The Enlightenment According to the Big Four. Not.

I wish I were an accountant. Clearly, I'd have so much time on my hands that all I would do is prepare new frameworks for sustainability metrics. I would spend my mornings dreaming up some new framework that looks just enough different from what's already out there to make it Big News, and spend my afternoons convincing everybody why it solves all their problems. Then I would make a ton of money when people are so bewildered and confused that they adopt my framework and ask me to check it over.

This was my first reaction to the new WEF publication: Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation which can't have helped escape your attention if you are on the sustainability circuit. (OK, I don't really wish I were an accountant. I don't think I could handle all the accountant jokes.) 

I can't tell you how many clients and colleagues have asked me what I think about the WEF metrics framework, meaning, is it good or is it bad? GRI has published a diplomatic response saying they "cautiously welcome" this approach but that it doesn't go far enough. Prof. Carol Adams has also weighed in: "Once upon a time there was a glimmer of hope that accountants could save the planet. The motivation for this report is unclear and expressed differently in different parts. But it is not going to save the planet and could well do more harm than good."  And no less a scathing reaction from Carlos Tornero at Responsible Investor: "As for reforming capitalism, I’m afraid the Big Four are not the best ambassadors for that."

For those who haven't yet studied the WEF paper, here's 96 pages distilled (followed by my commentary):

The proposal was developed as part of the WEF's International Business Council (IBC) and led by the Bank of America, who chairs the IBC, and the Big Four accounting firms: Deloitte, EY, PwC and KPMG. The IBC is a community of CEOs of around 140 companies, as far as I can gather, but I cannot find a list of the specific companies that are members of this group. 

The objective of developing this disclosure framework was "to identify a set of universal, material ESG metrics and recommended disclosures that could be reflected in the mainstream annual reports of companies on a consistent basis across industry sectors and countries. The metrics should be capable of verification and assurance, to enhance transparency and alignment among corporations, investors and all stakeholders."  

The hope is to encourage "IBC companies to begin reporting collectively on this basis in an effort to encourage greater cooperation and alignment among existing standards as well as to catalyse progress towards a systemic solution, such as a generally accepted international accounting standard in this respect."

And an important point: "This effort is not intended to diminish the value of the separate sustainability/ESG/impact reports, which often provide more comprehensive information at the industry- and company-specific levels, tailored to the interests of stakeholders beyond investors."

The proposed metrics are intended to be universal, industry agnostic ESG metrics/disclosures. There are two types:

Core Metrics: 21 metrics and reporting requirements. "These are primarily quantitative metrics for which information is already being reported by many firms (albeit often in different formats) or can be obtained with reasonable effort. They focus primarily on activities within an organization’s own boundaries." 

Expanded metrics: 34 metrics. "The expanded metrics and disclosures encourage companies to move from reporting outputs alone to capturing the impacts of their operations on nature and society across the full value chain, in more tangible, sophisticated ways, including the monetary value of impacts. These tend to be less well established in existing practice and standards...They represent a more advanced way of measuring and communicating sustainable value creation, and companies are encouraged to report against them as well, when material and appropriate."

Below is an overview of the metrics (reproduced from IAS PLUS )

Governance Core Metrics include: Company purpose statement, governance overview, material topics, anti-corruption, ethical reporting mechanisms and risk management. 

Expanded metrics include: 

• How the company’s stated purpose is embedded in company strategies, policies and goals
• Disclosure of the material strategic economic, environmental and social milestones
• How performance criteria in the remuneration policies relate to the highest governance body’s and senior executives’ objectives for economic, environmental and social topic and details of Board and executive remuneration
• The significant issues that are the focus of the company’s participation in public policy development and lobbying
• Total amount of monetary losses as a result of legal proceedings associated with fraud, insider trading, anti-trust, anti-competitive behavior, market manipulation, malpractice or violations of other related industry laws or regulations
• How the highest governance body considers economic, environmental and social issues when overseeing major capital allocation decisions, such as expenditures, acquisitions and divestments

Planet Core Metrics include: GHG emissions, TCFD implementation, land use, water consumption in water stressed areas.

