 ) which I co-chair, will run under the theme of Is mandatory better? Among other things, I will facilitate two panel discussions with prominent and accomplished Chief Sustainability Officers, regulators, analysts and academics on this subject.

Another brilliant academic whose work I admire, Professor Guler Aras (Integrated Reporting Network Turkey Executive Chair and Yildiz Technical University Finance Governance and Sustainability Research Center Founding Director), will be an expert voice on a panel next week. She has proposed a multi dimensional sustainability model in her research article which was published in Journal of Cleaner Production. She says: "In addition to the traditional sustainability components, finance and governance components allow businesses to maintain healthy and continuous performance over a long period of time and provide benefits to all stakeholders. Hence, apart from the economic, environmental and social dimensions of corporate sustainability, a good governance structure and financial factors should be integrated to properly evaluate firms’ sustainability." Prof. Aras's diagram below illustrates a multidimensional comprehensive corporate sustainability disclosure model.

This is worth mentioning because, mostly, the link to overall business results is a missing element in sustainability reporting. While finance (Economic Performance GRI Standards 200), and governance (GRI General Disclosures 102-18 - 102-39) are part of GRI-based reporting, there is often a disconnect in reporting between economic and governance factors from a sustainability perspective and actual business results. More direction in sustainability reporting standards could be considered to help companies define how sustainable practice impacts their own business through risk mitigation, employee engagement, customer loyalty, cost benefit and new business opportunities, to name just a few. But that's probably a whole other discussion....

Voluntary or mandated, corporate sustainability disclosure needs to get with the times, deliver the need and be more useful to not only investors, but to all of us whose lives are affected by the actions of corporations, in positive and less positive ways. Whether the new declaration of the Business Roundtable on the Purpose of a Corporation, that commits to delivering value to ALL stakeholders inspires or depresses you, there seems to be a consensus that we need better frameworks for measuring and disclosing sustainability impacts. With leadership comes responsibility to stay in the lead. As an established leader in driving sustainability disclosure, GRI has the capability to help transform sustainability reporting standards into more meaningful, comparable and useful tools for sustainable development.

P.S.  I you got to this point, you deserve a double ice cream. 🍦🍦 

elaine cohen, CSR consultant, Sustainability Reporter, HR Professional, Ice Cream Addict. Owner/Manager of Beyond Business Ltd, an inspired Sustainability Strategy and Reporting firm having supported 100 client reports to date; author of three books and several chapters on Sustainability Reporting and the Human Resources connection to CSR; frequent chair and speaker at sustainability events and judge in several sustainability awards programs each year. Contact me via Twitter , LinkedIn or via Beyond Business       

Wednesday, August 14, 2019

10 ways not to attend the Asia Sustainability Reporting Summit

The first week of September is going to be #reportingmania week in Singapore, as the third annual Asia Sustainability Reporting Summit (ASRS) on 4th and 5th of the month promises to be the biggest and bestest yet. With 70 speakers from almost as many countries, it's going to be a packed two days of learning, inspiration and exchange. So here are 10 coping mechanisms just in case you cannot make it this year. 

1. Spend 30 minutes a day meditating, using the collage below of ASRS 2019 speakers as your inspiration - it won't help you predict what they might say, but it will make you realize what you are missing. If you start now, there will be just enough time to register before the start of the Summit.

2. Sign up for my pre-conference workshop. You will be compelled to continue the conversation for a further two days at the Summit. 

3. Order a three day supply of ice cream in a range of flavors. Only ice cream 🍦🍦🍦can take away the pain of not attending the most fun Summit on Sustainability Reporting in Asia. 

4. Sign up for the live-stream conference feed. Ooops. No live stream. You will just have to book your ticket. 

5. Gather your thoughts about whether sustainability reporting should be mandatory or self-regulated. This will be an illuminating debate in a panel session with 5 leading figures in the Sustainability Reporting world. While the session is taking place, you will be able to imagine yourself following the insights of these experienced practitioners and agreeing or questioning their thoughts.   

