SASB: Hot air. GRI: Cold shower.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(1) Investors need corporations to provide reliable, consistent, auditable ESG information that is financially material by sector and by industry

(2) If they get this, they will act to allocate capital most effectively, rewarding good corporate citizens who show they are managing ESG risks

(3) The carrot of earning investor favor will keep corporations focused on good ESG performance and disclosure while the stick of higher risk and loss of reputation will do the same

(4) When all this happens, everybody wins.

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

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

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

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

He said: 

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

She said:

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

He said:

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

She said:

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

He said:

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

She said:

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

He said:

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

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

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

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

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

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

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

GRI, SASB.... gauntlet over to you.  

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

GRI: Still in the lead?

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

There are several things I would consider revisiting:   

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

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

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

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

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

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

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

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

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

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

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


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

Dan Esty  writes:

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

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

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

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

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



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

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

Part Two: Sustainability: What the Numbers Tell You

Since my recent Sustainability: What the Numbers Tell You post was so resoundingly successful, I have decided to maintain the momentum and  take a look at some more numbers. This time I am going to look at environmental metrics that were covered in the Sustainability Practices 2012 Edition, which I fairly glossed over in my previous (resoundingly successful) post. The Report covers a range of environmental metrics including those relating to: emissions, energy, water, waste, recycling, packaging, purchasing and spills and fines. Let's start with this number:

39%

of companies in the Bloomberg ESG 3000 Index report having a Climate Change Strategy. This compares with only 26% of the S&P 500 and 16% of the Russell 1000. (Just to remind you, the Bloomberg ESG 3000 covers a range of global companies while the S&P and Russell indices cover large-cap U.S. companies. So when the Bloomberg is higher than the S&P/Russell, it means that the world is doing better than the U.S.) In this case,  U.S. companies have not yet caught up on climate change as something they need to be making decisions about.

Many people probably don't know the difference between a climate change strategy and reducing energy consumption. In the Sustainability Practices Report, a climate change strategy is defined as: "a set of risk management procedures designed to mitigate the impact on business operations of climate change". Typically, as defined in the report, such a strategy will include: an assessment of the energy efficiency of the business, a commitment to capital investment in environmentally preferable technologies and a search for new sources of capital through commodity trading of GHG emissions or government subsidies for GHG emission reductions. 71% of big companies (over $100 billion revenues) have apparently given this some thought as they do have a climate change strategy. Only 22% of companies under $1 billion have done the leg-work in this area. The rest of them either they have a policy and are not disclosing (unlikely) or they don't have a policy and they are ostriching (likely). That's a shame, because "if you think mitigated climate change is expensive, try unmitigated climate change", (a quote from Dr Richard Gammon) .

And now for a little quiz: How many of the Bloomberg ESG 3000 actually report their total carbon  emissions?
A: 83%
B: 72%
C: 65%
D: 48%
E   34%
F:  21%

Yes, great, you were either wrong or right. The correct answer is:

 34%

That's it. Just over a third of the world's leading companies disclose their total carbon emissions. But this is not really the world's companies - it's Japan. In the Bloomberg 3000, there are 644 companies from Japan of which 80% disclose CO2 emissions, which is required by law. In the U.S., for example, only 8% of the 70 U.S. companies in the 3000 Index disclose CO2 emissions, which is the lowest rate of disclosure across a range of countries. The Netherlands and Sweden do better at 70% and 62% respectively, but France and the UK are lagging with 39% and 30%. This might be changing fairly soon in the UK with new legislation which will require large listed UK companies to disclose GHG emissions.  But disclosure is one thing and sustainable performance is another.  Think about this next number:

