Are sustainability reports really that bad ?

The shock-horror headline "Howlers and omissions exposed in world of corporate social responsibility" which first appeared in the Guardian on 24th November 2011, and then rapidly did the rounds of all online CSR news and information sites, morphing into "Lies, damn lies and CSR" by the time it got to Management-Issues.com the following day, alerted us to an important discussion which appears to have been somewhat sidelined in the efforts to mainstream sustainability reporting. The discussion about the quality of reports. Despite the fact that sustainability reporting is now the "de facto" law for business, as pronounced by KPMG in their 2011 survey of Corporate Responsibility Reporting, this is not an invitation to rest on our laurels. For mainstream reporting to become credible reporting, it needs to be ... well, credible. That means accurate, verifiable, consistent and clear.

The howler article, which claims to reveal "irrelevant data, unsubstantiated claims, gaps in data and inaccurate figures" after an examination of over 4,000 Sustainability Reports, certainly made a splash. The claim is "that every second company has major problems" which I assume to mean that 50% of reports include inaccurate or incomplete data. In general, I would not be surprised if there were some truth in this. In my (also fairly expensive experience) of analyzing Sustainability Reports, I would agree that there are serious errors, omissions and misrepresentations. Whether this is at the rate of 50% of reports, I couldn't say, so I will be interested to see the data when the full report is published in 2012.

So what should we make of this? Why would so many companies go to so much trouble to produce so many reports, only to do so in a sloppy or poor quality way?

I suspect that most companies do aim to deliver accurate data. There may be some which attempt to mislead in order to mask a problem, but in general, I believe reporters have a vested interest in accuracy. I can certainly say that all the companies I have ever worked with on sustainability reporting (hah, that doesn't come close to 4,000 ... yet :)), have earnestly tried to present accurate data. In some cases, sure, companies prefer not to disclose ALL data, i.e. they leave certain operations out of the report scope. This is acceptable as long as it is clearly stated. But I have never experienced working with a company which has knowingly reported inaccurate data.

The core issue for accuracy and fair representation of data and information in Sustainability Reporting goes back to the management of sustainability reporting and the degree of priority and professionalism it enjoys in the hierarchy of leadership decision making. Several factors contribute to reporting inaccuracies and misrepresentations:

Data collection processes in companies: Both for large global multi-nationals, and yes, even for smaller companies, sustainability data collection processes are challenging (note: euphemism for backbreakingly tough). Unless companies have invested in global ERP systems with built-in accuracy control mechanisms, the process for collecting data locally, transferring it to spreadsheets, aggregating and cutting, sorting, copying, pasting and charting is an invitation for error. To ensure the accuracy of global data, companies need check-steps at every step of the data collection process as well as consistency checks with prior reported data. Not all companies adopt this level of rigor. A small oversight, such as the loss of a zero (or two) in one of the aggregation steps, can make the difference between carbon neutral and carbon negative. 

Conversion factors are complex: Most companies don't collect data in gigajoules. To report in gigajoules, you have to use conversion factors. To calculate carbon emissions, you need to use up-to-date emission factors. Reporting OSHA rates requires a lucid understanding of the methodology and what gets divided by what. Errors occur.

Speed reduces accuracy: Reporting is often a race against time. There is so much that needs to be done in order to get to that green go-to-print light, that consistent, rigorous checking of all datapoints may fall through the cracks in the rush to complete. Many companies will prefer to hit their deadline than to delay in the name of perfect accuracy. 

