Friday, June 17, 2022

Perspectives from Mr. Impact: GRI CEO Eelco van der Enden

The new CEO of GRI, Eelco van der Enden is popping up everywhere these days. Webinars, round tables, conferences, colloquiums. And now he is popping up on the CSR Reporting Blog. Of course he is. The CSR Reporting Blog loves GRI (and loves to challenge GRI as well 😁). Eelco obviously has a lot to say on the topic of corporate sustainability disclosure, but then, these days, who doesn’t?! 

The current discourse is polarized into two camps: the let’s-live-better camp and the let’s-make-more-money camp. Of course, players in each camp acknowledge the relevance and importance of the other camp (as long as they don’t get too close to the campfire). Some talk about building blocks, some reference interoperability. Some say let’s live better comes before let’s make more money. Some say let’s make more money is necessary to achieve let’s live better. Some say these are equal grounds on the same camp site. Some say they will never be equal. Mervyn King, the South African governance guru, talks about moving from the “current clutter and confusion to a comprehensive global reporting system”. Frankly, the only clutter and confusion at the moment is the weird discourse that’s going on about how to change reporting. 

A new, better, fantastic, wonderful reporting system 
Everyone seems to think a new era has been ushered in with the development of modern standards, and observers are thrilled with the fact there is momentum, with more exposure drafts to review in these few months than there has been in years. But the reality is that the debate is now about the differences in the new standards and the relative merits of each, rather than about the overall value of better transparency and how it will help safeguard our future. So much so that ERM and Persefone invested time and effort in the production of a report that analyzes the differences between the ISSB, EFRAG and SEC proposals. I mean, where are we? Rather than deploying existing frameworks and standards, the new voices in sustainability reporting are creating new volumes of disclosure and metrics proposals that may have similar cores, but are sufficiently different to require separate reporting considerations, meaning that everyone is now engaged in comparing, contrasting and concluding, rather than in actually improving disclosure. There might be a reasonable endpoint after all of this, but the continued messiness of it all is quite exasperating. Has no-one ever heard of copy/paste? 

The let’s-make-more-money camp’s claim to fame is the premise that they know what investors want. Yes, you got it. Make more money. This seems to me to be a fundamental flaw. There are many types of investors, several of whom are looking to make a positive return on investment while aligning with the values of the let’s-live-better camp. I do not believe that a set of standards based solely on financial value creation, that may be influenced by estimated and extrapolated environmental and social factors, is enough to lead investors to decision making that will either deliver better returns or sustainable corporations. Eelco van der Enden often talks about the fact that there are two pillars of corporate reporting – the financial pillar and the impact pillar – and this is a winning concept. He says that each is widely used along fairly consistent lines by the largest companies around the world, and many of the not-so-largest. Eelco asks why we would reinvent the wheel when we have proof of concept? Financial reporting works; sustainability reporting works; taken together, and with ongoing improvements to the existing standards, all the information needed to assess corporate performance and risk is in place, he says. Maybe all we need to do is get better at that, rather than invent new stuff. Eelco told me:

“Thinking you can introduce a new comprehensive reporting system from nothing, I think, is fantasy. We have some very well proven concepts used by basically everyone, so it becomes about convergence and alignment, whether it’s mandatory or not or whether assurance is mandatory or not. But saying what we have all been doing to date is rubbish and now we need to change it all, is not going to lead us to a very good place. I represent a purpose, not a legal entity. This purpose is about reporting facts, not perceptions, for multiple stakeholders, not just investors. In the recent Amazon vote, more than 20% of independent shareholders, including some of the largest investors, voted in favor of greater tax transparency using the voluntary GRI Tax Standard. Other frameworks are using GRI – the WEF Stakeholder Capitalism Metrics use GRI for 17 out of 22 of their metrics. EFRAG is making use of GRI standards with some tweaks, to allow for local regulations, but they are keeping the baseline principles intact. I do not see a need to start all over again. On the other hand, there are proposals for mandatory assurance to put sustainability reporting on an equal footing with financial reporting. I say this is a good thing. If we are serious about the stakeholder-centric model, we must ensure that reported data is robust.” 

Christmas Parties with the ISSB 
Despite this, GRI has joined hands with ISSB with a Memorandum of Understanding. The ISSB proposals completely bypass anything GRI, other than giving a token nod to the fact that “impact” reporting is somewhere out there on the landscape in the let’s-live-better camp, and may be of interest to someone somewhere. The MOU is hyped as an agreement to create an interconnected approach for sustainability disclosures. What does this really mean? Eelco explains: 

“ISSB has an investor lens. But there is not one type of investor, not all of them are only looking at enterprise value creation. IFRS and ISSB appreciate there is a gap on their flank that needs to be covered. With this MOU, they endorse the role GRI has for the other stakeholders which are not in their target group. The symbolic significance of this is important; for the first time, capital markets are expressing themselves in a way that addresses broader needs, and this should be taken note of by investors. It’s definitely a polarizing discussion. Some of the comments we have been hearing include, say, on the one hand, that GRI has sold its soul to capitalism, while on the other hand, the IFRS foundation has taken a sharp turn to the left. The agreement with ISSB is not about the technical aspects – we have a very well-equipped standards division and 25 years’ experience, we will help ISSB if they need help. So, it really comes down to governance. If you believe in the two pillars approach, people will want to see how the balance between the two is being managed, so there will need to be an overarching, aligned governance mechanism that will enable regulators to have sufficient faith in the robustness of this structure and the roles of the players involved. At GRI, we have an extremely robust due process. I personally was on the Technical Committee for the new GRI 207 Tax Standard and I can tell you it was very hard work indeed. We need to get better at the fine art of compromise. Moving ahead, we will see how this convergence works. Focusing on governance rather than technicalities is what will make the difference for regulators.” 

My reading of this is that GRI and ISSB will continue to go their different ways, with different objectives, different audiences and different standards. However, rather than being public adversaries, it will be a sort of hands-off co-existence and an occasional joint Christmas Party. Which brings reporters back to where we have always been; a system for financial reporting (including financial-related sustainability topics) and a system for sustainability reporting. Plus ça change… But, in Eelco’s view, that’s not such a bad thing. 

GRI – is a 25 year legacy enough? 
GRI’s new Universal Standards kick in from January. The reporting burden will be more significant for companies who want to comply in full with GRI Standards. There are more extensive disclosures on governance, human rights, topic disclosures on material topics, and an entire restructure of the General (Universal) Standards, meaning that GRI reporters will have a LOT to do to reshape their disclosures for the next cycle if they want to remain compliant. Given that ISSB and ESRS drafts are now public, coupled with U.S. SEC requirements, reporters have a good idea of the direction of travel. Several companies already bypass GRI and report using SASB and TCFD only. The question will be whether companies will even bother to invest the extra effort to stay with the new GRI Standards, or whether they will simply pick’n’mix, choosing very selectively the individual GRI standards relevant to them, and bypassing the Universal Standards entirely? I wondered what Eelco thought about that. He shared as follows: 

“That’s a very good question. It’s more than just about whether the new Universal Standards are more complex or challenging for reporters. It relates to our vision about what the future reporting landscape should look like from an impact as well as a financial standpoint. Yes, it needs effort, the same as every new standard, it will add a burden for organizations because it is different. But the key point is that the Universal Standards are fit for purpose and fit for the future. Five years on from when GRI transitioned from providing guidelines to setting standards, it was time to modernize and renew these disclosure requirements. We have not heard from companies so far that they do not intend to continue to report fully using GRI Standards. But now, of course, there are new options, including the introduction of the ISSB and EFRAG standards. I can only answer fairly if we think about these other initiatives out there. And that’s why we are proposing two pillars. ISSB is based on IFRS international accounting standards. GRI is based on multistakeholder dialogue. Combine these two and you have a system that has been around for more than 20 years. Nearly 11,000 companies use GRI and also report against mandatory financial frameworks. The platform exists. It works. The mandate of the SEC in the U.S. will always be investors, that won’t change. Nothing new from that end. We might see more incorporation of SASB standards into these requirements but the focus will not change.” 