6. Plan a vacation in Singapore to coincide with the two days of the conference. Once you get to Singapore, you will be magnetically drawn to the Novotel Clarke Quay Hotel to register for the conference. Who needs vacations anyway? 

7. Take a look at the Summit Agenda and try to imagine yourself sitting at home or in the office while all this is taking place. Do you really think you can do it? Be kind to yourself and resolve this inner struggle by signing up without delay. 

8. Reconnect with #womenpower. 57% of the speakers at ASRS 2019 are women. This summit is a celebration of women's leadership in sustainability. If you are  a woman, man or individual of any gender, you will know that women's leadership is always INCLUSIVE. And that means inclusive of YOU. So sign up for the Summit and be included.  

9. Focus on the future. Think about your next sustainability report and how you will refresh your reporting, ensuring you are abreast of innovation, frameworks and new regulation in the region and globally. Think about how you might get a concentrated boost of energy, motivation and inspiration to fuel your next reporting cycle. Don't let your mind wander to the fascinating debates and insights that will take place at ASRS. Don't dwell on the time you will waste by not attending ASRS where you have everything under one roof over 48 hours. Got a plan? Think you can cope without attending the Summit? Feeling confident?  Great, but if not, you might want to send in your ASRS registration. Jus' sayin. 

10. Finally, if all the above doesn't work, you will probably need the Deep Detox solution. Book in at the Sustainability Reporting Detox Clinic for a two day intensive full body and mind detox, where the words sustainability and reporting are banned and people talk only about sunshine, beaches, Netflix, gourmet meals, ice cream flavors and places to visit when you retire. Any mention of anything connected to sustainability reporting sends you to solitary confinement for your entire stay with no internet, no phone, no connection to the outside world and no ice cream. Best to do this before the Summit starts, so that if it doesn't work, you still have time to register

For all of you for whom these coping mechanisms are not likely to work, see you in Singapore!

elaine cohen, CSR consultant, Sustainability Reporter, HR Professional, Ice Cream Addict. Owner/Manager of Beyond Business Ltd, an inspired Sustainability Strategy and Reporting firm having supported 100 client reports to date ; author of three books and several chapters on Sustainability Reporting and the Human Resources connection to CSR; frequent chair and speaker at sustainability events and judge in several sustainability awards programs each year. Contact me via Twitter , LinkedIn or via Beyond Business  

Monday, August 12, 2019

AIMing for Best in Class Reporting

I was recently asked by a client to prepare an overview of Best In Class Sustainability Reports. 

Now, I read, review and judge hundreds of sustainability reports each year, and also write several. I find reporting fascinating in all its forms, and there is no sustainability report that is not a source of insight, inspiration or interest for me. Sustainability reports are as diverse as the companies that publish them, and I find it hard to find an overall measure that represents Best in Class. In many of the awards programs in which I participate as a judge, the ultimate selection often becomes the report that achieved an aggregated highest score across a range of criteria - is that the definition of Best in Class? 

Best In Class is defined by the Business Dictionary is: The highest current performance level in an industry, used as a standard or benchmark to be equaled or exceeded.

But sustainability reports can be assessed across so many dimensions that it's not so simple to select a single report that can be used as a standard to be equaled or exceeded. Sustainability reporting is so unique and specific to each company that, while it is possible to compare use of selected reporting frameworks, or the scale of disclosure, or the length, or the colors of the design, creating a single Best in Class standard for reports is misleading. It's possible to compare certain types of disclosure across reports - such as how a company discloses carbon performance or employee engagement - so maybe it's possible to identify Best in Class reporting on certain topics. But overall Best in Class? Is Class every single sustainability report that's published? Or Best in Class for certain types of company, company size or industry sector?