Sustainability Reporting is just not that important:  Yes, it has to be said. There are no mandatory auditors, no external regulations which require accuracy checks, no teams of accountants following audit trails until they fall from exhaustion. The Sustainability Report is not equivalent to the Annual (financial) Report. The CEO is not generally called to account for the quality of data in Sustainability Reports as s/he is with Financial Reports. There is no flurry of interest from external analysts who know how to dissect Sustainability Reports the minute they are published in the same way as there is when Annual Reports are published. The quality of Sustainability Reporting in organizations, whether internal or external, generally does not have the most senior leadership's full attention in the same way as Financial Reporting does. Often, the providing data for a Sustainability Report may be a necessary headache, relegated to a lesser level of importance than the reputational (marketing) value of  the report which is narrative-based and easier to present. Until corporate leadership universally accepts that Sustainability Reporting is equal in stature and importance to Financial Reporting (and I don't believe that Integrated Reporting is the only answer - see below), assigns the right amount and quality of resources to produce the report and insists on the same degree of professionalism, then errors will continue to show up.

External assurance is inadequate: The Wild West of external Sustainability Report assurance has not yet reached the level of unequivocally adding to report credibility, in many cases. External assurance is often limited in scope and falls short of comprehensive verification of reported data. Despite assurance seeming to offer an additional stamp of approval for report quality and credibility, I suspect that there are more problems with the accuracy of assurance processes than there are with reports themselves. Assurance has to become full assurance and verification to be effective, and it needs to be performed by those who understand organizations and sustainability as well as audit processes and results. 

There are not enough critical stakeholder voices:  In the absence of regulation and comprehensive Sustainability Report auditing, those who pick up errors and misrepresentations are mainly academics, NGO's including environmental, labor representation and human rights organizations and CSR professionals. Consumers and members of the general public, even if many were to read Sustainability Reports, are not competent to understand the intricacies and the small print of reporting and make an informed assessment of whether 600,000 tons of CO2e is positive sustainability performance or not. At best, the lay reader gains an impression of a company's performance versus its own past disclosures or targets. Often, performance, even bad performance data, is so often shrouded in positive language (an increase in current carbon emissions may be presented as a reduction in overall emissions for the past five years, for example) so that it is easy for lay readers to be impressed by the words and showy report designs and less by the numbers. There are tools that are being developed to assist comparisons between company reporting, such as the Justmeans Insights database - see the following example of a comparison of Carbon Emmissions Intensity by four leading Computer and Peripherals manufacturers - Dell, IBM, HP and NEC - but even these tools rely on data supplied by corporations in their own Sustainability Reports and communications.

In a non-regulated Sustainability Reporting world, we need more people to become more competent at reading and analyzing reports, and more stakeholder voices to speak out.

NGO's often do this - see my post about the Alternative Hershey report - and an article I wrote for CSRWire.com about Shadow Reporting. Just this week, I was alerted to a critical assessment of Deutsche Telekom's GRI-based A+ level externally assured CR Report, produced by the Trade Union Advisory Committee to the OECD (TUAC) to coincide with International Human Rights Day.

A criticism of Deutsche Telekom's report : "D+"

The UNI General Secretary Philip Jennings made the comment: “Deutsche Telekom gives itself an A+ on its corporate responsibility but with so many holes in the report, we’d give it a D+”. (UNI Global Union is the global union representing 20 million workers in the private service sector worldwide, including more than 3 million workers in the telecommunications and IT industries.) This is the sort of pressure that will drive more accurate Sustainability Reporting. But, with thousands of reports produced annually, and more to come given the drive to mainstream reporting, these isolated voices are not sufficient. The drive to Integrated Reporting may help to raise the bar if full verification and external assurance is applied to the full contents of Integrated Reports, but even so, it is not yet clear how this will play out as the IIRC is still debating the issue, and in any case, it will take several years to embed, and the scope of sustainability data in Integrated Reports is likely to be more limited than current best practice Sustainability Reporting.

Perhaps what we need is a global NGO that focuses on report accuracy. It could be called the Complete Reporting Accuracy and Precision Organization for Universal Transparency (CRAP-OUT, for short).  Now, there's a thought.

In the meantime, we shall have to continue to urge more companies to report while remaining vigilant regarding report completeness, accuracy and quality. Reporting companies should be more proactive in ensuring the integrity of their own reporting.

