Interesting times for Sustainability Reporting

The next few years are looking interesting, we might even say exciting, on the sustainability reporting front. Two significant step-changes in reporting that we know we can expect are (1) the GRI G4 guidelines and (2) the Integrated Reporting framework. Last week, I attended the GRI webinar for Organizational Stakeholders where Nelmara Arbex, the Deputy Chief Executive of the GRI, took us through the paces on the way GRI is approaching both of these major developments.

The G4 - next generation of GRI guidelines

G4 is the new improved ! GRI framework which is scheduled for launch by 2013 for use in reporting probably during 2015. The process of developing the G4 will be the GRI's familiar multi-stakeholder process whereby broad consultation over a prolonged period will lead to the development of a final G4 draft by the end of 2012. G4 has ambitious objectives, designed to meet several needs as GRI expects to ramp up the number of companies reporting over the next few years. Whilst reporting has made massive headway, particularly amongst the larger public companies, the fact remains that upwards of 80,000 public companies have not chosen to disclose sustainability information. 

The G4 identifies two broad goals: improve the G3, and prepare for scale-up. This is how Nelmara Arbex presented the objectives:

Improving G3: 

• Provide better guidance on how to report on governance issues
• More robust definitions to better support assurance processes
• Updated sustainability scope
• Guidance related to current stages of normative frameworks such as UNGC and OECD reporting guidelines
• Revision of the current Application level definitions

Prepare for scale up:

• Offer a variety of flexible reporting elements for use by reporters dealing with different requests
• Develop a user friendly format
• Link to the International Integrated Reporting Committee framework
• Link to broader ESG reporting requests and ESG information users 

Much of this might look like sudoku to you at this point, so let me try to fill in a few blanks from my own perspective.

G4 is the right direction

I will start by saying that I agree the G4 is the right way to go, and that there are many ways the current framework can be upgraded and modernized. As the GRI gains ground and becomes the de facto single reporting standard in the world, the name of the game will be not only to report on sustainability but also to do so in line with the GRI framework. As reporting "scales up" to achieve the aspirational mainstream, it makes absolute sense to reposition the common denominator and provide a platform which enables what we all want - a fair and balanced reflection of a company's sustainability performance and material impacts on all stakeholders in a way which is auditable, comparable and aligned with the business results. Additionally, disclosures should be accessible and presented in a way which makes it easier for stakeholders to use the data in a range of decision making tools.

Updated sustainability scope

The G3 is long and detailed but not long and detailed enough. The GRI's aspiration to "modernize" the G3 by including new sustainability issues which have emerged more visibly during the last five years since the G3 was developed in 2006 is absolutely relevant. Some issues have become more important such as the entire approach to water management whilst some represent new territory for the GRI such as the question of internet privacy and online exposure and intervention of corporations on social media, as well as a company's approach to managing employee presence on the world wide web. Other issues are not specifically covered in G3,  and I believe should be considered, such as the issue of road safety and how companies manage employees who spend a lot of time on the road for work purposes, a significant source of fatalities and other accidents which endanger not only employees but the general public. Many Sector Supplements  have been developed during the past 5 years and it may be that some indicators which have been identified via a single sector should be mainstreamed into the overall framework. My recent editorial for CSRwire.com refers to the mushrooming of sustainability fragments - specific industry associations that address single aspects of sustainability common to industry groupings - and it may be that these are also throwing up issues that G4 should address as basic opportunities for a common approach to disclosure. Updating the sustainability scope, providing the broadest possible scope for companies to report against the indicators which are material to them, is therefore a challenging but worthy objective for G4.

Improve the robustness of the GRI framework application

It is painfully obvious that many Sustainability Reports that have not applied the framework  lack rigor and balance. Regrettably, this can also be said of many who do use the framework, given a widespread lack of attention to detail when reporting on specific indicators. Far too often we find a GRI index at the back of a report which is neatly ticked off as fully disclosed only to find that, after detailed scrutiny, there is some fuzzy blurb which does not meet the requirements of the indicator. This is not helped by the hands-off approach by the GRI. The GRI Application Level Check, whilst very useful in providing an element of rigor in how the framework has been applied, only covers a small portion of the disclosures in any report and entirely skips over the quality of the assurance process.  Given that the GRI framework is not positioned as a "standard"  in the same way as ISO standards, for example, but as a helpful  tool for organizations, the GRI has distanced itself from any kind of "policing" or auditing of the use of the GRI framework, leaving the door wide open for all of the 1,500 users of the framework to "self-declare" pretty much anything they like. Sustainability is about impacts (outcomes) and not only inputs (actions), and as the GRI framework is the gold standard of how to report on sustainability (outcomes), I believe there has to be a greater connection between what companies are saying they are reporting and what we can actually find in the report. Therefore the GRI ambition with G4 to improve the framework to enable more rigorous assurance is a good objective of the G4 process.   