That’s an optimistic view. From my perspective, while it tends to make sense, the danger is that new standards may drive companies down to the lowest common denominator i.e., what regulation requires (assuming EU and ISSB standards become law in different jurisdictions around the world). In the absence of regulation, as has mainly been the case so far, voluntary disclosure not only flourished, but it also became a competitive advantage. If your peers use GRI, then you use GRI. In a brave new world where sustainability reporting (of sorts) is mandated, and required to be externally assured, and will carry the same regulatory and legal weight as financial reporting, companies may look to minimize the reporting burden to that which is unavoidable. I think a role of GRI through whatever this transition is will be to truly land the use of GRI Standards as the only way and the right way to provide impact transparency for all stakeholders, both as impact reporting in its own right and as a precursor for additional finance-related disclosures. If only a fraction of everything we have said about the value of sustainability reporting over the past 20 years is true, then ditching GRI for the let’s-make-more-money camp would be tragic. I predict there will be some fallout, and some lack of uptake, but I doubt most companies will do a full U-turn. I think GRI will continue to be the framework of choice for impact disclosure and the basis for effective sustainability disclosure as it affects the financials. 

Materiality – mind the gap 
So, let’s come back to materiality. Everything comes back to materiality. You all know by now that GRI’s version of impact materiality takes account of the organization’s most significant impacts on the economy, environment, and people, including impacts on their human rights. Impact materiality is central to GRI’s right to exist. Yet even the widespread use of GRI standards has not led to a consistent, clear, due-process-driven, transparent and verifiable methodology for determining material topics. The number of companies delivering a clear disclosure on how they actually determined material impacts, beyond asking selected (friendly) stakeholders for their multiple choice ticks, is probably less than the number of ice creams you can cram into a petri dish. Trying to work out how a company selected material topics is more often than not like staring down a black hole. There is some attempt to correct future practice in the new Universal Standards, in which the definition of materiality has been updated and there is more extensive guidance on process. But, as this is just guidance, I suspect that’s how companies will continue to treat it. (It’s guidance, let’s ignore it). I put this to Eelco: Why does GRI not bite the bullet and create a standard – not guidance or approach – for the process of developing a list of impact materiality topics? Given its central position in sustainability reporting, I find it baffling that GRI has never been willing to address this. Does it serve GRI’s purpose to deliberately leave this vague and open-ended? And his reply:

“Yes, I will go back to the Standards Team with this question. I do believe a systems audit approach is needed, but I am not sure that it’s within GRI’s remit to come up with a standard like this. We have never been prescriptive about defining materiality, and there are many possible ways to address this. We do get questions about whether GRI is planning to develop a standard for preparing a materiality assessment. Perhaps this is something we could influence in partnership with other groups who might be better positioned to develop such a standard. This is something for consideration.” 

I won’t hold my breath. The entire sustainability reporting proposition rests on how companies define materiality, and our trust in their process requires them to disclose it. I believe GRI is absolutely the best placed organization to develop a process standard such as this. Having companies everywhere using GRI standards without a consistent, auditable methodology for determining materiality is like inviting people to a Scrabble game where each player randomly decides the number of points for each letter. You can add up the scores but they actually mean nothing. 

When 5 months is like 50 years 
I asked Eelco how he would summarize his first five months at GRI and he replied: “Like 50 years”. That’s understandable. More has happened in the past five months in sustainability reporting than has happened since Adam ate the apple. 

I asked Eelco what legacy he wants to leave at GRI.

“I’d like to leave a resilient, financially independent organization that, in the two pillar structure, is the globally accepted pillar for impact reporting.” 

 And some of the challenges GRI is facing? 

“Externally, it’s getting GRI back in the front seat. We were not vocal enough about who we are and what we are all about. It’s very simple. We enable society to have a discussion based on facts, not perceptions, providing free standards as a public good. Internally, we need to increase our efforts to raise funds to help us deliver our purpose and create a stronger financial backbone. There is a lot to do. We need to double the size of the standards division, and generate revenues based on more services we provide. We must continue to recruit quality people who are or can become specialists in standard-setting. Our purpose appeals to people, it’s a fun workplace where everyone can make a difference. We must become more efficient, for example, we are now installing a new ERP which will enable us to get rid of a lot of manual work”. 

What is Eelco saying to reporters? 

“There are criticisms of sustainability reporting and questions relating to how serious companies are about their environmental, social and governance commitments. I think that’s dangerous. Cynicism kills everything. Business leaders and investors should be very serious about this topic, it’s about helping make the world better for everyone. Short-termism is a problem. We must keep the flame alive and also look at how regulators are dealing with this and how large intragovernmental organizations are getting on board. To achieve public accountability based on comparable data, you need to make an investment. You can’t manage with volunteers. It must be managed professionally. It’s too important. Organizations complaining about the burden of compliance are those who are not transparent. It’s exactly that which builds mistrust. At GRI, we advocate for two pillars of reporting, and we are expert in the impact reporting pillar. We encourage all companies to report their impacts on the economy, society and the environment with the necessary degree of investment and leadership attention to help continue to build trust, build inclusive economies and protect our shared future.” 

 ********** 

And a little note from me at the CSR Reporting Blog: I’d like to thank Eelco for generously spending time with me talking through these issues. We had a fun conversation and Eelco was not thrown by my direct and sometimes provocative questions. I believe the approach is clear. Do better what you do best and keep communication lines open. GRI’s focus is impact reporting, with a proven legacy of doing that best (although still not perfectly😏). All the peripheral noise around what investors need, want and how much data they can usefully integrate into their algorithms is exactly that: noise. I advocate for GRI-based impact reporting as the essential fundamental basis for corporate sustainability disclosure; starting with broad based GRI facilitates disclosure against every other standard and framework, as well as responses to mile-long investor analyst questionnaires. 

As usual, this post was written by me independently. No-one in GRI has influenced or requested to influence how I presented this conversation with Eelco. Of course, had they offered me a month’s free supply of ice cream, I might have used a few more superlatives 😁.





elaine cohen, GCB.DESG Competent Boards Certified (2021)Sustainability Strategy and Disclosure Specialist, former HR Professional, Ice Cream Addict. Owner/Manager of Beyond Business Ltdan inspired Sustainability Strategy and Reporting firm having supported >140 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, May 8, 2022

Spinning with Sustainability Disclosure

By now, everyone’s head is spinning, including mine, with the number of new frameworks and exposure drafts of sustainability disclosure requirements. With the hype being harmonization, decision-USEFULNESS, simplification, comparability and yes, interoperability, we might all be fooled into thinking that the life of a reporter will suddenly become a bed of roses. Let me correct that assumption. Perhaps a bed of nails might be a better analogy. Ha-ha. Better stock up on ice cream. 

The winds of change are whooshing in three standards that will influence reporting in the coming years. Much has already been shared to explain and interpret these new whooshes, but I keep getting asked to share my take on things so here are some preliminary thoughts. 

IFRS Sustainability Disclosure Standard: So far, there are two draft documents for public consultation until July 29,2022 
IFRS Standards, created by the newly created International Sustainability Standards Board (ISSB), are intended to be ratified by country jurisdictions to become law, in the same way as IFRS accounting standards are applied. These standards are geared to those who consider sustainability as an element of enterprise value creation only insofar as it affects the financial interests of those who fund and invest in companies. 
European Sustainability Reporting Standards (ESRS): The proposed draft for consultation by August 8, 2022, includes a suite of standards required under the EU Corporate Sustainability Reporting Directive (CSRD) proposal that covers the full range of sustainability matters - environment, social and governance - as developed by the European Financial Reporting Advisory Group (EFRAG). These standards, after conclusion of the consultation period and subsequent modifications, will become law, affecting around 50,000 large and listed companies in Europe. The ESRS are designed to address the needs of all stakeholders, not just those with a financial interest. In the next phase, EFRAG intends to publish a set of sector-related disclosure requirements (as they obviously have budget to spare – SASB standards and the ongoing GRI sector standards clearly aren’t European enough). When ratified, the intention is to apply ESRS to disclosures from publication year: 2024 (on a phased basis). 
U.S. SEC Climate-Related Disclosure rules for the inclusion of climate related risks and metrics in annual reporting on Form 10-K. This is another investor-focused initiative and will apply to listed companies, with a phased implementation starting from filing year 2024. 
Let’s not forget also GRI’s Sustainability Reporting Standards: The revised GRI Standards structure including the new Universal Standards kick in for reports published in 2023. GRI are voluntary standards that are not expected to become law. GRI is keeping behind the scenes when it comes to the EFRAG and ISSB developments, signing collaboration agreements with both, relying on its historical positioning, having driven sustainability disclosure for the past 30 years, well before the EU or any investor community even knew how to spell ESG. GRI may now have succeeded to the point of irrelevance, having created the conditions in which companies may bypass its standards and disclose only what the new laws will require. While the EU standards build on the basis established by GRI, the ISSB standards do not.