The impossibility of the Best in Class assessment is why I prefer a threshold approach to evaluating the effectiveness of reporting. Framework-agnostic, metrics-agnostic and generally-agnostic, I use a simple model to the evaluate reports I come across every day. It's called the AIM Model. I developed this model for the publication of my annual list of the Top Ten  Sustainability Reports of the year in 2011. Either a report broadly meets the expectations for AIM reporting, or it doesn't. It's not about a score or a leader-board - it's about doing the job or not doing the job.

The AIM (Authenticity, Impacts, Materiality) Model goes like this:
Authenticity stands for: credible reporting that appears balanced and complete; it links reporting to purpose; it uses stakeholder voices to supplement internal narrative; it demonstrates consistency with prior reporting and shows evidence of long-term commitment with a strategy through targets and reported progress against targets; it includes a clear set of policies and positions on important topics and a CEO statement that you believe the CEO has actually read
Impacts stands for: How has the company made a difference, and how it measures that difference; not just a shopping list of activities; measurable outcomes; focused storytelling that supports describing impacts in specific cases.
Materiality stands for: clear materiality process that connects to the materiality topics identified and selected; description of the stakeholder interactions that have influenced the selection of material topics; contextual information that helps us understand the material topics and their relevance and explicit deep-dive reporting on the material topics selected.

Now, some reporters do a great job year after year in delivering reports that meet the AIM Model criteria - generally I know even before I look at the report that these companies will deliver reports that I will find inspiring. Here are three reporters that deserve a recurring 🎯 AIM Award 🎯 for their consistent reporting effectiveness. In random order. 

Marks and Spencer
Marks and Spencer plc is one of the strongest, most consistent, most comprehensive reporters that never fails to impress me with the scale of its programs and the meticulous nature of its planning, target setting and disclosing. The iconic Plan A (that has now become Plan A 2025) is a masterpiece of branding, engagement and evolution of leading sustainability practice. The 2019 Plan A Update is a fairly nuts and bolts 18-page document, no fancy design and no stories, but covers all the Plan A news in brief. Enough so that we know what M&S has been getting up to in the past year.

The prior Plan A Report for 2018 was a fuller update, more colorful (though not much more) and much more detailed.

It includes for example, as well as the individual updates against Plan A's 2025 pillars across all 100 commitments, details of how the company creates value and several pages with the governance structure for Plan A and named individuals responsible for each piece fitting into place. There are also commentaries from external stakeholders.

The Plan A overarching goals are all about Impacts - supporting customers in sustainable living, helping people live happier and healthier lives, transforming communities, science-based carbon targets and more - M&S's goals have been developed from the outside in, understanding global priorities and driving change through the business and its engagement with customers and communities.
The Material focus of Plan A is clearly described and the stakeholder input used to help define and assess material topics is explained. I find it a little odd that M&S does not publish the specific results of the materiality assessment, which they claim to have performed, in an overt way. Rather, the claim is that the most material topics, around 40 of the 100 commitments, are independently assured and a couple of asterisks denote these throughout the report. So, if you have an hour or so to spare, you can compile this list, though it's a little fidgety. Bottom line, however, it that Materiality is defined and there is a lot of supporting information as to how it was done.
And finally, Authenticity. I cannot imagine a company maintaining this scale, scope and pace of achievement and reporting year after year since the launch of Plan A in 2007 (was it that long ago?!) and reporting more generally on sustainability prior to that, without a large measure of Authenticity. Many elements support this including the transparent Plan A governance structure, the clear reporting on performance whether positive or less positive and the detailed methodology of selecting the Plan A components. Definitely worthy of an  🎯AIM Award 🎯

Kingfisher's reporting is bold, creative, inspiring, coherent and absolutely in line with the AIM model. I have been following Kingfisher's reporting over the years, and even selected Kingfisher's Net Positive 2012-2013 Report as one of my Top Ten CSR Reports of 2013. Kingfisher has the knack of distilling its sustainability vision, mission, program and performance into eye-level, easy-to-follow messages that get through to our minds and hearts. It's reporting for everyone: Kingfisher's 2018-2019 Sustainability Report shows meticulous transparency with on-point metrics across a range of targets alongside well-flowing narrative supported by big bold highlighter pages that anyone can understand.