16,536,533

which is the average total CO2 emissions in tons from the 36 disclosing companies in the S&P 500 Index. This is a whopping 5 times higher than the total emissions from the 1,033 disclosing companies in the Bloomberg ESG 3000.  Utilities and energy companies reported the highest level of emissions, as you might expect. It takes energy to produce energy, apparently. Double whammy. When normalized per employee, we find that the utilities sector produces 1,473 tons of CO2 emissions per employee (median, not average). This is equivalent to emissions per employee resulting from powering 167 homes with electricity for a full year, or running 262 passenger cars for a full year. Wonder if all those employees think about that on their morning commute: "Hah, wonder how many cars on the road the carbon emissions resulting from my working today will equate to?" Perhaps this could be the next stage in sustainability-driven Employer Branding. It might work for the Financial Services Industry, where CO2 emissions are a mere 3 tons per year per employee (median). "Do you feel you have a personal responsibility for protecting our planet? Come and work for us. Your work will generate only 3 tons of carbon emissions per year, which is less than the equivalent of keeping one car on the road. You can manipulate interest rates with hardly any impact on the environment".  

But, enough of CO2, let's go deeper and look at energy efficiency. Consider these numbers:

 1,933  -  249  -  321

These are the actual numbers of companies in our three reference indices of 3,000, 500 and 1,000 companies which declare that they have an energy efficiency policy. 64%, 50% and 33%. I find that incredible. Forget sustainability, just think about energy costs. Heck, we even have an energy efficiency policy in our home! (Well, I admit, it's not a written policy, but if the kids leave the lights on in their bedrooms, they know there will be unpleasant consequences). Why wouldn't businesses have an energy efficiency policy? Ah, you might say, "companies which are primarily office based have more significant sustainability impacts to think about and more important cost considerations". Ah, I might say back to you, "and pigs can fly".  Even the financial sector, primarily office based as it may be, has a higher rate of energy-efficiency policy disclosure at 52% of companies than the energy sector itself at 46%. Energy efficiency is the second most material issue for companies everywhere, based on a study that was done last year on materiality issues. So how come so few have a policy? Possible they are just doing it because it's in their DNA. (A friendly reference to Oliver Balch, who tweeted "Please, one piece of advice to all companies: ban the phrase 'In our DNA' from your corporate lexicon"). Consider this number:

5%

which is the percentage of companies in the Bloomberg ESG 3000 which report using renewable energy. That's just 164 companies. For all the others, renewables are apparently not yet in their DNA.

Moving on to water consumption, consider this:

3.72

is the ratio of average water consumption in the U.S. based S&P 500 to the average in the Bloomberg ESG 3000. The average water consumption per S&P company in the U.S. sample (104 companies disclosing) is 3.72 times higher than the global sample (1,111 companies disclosing). Clearly, size does matter, as the bigger companies have higher water consumption.  Yet still only 74% of the companies in the $100 million revenue category disclose total water consumption, despite the fact that the median water consumption for this group is over 35 million cubic meters in comparison to a $1-10 million revenue company which uses 1.4 million cubic meters per year. With water scarcity becoming the number one resource issue globally, it seems incredible that disclosure for such large corporate users should not be mandatory, leaving 26% of the largest companies in the world to decide for themselves whether to manage water consumption transparently or not. But it gets worse. Consider this:

2%

is the number of companies which report that they use recycled water. 74 companies in a sample of 3000. But it gets worser. Waste is also one of the big drags on our economies and quality of life, not to mention sustainability. Here's another number:

31,739,944

is the average waste in tons generated by companies in the materials sector (which is made up of companies that manufacture chemicals, construction materials, containers and packaging, paper and forest products, extractives etc) which is more than the total average waste of all the other sectors added together, yet only 36% of companies in this sector report on the total levels of waste generated. Waste is cost. More often than not, it's unnecessary cost. How are investors using this information? Companies which are generating so much waste are also wasting investors' money.  Which brings us to the next number:

$997,299

which is the average amount that companies in the Bloomberg ESG 3000 spend on environmental fines each year. In the S&P 500 index, this becomes a whopping $2,224,831.

