Friday, March 9, 2012

7 material issues for the GRI to consider

Hot off the press is the GRI's latest Sustainability Report for 2010/2011 at Application Level A, covering the financial year 1 July 2010 to 30 June 2011. This time, the report contains a summary of prioritized material issues based on a stakeholder survey. This is the first GRI's own sustainability report to be based on the G3.1 Guidelines and the NGO Sector Supplement. The report is 33 pages long, supplemented by 26 pages of GRI Index and 14 pages of Annex, in which most of the quantitative data in response to performance indicators is reported.

Last year, the GRI GRI report was not terribly impressive and left big gaps in our understanding of the true impact of the GRI's performance in driving sustainability reporting. (See a post by Antonio Vives, Sustainability Guru, for a great summary of the issues). This year, efforts have been made to respond to the critics and take on board stakeholder feedback in three key ways:
- An online stakeholder survey to which 159 stakeholders responded.
- A review by a newly-established External Feedback Committee composed of five members selected by the GRI.
- Inclusion of disclosures relating to the NGO Sector Supplement indicators relating to Program Effectiveness.

The online stakeholder survey yielded eight key aspects of GRI impacts that are most material - these are all specific GRI indicator heading such as "training and education" or "marketing communications". This still does not get to the real, meaningful, material issues, in my view. It seems like a list of indicators which 159 individuals consider to be more important than other indicators. Materiality should be about specific issues relevant to specific stakeholder groups relative to a specific business - otherwise they remain generic and do not contribute to stakeholder understanding. Take a look at the way Vodafone presents materiality which I wrote about in a previous post.

As a GRI Organizational Stakeholder with a passion for Sustainability Reporting, I would consider several issues to be material:

The impact of sustainability reporting - how many companies report ?
The GRI, in 2010, announced a target: "By 2015, all large and medium-size companies in OECD countries and large emerging economies should be required to report on their Environmental, Social and Governance (ESG) performance and, if they do not do so, to explain why." After two years, and with three years to go, I would expect to read about the GRI's specific progress towards this target in the Sustainability Report. There is reference to much that GRI is doing in the framework of "Report or Explain" activities. There is reference to an increase in the number of large global companies which report (95% of the G250 in 2011 according to KPMG research versus 80% in 2008) and this can definitely be attributed, in part, to the good work of the GRI staff.   The overall number of sustainability reports published appears to be increasing and has done so every year for over a decade. These are great achievements. And yet, reporting still remains below around 10% of the target companies globally. Is this really mainstream or is it just talking mainstream?

There is something to be said for increasing awareness of Sustainability Reporting and in this sense, the GRI has made a pivotal contribution. Collaboration with the Organisation for Economic Cooperation and Development (OECD), the United Nations Global Compact (UNGC), the United Nations Environment Programme (UNEP), and the International Standards Organisation (ISO) has indeed created awareness platforms for the GRI Framework, reaching many channels and geographies. No doubt this awareness, as well as the work that the GRI does with governments around the world, is getting the message, at least in part, through to the regulators. Nonetheless, how many OECD governments currently require ESG performance reporting? The GRI reports on its advocacy activities, but not on their impact.

The outcome of sustainability reporting - does it make a difference?
The vision of the GRI is "A sustainable global economy where organizations manage their environmental, social and governance impacts responsibly, and report transparently".  This assumes that the sustainability reporting contributes to more sustainable practices. If, as I believe, sustainability reporting is a catalyst for sustainability performance, then we should be able to see the performance improvements in sustainability by corporation, by sector and by geography. While this is a hard nut to crack, I believe it's highly material. If all companies are doing is reporting their unsustainability, we haven't saved the world. We need companies to be performing more sustainably and reporting about that. While a measurement of reporting's contribution to sustainability doesn't really feature in the GRI lexicon of metrics at present, I feel that, sooner or later, Sustainability Reporting will have to become accountable. Right now, it's seen as a cost, a massive effort and a serious organizational burden by most. The ROI of reporting has not been clearly articulated and while we all know that it brings immense benefits, one day, someone will have to quantify those benefits in a way which we can all understand. It would be nice to see the GRI rise to this challenge.   

The quality of sustainability reporting
GRI says that they do not police reports or reporting companies - rather, the role of the GRI is to provide the reporting framework and offer guidance and support for reporters. But surely, the term sustainability reporting, or GRI Framework, should offer an inherent promise of minimum quality and accuracy? The reputation of the GRI and sustainability reporting is not well served when headlines such as Lies, Damn Lies and CSR do the rounds online, referring to research on thousands of Sustainability Reports which contain errors and misleading information. The purpose of Sustainability Reporting is not advanced when reports which are primarily "look how great we are" platforms destroy credibility. Sustainability Reporting kicks itself in the shins when all that is disclosed are "doing good" actions instead of impacts and outcomes. The number of truly high quality, comprehensive reports which give a "fair and balanced" representation of a company's sustainability performance are few and far between. I hate to dampen the positive buzz about sustainability reporting, and let there be no mistake that I believe Sustainability Reporting is important and that the GRI's role is crucial, but the quality, accuracy and scope of Sustainability Reporting needs to improve by several orders of magnitude. How can this not be material for the GRI? Does the lack of credibility in Sustainability Reporting not materially affect the GRI's ability to maintain its influential role?