Richard Howitt, a long-time influencer in the European sustainability disclosure space, recently set out the forces for convergence and divergence in these new EFRAG and ISSB standards. With only the teeniest smidgeon of optimism regarding whether both the European and the international sustainability reporting standards will actually move in the same direction, he sets out a 10-point plan for better cooperation. Good luck with that. 
However, even if we end up with two sets of different standards (ESRS and IFRS/ISSB) (hint: we will), it’s not ever going to be an either/or. Companies in ISSB jurisdictions have stakeholders beyond the financial community and will not be reasonably able to limit themselves to financial-related sustainability disclosures. As we have seen time and time again, it’s the non-financial community that has driven disclosure on specific topics, and this will continue to be the case. This is where GRI claims its relevance – as a complement (or precursor) to finance-related sustainability disclosures as well as being the basis for non-financial disclosures. 
Before we do a deep-dive into each of these changes and what they mean for reporters, alongside the many other reporting demands that companies accommodate – local SEC rules in different countries, disclosure demands from rankers and raters, voluntary-non-voluntary frameworks such as TCFD, CDP and PRI, EU Taxonomy, SDG etc. – let’s look at the overarching directions that seem to be emerging.

Materiality: The Star(s) of the Show 

We have seen an explosion in materiality related terms – double materiality, blended materiality, nested materiality, ESG materiality, financial materiality and more recently, impact materiality. Materiality is apparently one of the most versatile words in the sustainability reporting lexicon. As I was writing, I even stumbled across a new term (though I doubt it’s likely to catch on): sesquimateriality. I even had to look up the definition of sesqui. This brilliant review by Frederick Alexander (The Shareholder Commons) takes us through the rationale for challenging the ISSB approach on ESG information that affects (only) enterprise value, saying that material beta (non-financial) information is just as necessary as material alpha (financial) information both for investors and for society. He writes: “On its face, the exclusive choice of enterprise value as the measuring stick for materiality means the standards will only be useful for investors who want to use environmental and social data to determine how a particular company will perform financially, in order to decide whether to buy or sell it, or perhaps to use their shareholder rights to push the company to change its practices to improve future cash flows. In light of the diversification mandate of Modern Portfolio Theory, and the importance of beta to diversified investors, this anachronistic hyper-focus on enterprise value is troubling.” Read this article. It’s excellent. (Even though the terminology is a bit of a mouthful). Essentially, the conclusion is that ISSB adopters should report more broadly on impacts and not limit themselves to the narrow scope of ISSB. 

A similar point was made by sustainability thought-leader Andrew Winston, who bemoans the use of the term ESG instead of sustainability. He says: Seeing all things through the lens of markets and the quest for shareholder maximization is largely how we got into this mess in the first place. We’ve put profits above literally all else, and it’s leading to ecological collapse and vast inequality……. Just as fossil fuel companies should not lead the planning of our energy future, it seems unwise to let finance lead the journey to a humane, more just, less greed-filled form of capitalism.

ISSB picks financial materiality in its proposed IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information. The materiality scope in IFRS S1 standard includes the following guidance: The objective of [draft] IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information is to require an entity to disclose information about its significant sustainability-related risks and opportunities that is useful to the primary users of general purpose financial reporting when they assess enterprise value and decide whether to provide resources to the entity. Sustainability-related risks and opportunities that cannot reasonably be expected to affect assessments of an entity’s enterprise value by primary users of general purpose financial reporting are outside the scope of this [draft] Standard. 
ESRS opts for double materiality – making the distinction between impact materiality and financial materiality. The materiality scope in ESRS 1 General principles includes the following guidance: The undertaking shall report sustainability matters on the basis of the double materiality principle. Materiality is to be understood as the criterion for the inclusion of specific information in sustainability reports. It reflects (i) the significance of the information in relation to the phenomenon it purports to depict or explain, as well as (ii) its capacity to meet the needs of the stakeholders of the undertaking, allowing for proper decision-making, and more generally (iii) the needs for transparency corresponding to the European public good. 
Double materiality means that if a topic is material EITHER from an impact standpoint OR from a financial standpoint, or of course, both, it must be included. 
Impact materiality is defined as: connected to actual or potential significant impacts by the undertaking on people or the environment over the short-, medium- or long-term, and covers upstream and downstream value chain impacts. 
Financial materiality is defined as: triggers or may trigger significant financial effects on undertakings, i.e., it generates or may generate significant risks or opportunities that influence or are likely to influence the future cash flows and therefore the enterprise value of the undertaking in the short-, medium- or long-term, but it is not captured or not yet fully captured by financial reporting at the reporting date. 

A shout out to Donato Calace of Datamaran who shared this example on LinkedIn of a new way of representing impact materiality and financial materiality in Enel’s 2021 Sustainability Report



GRI stays with materiality: As you all know, GRI updated its definition of materiality with the new Universal Standards and this remains plain old materiality (or what the EU is now calling impact materiality) that is defined as: topics that represent the organization’s most significant impacts on the economy, environment, and people, including impacts on their human rights. 
The irony is that most reporters have misrepresented materiality in GRI reporting, showing materiality matrices with one axis being the “interests of stakeholders” and the other axis being “importance to the business”. This is sort of double materiality by default, not by design, and it’s not always clear whether the impact on the business is the result of a considered analysis. 
For example, Mondelez 2020 ESG Report shows importance to stakeholders and influence on business success, not size or significance of impacts. 




Dell Technologies FY2021 ESG Report, on the other hand, shows importance to stakeholders and degree of impact, as defined by GRI Standards, i.e.: impact materiality.


What’s missing in materiality: The overarching issue with materiality assessments is of course the lack of standardized methodology. How does a company actually assess the severity of its positive and negative impacts on society and the environment? The guidance in the standards, old and new, is high-level and directional. Every company does it in a different way, some more structured, some less. Generally, that materiality assessment is the result of surveys and stakeholder opinion, with little consideration of the degree of impact. The results you get depend on the stakeholders you consult and what you ask them. 
Almost all materiality processes are not fully transparent. Even the presentation of Enel noted above describes a series of processes… first we analyzed… then we analyzed… and a set of approaches: “The main impacts identified, both negative and positive, were considered respectively according to their degree of severity or magnitude and probability, in the case of potential impacts.” Well, that doesn’t tell us very much, really. 
GRI guidance recommends assessing the severity of an actual or potential positive or negative impact by analyzing scale (how grave/beneficial the impact is), scope (how widespread the impact is) and irremediable character (for negative impacts, how hard it is to counteract or make good the resulting harm) as well as the likelihood of the potential impacts occurring. Given the fact that materiality is so fundamental to how sustainability disclosures are defined and developed, I have been advocating for years for the development of a standard that would provide a structure and logical process for materiality assessments, and enable understanding of how impacts are prioritized. The lack of attention to this point in both the ISSB and the ESRS (I gave up on GRI long ago) is a missed opportunity to align companies on how to prioritize material topics for sustainability disclosures as the new standards are being developed. 

Getting Closer to the Money 

Both standards move sustainability disclosure closer to financial reporting, in an attempt to raise the status of the former to equal or near equal to that of the latter. This is a bit of an uphill battle. Sustainability disclosure may never be anything more than a poor relative in the eyes of the financial wizards, but it’s true that the life of financial analysts will be easier when both types of reporting show up on the same playing field. This has two main implications: 

First: Reporting period and publication timing 
Both ESRS and ISSB require for sustainability disclosure to align with the period and timing of financial disclosure. 
ESRS 1: The undertaking shall retain a reporting period in its sustainability report consistent with the one retained for its financial statements. 
IFRS S1: The sustainability-related financial information must be for the same reporting entity as the financial statements and published as part of its general purpose financial reporting. This means the information must be disclosed at the same time as the financial statements. 