I could go on, but I won't. The Sustainability Practices 2012 Edition Report is an encyclopedia of data and comparative numbers. I have given you a jump start. You'll have to do the rest of the leg-work yourself :)  

By now, I think you get the picture. It's one of desperately poor levels of disclosure. Despite the growing momentum of voluntary disclosure and Sustainability Reporting, frameworks, measures, surveys, CEO commitments, investor pressures and all the hype that this brings with it, the picture on transparency is still bleak. Most of the largest companies in the world are barely disclosing most of the most important sustainability metrics. And this low level of disclosure gets proportionally lower and lower as company size decreases. In the U.S., performance is generally lower in comparison to the rest of the world. So it's fabulous that the U.S. is now leading the Medals League Table at London 2012 (39 Gold Medals as I write), but sooner or later, even that performance will not be sustainable without stronger and more transparent behavior by American corporations.

There is something about numbers. They clarify our reality. In this review of environmental sustainability and transparency-by-numbers, that reality is rather depressing, because there is a stark realization that, for all the talk, the results are pretty shameful and perhaps, voluntary disclosure is not all it's cracked up to be. Self-regulation is more self than regulation. When the authors of this Sustainability Practices benchmark report maintain that "there is significant room for improvement", I think we can safely agree that this is more than a mild understatement. With Paragraph 47 not promising to be massively instrumental in driving change in transparent disclosure, we have to wonder just what will propel corporations around the world into a different paradigm, before something else propels them out of ostrichland.

An eternal optimist, I believe change will happen. As a realist, I see it's painfully slow. As a pragmatist, I accept that we have to move on and, as the amazing Pema Chodron says, Start Where we Are. As an icecreamist, I know there is always comfort just around the corner.

elaine cohen, CSR consultant, winning (CRRA'12) Sustainability 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  (Beyond Business Ltd, an inspired CSR consulting and Sustainability Reporting firm)

Sustainability: What the Numbers Tell You

Sustainability is not only about numbers. When all is said and done, sustainability is about people, community, society, collective responsibility and action, stories and interventions. But, sometimes, the numbers form a picture, and pictures can help us develop new insights and change our paradigms. And this can lead to new action. So,  when the The Conference Board, a non-profit organization which creates and disseminates knowledge about management and the marketplace to help executives make the right strategic decisions,  published a deep-dive study - perhaps the most comprehensive study available - of Sustainability Practices of thousands of companies around the world, containing more numbers about Sustainability Practices than I suspect you have ever seen in one place, you have to sit up and take notice. Ready?

The study is called Sustainability Practices 2012 Edition and is a 176 page epic, containing more data than anyone can absorb in one sitting and a wealth of relevant information for anyone interested in sustainability numbers, trends, areas of focus by sector and by subject, and opportunities to make a difference. The report was prepared in collaboration with Bloomberg, who runs one of the most extensive real-time financial and non-financial information networks to hundreds of thousands of subscribers, and with the GRI - no introduction necessary.

Sustainability Practices 2012 Edition is based on a global sample of 3000 business organizations tracked by Bloomberg's Environmental, Social, and Governance (ESG) database and covers 72 environmental and social practices including: atmospheric emissions, water consumption, biodiversity policies, labor standards, human rights practices, and charitable and political contributions. For benchmarking purposes, Bloomberg ESG data is compared with the S&P 500 (large capitalization U.S. companies) and the Russell 1000 (market cap-weighted index of U.S. companies), and further analyzed across 11 business sectors, using the CIGS code, and four revenue groups (under $1 billion, $10 billion, $100 billion and over $100 billion). The findings of the report are split into three broad areas: Disclosure Practices, Environment Practices and Social Practices.

Now for the numbers. Sitting up and taking notice?