The howlers headline? Well, it may be just a little sensationalist, but if it's a Red-Alert for improving Sustainability Report quality, we could probably do with a few more like that.

 

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)

Making Reporting Relevant: Two sustainability databases

As businesses become more transparent, so databases populated with the information that businesses now disclose are becoming more sophisticated and opening up wondrous possibilities for discovery, comparison, benchmarking and all sorts of interesting facts and figures compilations. Hot off the press is the new GRI Database of Sustainability Reports, which is a repository of over 7,600 sustainability and integrated reports (GRI-based and non-GRI-based) which is searchable and offers possibilities for interesting benchmarking options. Another fascinating data base which drills right down to source ESG data, sector by sector, is the new Justmeans Insights platform which is a data visualization and performance dashboard. (see the Press Release here). 

The new GRI Sustainability Report Database is the product of several years work and broad collaboration with the GRI Data Consortium  (my company, Beyond Business is the Data Consortium Partner for Israel). It is still in pilot phase, but is looking pretty good. The Database site was launched officially this week with a press release  and a launch webinar which you can view here (Webex recording). Many bloggers have already rushed to report on the key features of this new database, such as Raz Godelnik on Triple Pundit, and Environmental Leader and Sustainable Planet. Here is an extract from the GRI Press release:

"The new Sustainability Disclosure Database includes data on the sustainability and environmental, social and governance (ESG) transparency of over three thousand companies worldwide. Sustainability performance data is increasingly important to markets worldwide. In 1975, on average 80 percent of a company’s value came from tangible capital – finances and assets. Today, on average 80 percent of a company’s value is intangible – for example customer trust, brand value and stakeholder relations. The database is a hub for sustainability disclosure, featuring sustainability reports that use the GRI Guidelines and those that follow other guidance. The database includes references to sustainability guidance from different organizations, including the Carbon Disclosure Project, ISO, the OECD and the UN Global Compact. GRI plans to expand the scope and depth of its data collection and analytical functionality over time."

The GRI Reports Database

Here is an example of what you can do with the GRI database:

First, you can take an interest in the latest published reports or those which have been featured in the GRI communications service

Alternatively, using the search function, you can search for any report by organization name, report type, publication year, sector, region or country. Each organization and each report has its own profile page. This is currently still being populated (largely dependent on reporting companies completing their own data via own access), but most of the reports are already available to view. However, the benchmarking is where it has the potential to get most interesting ... so far, in the benchmark, only reports published since Jan 1st, 2011 AND which have been checked by the GRI as conforming with the GRI Application levels are included in the benchmark option - that's around 100 reports to date .. so a meaningful benchmark is still a little premature. However, as more reports are included, this could become quite useful. To give you an idea, I looked at 2 sectors which have a more than just a couple of reports : the Chemicals sector (5 reports) and the Energy sector (10 reports).

This chart shows that the Chemicals Sector reports are way ahead in reporting against more performance indicators. To make this clearer, 80% or more of companies report against 78% of the EC indicators, 73% of the EN indicators and only 21% of the LA indicators and so on. In the Energy Sector, overall reporting by most companies is much lower, showing that 80% or more of companies report against 22% of EC indicators, 23% of EN indicators but much more against LA indicators with 43%. What is it about the Chemical Sector that causes a dip in Labor Indicators, and the Energy Sector which makes that set of indicators more relevant? The GRI Database won't tell us that but it does allow reporters and report-readers to gain new insights and consider interesting questionsabout how companies report.

This basic analysis of just a small sample of the database took quite a lot of manual calculation. The data cannot be exported so analysis is manual. However, for companies looking to benchmark their sector, or country or region to see who is reporting what, the database could provide a very useful guide (once it is more fully populated). Companies wishing to do a deep-dive analysis can go back to the source reports for each indicator and check on who said what. 