Expanded metrics include:

• Paris-aligned GHG emissions targets  (science-based)
• Impact of GHG emissions - the estimate of the societal cost of carbon used
• Land use and ecological sensitivity 
• Impact of land use and conversion 
• Impact of freshwater consumption and withdrawal
• Air pollution and impact of air pollution 
• Water pollution and impact of water pollution
• Single-use plastics 
• Impact of solid waste disposal
• Resource circularity - potential metrics include (but are not limited to) the Circular Transition Indicators (WBCSD), indicators developed by the Ellen MacArthur Foundation and company developed metrics.

People Core Metrics include: Diversity and inclusion, pay equality, pay levels, risks of child, forced and compulsory labor, health and safety, training

Expanded metrics include:

• Mean pay gap of basic salary and remuneration of full-time relevant employees based on gender (women to men) and indicators of diversity (e.g. BAME to non-BAME) at a company level or by significant location of operation
• Ratio of the annual total compensation for the organization’s highest-paid individual in each country of significant operations to the median annual total compensation for all employees
• Discrimination and harassment incidents (#) and the total amount of monetary losses ($)
• Freedom of association and collective bargaining at risk (%) 
• Human rights review, grievance impact & modern slavery (#, %)  - total number and percentage of operations that have been subject to human rights reviews or human rights impact assessments, by country.
• Living wage (%) - current wages against the living wage for employees and contractors in states and localities where the company is operating. 
• Monetized impacts of work-related incidents on organization (#, $) 
• Employee well-being (#, %) - the number of fatalities as a result of work-related ill-health, recordable work-related ill-health injuries, and the main types of work-related ill-health for all employees and workers, and percentage of employees participating in “best practice” health and well-being programmes, and Absentee rate (AR) of all employees.
• Number of unfilled skilled positions (#, %) 
• Monetized impacts of training – increased earning capacity as a result of training intervention (%, $) - investment in training as a percentage (%) of payroll and effectiveness of the training and development through increased revenue, productivity gains, employee engagement and/or internal hire rates

Prosperity Core Metrics include: Employment, economic contribution, financial investments, R&D expenditure, tax payments 

Expanded metrics include:

• Infrastructure investments and services supported 
• Significant indirect economic impacts - examples of significant identified indirect economic impacts of the organization, including positive and negative impacts.
• Social value generated (%)  - percentage of revenue from products and services designed to deliver specific social benefits or to address specific sustainability challenges
• Vitality Index  - percentage of gross revenue from product lines added in last three (or five) years calculated as the sales from products that have been launched in the past three (or five) years divided by total sales, supported by narrative that describes how the company innovates to address specific sustainability challenges.
• Total Social Investment ($) -  Total Social Investment (TSI) sums up a company’s resources used for “S” in ESG efforts defined by CECP Valuation Guidance.
• Additional tax remitted - total additional global tax collected by the company on behalf of other taxpayers, including VAT and employee-related taxes that are remitted by the company on behalf of customers or employees, by category of taxes
• Total tax paid by country for significant locations

********

So, take a deep breath, and let's summarize: 

First, the accountants have decided (with input via a survey from some of the IBC companies) what represents a set of universal core metrics that every company should report on - whatever their shape or size. These metrics reflect largely DIRECT IMPACTS which each company can measure, control, and improve. 

Second, the framework offers an additional set of metrics that represent mainly INDIRECT IMPACTS - the ways in which the company impacts the world through its value chain. 

Third, it uses metrics that largely already exist in different frameworks.. a pick'n'mix from well known and lesser known frameworks, heavily leaning on GRI and to a lesser extent on SASB. Interestingly, although CDP is cited, none of the metrics are directly taken from the CDP questionnaires. 

Fourth, it incorporates some new concepts such as living wage (not new but not covered by existing frameworks), inclusion of corporate purpose (the new sexy), "vitality index" (heard of that one?), WCBSD Circular Transition Indicators, monetized impacts of training and others.  Two new metrics have been invented - one for single use plastics and one for land use.

What do I think?

Although the WEF metrics-team may have tried not to reinvent the wheel, they have actually reinvented the bicycle. The proposal moves away from the GRI approach of materiality by applying a common measurement system to all companies at a fundamental level - the things any company anywhere should be taking into account in the management of its own operations. The second set of (expanded) metrics also ignores the materiality approach and prescribes a range of measurements reflecting what the WEF team feel are the most relevant universal social and environmental issues - linking their selection to SDGs. After companies have done all of this, they have the option of applying a materiality lens and adding whatever crumbs are relevant for their "other" stakeholders, i.e. not investors.  