This is logical development, and not just for the money folks. Too many sustainability reports are published so late after the end of the reporting period, they are already stale before you even get to page one. The late publication of sustainability information may result from a lack of urgency and discipline in organizations for sustainability information, and/or a lack of infrastructure in gathering and organizing data. For sustainability to be better integrated and for decisions to be made in real time (to advance sustainability, not just for reporting), this needs to be professionalized. No more endless excel files for data collection, no more begging colleagues for collaboration, no more scrambling around at the last minute for missing data points. The new standards will force companies to get onto the same timeline as financial reporting, and this will require a step change in both process, resourcing and supporting technology. That’s good for the financial community and, arguably, better for company decision making. But it won’t be easy for most. 

Second: Auditing and assurance 
The other longstanding complaint about sustainability information is that most of it is not externally assured and therefore confidence in its accuracy is low. The move to auditable and audited sustainability information is also a good thing. This addresses more than verification of GHG inventories or climate reporting, which many companies now externally assure, but all the material quantitative and much of the qualitative information that companies disclose. With sustainability being incorporated as part of financial disclosures (ISSB) or management reports (ESRS), they will be required to be assured to at least a limited level. What a gift for the accounting/assurance firms who are now gearing up for a fuller workload and an even fuller revenue stream. And companies that have never assured data in the past, be prepared for some surprises in your audit results. 

Silo Busting: Sustainability Connectivity 

The new standards whoosh in the concept of connectivity between financial and ESG information. This is not so new. It was attempted with the six capitals approach of the Integrated Reporting framework, but it never made real headway in practice in demonstrating true linkage, I believe. With both ISSB and ESRS standards emphasizing the principles of connectivity, we may start to see some new tools to help this understanding. The EU Taxonomy is perhaps one, and the scenario-planning approach that became the high-jump of the TCFD guidelines is a driver of more holistic thinking about the way the risks will affect the numbers. ISSB is also planning the release of the IFRS Sustainability Disclosures Taxonomy (yes, they have a big budget too). 
IFRS standards allow information to be referenced i.e., it can be part of a separate document. ESRS requires all information to be contained in the management report… a throwback to the days when GRI reporting purported to have sustainability information “all in one place”. Today, GRI reports are often a menu of references to many other documents, making it difficult to actually track what’s being reported.
However, the focus by both on connected information and impacts is explicit: 
IFRS S1: An entity shall provide information that enables users of general purpose financial reporting to assess the connections between various sustainability-related risks and opportunities, and to assess how information about these risks and opportunities is linked to information in the general purpose financial statements. 
ESRS 1: The undertaking shall adopt presentation practices that promote cohesiveness between its sustainability report and: (a) the information provided in the other parts of the management report ... (b) its financial statements; and (c) other sustainability-related regulated information. …
 
The implication for organizations is not to be underestimated here. Some might see it as an elevation of the role of the CSO to the level of the CFO. Others might see it as the gobbling up of the CSO by the CFO. Either way, it will be interesting to see how this develops in corporate organization structures. Both standards are saying that the sustainability voice must be heard more clearly. It’s no longer just about disclosure. It’s about strategy that, for the first time in many companies, should actually integrate sustainability thinking, and not as a series of projects (emissions reduction, diversity and inclusion etc.) but as a way of doing business through the entire value chain and reflecting the interconnectedness of it all on society, the environment and on the sustainable profitability and growth of the company. No more part-time sustainability leadership. No more adding it on to an already busy executive’s to-do list. The new standards give more oomph to the role of sustainability leadership in an organization and it must be resourced appropriately.
 

History Lesson Over. Enter Goals, Pathways and Glidepaths 

The sustainability report as a history book is now a thing of the past. Sustainability disclosures of the future are expected to be a set of promises, a pathway to deliver and an update on progress. The TCFD four-part model of Governance, Strategy, Risk Management, Metrics & Targets has become a useful role model, leading to more of a forward-looking disclosure than has ever been common practice. ISSB’s draft Climate Standard IFRS S2 adopts this approach in full, possibly an indication of things to come in future ISSB standards. The ESRS standards also emphasize the need to report on the future: ESRS 1 When defining its action plans and setting targets, the undertaking shall adopt time horizons that reflect its strategic planning horizons and resource allocation plans. Also, in ESRS_E1 Climate Change standard, companies are required to disclose plans to ensure the business model and strategy are compatible with the transition to a climate-neutral economy and with limiting global warming to 1.5 °C in line with the Paris Agreement. 
This is another good development. Way back in 2018, when we all lived in a very different world, I wrote about the importance of targets in sustainability reporting. I continue to find many reports that talk a great sustainability story but do not back it up with clear commitments. And I don’t mean just an emissions or energy efficiency target, but a set of targets that underpins strategy and promises progress across a range of environmental and social impact areas. But if in 2018 I talked about setting targets, today, it’s about setting targets AND (alert: jargon ahead) transition pathways. We all want to know not only what your target is, but how you plan to deliver. 

There is SO MUCH MORE to say about these new standards proposals. I didn’t even mention the new Climate Disclosure Rules of the SEC. I am hoping to carve out enough time to post detailed analyses and commentaries about the ESRS and ISSB drafts, and the SEC new rules in the coming month or so. In the meantime, on the whole, the developments are positive. They are raising the bar for sustainability disclosure and driving the integration of sustainability thinking and practice to become the new business as usual. While I believe the ISSB standards are not tenable as disclosures for stakeholders (as opposed to shareholders), they were never intended to be. On the other hand, ESRS has totally gone to town with their standards: 560 pages of detailed requirements and guidance may be just a little too much for companies to handle. 

And will all this make life easier for reporters? Hmmm, not so much. The interoperability approach only goes so far and there will still be multiple and more extensive disclosure demands. New legally-binding standards will require greater compliance effort than the largely voluntary disclosures to date. Digitization with new taxonomies, assurance and scenario analysis will add new challenges to the mix. 

Ultimately, the question is whether all this information will actually be used in a meaningful way to further us along the path to sustainable investment and a sustainable world, or whether it’s all just spin. Will ISSB make more money for investors in the long run? Will ESRS help make life better for all Europe’s grandchildren? Will ice cream continue to be the solution to everybody’s problems? I know the answer to the last question. The jury is still out on the former two.



elaine cohen, GCB.D: ESG Competent Boards Certified (2021), Sustainability Strategy and Disclosure Specialist, former HR Professional, Ice Cream Addict. Owner/Manager of Beyond Business Ltdan inspired Sustainability Strategy and Reporting firm having supported >140 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, November 1, 2021

Going for G in ESG

For too long, governance has been a grudging afterthought in sustainability disclosure. It’s probably the most boring part of any Sustainability Report. Like gruellingly yawnful. More often than not, it’s selective copy/paste from the Annual Report, with links to the full report. Occasionally, you get a more compelling disclosure from a company that actually injects some passion into the governance arena. You might be forgiven for thinking that the trend of ESG reporting might actually indicate that governance disclosures would be more extensive than in plain sustainability reporting. Not so. In most cases, the governance elements are sparse. Most ESG Reports should be called “ES and a little bit of G Report” or even “ES and hardly any G Report”. 

Not surprising then that the forthcoming fifth Asia Sustainability Reporting Summit, always at the cutting edge of tough sustainability topics, on December 9 and 10 (virtual), will focus on Spicing up the G in ESG. Two half-days of learning and lively debate, with a global speaker line-up and your regular co-chair team of Rajesh Chhabara and Elaine Cohen (me 😊). We will be delighted to hear from Helle Bank Jorgensen, CEO of Competent Boards, the Board and Business Professionals ESG certification program, Judy Kuszewski, CEO of Sancroft and Chair of GRI’s GSSB (Global Sustainability Standards Board), Rajeev Peshawaria, CEO of Stewardship Asia Centre, Singapore as well as from several senior leaders and governance specialists in Asia. See the speaker line-up so far here

As many of you will have noticed, the new GRI Universal Standards published last month expand the governance disclosures required for reporting companies to remain In Accordance with GRI Standards. I covered the changes to governance disclosures when the Exposure Draft was published back in July 2020 in this post: GRI Governance Galore

Let’s recap: 
In the current GRI Standards, at Core level, all you need to do is report Disclosure 102-18 covering governance structure and Board Committees, including those with responsibility for economic, environment and social topics. 