Useful Now but More Useful in the Future

The benchmarking database does have its limitations. It doesn't show actual performance data nor assess the quality of the disclosures against any indicator and despite the GRI Application Level Check, there remain great discrepancies in reporting quality, as we all know. The linkage of the benchmark data doesn't easily hook back to the level of the reports themselves - to know if the benchmarked group reported at GRI Level A, B or C requires going back to each of the individual report profiles in the benchmark and checking that out individually.  

Therefore, in the initial stages, until more functionality is added, the main advantage of the database is the growing collection of reports in one place and a basic overview of what companies are reporting on most frequently. This has been a massive undertaking and congrats! to the GRI for coming so far. This is a database to watch in the coming months. I am sure it will become more relevant as it matures.

Justmeans Insights Platform - Another Layer of Transparency

The other database that is worth watching takes transparency a step further. Data Visualization from the Justmeans platform is quite spectacular. Take a look at this blog post by Harry Stevens to get an impression of what the platform can do. The Insights platform uses data collected by the CRD Analytics Global 1000 Smartview (R) 360 methodology (which powers the Nasdaq OMX Sustainability Index) for sustainability reporting companies with market capitalization of at least $1 billion. Insights makes a wide range of performance data available sector by sector, in comparable form with instant graphic visualization. So far, three sectors are available (Pharma, Computers and Peripherals and Semiconductors) and over time, more sectors will be added. This presupposes that analysis by sector is the way to go and there is some merit in comparing apples with apples, or in the case of the Pharma industry, drugs with drugs.

How Do Pharma Companies Compare?

There are 24 companies in the Pharma database, with Allergen shooting up to first place from seventh place in 2009, edging out Novartis from the top spot (now ranked 6).

Looking at the indirect energy consumption of 4 companies in this database, the figures show that in 2010, Merck actually used more total indirect energy that the other benchmarked companies, overtaking GlaxoSmithKline by a short measure.

Converting this to an intensity measure, gigajoules per $US million revenue, we get different picture. Merck and Glaxo are about equal in indirect energy intensity, while Allergen, who ranks number one overall in ESG performance, shows much higher in energy intensity, exceeding the much larger company, Roche.

Roche, Glaxo and Merck are all similar in terms of revenue size ($40-50 billion) while Allergen is much smaller with $US 5 billion.

Instant Relevant Benchmarking

This is a fascinating and instantly useful compilation of ESG data in a way which enables the perspective and context of relative performance accross different companies. Absolute energy consumption is affected by so many things beyond internal processes - size of production facilities, acquisitions, growth in production etc. - though ultimately, it's absolute measures which make a difference to the sustainability of the planet. By looking at absolute figures, you can see how companies' impacts have changed over time. In the first chart above, for example, data shows that Glaxo has been slightly reducing consumption year on year while Merck took a big jump from 2008 to 2010 (probably due to acquisition of Schering Plough). The other data you can pick up is which companies are not reporting on certain ESG indicators- which also tells a story.  The intensity comparison gives the picture of where companies are in their peer group - I selected to include only 4 companies in the charts above - but it is possible to benchmark all or any selection of the 24 companies in the sector for every single performance indicator. ESG areas covered include environmental, social (workforce, human rights etc.) and governance data. 

Making Reporting Relevant

Taken together, the GRI Reporting Database (free) and the Justmeans Insights Dashboard (subscription) are a major step forward in our ability to make sense of the much broader sustainability transparency that we are experiencing these days. The KPMG 2011 Reporting Survey, published to coincide with the database release,  confirms that sustainability reporting has become  the "de facto law" with 95% of the G250 now reporting. Reporting quality aside, GRI and Justmeans are now offering tools to help us make sense of it all. And when it makes sense, it will be much, much more relevant.