In terms of Authenticity, Kingfisher publishes performance - successes and challenges - clearly against annual and long-term targets. An external commentary from a sustainability expert and a case study from the community build in external stakeholder voices. A seemingly genuine message from the CEO, Véronique Laury (Yes, it's a woman CEO. YAY!!) expresses both the positioning, the positives and the challenges of Kingfisher's sustainability journey: "In several areas our progress has been slower than we would have liked and challenges with our data systems mean we cannot report this year on two important KPIs relating to timber sourcing and sustainable home products. We know how important these issues are and we are addressing these challenges as a priority."   
Progress against 2018/2019 targets en route to 2050 are set out with clarity:

Kingfisher's entire sustainability strategy is about its overall Impact on the world. Like Marks and Spencer above, it's an outside-in strategy with four net-positive aspirations to 2050 that focus on how Kingfisher makes a difference in the way people live their lives. Kingfisher has guidelines for customers so they can make sustainable choices and measures the proportion of sales that these choices represent. 

Outside-in strategies tend to be closely aligned with the Sustainable Development Goals. Kingfisher goes a step beyond most companies by aligning its Impacts with specific SDG targets.

As for Materiality, yes, that's in there too, supported by a description of the process used to create and revise this list annually, including a specific materiality assessment in 2018 on 25 raw materials used in Kingfisher's products, assessed for human rights and environmental practices, that will be integrated into the overall materiality assessment.

While this report does not follow the In Accordance level of GRI guidelines, an online GRI Content Index is provided.
The CSR Reporting Blog hereby grants an 🎯AIM Award🎯 to Kingfisher for consistently impressive and meaningful sustainability reporting.

Baoviet is one of the leading financial-insurance groups in Vietnam. As a judge in the annual Asia Sustainability Reporting Awards (ASRA), I have been reading Baoviet's reports each year for the past few years and have always been impressed with the way this company pulls its report together with diligence and scrupulous attention to detail. Always rather (too?) long (the 2018 report is 257 pages!), Baoviet presents its comprehensive GRI Standards-based disclosure in a logical and lucid way. As previous reports, Baoviet's 2018 Sustainability Report, Mastering Hi-tech to unlock Sustainable Future, also shows how Baoviet masters disclosure, and not just sustainable insurance.

The report is laid out using the GRI Standards framework, addressing the disclosures in order of the 100, 200, 300 and 400 Standards sets. This is not my personal favorite way of presenting content, but it's a very respectable way of reporting, and has some advantages in terms of easy navigation to each group of topic-connected disclosures. In the case of Baoviet, this is done quite neatly, with a symmetrical order to each page, following the GRI prescribed content for disclosure of Management Approach and associated data.

Wholly AIM, this report covers Authenticity, Impacts and Materiality exhaustively. A deep-dive into risks, opportunities and context supporting the selection of Material topics helps us understand the sustainability challenges of Baoviet.

A strategic approach aligned to the Sustainable Development Goals shows that Baoviet has invested Authentic thought into its planning and sustainable development direction.

Impacts are presented in a specific section describing "indirect economic impacts" (GRI's Standard 203) summarizing Baoviet's overarching contributions to a more sustainable society, with some case studies later on in the report in the section on community involvement (GRI 413).  Definitely deserving of an 🎯AIM Award 🎯, Baoviet could also do this with a shorter report! I'd recommend trimming some of the evergreen detail from this report in future, giving greater focus to the reporting year achievements.


So, coming back to my opening thought, would I consider these reports Best in Class?  The highest current performance level in an industry, used as a standard or benchmark to be equaled or exceeded?