“The reporting organization shall report the following information: 
• Governance structure of the organization, including committees of the highest governance body. 
• Committees responsible for decision-making on economic, environmental, and social topics.” 

With the elimination of the Core and Comprehensive options with the new Universal Standards, companies will be required to disclose ALL governance disclosures in order to be In Accordance.

Most Core option reporting companies report 102-18 minimalistically. The other non-Core governance disclosures – all 21 of them – are mandatory for companies reporting In Accordance at the Comprehensive level – around 20% of reporters according to GRI data. Conclusion: When the Universal Standards kick in in January 2023, 80% of those currently In Accordance at Core level will have to up their game. 

My personal view is that it’s rather overkill and that required disclosures are nauseatingly detailed and go beyond the specific elements of corporate governance that are not addressed by other corporate disclosures. After all, sustainability reporting has a unique purpose. It’s not simply a place to repeat what you have already reported elsewhere. I’d have preferred to see a middle ground – more than now but less than new – as well as a requirement to report changes in (sustainability-related) corporate governance that have occurred in the reporting year. Most of the (old and new) governance disclosure requirements are evergreen policy and approaches, rather than reporting on what’s happened or what’s planned. 

There are 13 governance disclosures in the new Universal Standards (compared to 22 in the current standards) But don’t be fooled. This reduction in the number of separate disclosure items is the result of combining several current disclosures into single disclosures in the Universal Standards. In fact, little has changed, except reordering and tidying up of the language. Companies reporting GRI Comprehensive option (and reporting in full) will not be challenged by the new Universal Standards on governance. Companies reporting Core may well be. 

Here’s my summary of the new governance disclosures in the updated Universal Standards: 

My shorthand: 
  • Current GRI General Disclosures (102 series): GD2016 
  • New Universal Standards: UD2021 
  • Board of Directors (highest governance body): BOD 

Disclosure 2-9 Governance structure and composition: This is the same as 102-18 and 102-22 combined. But the combinations now means reporters must add six sub-clauses that require details of composition of the BOD AND its committees according to various parameters including gender, stakeholder representation, under-represented social groups, competencies relating to the organizations impacts. Oh my, this is almost report all in itself. 
Disclosure 2-10 Nomination and selection of the highest governance body: Description of how BOD and committee members are nominated and selected, including diversity and other considerations. Minor wording changes from GD2016. 
Disclosure 2-11 Chair of the highest governance body: UD2021 includes the requirement to explain, if the chair and the senior exec are one and the same, the how conflicts of interest are mitigated. Split personalities is not an acceptable response (I assume). 
Disclosure 2-12 Role of the highest governance body: This UD2020 requirement combines five GD2016 disclosures (102-21,102-26,102-29, 102-30 102-31) and relates to the BOD role in setting purpose, values, mission and strategy relating to sustainable development and overseeing due diligence regarding management of impacts. Due diligence has snuck into UD2021 quite a lot so you had better start integrating due diligence wording into your reporting. Quite a lot. 
Disclosure 2-13 Delegation of responsibility for managing impacts: This UD2021 requirement combines two GD2016 disclosures (102-19, 102-20). Companies often report this as the sustainability management structure, or sustainability governance. 
Disclosure 2-14 Role of the highest governance body in sustainability reporting: This replaces GD2016 102-32 with a report or explain requirement i.e., if the BOD does not approve the report and material topics, explain the reason. Lack of interest, time, energy, ability to read or watching Grey’s Anatomy are not trust-building reasons. 
Disclosure 2-15 Conflicts of interest: This replaces GD2016 102-25 with slightly revised language and covers prevention, mitigation and disclosure to stakeholders of conflicts of interest. 
Disclosure 2-16 Communication of critical concerns: This UD2021 requirement combines two GD2016 disclosures (102-33,102-34) with slightly revised language. It includes reporting the total number and the nature of critical concerns that were communicated to the highest governance body during the reporting period. Just so that the BOD can’t say they didn’t know, right? 
Disclosure 2-17 Collective knowledge of the highest governance body: Replaces 102-27 and requires reporting report measures taken to advance the collective knowledge, skills, and experience of the highest governance body on sustainable development. Reading their own company’s sustainability report might be a good start. 
Disclosure 2-18 Evaluation of the performance of the highest governance body: Replaces GD2016 102-28 and covers the BOD’s evaluation of its performance in overseeing the management of the organization’s impacts on the economy, environment, and people. 
Disclosure 2-19 Remuneration policies: Replaces 102-35 with little change. This is the place to show how the remuneration of your BOD actually aligns with your sustainability objectives. 
Disclosure 2-20 Process to determine remuneration: This UD2021 disclosure combines 102-36 and 102-37 and covers the process of designing BOD remuneration policies and who is involved and stakeholder voting on remuneration. 
Disclosure 2-21 Annual total compensation ratio: This UD2021 disclosure combines 102-38 and 102-39 and requires reporting of the ratio of the annual total compensation for the organization’s highest-paid individual to the median annual total compensation for all employees and the percentage increase of same to the median percentage increase of same for all employees. This is a much simplified version of former requirements which referenced not only the top dog but also the top dogs in each country of significant operations. 

Now for some examples:

Dow Corporation 2020 ESG Report

This is one of the few reports that applies the Comprehensive option of the GRI Standards. Dow reports on each governance disclosure with due attention and completeness in the body of the report – not sliced and diced from different publications.


For example, current GRI 102-22, soon to be Disclosure 2-9, includes detailed composition of the Board of Directors by age, role, experience and expertise. There are even headshots for good measure.

Pay ratios, one of the more sensitive elements of sustainability reporting, is also clearly reported.


Infosys ESG 2020-2021 Data Book

Infosys also reports GRI Comprehensive option and the governance disclosures are partly in the ESG Report, partly in the separate ESG Data Book and partly in the Annual Report.  

The Annual Report includes a 40-page Governance Report which is incredibly detailed. It took me quite some time to locate one or two of the specific GRI-based disclosures, but I got there in the end. Mostly, it was easy, even if it meant straddling three different documents.

Hankook Tire 2021 ESG Report

Hankook always delivers detailed, clear and meticulous reports, using the GRI Comprehensive option. This is the only company I have observed actually publishing a set of governance targets in its three-page governance coverage in its ESG report. 


I looked at more than 100 reports from global, large, small and unlisted companies in preparing this post to see if I could find a really exciting or impressive disclosure on corporate governance. Nada. There are some that are nicely designed with graphs and pie charts, a few with Board photos, a few with tables and charts. This one from Genting Plantations Berhad is a little more pleasing to the eye than plain words on a page.  


Most governance disclosures remain general, minimal and uninspiring. Going for G in ESG will require a step change in transparency for many companies. Spicing up the G will require a step change in thinking. I foresee a global shortage of ice cream as companies struggle to get more transparent on governance. Everything is better with ice cream.





elaine cohen, CSR consultant, Sustainability Reporter, HR Professional, Ice Cream Addict. Owner/Manager of Beyond Business Ltdan inspired Sustainability Strategy and Reporting firm having supported 119 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

Tuesday, January 5, 2021

21 Sustainability Reporting Nuggets for 2021

So, 2020 is now over (YAY!!!) and we all eagerly await a reportful 2021 that will bring us closer to peace and harmony, the eradication of COVID-19 and achievement of the 17 Sustainable Development Goals. Everyone is publishing summaries, trends and predictions, so the CSR Reporting Blog will stay clear of that. Instead, we will start off the New Year with some interesting things about Sustainability Reports that may provide inspiration or perspiration for all reporters planning their first or next cycle.  