Use of the Application Levels
In the GRI's own report for 2010-2011, an A level report, 47 indicators are "not material" and 6 indicators are "not available" - 53 indicators for which there is no response. This is a 67% non-response rate for the highest level of "transparent reporting". Doesn't this seem odd? The GRI is probably correct in the fact that many indicators are indeed not material to its operations - after all, GRI is not a global manufacturing company employing hundreds of thousands of people in a high-impact industry -  but it points to a problem in outlook and perception. If the most transparent level of reporting can get away with responding to only 33% of indicators, then either transparent needs a new definition or the Application Level framework is poorly constructed. This will surely be part of the new G4 considerations and I hope that the new-generation GRI Framework will address this issue in a thorough way. See my views about how to construct reporting in my post about whether sustainability reports actually report what people what to know or not. See also this post from AccountAbility which covers five misconceptions about GRI Reporting, the first relating to this very point about Application Levels.

The role of assurance
Not much has changed since I referred to Assurance as the Wild West of Sustainability Reporting. I recently came across another article about the poor quality of Sustainability Report Assurance in 2011, based on research conducted by Carbon Smart. This research shows that "the level of sustainability assurance provided by FTSE 350 companies remains pitifully low. Just 79 of the 350 companies included some kind of assurance comment for their 2010 CSR reports, only 66 of which were independent assurance statements. Even where assurance is provided, many of the statements fail to meet minimum requirements that would render them accessible and useful to readers." Add to this the fact that reports parade as "assured" when only a very small proportion of the data has actually been verified or only a small part of a corporation's global data is actually disclosed. For Sustainability Reporting to be both more useful and more credible, assurance practices need to change. Surely this impacts the mission of the GRI in a material way?

The GRI relationships with financial services stakeholders
Two of GRI's five largest donors are financial services institutions (PWC and KMG). The USA Focal Point was established through the financing of the Big Four Accounting companies. Integrated Reporting efforts are primarily focused on investor needs. The GRI EFC has two out of five members from the financial services community.  The weight of the financial services community on the development of the GRI cannot go unnoticed. But, as I have often said, sustainability should not only address financial stakeholders. If the purpose of sustainability (and reporting) is to help investors make more money, then I think something has gone astray somewhere along this journey. I believe a material issue for the GRI has to be the maintenance of a broader perspective - an appeal to all stakeholders, including those who are looking for a better future, not necessarily defined as having more money in the bank. See my Heretical thoughts on Integrated Reporting.

The GRI's management of its operations in a social and environmentally responsible manner
This is the area to which the GRI has given the most detail in its report, as in previous years. I concur with the External Feedback Committee (EFC) which wrote: "The report could be improved by providing a consistent and clear link between the DMAs and the performance results and by including performance-related data in the main body of the report, rather than the Annex or Content Index sections." Dumping data into a report add-on is usually indicative of a lack of integration of performance into core operations and often a way to conveniently skip over delivering full accountability for results.  However, the GRI does provide good narrative around the data, with clear explanations (except, perhaps, for the fact that the GRI Board of Directors is only 21% female, when the Secretariat is 70% female and total workforce is around 45% female).

Back, then, to the GRI's own GRI Report.

I support the GRI (as an Organizational Stakeholder) and believe that its value is far greater than the impression which readers of this report will take away. The GRI has made efforts to be more responsive this time around and has reflected a more rounded picture of the organization's activities and areas of impact. Attempts to include feedback are better than last time. My ability to write this post is facilitated by the GRI's commitment to transparent reporting. The GRI is still on its own reporting journey and this report shows progress.

In future, I would like to see the GRI take a less mechanical approach towards the use of the GRI Framework and see the GRI get beneath the skin of reporting to where real impact is created - in the hearts and minds of corporate leadership, in the daily practice of organizations, in the interplay between all stakeholders and in the engagement around the issues that bubble below the surface of sustainability reporting. In short, around the issues that companies do not (yet) report.  I would like the GRI report to be an account of outcome as well as action, a story as well as a checklist, a delight as well as an obligation.

Anyone for ice-cream?

elaine cohen, CSR consultant, Sustainability Reporter, HR Professional, Ice Cream Addict. Author of CSR for HR: A necessary partnership for advancing responsible business practices   Contact me via   on Twitter or via my business website  (Beyond Business, an inspired CSR consulting and Sustainability Reporting firm)

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