Provide a solution for harmonizing of reporting

As attention to sustainability has grown, so has the number of users of sustainability data, ranging from investor-targeted analysis and players in the financial markets, but also large companies who have understood that the sustainability of their business is linked to the sustainability of their broader supply chains. Companies such as Walmart and many others require sustainability data from their suppliers. Focused initiatives such as the Carbon Disclosure Project require data in a specific form. Local regulators are now requiring companies to include sustainability data in annual reporting. The UNGC and the OECD with whom the GRI has formed alliances, have their own reporting requirements as well. The plethora of requests to disclose that any company has to deal with is now becoming overly burdensome. The G4 aspiration is that reporters will be able to kill 43 birds with one stone and  cover off all bases with one set of guidelines. Harmonization should utopically make it possible to ensure all the data anyone might need is contained in one report. This is massively challenging but if achievable, is well worth the effort.

Revision of the current Application Level definitions

Aah, application levels. This is an interesting and controversial debate. At present, the Application Levels tend to be seen as an indication of the quality of the report, though as we know, the C, B or coveted A represents the measure of transparency, rather than quality. Arguably a more transparent report is of higher quality, but transparency still does not address the quality of the information provided. The gap between the levels is problematic - where a C report requires 10 indicators, a B report requires 20 and an A report requires all 79 plus a published Sector Supplement if relevant. The random selection of indicators, including some which are fairly lightweight and non-material to a particular business, can mean that a C reporter can actually produce a sustainability report without disclosing hardly anything about their true sustainability impacts, and a B reporter may not be much better. 

In my view, the Application Levels are unnecessary. What should be required is a summary table of indicators, in addition to the GRI detailed index which shows what has been reported and where to find it, which presents a quick n' easy overview of how many and which indicators have been reported in full. Profile and Management Approach disclosures should be required for all reports (currently C reports do not require Management Approach disclosures) as should, I believe, a minimum number of core indicators against which all companies should report. In other words, G4 is an opportunity to raise the threshold for all reports. Additionally, reporters should make it easier for us to see what else they have included. In this way, we would have a 45 report, or a 79 report, or a 15 report, or a 23 report, where the number refers to the number of indicators reported in full, in addition to the "pass" level of minimum disclosure. Partial disclosures are a bonus but, in order to achieve harmonization and a realistic assessment of sustainability performance, we need to look at full disclosures against indicators and not only work-in-progress or wannabe disclosures.

Alignment with the IIRC framework

For the uninitiated, the IIRC is the International Integrated Reporting Committee, established in 2010 by the GRI and the Accounting for Sustainability movement to create a globally accepted framework for integrated reporting.   The objective is that G4 should help companies to prepare for managing an integrated process in their companies and produce an integrated report in line with whatever framework the IIRC comes up with. The governance of the IIRC is as shown in the chart below, presented by Nelmara Arbex:

The members of the IIRC working group are predominantly accountants and investment experts, which tends to predict the nature of the output as predominantly geared towards the interests of financial markets, which is a double-edged sword and needs to be managed carefully. One of the objectives is to understand the link between sustainability impacts and financial results, if you like, a kind of platform for the financial ROI of sustainability as it is applies in a given company. This may yield some interesting outputs, but the integrated reporting framework is still a moving goalpost, and the preparatory alignment of G4 with the IIRC expected directional outcome makes sense, provided G4 does not become a pawn in the scheme of increasing the financial wealth of the already wealthy at the expense of other stakeholders.

G4 Technology

Another aspiration expressed for G4 is the use of new technology to make sustainability disclosures more accessible and allow for deeper analysis of data. New tools, ranging from XBRL to online reporting to  iphone applications and direct realtime data feeds to a range of applications could take reporting to another level and give stronger presence to sustainability performance for stakeholders. The GRi has also begun licensing software applications for GRI reporting, and once can understand an interest in these being more widely used. How technology can be used effectively for improved content development, greater accessibility and transparency of non-financial disclosures, as well as providing support for public consultation, is a challenge. Part of this is how the GRI presents the new G4 framework and what technical tools, in addition to a set of indicators, the GRI will provide. Thinking will have to transcend the basic excel tables and PDF's but not force reporting down a mechanical join-the-dots approach, exemplified by the "Let's Report" C level template.