I will draw my examples from about 100 recent reports from the U.S., UK, Japan and Germany - reports delivered to me as part of an excellent service provided by ESGSpectrum.com - a fabulous organization that provides all forms of analysis, research and a range of customized information relating to my second favorite topic - reporting! (You all know what my FIRST favorite topic is. No hints. 🍦).  

I will also include a few nuggets from my recent review of about 130+ sustainability reports from Asia - having spent quite some time over the past couple of weeks in my regular annual role as a judge in the Asia Sustainability Reporting Awards, now in its sixth year. I judge all categories (except digital reports, because I always prefer to read a PDF rather than a website, and integrated reports, because I don't like to fish for sustainability content). While judging so many reports is a big investment in time, it's also an entire education and a source of much inspiration - the dedication, effort, creativity and innovative thinking that goes into every report (yes, some more than others) always inspires me. First reports today are getting slicker than ever, SME reports are more mature, and some of the leading reports are just plain awesome - not only because of the quality of the reporting, but because of the depth and breadth of performance they reflect.

You cannot deliver a meaningful sustainability report if you have not completed meaningful thinking about your approach and started to take meaningful action, whether you have been reporting for 20 years or just one or two. I believe the value of sustainability reporting is grossly underestimated (more on that another time) and whatever the outcome of the MegaWars on ESG Disclosure (more on that  another time too),  sustainability reporting is a catalyst for performance, a platform for dialogue and an empowering process. 

Nugget #1: Make targets your target
The more reports I read, the more it astounds me how companies can produce pages of strategy, materiality assessments, stakeholder engagement and inspiring declarations about their dedication to sustainability in the CEO letter and other sections of their report and yet, there is a conspicuous lack of concrete commitments in the form of targets. A strategy with no targets has no substance. A commitment to sustainability with no specific path to deliver on those commitments has no credibility. A report that only looks back at what was done is a history book. Today's reporting must be responsive the needs of users to understand how companies will make progress, improve their impacts and contribute to a sustainable future. 



WH Smith has 15 specific targets supporting 8 broad issue categories. The nice thing about this presentation is that WH Smith defines each target and how it will be measured. Some targets are explicit - for example, "purchase 100% of electricity from renewable sources by 2021 in the UK and by 2025 internationally" while some are less so, for example, "increase the diversity of our senior management team across race and gender" (as measured by % of positions held). WH Smith does not specify a target percentage of diversity to be achieved, but this is nonetheless a clear, measurable commitment. 

Greencore's inaugural 2020 Sustainability Report also demonstrates clear commitments through a set of measurable targets.


Some companies commit to environmental targets only - which I find strange. While environmental topics are generally more readily quantifiable, social aspects are also concrete and measurable and we should expect them to be treated with the same degree of robust planning and commitment. Perhaps the new enlightenment that COVID-19 has brought will elevate people and social commitments and targets in 2021 publications.

Nugget #2: Google Translate is wonderful. But not that wonderful.
First, I have great respect for companies that translate their reports for us English speakers, and some translate into other languages as well. But, if you are going to make all that effort to provide a translation, then Google Translate just doesn't cut it. Invest in a proofer whose mother tongue is the language you are serving up to your readers. Although language bloops are amusing, sometimes even charming, they project a lack of professionalism or thoroughness. Here are some from reports I have recently looked at - I'll not mention any names.

"Commitment to infrastructure development and construction world to the outskirts and remote areas, shows that the construction business opportunity is wide open and long term.

"Input water is used for domestic and industrial purposes. For industrial purposes, the supply water has been always saved as XXX has been using Italian top-notch machines and technology which enable water consumption minimization. For domestic use, XXX has constantly propagandized all staff members about the role of water resources and water saving, at the same time, delivers water saving slogans at tapping pointsand takes measures to warn violations or acts of wasting water."

"Adapting to family culture, it is the dependence, the maintenance of stagnant manners, creating obstacles for the development momentum. Besides the defensive mentality, rudimentary thinking, afraid of risk, leading to afraid of change.

Nugget #3: Navigation tools are not optional 
With PDF's today being read primarily online, it's critical that that they are easy to navigate, especially if they are loooooong. Reports that enable you to flit around from section to section with ease are a delight; they make you feel that the report designers and reporting managers have truly considered you as a report user. Here are some great examples:

Yokogawa Electric Corporation's 2020 Sustainability Report has a fantastic top menu and home button that takes you to the contents page from wherever you are in the report. Each section landing page has its own internal menu, and each topic is hyperlinked. So within a couple of clicks in the PDF, you can get to anywhere or back to anywhere. A pleasure to use this report.  


IFM Electronics' 2019 Sustainability Report, another first report, takes a similar design approach, but this time, it's a bottom menu. Here again, the landing pages contain hyperlinks to the individual sections within the chapter. The 8-blocks icon takes you back to the Contents page. Navigating  this report is a breeze.


Viacom CBS' 2019 ESG Report goes even further. Not only is there a top menu and a hyperlinked contents page, the GRI Content Index is also hyperlinked, and each of the GRI disclosure labels within the report are hyperlinked back to the Index. Now this is a designer that understands report users and has gone the extra mile to make the content fully accessible. Great navigation does not compete with great content, but it does make you more inclined to discover the great content. This is a first report from Viacom CBS  - impressive!





Nugget #4: Great design makes a difference
And, since we are with the designers, let's go on to talk about how great design really does encourage you to discover more of the report content. This always stands out for me as I review more than a hundred reports in a short space of time for the Asia Sustainability Reporting Awards each year. Reports that are appealing from a design point of view are so much easier to review and make my judgy job much more pleasant. I won't give examples from this years' entries so as not to preempt the results but last years report winners in the design category were:

Charoen Popkand's 2018 Sustainability Report, with tasteful use of images and visuals throughout the report that make the text come alive. Side navigation makes it easy to use.





City Developments Ltd 2019 Integrated Sustainability Report takes a clean design approach, with use of color and clear charts and design formats. With hardly any imagery, this report is laid out in a way that is easy to read and navigate.




Hair O' Right's 2018 Corporate Sustainability Report is a beautiful report, reflecting the spirit and promise of the brand, using creative imagery and photos to reflect the clear link between the brand approach and sustainability themes. Easily navigable, this report that has appeal to consumers as well as professional users.




And a few nicely designed recently published reports:

Citrix Systems Sustainability Report 2019 is designed in a most engaging way, using big bold messaging and color and imagery to help the narrative make an impression. You cannot fail to notice the strong statements in this report, and reading the detail then becomes compelling. Nicely navigable, optimistically colorful, carefully crafted, this report design is a credit to Citrix.








Morgan Motor Company Sustainability Report 2020 takes your breath away, whether you are a car lover or not. The images are incredible and all closely curated to align well with the narrative and make this report a pleasure to read. This report has big pages and bold statements in a clear design language that makes reporting an art as much as a piece of disclosure.







Alstria REIT AG Sustainability Report 2019/2020 is creatively designed, using an appealing design language throughout the report - with infographics, creative charts and graphs and photos of Alstria's employees and offices. It's super navigable with hyperlinks throughout that get you from place to place easily. Alstria's prior reports are also a delight to read and use.






NTT Docomo Group 2020 Sustainability Report is well set out and easy to navigate with a detailed top menu and plenty of hyperlinks within the document. There something cultural about Japanese sustainability reporting that demands density of content - no centimeter of space on a page is ever left empty! - and the use of diagrams, charts, process flows and all forms of visuals to illustrate different concepts and programs seems to be mandatory. Some layouts are so dense that you need sunglasses just to look at them. As Japanese reports go, this one is easier on the eye, it's well laid out and nicely spaced, and uses imagery and photography throughout. 
 







Nugget #5: Yes, we want to hear from the Board
Governance has become a significant part of sustainability disclosure these days, and it goes beyond simply stating the Board structure and Committee composition. There is a growing realization that the role of Boards is pivotal to corporate purpose and sustainability strategy, and that it's time for Boards to be more present and visible in guiding sustainability performance and disclosure. No surprise then that the GRI Exposure draft for the General Disclosures includes more governance content than ever before. Reports that introduce the Board, as well as the Board involvement and processes are becoming more prominent. 

Here's a nice example from Acuity Brands' 2020 Sustainability Report. The Board is presented in its entirety, and a commentary from the Corporate Secretary explains how the board has supported sustainability programs in the reporting year.