Actually, this approach has some elements of something I have been advocating for years - see my post from 2017: Materiality - from meaningless to differentiating  in which I wrote:

• There should be a harmonized standard baseline of disclosures that are relevant to all companies - some will be more critical than others for different companies - but they are relevant - and material - for all. I call this Operational Materiality. 
• Then we should have materiality that is precise enough to differentiate - focusing on the specific aspects of a company's impacts that are a directly relevant to its business, the locations it operates in and the influence it has on society. Let's call that Precision Materiality. 

The WEF metrics partly go this route. WEF Core Metrics represent operational ESG performance. Expanded Metrics represent  broader impacts - but remain any industry, and not specifically relative to what might be considered material for a specific company. 

So back to the question, is it good or is it bad? 

Coming just on the heels of the "standard setters' " proud declaration of how well they all fit in with each other and that no-one needs to be confused any more (and that's another (long) story 😜), here is yet another framework for ESG disclosure. I have to say that I rolled my eyes so hard that they almost stuck to my skull when I read the Press Release: “This is a unique moment in history to walk the talk and to make stakeholder capitalism measurable,” says Klaus Schwab, Founder and Executive Chairman, World Economic Forum. “Having companies accepting, not only to measure but also to report on, their environmental and social responsibility will represent a sea change in economic history.”  Seriously? A unique moment in history? A sea change? Excuse me... with all due respect, where has Mr Schwab been for the past 25 years? This is not a unique moment, it's one of hundreds and hundreds (arguably regrettably) similar moments that have occurred in the past several years, with the publication of every new sustainability disclosure framework, and having companies report on their environmental and social responsibility is actually current practice for most of the large companies in the world - there may be inconsistencies, there may be gaps, but it is happening, and it has consistently been getting better. 

I also had a bit of a laugh at the visual in the WEF report's final section... rainbows galore!

The conclusion is also a Call to Action to IBC members. "Given the urgency of this agenda, we invite all IBC members to declare their intention to report on these metrics and disclosures; collectively, we will present a timeline for that process at the IBC’s Winter Meeting in January 2021. Finally, we encourage the wider corporate community to join us in this collective endeavour." Watch this space, apparently. But you have time for a quick nap before January 2021.

My answer to the question, then, is that the wheels are good but the bicycle is bad.  

I'll explain.

I agree with the concept of having a set of metrics that are relevant for all companies, as I have said. And the core metrics are a reasonable selection (with some exceptions - see below). BUT, why on earth did the accountants think they needed to create yet another framework? As I have said several times, we do not need new frameworks, we need consistent implementation of existing frameworks. Take materiality as a case in point. Everyone is now swooning over the new concept of dynamic materiality - which in my view is a poor compromise to enable everyone to have a seat at the table without resolving underlying issues of how materiality is determined. Instead of creating yet another way to describe what materiality is, why has no-one one come up with a fool-proof comparable auditable methodology to help companies determine what represents material impacts from a sustainability standpoint? The new iteration of the GRI Standards, that has recently been in Exposure Draft did not do this, and GRI has never done this. "GRI is the disclosure tool, we do not prescribe the methodology" said GRI. But heck, if your entire disclosure concept is based on materiality, why wouldn't you offer a methodology for how to create it?  And this, in my view, has been the single biggest gap in sustainability reporting standards to date, and is the reason that so many other standards have sprung up. By asking companies to disclose material topics, without understanding or being able to reasonably audit what those material impacts are, comparability and rigor in sustainability disclosure were effectively destroyed. SASB stepped in and said, hey, we can do it. And they spent millions of hours and dollars creating sets of prescriptive metrics for different sectors, but even that doesn't do the job, as companies still select from SASB metrics based on their own, possibly arbitrary, definition of material topics. 