Continue the debate

What's clear, is that the debate will continue, and if you have got this far in this obscenely long post, you might be interested in hearing more of Nelmara Arbex and other throught leaders in this space at a conference in London on 25th March, hosted by Justmeans, called Redefining Value, which I will  also attend. I love a good debate!

I could continue ... and I probably will at some stage ... but in the meantime, is there anyone who doesn't agree that the next few years will be an interesting time for Sustainability Reporting ?

elaine cohen, CSR consultant, Sustainabilty Reporter, HR Professional, Ice Cream Addict. Author of CSR for HR: A necessary partnership for advancing responsible business practices  Contact me via www.twitter.com/elainecohen  on Twitter or via my business website www.b-yond.biz/en  (BeyondBusiness, an inspired CSR consulting and Sustainability Reporting firm)

Emily and my CSR surprise

I love waking up to nice surprises! Today, my nice surprise was Emily, the famous and fabulous presenter of the CSR Minute, announcing the Beyond Business Sustainability Report 2010 on The CSR Minute .

The CSR Minute, now an icon in CSR news communications, is produced by 3BLMedia and is 3BL Media's own daily video digest of the most relevant and timely CSR and Sustainability content all in about a minute. 3BL Media's own correspondent, the wonderful Emily Polk,  reports on the latest CSR trends, topics, and  breaking news every day. See all the daily videos since April 2009 here on the CSR Minute site. Using the weekday calculator, I reckon that it would take only around 182 minutes to view every single CSR Minute news video since the service started to bring you up to date with all the most important CSR headlines during the last 10 months. So get in some popcorn and Chunky Monkey and settle into your favourite armchair to become the most informed person in the CSR world.

For BeyondBusiness, a little consulting firm who makes a big impact, being featured on the CSR Minute is a big deal and we are delighted. Thank you to all the team at 3BL Media for this great opportunity to show the world how small businesses can practice and advance sustainability and do so on a low budget. 

Thank you also to McKesson Corporation , the largest pharmaceutical distributor in North America with a strong tradition of corporate citizenship, delivering healthcare to our communities, for sponsoring this edition of the CSR Minute.

Here is the CSR Minute for 4th February 2010.

elaine cohen, CSR consultant, Sustainabilty Reporter, HR Professional, Ice Cream Addict. Author of CSR for HR: A necessary partnership for advancing responsible business practices Conntact me via www.twitter.com/elainecohen  on Twitter or via my business website www.b-yond.biz/en  (BeyondBusiness, an inspired CSR consulting and Sustainability Reporting firm)

David fights Goliath Thales on bad ethics

Should I be flattered or concerned ? I came accross an interesting (unintended?) use for the the Expert CSR Report Reviews that I regularly publish on CorporateRegister.com. This was a review I wrote about the Thales aerospace and defense company Sustainability Report of 2008 (read it here). My review was critical of the Thales report, referencing the lack of transparency and highlighting  the greenwashy language used in the report. As with all my report reviews, which I write on a voluntary and unpaid basis, of companies with whom I have no personal or commercial relationship. I base my assessment on what I find in the report itself, plus additional review of material in the public domain - company website, previous reports, online news. My reviews are my own independent professional assessment, as a general stakeholder of all companies, and include my impressions of the reports and the way they deliver on content, communication and credibility. Whilst I know my reviews are used in academic curricula, it was quite a surprise to find one being quoted in private disputes between companies and their suppliers. However, this has happened in the case of "DataSonic versus Thales".

A company, DataSonic Ltd UK, which was established with the support of Thales to supply proprietary specialist training systems, was allegedly forced to cease trading as a result of a personal vendetta by a Thales Purchasing Manager who cancelled partially-fulfilled orders, reneged on agreements worth quite a lot of money to a small supplier and claimed rights to designs owned by the supplier. Allegedly, complaints to Thales did not yield any reasonable conclusion of this issue and Thales continued doing their stuff whilst this small supplier went out of business and the owners suffered significant personal financial hardship. The former directors of DataSonic, David Giles and Matthew Pitt, have published a website called EthicalThales which describes the story in all its gruesome details and personal profiles of all the Thales people involved, accusing the company of stealing, lying and cheating.