I certainly consider these reports that I find inspiring and can learn from. It's possible they might win awards (and all of these companies have won sustainability reporting awards over the years) when pitched against a limited number of entrants in an awards program (and I admit to making these choices as a judge in different awards programs each year.) In the end, I circumvented the question my client posed to me by providing a selection of reporting elements from different companies and reports, a sort of pick'n'mix showing what can be done to achieve AIM reporting, and in some cases, with a little added creativity.  So I think my message here is about delivering the best report you can, wherever you are on your sustainability journey, targeting to meet the needs of your stakeholders.

If your report does this well, some may consider it to be Best in Class.
I'll probably say that it's worth an 🎯AIM Award🎯 !

elaine cohen, CSR consultant, Sustainability Reporter, HR Professional, Ice Cream Addict. Owner/Manager of Beyond Business Ltd, an inspired Sustainability Strategy and Reporting firm having supported 100 client reports to date; author of three books and several chapters on Sustainability Reporting and the Human Resources connection to CSR; frequent chair and speaker at sustainability events and judge in several sustainability awards programs each year. Contact me via Twitter , LinkedIn or via Beyond Business  

Thursday, December 27, 2018

Target targets for 2019

Sustainability reporting used to be about activities and actions whereas today it is more about impacts and intentions. Substantiated intentions, that is, by which I mean T-A-R-G-E-T-S. Yes, that awful, threatening, potentially blood-pressure-raising concept of actually making a public commitment to making a difference. One of the things I find most frustrating about many sustainability reports is the extreme lengths companies go to in order to describe their mission, vision, what's important to them, what's important to stakeholders, what's important to the world and why it's ALL so important ("Sustainability is in our DNA" and "The world is about to end") .... but when it comes to saying what they plan to do about it: radio silence. Vague intentions, aspirations, declaratory blurb - it's all very nice but, well, no teeth. 

Andrew Wilson, expert advisor on sustainability, author of Green to Gold and The Big Pivot, has done leading-edge work in this area. He's even quite positive in his views of how targets have progressed and become embedded in the way most large companies report on sustainability. You can gain some comfort from his article from December 2017 here. He concludes that 94% of the largest 200 companies in the world include targets in their Sustainability Reports. 

You can check out Andrew's Pivot Goals database, containing 3,923 goals that have been publicly disclosed by (large) companies in their sustainability communications over the past few years (the database contains some duplication with both original goals and those that have been superseded or replaced). While this is apparent progress, it's by no means close to critical mass for all the thousands of companies that report on sustainability. Also, as you might expect, the distribution of targets is uneven - in the Pivot Goal database, for example, in the pharma sector, I counted 13 companies with targets, ranging from one company that has 62 targets and one that discloses just one target. 

Other aspects of target setting are coverage and quality. Coverage is the extent to which a company discloses targets for all material sustainability aspects versus targets that are limited to one area, say, environmental impacts which is the most popular. Quality is the extent to which targets are SMART. You know what SMART means. SMART is not: "Continue to improve our environmental impacts". Just sayin.  

Many of the reports I view and review are GRI-based and claim to be in accordance with GRI Standards at core or comprehensive level. Now, GRI has made reporting of goals and targets mandatory in the Management Approach Disclosures. Disclosure 103-2 requires (the organization SHALL report) disclosure of goals and targets. Well, sort of. The mandatory part is diluted by the addition of some small print: if the management approach includes that component.  

Additional guidance suggests including context, time-frame, reference to legislation if relevant and more. 

So, according to GRI, for GRI compliance, reporting of targets is mandatory if you have them. If you don't, no problem. Well, no problem is exactly how most reporters approach the Approach. It's so easy to say "we are committed to", "we place great importance upon", "we are passionate about" and all those other gloriously positive affirmations, but when it comes to the crunch, it's apparently more convenient to ignore the bits that bolt those commitments down in the organization and give stakeholders something to believe in. I believe disclosing targets should be a mandatory element of material topic reporting. Every single GRI Topic-specific Standard should include a requirement to disclose SMART targets - not IF they exist, but BECAUSE they should exist. And if they do not exist, conformance to GRI Standards should not either.