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)

A very tasty CSR conference

This time last week I was engrossed in fascinating conversations at the Justmeans  Redefining Value: Integrated Reporting and Measuring Sustainability Conference in London on 25th March 2011. But before I talk about content, I can't help but mention that the conference was held at the best conference venue I can ever recall in having visited in London - the Brewery - complete with a sustainability policy and gourmet food worthy of so many sustainability people, hungry for change and hungry for the best conference lunch in London. (OK, no ice cream, but what the heck!). The conference itself was serious, thought-provoking, no ribbons and bells, just 5 intensive sessions with lots of talking, many insights and a few challenges to the status quo. Some sessions were more valuable than others, as inevitably happens, but all were interesting. Lunch provided a welcome break for ribbons and bells, with the announcement of the Social Innovation Awards winners in a tastefully done ceremony where every winner got to say a few words about their accomplishments.

The conference started out with a powerful panel session moderated by Justmeans CEO, Martin Smith, intended to be a catch-up with what's happening in the world of non-financial reporting, with leading players in the form of the GRI (Nelmara Arbex), A4S project (Jessica Fries) and the CDP (Paul Dickinson) .There is a consensus that sustainability reporting is not mainstream, despite the daily Sustainability Report announcements that fill our RSS feeds. The GRI, as my regular readers will know, is moving towards G4 which should address some of the current shortfalls of the GRI framework while A4S is planning a pilot program to enhance non-financial reporting without increasing complexity and length, among other things. The CDP has now completed 9 reporting cycles, demonstrating that "repetitious normalization" is gaining the attention of 551 investor groups who represent $71 trillion in funds, more than the GDP of the world. 3,000 companies reported to the CDP, rather less than the number who issued sustainability reports, last year. The single biggest challenge for reporting is mainstreaming sustainability reporting in a harmonized way (GRI), providing data to shareholders (CDP) and getting the right systems in place (A4S). The point was made that reporting should not only be about the past but how a company intends to create its sustainable future. It is true that this often gets lost in backward looking reports and even companies who express targets do not often explain how they expect to achieve the targets in their reporting .

"What is driving the growth of international standards?"  was the question that led the next panel session , led by Judy Kuszewski whom it was nice to meet in person after our twitterous acquaintance to date. The fascinating takeout of this panel was the collection of perspectives from Carsten Ingerslev, the Director of the Danish Government Center for CSR, who said that "if we leave things up to the market, they won't happen quickly enough". It is certainly a good thing to see a government body taking initiative to drive CSR, and of the 91% (I think) of the top 1,100 companies in Denmark who chose to report following the law which came into effect in FY2009, 43% were reporting for the first time. (The Danish law, which was an amendment to the Financial Statements Act, requires companies to report on non-financial matters or give a reason why not. Of course, not too many companies are happy to say they don't give a hoot about sustainability, even if they are not sharing sustainability prime-time, so reporting becomes the only viable alternative.). Carsten said that the companies who did report confirmed that they gained benefit and were able to understand risks and opportunities for their businesses in a way they had not before. The Danish motto: you can't fly below the radar. Sustainability reporting is the radar. The "comply or explain" model is surely one which will be emulated, I suspect. Wim Bartels made the point that building the systems required for good non-financial reporting needs accountants. But who would have expected less from a partner in sustainability services at KPMG. He has a point, but some pushback was felt from the audience who suggested that sustainability reporting needs anything BUT accountants. This, when you consider that the IIRC is comprised of almost exclusively accountants and financial specialists, may already be a lost cause.

The next session showcased reporting leaders from Novo Nordisk, Novozymes and the data collection systems company Enablon. The best quote from this session was "you can't internally manage unless you externally report" (Dan Vogel of Enablon) . The question of how far you can monetize sustainability in integrated reporting was one of the interesting aspects raised, as the drive to fit sustainability into financial reporting frameworks may just create pressure in this direction. All agreed that better models to measure impact and the cost-benefits of sustainability impacts are required.

