This post a response to Mark McElroy and Henk Hadders. Both have been urging me to "pronounce" on the subject of context, or lack of it, in sustainability reports, in particular following my outline of the way the GRI guidelines and integrated reporting will be progressing over the next few years.
Mark McElroy is the founder of the Center for Sustainable Organizations, and has been working tirelessly for over 10 years to advocate for context-based sustainability reporting for which he has developed a particular methodology. I chatted to Mark on the phone yesterday.
The GRI relates to the question of context in the GRI guidelines, as one of the reporting principles for defining content. The guidance on the principle of context states that reports should present the organization's sustainability performance in the wider context of sustainability. This is the explanation: "The underlying question of sustainability reporting is how an organization contributes, or aims to contribute in the future, to the improvement or deterioration of economic, environmental, and social conditions, developments, and trends at the local, regional, or global level. Reporting only on trends in individual performance (or the efficiency of the organization) will fail to respond to this underlying question. Reports should therefore seek to present performance in relation to broader concepts of sustainability. This will involve discussing the performance of the organization in the context of the limits and demands placed on environmental or social resources at the sectoral, local, regional, or global level." This is rather broad and of course, the degree to which context is reported in detail is left open to interpretation. The GRI offers nothing more specific on this subject. Mark McElroy, however, sees context in a very specific way. These are the tenets of the Context Based Sustainability Reporting approach a la Mark McElroy.
Mark McElroy is the founder of the Center for Sustainable Organizations, and has been working tirelessly for over 10 years to advocate for context-based sustainability reporting for which he has developed a particular methodology. I chatted to Mark on the phone yesterday.
The GRI relates to the question of context in the GRI guidelines, as one of the reporting principles for defining content. The guidance on the principle of context states that reports should present the organization's sustainability performance in the wider context of sustainability. This is the explanation: "The underlying question of sustainability reporting is how an organization contributes, or aims to contribute in the future, to the improvement or deterioration of economic, environmental, and social conditions, developments, and trends at the local, regional, or global level. Reporting only on trends in individual performance (or the efficiency of the organization) will fail to respond to this underlying question. Reports should therefore seek to present performance in relation to broader concepts of sustainability. This will involve discussing the performance of the organization in the context of the limits and demands placed on environmental or social resources at the sectoral, local, regional, or global level." This is rather broad and of course, the degree to which context is reported in detail is left open to interpretation. The GRI offers nothing more specific on this subject. Mark McElroy, however, sees context in a very specific way. These are the tenets of the Context Based Sustainability Reporting approach a la Mark McElroy.
Mark says that whilst the GRI does a good job of structuring reporting, it doesn't go far enough in defining and requiring context in reporting. He says it's like leaving the costs out of a financial report. According to Mark, the issue of context can be described as the need for standards of performance when talking about sustainability. You are either sustainable or you are not, according to an agreed standard. The question is, who defines what that sustainable performance standard is? Companies measure themselves against their own past performance or their targets, or even their peers, but what is really needed is some absolute measure of sustainability so that companies can report whether they are on track, behind or ahead. Sustainability performance, then, according to Mark, should be measured in terms of vital capital resources which are required for our sustainable wellbeing such as: natural capital, social capital (social networks etc.), human capital (personal health, knowledge, skills and experience) and constructed capital (physical infrastructures etc.). The sustainability performance of an organization is a function of the organization's impacts on these vital capital resources. In plain language, if there is only so much water available in a particular country, (water levels can be calculated with some accuracy), this needs to be divided between all the stakeholders that use that water. Some of these stakeholders are individuals, some are also people who work for companies. Everyone has a ration, or an allocation based on a calculated quotient. A company's allocation might be related to the number of people it employs. So by doing all these calculations, using precodified values, it is possible to say that company X's rightful allocation of water was Y cubic meters out of the total amount of water available. If the company used more than Y, its performance was not sustainable. I likened this a little to food rations in war time. There is only so much to go around, so everyone gets an allocation. The tricky thing in all of this, of course, is who decides the allocations and on what basis? In the case of a company, which contributes value to society in many different ways, it might be appropriate to give a greater allocation than to a private individual. This step hasn't been bottomed out completely yet, but remains the subject of ongoing research. If you want to see this methodology in more in more detail, take a look at this presentation, which is called the Social Footprint Model.
The theory here is that reporting in a vacuum gives us no indication that a company is sustainable, because, even though it may have been reducing emissions, energy, water and other materials consumption, as well as investing in the health and wellbeing of employees and communities, it still might have been be using more than its "fair" share of resources and therefore the company's performance might not have been all that sustainable after all. Mark believes that stakeholders have a right to know this, and even if the methodology is not 100% complete, it's a basis for debate and gets closer to providing tangible tools to deliver change, and should be included in sustainability reports.
This is a great approach. If only the world's resources could all be parceled up into neat packages that we could all share out according to a mutually agreed formula, life would be so much more simple. However, despite trying hard to understand this approach and wanting to believe that it can work, I am afraid I don't. I believe we would spend so much time arguing about the definition of the quotient and the formula for the allocation that this methodology in itself would not be sustainable. I don't believe it's possible to separate all the combined factors that influence the sustainability performance of a company at local and/or global level and reduce them to over-quotient or under-quotient in every specific impact area. Mark believes this is possible. He may be right. But I don't. Not for quite a few years anyway. I see how companies are struggling just to understand and report their own data, let along trying to contextualize it in such a specific way.
My definition of context in terms of what I like to see in a sustainability report is closer to the way the GRI frames it. Context should explain why a company adopts a particular sustainability strategy and invests its resources in doing certain things. An energy company, moving to renewables, might state the broader context of finite levels of non-renewables. An IT company investing in emerging economy infrastructure might talk about the impact of digital inclusion on sustainability. A food company might talk about population projections and food security requirements. A pharma company might talk about health risks and trends. Companies might state local factors which are crucial to their business sustainability such as population demographics or dominant environmental factors. Their sustainability strategies should be related to these external realities in a way which stakeholders can understand. This is high level context and wouldn't meet the criteria for Mark McElroy's detailed context-based reporting, but I tend to see a company's performance in terms of the company's contribution to global sustainability, rather than its performance relative to a pre-defined level of expected impacts. If a company has consistently reduced absolute resource consumption over time, then it appears to me they are in the right direction.
Is this is enough? Well, we probably know already that it's almost never going to be enough. In the absence of regulation which imposes limits, such as the UK Climate Change Act, each company with its own individual considerations must make an assessment of its own sustainability (will resources continue to be available to a company at the level required to maintain operations?) as well as its contribution to global sustainability. The Unilever Sustainable Living Plan was hailed as one of the boldest commitments any company has ever made to sustainability. In this plan, Unilever committed to halving the environmental footprint of their products. Is that enough? Is that sustainable? I don't know. I am not sure any methodology will enable us to accurately answer that question.
Anyway, there it is. I have pronounced on context. I would like to see more context in Sustainability Reporting, as many reports don't even meet my fairly general expectation. Whilst I can appreciate they may be merit in the visionary context-based approach proposed by the quotient methodology, I am not sure it is possible to achieve a general consensus on the quotients and the allocations, and companies are still at such a basic level in sustainability metrics management that it's like wanting to be able to land on the moon back in the 1960's. Ah, but we did that, right? So I guess anything's possible.
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