Some (random) examples of how companies commit in sustainability reports:

Arguably the best-of-the-best expression of public commitments and consistent reporting of progress is Marks and Spencer, whose Plan A, when it was created in 2007, immediately set M&S apart from the crowd with a bag of 100 commitments representing the most far-reaching and comprehensive set of targets by any company at that time (as far as I know).  Although Plan A's tagline was "Because there is no Plan B", Plan A has continued to reinvent itself and currently goes under the name of Plan A 2025. Behind the scenes of Plan A is a strong commitment to sustainable business, and business that positively impacts people and planet, and the pace has been maintained even at times when the company's financial results have been a bit wobbly. Marks  and Spencer's 2018 Plan A Report includes a detailed account of progress against all targets across the four Plan A pillars in a way reflects the M&S brand: quality, detail and tailored to meet a range of needs. 

Walmart's 2018 Sustainability Report includes a range of specific commitments at the start of its 230-page report. The targets are SMART enough and cover all areas of sustainability priorities - a comprehensive approach.

At the end of the report, Walmart discloses how it is doing against these commitments:

While it's possible to correlate progress reported to the commitments made upfront, it takes a little detective work to sort it all out as the language used is different in both cases. However, Walmart's (mostly) specific time-bound targets and progress statements are enough to quench my thirst for target-juice in this report. 

CVS Health also does a great job in its 2017 Corporate Social Responsibility Report with multi-year targets and reporting of progress in the reporting year. Across four pages, CVS demonstrates a mature view of its role in society with targets that reflect its impacts on society (help create a tobacco-free generation by acting to reduce youth smoking) as well as targeting improvements it its own operations. The targets are also in line with the material impacts CVS Health defines in its report. 

A super presentation of targets is from Sinyi Realty Group, one of Taiwan's leading real estate agencies in its 2017 Corporate Sustainability Report. For key strategic areas, the company sets long-range goals, medium term targets to 2025 and short-term targets for the coming year. Sinyi transparently reflects performance against the short-term targets set in the reporting year. No room for misinterpretation or detective work required here: it all hangs together very credibly.

Google's 2018 Environment Report includes a set of targets and progress made against these. It's a clear enough presentation and scoreboard markers give you a quick overview of progress. However, while this is totally fantastic, the targets are a mixed bag, for example, two of the targets are: set targets and others are either not time-bound or relevant for the single reported year - which in sustainability terms is no time at all. All targets relate to the direct environmental impacts of Google's own operations, for example, achieving zero net operational carbon emissions, which Google has impressively done for at least the past five years.

Of course, I couldn't write a post about targets without looking at Target Corporation. I mean, if your name is Target, you have to have targets, right? Well, Target doesn't disappoint, though, oddly enough, Target's targets are called goals 😂😂😂 But, whatever they are called, they are extensive and are presented across 7 pages in Target's 2018 Corporate Responsibility Report, followed by a couple of pages of upcoming goals (or targets) in areas not measured to date or not the subject of goals so far.  

There is no doubt in my mind that the inclusion of public commitments is both a way to reinforce trust with stakeholders and a tool to catalyze performance improvements. Several leading companies are doing this really well, and I tend to agree with the analysis above that more are doing so these days than in the past. However, the leading companies across the world represent only a small fraction of the entire population of reporting companies, and many (I might even say, most) of them do not even hint at targets or commitments.

So, let's be clear: If you want stakeholders to believe you are serious about sustainability, or whatever you call it in your organization, make SMART public commitments in key areas of impact and report your progress against these year on year. 

Of course, a great addition to any Sustainability Report would be the inclusion of a target to provide a lifetime supply of free ice cream to anyone who blogs about your targets on the CSR Reporting Blog. 

Happy Holiday Season and Happy 2019 to all CSR Reporting Blog readers!

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