Toby Heaps of Corporate Knights and the 100 Best Corporate Citizens posed the question: Will social change happen through capital markets? and then proceeded to answer it by explaining that radical transparency is the key. Wow. Sounds so easy. The 100 Best Corporate Citizens has honed in on 10 core indicators which are the clue to radical transparency. Caution. This is a buzzword. Use it sparingly. Considering that only 2% of UNPRI signatories, according to Toby, disclose non-financial information, transparency has apparently not reached radical levels quite just yet. Bloomberg, in the form of Curtis Ravenel, align with Denmark in the belief that regulation is the only way forward.

Finally, a large lunch, a few exquisite muffins and some delightful pastries later, (N.B. Don't diet at Justmeans conferences), BP (Nicholas Robinson) took center stage and explained what it's like not to sleep at night when you need to produce a sustainability report when everyone is accusing you of being about as sustainable as a rabbi at the Vatican. After being slapped with the largest class action law suit in history, trying to produce sustainability report sounds like something only Merlin the wizard might attempt. However, without Merlin's assistance, apparently, but with a strong dose of Triazolam, BP has done it (see here - more on that in a later post). The complexities of reporting for companies who are dual listed (US and UK) were interesting to hear about from BP, who took four years to combine their different submissions into one report that meets both requirements. Hmmm. And that's only financial reporting. At that rate, integrated reporting should be with us by the time my great-great-grandchildren will wonder whether separate reporting was ever an option. Another interesting discussion in this panel was about what happens when Greenpeace decide you are the bad guys and viralize a gory video about endangered orang-utans, attacking one of your iconic brands. Invite them to the table, was the answer from Niels Cristiansen, the Public Affairs guy at Nestle. I just hope the conference room refreshments did not include Kit Kat. Greenpeace asked Nestle to develop an auditing plan for their rainforest impacts and Nestle agreed. Not only this, but the Head of Operations at Nestle is reported to have said "I am glad they did because it made us a better company." Who needs McKinsey when Greenpeace can help you improve your bottom line?

By this time, my head was reeling with  many old and new concepts, and my waistline was begging for relief, so it was probably a good thing that Justmeans didn't cram any more into this day. I will certainly be happy to attend another Justmeans conference, but only if they hold it at the Brewery.

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)

33 reasons to attend a conference on reporting

The  main reason I attend conferences is to keep up to date, learn new stuff and gain new insights from inspiring people doing inspiring things. Of course, networking is a big bonus, and more and more these days it's about meeting people face-to-face after months or years of positive interaction on social media, as well as catching up with those you have not seen in a ling while. As plan my trip to the UK later this month, I thought I would share my 33 reasons for attending the Justmeans Redefining Value: Integrated Reporting and Measuring Sustainability Conference in London on 25th March 2011.

33. The Agenda looks great
32. It's about sustainability reporting.. my favorite subject in the whole wide world (sorry Chunky Monkey)
31. I haven't been to a Justmeans conference before, and it's about time I checked them out
30. Some of the great thought leaders in sustainability and reporting, and sustainability reporting will be on stage - Wim Bartels, Thomas Conde, Toby Heaps, Judy Kuszewski and more
29. I am interested to hear what Niels Christiansen, Vice President of Public Affairs, Nestle S.A, has to say, given Nestle's sometimes not so comfortable positioning in the media.
28: It's in London, a very convenient location and the home of fish and chips.
27. There are plenty of breaks to download emails whilst networking.
26. The winners of the Social Innovation Awards will be announced. I always like a scoop!
25. I will be interested to hear Carsten Ingerslev, Director, Danish Government Centre for CSR, given Denmark's prowess in so many areas of sustainability including mandatory ESG reporting.
24.Maybe they will serve ice cream in the breaks.
23. The venue is close to Oxford Street. Yeah! Shopping.
22. The GRI, CDP and A4S will be updating us on the State of Reporting. Three leading lights.
21. I won't have to make dinner for the kids.
20. I won't have to make dinner period.
19. The attendance list reads like the top 100 corporate citizens list.
18. The venue is corporately responsible
17. This line is intentionally left blank.
16. The Social Innovation Awards shortlist is intriguing.
15. I happened to have March 25th free.
14. Integrated reporting is a complex topic and thinking is evolving. It's important to be where integrated reporting is being discussed. Every voice counts.
13. I can't attend the pre-conference workshop so the conference will be my compensation.
12.I am looking forward to watching everyone tweeting from the conference (what was that hashtag again?)
11.The conference promises to showcase best practices from companies at the forefront of reporting. Who would want to miss that ?
10. You never know, there just might be someone attending who is looking for a great Sustainability Reporter to help them write their next Sustainability Report. (Darn! I told myself I wasn't going to plug the services of my company, Beyond Business, in this post. I always had a problem with self-discipline.)