Hmm. My thoughts on this:

The ethical behaviour of corporations almost always comes down to the individual behaviour of a single person in the organisation. Any unethical process or practice can always be traced back to one person. One person, therefore, has the power to make or break the ethical reputation of any company. In this story, one person is cited as being responible for a series of unethical practices which have now become public. Whether this will make a big hole in Thales' reputation or not remains to be seen, but it's certainly something that investors, managers, employees and other suppliers will not relish reading. The value of embedding ethical behaviour right down to the last employee, and ensuring that ethical practices are positively unpeld in the business by all employees, is  critical, as this sad story shows. 

The ethical behaviour of big businesses can often be measured by the way it treats small suppliers. Small suppliers have few options to ensure they are treated ethically by big customers if the big customers themselves do not behave ethically. Payment terms, timeliness of payments , ordering procedures, complaints handling, dialogue, behaviour around price tenders, confidentiality of information, rights to intellectual property and more are issues which can make or break small suppliers, who do not have the bandwith to fight court battles on each of these issues. As a small supplier myself, I know only too well how cashflow management can be nightmarish if large customers so not pay on time, or how price-squeezing by multi-million $ companies can force us into agonizing decisions about whether or not to offer suicide prices just to get the business, or how non-negotiable payment terms means we are funding our large customers with our own (expensive) credit  (one large client, who I now do not do business with, unilaterally advised me of payment terms "current month plus 94 days", after accepting our offer based on regular current plus 30 days terms, and after the work had been done - meaing work that we did in Month 1 was actually paid in Month 5!), or how we are given the runaround, attending several meetings and discussions in the course of providing offers for our services, only to find that subsequent decisions are made based on non-commercial factors, such as personal relationships. As a small business, when this happens, we learn and move on, refusing to do business with suppliers who are unethical, and trying to ensure our exposure is never such that one big company can bankrupt us. However, this is a lesson some learn the hard way. DataSonic was apparently very dependent on the Thales business  and was not able to recover from a major change in policy and alleged defaults on commitments. In this case, I can understand a small supplier who has been burned resorting to the internet to publicise an ethical issue which apparently no-one else takes any interest in, and the accused company refuses to engage. Purchasing process is a key element of CSR and ethical purchasing practices are a very telling aspect of corporate behaviour. All companies must ensure Purchasing Managers behave in accordance with ethical standards. The boomerang is never too far from returning home.   

No issue is a small issue in CSR terms. Everything counts. A small issue can be symptomatic of bigger issues. Or a small issue can grow into a big issue. Therefore CSR-minded companies cannot afford to leave small issues to fester. Things need to be resolved to adequate solutions. As a qualified mediator, I have often found that mediation can be a very positive tool in disputes such as these. Refusing to engage, without closing out issues in a respectful way, can only place strain on an organisation in ways it might not fully anticipate.  

Should my report review be "evidence" supporting the case of the small supplier against the big customer? At one level, I am flattered to see that my reviews are being read and quoted. At another level, I am a little concerned that my review is quoted in this context. The anti-Thales website states:

We are not alone in questioning the validity of Thales 'ethical credentials'.  Written in 2010 and without our first hand experience, an article by Elaine Cohen of BeyondBusiness Ltd suggests "there is little evidence, beyond rhetoric, of embedded processes and practices".  This reflects our direct experience precisely; read the full text here. 

  

I must point out that I did not question the validity of Thales "ethical credentials". I  criticized the quality of their Sustainability Report. This is not the same thing. I am not sure I am happy with my reviews being used in this way which I feel is a touch misleading.

Things are not always what they seem. There are two (or more)  sides to every story . The anti-Thales website tells one side of this painful issue (though a letter from a former Purchasing Manager at Thales appears to give DataSonic's claim some legitimacy). Whilst the alleged facts and figures are presented from the point of view of DataSonic, in rather emotional style, what actually went on may be a combination of other factors as well. I do have sympathy with a small supplier who is obviously suffering significant pain and can undertand how such situations come about. It will certainly be interesting to know if the EthicalThales website generates any response from the company and what action ensues.    

I will continue, of course, to write my report reviews. I just hope I don't get hit with a subpoena one of these days :)

elaine cohen, CSR consultant, Sustainabilty Reporter, HR Professional, Ice Cream Addict. Author of CSR for HR: A necessary partnership for advancing responsible business practices   Contact me via www.twitter.com/elainecohen on Twitter or via my business website www.b-yond.biz/en (BeyondBusiness, an inspired CSR consulting and Sustainability Reporting firm)