19%

This is the overall social and environmental disclosure rate for companies in the global Bloomberg ESG 3000 Index, which is made up of largely non-U.S. companies. Does that surprise you? Only 574 companies out of a total 3,000 disclose on the full spectrum of 72 sustainability practices analyzed. This compares with 15% in the S&P 500 and 10% in the Russell 1000, showing that U.S. companies are lagging when it comes to overall sustainability disclosure. Match this with the next number:

25%

This is the number of companies in the Bloomberg ESG 3000 Index which released Sustainability Reports - 747 companies. More companies are reporting than disclosing. What does that tell us? That Sustainability Reporting is not delivering full transparency. In other words, just because it's called a Sustainability Report doesn't mean that it's transparent. By comparison, in the U.S., 45%  of the S&P 500 and 24% of the Russell 1000 publish reports. However, these indices are smaller and include large-cap, often global, companies, headquartered in the U.S., versus the Bloomberg Index which includes only 510 U.S. companies, 17% of the total 3000 sample. Overall the Bloomberg 3000 is weighted towards Japanese companies who have 27% of the sample, and with strong representation from India, China and the UK, and a host of other countries.  So Sustainability Reporting is more widespread globally than it is in the U.S. But that's not news. Match this with this next number:

80%

This is the rate of Sustainability Reporting for companies with more than $100 billion in annual revenues. Not surprising, perhaps, that this is a high figure. The larger the company, the greater its impacts, the more extensive its resources, the greater its risk exposure, the higher the expectations from stakeholders. However, 20% of these mega-corps are still resisting the reporting opportunity. The rate of Sustainability Reporting drops to 63% for companies over $10 billion, 25% for companies below $10 billion and only 4% for companies below $1 billion. $1 billion is still a heck of a company size and has potential for some serious impact. Who is chasing the other 96%? Match this with this next number:

46%

This is the rate of companies in the telecommunications services sector which publish Sustainability Reports. This is the highest reporting sector in the Bloomberg 3000. Contrary to the long-held view (and data) that financial services companies and energy companies have been leading the fray in sustainability reporting, only 20% and 25% respectively in these two sectors are publishing reports at a global level.

 Great work by telcos. What's driving this industry's reporting prowess? Match that with this number:

48%

This is the rate of telcos which use the GRI guidelines to report. Again, this is the highest rate of all sectors, with an overall average being 30%, generally lower than the hype would suggest. Consumer Discretionary and Information Technology companies have the lowest uptake rate of the GRI guidelines, at 27%.  Again, we find that the highest revenue companies are more likely to use GRI guidelines (66% - 23 companies) versus the lowest revenue companies (10% - 109 companies). The picture in the telecommunications sector is both of high disclosure and high use of the GRI guidelines. Telcos also have the highest rate of report verification and assurance at 26% (versus an overall average of 13%).  Match that with this number:

24%

telcos. No wonder it's so expensive to connect.  But take a look at these numbers:

54% - 43%

The numbers of women employed in the workforce and the numbers of women in management in the telco sector. Hah! One of my favorite indicators.  Not so rosy in the IT sector, where women make up 13% of the workforce and only 9% of management. Across all sectors, the lowest revenue group of companies has the highest proportion of women in management - 24%. Telcos stand out for positive diversity in other respects too - with 26% disabled employees, and 7% of minorities in management. Apparently, if you are a disabled woman from a minority group,  you stand the best chances of advancing your career in a telco. If you are a man, the materials sector is for you. A median 86% of managers are male, and 85% of the total workforce. Match that with this number:

7%

This is the proportion of companies reporting employee fatalities in the Bloomberg 3000. Only 197 companies out of 3000 disclose this figure (even less in the U.S. large company Russell 1000, where only 36 companies disclose). The average rate of fatalities across all those companies reporting is 2, but the Information Technology Sector inflates this average with a total of 6 fatalities. Conclusion: don't go into IT if you value your life. Match that with this number:

59%

This is the proportion of companies that disclose their Health and Safety Policy. This includes 58% of Information Technology companies where six people died. Just think how things might improve if 100% of companies had a Health and Safety Policy. Would things get worse, or better? Match that with this number:

1,367

This is the average number of workforce accidents reported by the 12% (364) companies who disclose this information. I calculate this to be a total of  almost half a million accidents in this small sample. Only 5% of companies report how many lost workhours result from these accidents, reporting an average 56,111 lost hours across only 137 companies, but this is much higher than the average in large U.S. companies, which report an average of 36,121 hours (13 companies) in the Russell 1000. This might indicate that it is safer to work in the U.S.  Or that you have your accident, and get back to work pronto. Even so, the Russell 1000 indicates the lost-time equivalent of 18 employees per year per company that do not come to work as a result of an accident. Rather shocking, don't you think? The impact on families and communities of such safety issues can be quite significant. Match that with this number:

36%

This is the proportion of companies which disclose their charitable giving. I would have expected this number to be higher. Companies like to tell their good news. Match that with this number:

$161,522,597

This is the average community spending reported in the energy sector in the Bloomberg 3000. This is by far the highest rate of charitable giving, comparing with an average across all companies which disclosed of almost $28 million. The healthcare sector is the second largest giver with an average of $98 million reported by 47 companies. Industrial sector companies have not been bitten by the bug to this extent, apparently, with the giving average at a mere $10 million reported by 232 companies. Match that with this number:

$66,800,000

This is the median total corporate giving reported for 21 companies with in the highest revenue group - over $100 billion. If ya got it, share it. Seems to work for them. Companies with under $1 billion revenues give a median of $88,552. Yes, that's thousands, not millions. Match that with this number:

$1,000,353

This is the average utilities sector spend on political lobbying, more than double that of any other sector in this study. Overall, in the Bloomberg 3000, the average amount spent on lobbying is $226,065 per company (though only 14% of companies disclose this information). Interestingly, in the U.S. alone, the amount spent is three times that much. The politicization of business in the U.S. is quite some investment, it seems, if you are a utilities company. Wonder if it's worth it?

I am going to stop here for now, while I continue to study this report. You can read a great review of key findings and  broader conclusions of this report  in the Conference Board's Press Release. Or you can wait for my next post, as I will definitely have more to say about this in the coming week, after getting to the rest of the numbers that I have not looked at yet in detail. 

In the meantime, you might now like a little light relief, by watching the Sustainability Practices 2012 Edition authors, Matteo Tonello, Director of Corporate Leadership at the Conference Board and  Thomas Singer, Conference Board Research Associate, talk about the importance and relevance of this study and what this means. It's short and to the point and contains no numbers.

Thomas Singer rounds off with this perspective: "To a large extent, sustainability is about long-term risk management. It's about making sure that, if you are a company that is dependent on finite resources, you make sure that those resources are available, that they are clean and that you have access to them in the long haul. However there is a very important second part to sustainability which is ensuring innovation and new products, new markets. It is those companies that actually go beyond seeing sustainability as a risk strategy and more of an innovation strategy, those are the companies that really become sustainability leaders in the long term"

Final Tip: ice cream is a great remedy, if your eyes are getting a little fatigued from figures and percentages. Any flavor will do.

elaine cohen, CSR consultant, winning (CRRA'12) Sustainability 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  (Beyond Business Ltd, an inspired CSR consulting and Sustainability Reporting firm)

Is Sustainability Reporting off-target?

Sustainability information, research and survey-results overload is one of the greatest challenges of the sustainability profession! It seems that every day, another informative and insightful report plops into my inbox or miraculously appears in my Twitter Stream or Google Alert. Just scanning most reports is a full time job, so being selective is a key skill. One current report that I have selectively read end-to-end is worth reviewing. Here goes:

Finding Common Ground on the Metrics that Matter

This report, published by The Investor Responsibility Research Center Institute (IRRC), a not-for-profit organization established in 2006, working at the intersection of corporate responsibility and the informational needs of investors, and authored by Peter A. Soyka President, Soyka & Company, LLC and Mark E. Bateman President, Segue Point, LLC, describes three major findings, based on analysis of corporate data from the results of a recent "Green Metrics that Matter" survey conducted by the National Association for Environmental Management (NAEM), ESG researcher/investor data from company web sites and interviews with corporate execs and investment researchers.