Keep going. Only 9 more to go. I saved the best till the last.

9. I get to meet up again with Martin Smith, the Justmeans mastermind.
8. It's something to do before my flight back home.
7. I am hoping to meet many co-#CSR-tweeps. #CSR tweeps are fabulous.
6. The conference is on a Friday. That means we can #FollowFriday it.
5. It's something to tell the folks back home about.
4. Do you really think they will serve ice cream in the breaks?
3. I will have lots of material to blog about.
2. It sounds like fun.
1. It's gonna be a blast.
0. I have the opportunity to be really generous and pass on a substantial discount to just a few people who register quoting a secret code that I am able to reveal to a few lucky friends. (If you also have 33 reasons to attend this exciting conference, just drop me a line and I will see what I can do.There are just a few places still open).

If you are at the conference, please come and say : Hi Elaine, how about ice cream?


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)

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)

The Race to Rank

The Global 1000 Sustainable Performance Leaders ranking for 2009 was unveiled this week by CRD Analytics, made public for the first time, and hosted exclusively in a searchable, filterable data base on Justmeans. I wrote an editorial for CSRwire.com, examining some aspects of this ranking which you can read here. In brief, this is a comprehensive ranking of Financial, Environmental, Social and Governance (FESG) performance of publicly traded companies with over $1billion in market capitalization and having produced a CSR or Sustainability report. The top 1,000 companies are selected from a total pool of over 5,000 potentials.  The ranking factors in performance data using GRI G3 indicators, and more, with 200 individual metrics. The methodology which underpins the G1000 is called Smartview(TM) and is also used to power the Nasdaq OMX CRD Global Sustainability 50 Index which was launched in June 2009.  Martin Smith, CEO of Justmeans, who co-hosted the Justmeans-CRD Analytics  webinar held on Wednesday said " This is the most robust methodology I have seen" (for ranking sustainability performance), and I agree with him. The purpose of hosting this ranking on the Justmeans platform is, according to Martin, to "speed up the rate of disclosure" With everybody's data out there for everyone to review, the expectation is that, in addition to the attention given to these rankings by the investor communitty, Companies will start to realize that transparency as well as performance is the name of the game for all stakeholders, and will be anxious to ensure that  their place in the rankings continues to improve. This is the essence of the race to rank. Whether you like it or not, if you are a publicly traded company, you are in the race. 

The Smartview(TM) methodology uses the four FESG dimensions, 20 key performance indicators and 200 individual metrics. The performance of each company is presented on a 360 spiders-web wheel , giving a visual representation of a company's total performance, and clearly highlighting areas where a company shows leadership or areas that need more work. One of the important factors in this methodology is the integration of actual performance as well as disclosure. If a company has not reported, they dont get a look in. And that's good, because responsiblilty without transparency is a non sequitur (That's Latin for oops!).

Michael Muyot, President and CEO of CRD Analytics, who developed the Smartview methodology,  shared  some interesting data  about the improved performance over time of Companies who have been evaluated  using this methodology.