Nugget #6: Too long is too much
No-one wants a sustainability report that is soooooooooo long, just the thought of wading through hundreds of pages is a nightmare, even if it's a downloadable PDF that's not going to be printed. A report should be a reflection of a year of activity, not your entire corporate history. I am not interested, frankly, in seeing the covers of your last 20 reports, and I am not really interested in your sustainability timeline (unless it's a first report, where we can allow a little more leeway!). What matters is how you improved your impacts in the reporting year and how you will continue going forward. So, clear out all the clutter. Make a nice home for all the non-essential, not-material, not-in-focus information on your website, and link to that. 

Clutter, for me, also includes long sections on management approach. Management approach statements are what I call evergreen content; it changes rarely from year to year. Far better to house your management approaches, policies and position statements on the website, making them accessible to anyone who needs them, and avoiding repetition of this content in every annual sustainability report. 

See this ESG Policy and Positions page on the Johnson & Johnson website (Disclosure: I am proud to count Johnson & Johnson as a client). See some more examples:
Some companies also house sustainability case studies and stories on their website  or corporate blog - see these examples from Abbott and Ansell . Such stories can also be referenced in the sustainability report without having to include the full content, thereby enabling  a shorter, more compact report.


Nugget #7:  Don't forget COVID-19. As if anyone could.
Many sustainability reports published in 2020 already included detailed sections on COVID-19 and the company's response and actions during the pandemic. In fact, hardly any reports published after April 2020 did not include a reference to the company's COVID-19 response. (I purchased a fantastic analysis of COVID-19 in sustainability reports published in 2020 from ESG Spectrum to get a sense of how early treatment of COVID-19 was developing in reporting.)




In 2020, COVID-19 responses were primarily anecdotal and covered the ways in which companies responded to lockdowns, started to Zoom and protected their employees, as well as supporting donations of PPE and other items in their communities. I suspect that reports published in 2021 will address COVID-19 from a more strategic standpoint, encompassing the learning gained in this first year of pandemic response, and new or refreshed programs being put in place to address business continuity, employee health and safety (including mental health) and virtual working, among other things. While it still may be too early to do a full materiality assessment, many companies will be able to draw some conclusions and incorporate this new COVID-impacted thinking into their 2021 planning and disclosure. 

Nugget #8: Disclosure frameworks.. take a deep breath
How many disclosure frameworks can you cram into one sustainability report? Today, companies are disclosing against several frameworks such as GRI, SASB, CDP, TCFD, SDG, UNGC, ISO26000 and/or other local reporting frameworks required by legislators such as the Hong Kong Stock Exchange, and/or sector frameworks such as IPIECA  for the oil and gas industry. And this is without even mentioning the <IR> Integrated Reporting framework that includes sustainability information as part of an investor-focused annual report. How do you decide which of these frameworks to use? The KMPG 2020 Survey of Sustainability Reporting confirmed that GRI is the most widely used framework by reporters across the world (84% of the world's largest 250 companies),  so that's a good place to start. 


As for the rest, you can prioritize them according to (1) what your stakeholders demand (2) what will most usefully help you manage your impacts and (3) what will help improve your competitive standing,  reputation and trust. 

Nugget #9: Diversity is more than gender
I am not even sure why gender equity is even a part of the diversity discourse. Gender is a topic in its own right, and dumping gender in the diversity bucket seems to me to be an insult to women everywhere. With women representing around 50% of the population in most countries, the opportunities to advance women are there for the taking. I believe the focus of gender equity is now less on the number of women in the workforce or in management. I think it's more about the number of women that are actually making a difference in the business at the highest levels in revenue generating or technical roles - not only Human Resources Managers or administrators - and its about the processes in place to ensure women are heard and counted and, of course, paid on the same scale as male counterparts in similar roles. It's interesting that the UK gender pay gap reporting law has caused global companies to share their data for UK operations only; for companies that are serious about gender equity and pay parity, I would expect them to disclose this across their global operations, not just in the UK. I think this may be a differentiating factor in future. 

But, diversity is more than gender. And I don't care how many nationalities work at your company either. It sort of stands to reason that global companies will employ a global workforce; the fact that you employ people born in different places is rather meaningless to me. Racial equity has now become an agenda item, given events of 2020, and sustainability reports have now become home to new and stronger declarations in this respect, especially in the U.S. 

Charles Russell Speechlys' first Responsible Business Report includes a page on religious and ethnic diversity. 


Estee Lauder's 2020 Citizenship and Sustainability Report commits to act on racial equity.


Avis Budget Group 2020 Sustainability Report also devotes a section to BLM: 




Nugget #10: The CEO is not a puppet
Don't let the CEO statement be a plastic PR piece. Make it count. The CEO Statement sets the tone for the entire report, some people may read only the CEO letter. Don't make it full of clichés and platitudes and inane statements about how proud everyone is and how embedded sustainability is. As a business leader, the CEO is expected to address sustainability both from a business perspective as well as from a purpose perspective. A CEO letter that talks only about sustainability strategy and aligning with GRI just doesn't ring true. And if it's true, the CEO is not doing her job. And a little personal insight goes a long way here too.  

The Brand President of Icebreaker sends a very personal and seemingly authentic message about the role its company is playing to advance sustainable fashion in Icebreaker's 2019 Transparency Report.



Nugget #11: Stock images should be left in stock
If there is anything that crushes the credibility of sustainability reports, it's stock images of plastic people in a range of plastic poses. They do not represent your company, and in that sense, they are misleading. Stock imagery, in my view, erodes the credibility of your reporting. Far better to use images of real people in your business, real operations, real business and real life. If you have no images, then use a few icons and some design elements - there are many great reports that have no photos at all - but do not sink to the depths of imagery that destroys your message. 

Here are some real-people images from recent reports


Avis Budget Group 2020 Sustainability Report

Morgan Motor Company Sustainability Report 2020


Mauser 2019 Sustainability Report

Nugget #12: Don't make your report a danger zone
If there's anything that frustrates me when reading reports it's vertical text. I can't read vertical text. It hurts my neck. Once, I tried to stand my computer screen on its end so that I could read vertical narrative, and ended up dislocating my shoulder as well. I know that Chinese and other Asian languages are written vertically, and that obviously works for reports in those languages. But if your report is in English, please do not make me stand on my head to read it. A recent example...


Nugget #13: Make materiality material
Oh, that materiality thing again. It's simple. If materiality is so material, it needs to be obvious. If you have gone to great lengths to develop a materiality matrix, or a list of material topics, then these topics need to be discussed in your report. The materiality assessment is not conducted in a vacuum. Originally, it was intended to provide the basis for disclosure - although now it's seen as a tool to develop strategy as well. But if you indicate material topics, make sure we know where to find your disclosure on material topics in your report.  

This 2019 Sustainability Report from ZF Friedrichshafen does it very clearly - by listing the material topics using GRI Standards. The report itself is mainly one long GRI Content Index with all disclosures ordered in the way they appear in the GRI Standards. This is an approach occasionally used by reporters; it's not my preferred approach (what if you have a material topic that doesn't quite fit the GRI prescribed set of topics?) but it does demonstrate rigor and makes it easy to find the disclosures in the report


Nugget #14: Ice cream is critical to sustainability reporting
Yes, stock up and make sure you consume lots of ice cream during the reporting season. How else will your report turn out to be fantastic?

Nugget #15: Your employees are your audience
Before the launch of any sustainability report, you should have an internal communication and activation plan that ensures that employees not only know your report exists, but actually take some time to dip into it, and even discuss its contents. In today's world, employees want more than a career, they want a career that helps them make a difference. Research from Glassdoor shows how prevalent this has become.


So engaging your employees with your sustainability reporting can support attraction of new employees, retention of existing ones and motivation and productivity across the organization. Employees are also your ambassadors, and the millions of touchpoints they manage each day with external stakeholders are opportunities to get your message through. It can be something as simple as "Read our latest sustainability report" in an email signature, or something more invested such as a proactive discussion with a client or NGO or supplier on what matters most. Remember that employees are also consumers, neighbors, activists and many are also investors, directly or indirectly, so the report is for them on more than one level. 