The Metrics that Matter Report explores and documents the extent to which corporate environmental, social, and governance (ESG) information tracked and managed internally by companies is consistent with information sought by external parties, in particular, by ESG investors and the research companies that serve them.

In other words, are companies reporting what (investor) stakeholders want to know and are they doing it effectively? Great question. As Sustainability Reporting expands - CorporateRegister.com confirms 5,700 reports published in their database for 2010 and Mike Wallace of the GRI confirms roughly a 35 percent increase in GRI reporters in the U.S. from 2010 to 2011 - so the importance of the effectiveness of reporting becomes more acute. Add this to the fact that "virtually all publicly traded mid-cap to large-cap firms in the U.S. and in many other countries typically are included" in investment-focused analyses, and you can see that ESG disclosures are key to driving market impact.

The report covers five main aspects of this complex topic:
1: Background and context of reporting and investor requirements
2: Commonly used ESG metrics and why they are important
3: Analysis of metrics approach by leading rating frameworks
4: Commonalities and differences of ratings
5: Recommendations for the way forward

The major findings are:

#1 : No agreement on number of ESG metrics required

There is general agreement about the key corporate sustainability issues, but not necessarily on the specific form and number of metrics used to measure them. There is also a fundamental difference in the purpose(s) to be served by examining corporate ESG information between corporate executives and ESG researchers/investors. The IRRC report claims that there may be a "mismatch along several relevant dimensions between what ESG information companies claim they are developing and using and the information requested by external parties."

#2 : ESG is still about risk, not about value

Both ESG researchers / investors and corporate EHS managers and executives approach ESG issues from a risk mitigation perspective, not a value creation perspective.

#3 : More dialogue is need to improve disclosure effectiveness

Future improvements in corporate disclosure quality and in efficient and adroit collection and use of these data in investment analysis will require improved clarity and more effective and consistent communication between companies, researchers, and the consumers of information.

The crux of the metrics

The real issue of this report, however, addresses the mismatch between what investors want to analyze and what companies track and disclose in terms of ESG metrics, and why the mismatch exists. With typical companies tracking and disclosing on 37 ESG metrics, with some tracking more than 50, and sustainability performance being reported to C-level executives or Boards of Directors at numerous companies, as well as the rise in use of the GRI guidelines, one might be forgiven for thinking that alignment between investor interest and corporate disclosure would be more consistent. Surely, all the stakeholder engagement that the increasing number of companies is now attesting to would lead to a common denominator of interests, right? Wrong. First, different investors look for different metrics.  Second, dialogue is not really dialogue. Third, all that drives ESG tracking and disclosure is not wrapped up in $ bills. The Metrics that Matter Report shows that accountability and decision-making are the key drivers for the tracking of metrics within companies.

Table reproduced from the IRRC Report :
Finding Common Ground on the Metrics that Matter, February 2012

In other words, ESG data is used to help businesses manage themselves more sustainably for the long term. Isn't that great? It's not only about presenting ESG risks to investors. And here we circle back to my heretical thoughts on Integrated Reporting. Despite the fact that "ESG evaluation is all about assessing management quality, which raters believe is a key determinant of future financial outperformance", all that matters in sustainability metrics should not be investor driven. Happily, the way companies are using metrics seems to support this view. This being said, there is some correlation between demand and supply:

Table reproduced from the IRRC report - from the NAEM survey -
showing the level of analyst interest versus the number of companies that track related metrics

Most ESG researchers want disclosures on climate change, most companies provide them. Most analysts want information about diversity, most companies provide it. Most ESG researchers want health and safety data, everyone supplies it (influenced possibly, by regulation, not just voluntary disclosure). Going down the list, however, you can see the mismatch - mainly on the side of greater disclosure about things that most analysts do not (yet) consider all that important. However, the IRRC goes on to indicate that there are several other issues that ESG researchers look for which were not covered by the NAEM survey for which disclosures by corporations are less common.