This shows, in a rigorous, verified analysis, that global companies that improved on ESG performance from 2006 to 2008 outperformed the MSCI World Index by over 11.6% from 2008 to 2009. That's  pretty persuasive, and something investors are understanding how to work into their analyses and evaluations.

The value of presenting this ranking data for all to view, together with subsequent updates, serves to heighten awareness of the performance of companies, both for stakeholders and for the companies themselves who are looking to improve their performance and position in the rankings. CRD analytics do not consult to Companies who want to improve their position, in order to remain totally independent as they do their analytics stuff. Instead, CRD work with a range of consultants who know the GRI  framework and the Smartview(TM) methodology well and who can advise Companies on what they need to do to improve their performance against the required performance metrics. (Disclosure: My Company is one of those consultants). CRD's core service provided to companies is reports - company reports, industry or  sector reports, deep dive custom built reports etc which give companies a powerful set of analyses which can be used for planning, proritization and performance improvement.

At present, the plan for the G1000 on Justmeans  is twice-yearly updates aligned with the timings in the year that most companies tend to publish most of their data. However, the potential is to update more frequently - say  quarterly or even monthly. The ultimate would be to update the list day-by-day, whenever companies publish new data, giving an absolute real-time view of where individual companies are and how they stack up against peers. This would certainly quicken the pace of the race. The faster you disclose performance, the faster companies will compete for top rank, just as they compete for investor attention, shelf-space in a supermarket or air-time in the media. This is a good thing, as to improve rank, you need to improve performance. The faster this can be done, the faster we realise our global goals of sustainability.

Rankings are not just random or futile exercises. There are many which are not terribly scientific and not reliable as a reflection or predictor of sustainable performance. I am convinced that the Smartview methodology is different. And moreover, I am convinced that a professional, credible ranking drives companies to improve performance. Just looking at the Smartview data, which underlies the G1000 ranking, once can see the year-on-year progression of both transparent disclosure and quality of action.

I looked at the Company who has most improved its  position in the 2009 rankings: MOL Hungarian Oil and Gas plc, one of the leading Hungarian chemical companies, which jumped from  976 out of 1000  rank in 2008 right up to rank 153 in 2009. This Company  did not make the top 1000 in 2007. This is the result of a concerted effort on behalf of this Company to perform and report. This is what the Chariman and CEO say in their 2009 Annual (integrated fiancial and non-financial) report:

Our efforts towards Sustainable Development were also viewed positively by the capital markets, as MOL – exclusively in the Central-Eastern-Europe region – has become eligible for inclusion in the Sustainability Yearbook 2010 (bronze class), published by Dow Jones Sustainability Index’s analyst, SAM. The acknowledgement that MOL is among the top 15% of Sustainability performers in the oil and gas industry is the direct result of our long-term focus on those environmental and social areas that are critical to our sector such as climate change, transparency, occupational health and safety,attracting and retaining top talent and customer relationship management. In addition, our managers’incentive bonus scheme is partly based on performance indicators related to their individual SustainableDevelopment targets.

This strong position is reflected appropriately in the 2009 Global 1000 ranking. The 264-page 2009 annual report includes 34 pages on sustainability performance (assured) and a further 25 pages on governance. The report conforms to application level A+ of the GRI Reporting framework, an increase in transparency versus 2008 (B+), and 2007 (undeclared level). The improvement in the G1000 ranking position reflects stronger performance and stronger reporting in all ESG categories, whilst improving overall financial strength in 2009 versus 2008. Whilst achieving a higher ranking specifically in the G1000 may not have been top of mind for this Company, a focus on improving sustainability performance and disclosure was. As a  result, this Company is now on the radar and very much in the race.

Being in the race to rank delivers  reputational benefits and is a catalyst for performance improvement. Competing in the race is a sure-fire way to get stakeholders to sit up and notice, and even engage. Hah! And that is where accelerated positive impact on sustainability will be created.  

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)