But, most importantly, employees are the ones who really know what's going on. They live your company day-in day-out. If your sustainability report presents a picture of a company they do not recognize, Houston, you have a problem. The more you engage employees in activating your report, the more value you as a company, and they as individuals, will gain from it. 

Some reports include a commentary from the Human Resources leader in the company. 

Armacell Sustainability Report 2019


Cisco CSR Impact Report 2020

I always appreciate Human Resources leaders starring in sustainability reports, because, since the publication of my book on CSR for HR, many moons ago, and the mantra I developed at that time: It is time for HR to wake up to CSR!" , not an awful lot has changed. Human Resources should be proactive partners in advancing sustainable practice; instead, many are  laggards and blockers. Noticing HR leaders in sustainability reports is always a little glimmer of optimism.

Nugget #16: Defining the process is more than saying there is a process
GRI reporters know that the Standards require not only a list of material topics, but also a description of the process through which those topics were developed. And here we have the biggest hole in sustainability reporting that was ever dug. What are the key elements of a process? What are the criteria used for decision making at each stage of the process? How are topics prioritized? What is the relative weighting given to different stakeholder voices? So many questions about process ... and very few are answered in sustainability reports. At best, the process tends to be summed up in ways that basically amount to: 
  • We mapped the universe and came up with xxx (some very high number)  total topics
  • We surveyed our stakeholders and incorporated their input
  • We had a management discussion and prioritized the topics
In most cases, we are left with no understanding of whether there was an actual process, who was involved, who influenced and how decisions were made. And yet, materiality is so pivotal to sustainability reporting. I look for companies that provide greater insight into the development of the list of material topics they are reporting against. Here are two examples:

Ferrero provides a robust description in its 2019 Sustainability Report. Ferrero uses Datamaran (the innovative software ESG and risk analytics platform) to scan the topics universe. What's nice about this process is the combination of technology to identify and validate topics, as well as internal discussion and judgement. There is a high-level description of how topics were prioritized, and that's good to see. The materiality assessment is also approved by the Audit Committee of the Board of Directors. (As a bonus, Ferrero confirms using this materiality assessment as the basis for its sustainability strategy, not only for its reporting. They must have read Nugget #13!)



Telstra's 2020 Sustainability Report also provides a detailed discussion on the way material topics were evaluated  and prioritized this year including (already!) the impact of COVID-19. The discussion also provides a perspective on the change in methodology and the differences from the previous materiality assessment. 



Nugget #17: Format makes a difference
Remember that most of the time, your report will be read on a screen and not as a printed document. Therefore, your design should be screen friendly. To me, that means that it's easy to scroll page by page, and that the font should be big enough (but not oversized) to read at 100% scale without having to keep enlarging the document. A horizontal A4 format seems to work best. 

This is a page from Kingfisher's 2019/20 Responsible Business Report at 100% on my screen. It scrolls nicely page by page, and the clever use of font sizes makes for a positive reading experience.



Nugget #18: Let them tell your story
I like to see external stakeholder voices in sustainability reports. I know how difficult it is to get external quotes and commentaries approved, and I always think that companies who manage to do that are showing the strength of trust in them and the relationships they maintain. External voices should not be gushingly flattering, but should be pertinent and insightful. Most companies will include quotes from customers or community partners or commentaries from third parties. An example is that for several years now, I have been reviewing and providing commentary to a fabulous company in the food sector - Ajinomoto of Japan. Together with those of other commentators, my commentary is published in full. I submit my independent commentary (for which I am paid, for the sake of full disclosure) and it is published in full with no edits or changes. No-one tries to influence my commentary in any way. I write what I think is a fair review and include areas that I feel could be explored in more depth in Ajinomoto's disclosure. I find it very interesting to read the commentaries of the other three or four experts that provide them in each annual report. Here are my commentaries from the 2020 Ajinomoto Sustainability Data Book.







Nugget #19: SDGs are more than goals
I know it's popular to report your alignment and support for the SDGs. Generally companies select a small number of SDGs and show how they contribute to sustainable development. There is a wide variation in how this is done, though it inevitably always involves many icons. The point here is that I think we are getting beyond the stage of simply saying that because you are a food producer, you are contributing to SDG#2, Zero Hunger, or a healthcare company contributing to SDG#3, Health and Wellbeing, or even better, because you employ women in your business, you are contributing to SDG#5, Gender Equality. More than 5 years into Agenda 2030, I think we are expecting a more considered disclosure from companies, at the level of SDG targets not goals, and at the level of specific actions being taken to advance sustainable development, beyond business as usual. Sonic Healthcare's 2020 Sustainability Report shows how it's done.




Nugget #20: Avoid reportspeak
What's the most overused meaningless catchphrase in Sustainability Reports ever? EDF Energy even put it on the cover of its Sustainability Report ten years ago.


And it's still going strong:

"I am proud of our achievements so far and optimistic about our future." Luxfer 2020 ESG Report, CEO letter

"As ENERCON’s Management we are proud of the company’s success so far. However, we acknowledge that great challenges lie ahead." Enercon Sustainability Report 2019, Management Statement 

"We are proud of what ARA has achieved over the past few years, and we have ambitious plans going forward..." ARA Sustainability Report 2019, CEO Statement


Let's not forget another old favorite that comes in several variants: Sustainability is in our DNA, or, sustainability is embedded in our company

"Sustainability is embedded in our everyday work Armacell." Armacell Sustainability Report 2019, CEO Statement

"As a global insurer and responsible investor, sustainability is part of Allianz’s DNA." Allianz Sustainability Report 2019

"Epson is well placed for all these new challenges. Sustainability is in our DNA.Epson Europe Sustainability Report 2019/2020

"Whether it’s a natural disaster or a global pandemic, being on the frontlines of serving our communities through crises is in our DNA." Lowe's 2019 Corporate Responsibility Report, CEO letter

"Environmental stewardship is embedded in the Trex DNA..." TREX ES&G Report 2019, CEO letter

"For Marimekko, sustainability is part of our DNAMarimekko 2019 Sustainability Report

Phrases like these have been used so many times that they are, frankly, a bit of a turnoff. I don't think companies have a DNA, despite practitioners that might think otherwise. I think a company's culture is only as strong as its current leadership and the process in place to sustain it. For me, talking about what's in our DNA is an invitation to prove it is not. Similarly, "we are proud of what we have achieved but there is more to do" is a waste of space. Who cares?  We know there is more to do, there is always more to do. Being proud is nice (check out how many times the word proud appears in Sustainability Reports), but I find it a little out of place. As report users, we are less interested in how proud you are and more interested in how productive you are. 

There are hundreds of other reportspeak phrases that reduce the credibility of your report. Best to avoid them.  

Nugget #21: Behind every report is a reporter
I believe that every report is an achievement and is the product of significant investment in time, resources and usually, one individual that really makes it all come together. It may be a team effort, but the reporter is the team leader. That person deserves admiration and respect. S/he is probably working under many constraints, possibly many areas of sensitivity and disagreement, maybe inadequate data collection processes and probably limited resources. Leading the development of a sustainability report is a major accomplishment, as any reporter will tell you, and requires a very unique skillset. I admire everyone who does this and I value every report both for its content and also for the efforts made to deliver it. I have learned not to dismiss any report that I find less impressive or below standard, because I believe the reporter did the best s/he could in whatever context the report was developed. Thank you to all the reporters from whom I took inspiration for this post.

I'd like to see more reporters named in reports, both as a measure of recognition and also as a way of reinforcing accountability. 

Ineos Styrolution Company goes the full Monty in its 2019 Sustainability Report by naming all those involved in the sustainability committee. 



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Well. That was a long post! I think I almost broke Blogger. Congratulations if you got this far. Even I almost gave up half way through.  We Me at the CSR Reporting Blog hopes there is something here that might be of use in the 2020-2021 reporting cycle to some of you out there. 

In the meantime, stay healthy, stay safe and stay optimistic!




elaine cohen, CSR consultant, Sustainability Reporter, HR Professional, Ice Cream Addict. Owner/Manager of Beyond Business Ltdan inspired Sustainability Strategy and Reporting firm having supported 119 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





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