Of course, companies should not  ignore investor demands, and no-one (I assume) would argue against the need for greater consistency, comparability, and even correlation to financial impacts of ESG data. However, a broader perspective needs to be retained when considering what companies should track in terms of metrics and what they should disclose. This should also be informed by a company-specific materiality analysis, something which is not always present in many Sustainability Reports.

The role of the GRI

The Metrics that Matter Report maintains that "the GRI has been very helpful, but contains too many questions and imposes burdens on responding companies that may limit its uptake." The interviews conducted with various experts indicate that they generally support the concept of GRI, and believe that it has substantially improved the ESG research space. "But there was also widespread recognition that GRI may ask for too much and make it too difficult for companies to disclose important information...and..that companies that report based on the GRI guidelines put significant effort into generating these reports. One interviewee described the process as like the 'Bataan Death March [for companies] to do a report.' As a result, relatively small numbers of companies issue such reports compared to the universe of companies ESG researchers must evaluate." This is important insight, but, in my view, it is not the reporting process that presents the largest burden, but the data management processes within companies. It is not the GRI Framework that is preventing companies from reporting - after all, many companies manage to report without the GRI Framework.

I work on many Sustainability Reports for companies, and there is no doubt that the most challenging parts of the process are (1) gaining genuine stakeholder input (2) assessing material issues and (3) gathering sustainability performance data that is consistent, comprehensive and accurate. Turning this into a Sustainability Report is the easier part of the process. If investors want the data, companies need to do the work whether or not they produce a Sustainability Report which fully conforms to GRI Guidelines at whatever level. Let's not forget that the GRI Framework is extensive but not mandatory - data points which are not relevant for companies can be (and are) skipped. I have found that, for companies that are serious about sustainability, and are prepared to make the effort to put in place good data management systems for key metrics, GRI reporting is not a barrier but a beneficial tool.  

The (sensible) recommendations made by the IRRC report include:

#1 : More clarity (or at least, more transparency) is needed regarding the relationships between ESG management and performance improvements and corporate financial performance.

#2 : Additional research is required to determine how closely disclosure reflects ESG management quality and performance.

#3 : Understand link to value creation - gaps remain in our understanding of the linkages and research illuminates a number of key issues and questions that speak to corporate value creation through adroit management of ESG issues.

#4 : Greater dialogue and sharing of information and perspectives is essential for both sides to understand the other’s needs and constraints, and to forge communication mechanisms that are more effective and less burdensome.

My view is that in an ideal world, there would be 30 core indicators (agreed by the main body of ESG researchers, analysts, regulators, where relevant, and corporations), that are material to all companies in any sector that every company would disclose, on a regular basis, using the same methodology, for all global operations,  in a way which makes a causative link between sustainability impacts and economic performance. This would achieve greater clarity, comparability and act as a basis for meaningful assessment of relative risk and opportunity. These indicators might even be the prime indicators for inclusion in Integrated Reports. Beyond the 30 core indicators, there may be another 50 - 100 sustainability performance metrics  that are in the pickn'mix category, with higher or lower material relevance to different companies in different sectors and geographies. Companies could choose if, and how, to disclose against these indicators, in line with their stakeholder interest.  I wonder if the revision of the GRI Framework to G4 will move in this direction?

Finally, I stress that there is much more insight and valuable information in the Metrics that Matter Report, whatever side of the equation you are on, and it is well worth the investment of time to read it in full. It contains a wealth of perspective, it's intelligently written and addresses many questions which are at the core of sustainability reporting efforts. It will certainly be useful material at the Smart Sustainability Reporting Conference in May.

Of course, I did a PDF search for "ice cream" and found none in this Report. This post, then, is a testimony to my impartial and magnanimous nature. I recommend the report anyway!

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 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)