Back to square one. Cue the accountants. Forget materiality. Everyone should be accountable for certain things in the same way. Let's cut and paste from as many existing frameworks as we can find, and call it The Enlightenment. So I think that's bad. I think it's a perpetuation of all that's wrong in the current sustainability disclosure landscape where every player is focused more on differentiating their own approach than on taking the higher view of how we can work together and build on what is and agree to make real change for the greater good. The WEFers may have pick'n'mixed from GRI, SASB, and all the rest. So what. The bicycle is new. Companies will have to learn how to ride it. Just when they were getting used to riding their current model. All we need now is for Larry Fink to send a letter to all the CEOs of companies in Blackrock's portfolio saying they must report disclose using SASB, TCFD AND the WEF metrics. Won't that be fun? So much for alignment, harmonization, simplification. 

And as for the core metrics, well, they are almost all based on GRI General or Topic-specific Disclosures. Why just not direct IBC members to report those GRI metrics? What was the point of creating an entirely new framework that just recycles the current best practice? Also, why some metrics were selected and others omitted is not so clear. Waste, for example, is not included in the Planet Core Metrics. But I would have thought that waste is absolutely core for most companies. And some metrics are rather useless. For example, in the People category, under "Skills for the Future", the metrics are average number of training hours and training expenditure. This is so old school. The number of training hours or the amount you spend on training is hardly an indicator of whether you are building skills for the future. In any event, many companies are moving away from formal traditional training programs in favor of other types of personal and professional development, so training hours is becoming an increasingly incomplete measure. So, by picking and mixing, the accountants may have come up with a set of core metrics that are comparable and auditable up to a point, but, frankly, what's the value add here? Not much.

And what are metrics? Hint: Only a part of the story of a company's impacts and overall role in society. The context, the journey, the strategy, the targets, the process, the culture, the examples of practice, the insight, the accountability, the people  .... all these are important in sustainability disclosure. This framework is an accounting tick-box by accountants for accountants. Something that makes sense to them because it can be quantified, stuck into categories, computed and converted into theoretical evaluations and risk assessments that may help investors know how rich they can get. Is this what sustainable development has become? A set of monetizable compartmentalized scores? This may be the story of sustainability disclosure promoting itself into obsolescence. Precisely because sustainability has been so successfully (yes, not perfectly) addressed and disclosed over the years, the money markets woke up. Now, they are trying to reframe it in ways that fit with what they know. Like the country farmer who visited the Empire State Building and asked: how many sheep does it hold? Well, not everything that glitters is gold and not everything that's a number is meaningful. 

 

My assessment is that the WEF framework will not go mainstream as such, beyond the IBC members, if they even bother to apply it, even though the accountants will hype it. Companies that already disclose GRI, SASB, CDP and TCFD may well find themselves hitting many of the WEF metrics in any case, so they will sort of deliver the WEF indicators by default. If Larry Fink suddenly decides that this is the new Holy Grail, then he can probably get it without companies adding too much in the way of new disclosures. Some eager-beavers may start including a WEF index alongside all their other indices that support their reporting. What's another download, anyway? And let's not get started on the competitive scramble around Core and Expanded....can't you just see the Press Releases? "XXX company demonstrates global leadership in radical transparency in its new Sustainability / Annual Report by meeting all the requirements of the Expanded Metrics of the WEF ESG disclosure framework." Wowee.

  

If only the humanity could be saved by the proliferation of reporting frameworks…. 😂🤣😂 … we would all be able to spend more time trying out new ice cream flavors and enjoying days on the beach, wearing an "SDG Been There Done That" T-shirt.

Note: October 2, 2020: This post originally stated in error that there were 22 core indicators - there are 21. This has been corrected.

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 107 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

 

Reporting in CoronaWorld

The question on everyone's (masked) lips.😷 Although we are currently publishing a 2019 Sustainability Report, should we include our response to COVID-19, even though it occurred in 2020? 

In my view, the answer is unequivocally yes. Reporting is never in a vacuum, and when reality has changed so starkly between the time of preparation and the date of publication of a sustainability report, I believe it's fairly obtuse not to include a reference or update. In fact, many are referring to a company's COVID-19 response as a sort of litmus test of its seriousness about sustainability. If core values of positive social impact and responsible employment are not demonstrated in times of crisis, when they are most needed, then they are apparently not truly embedded. Check out the COVID-19 Stress Test by Vigeo Eiris, which concludes with the words: "CSR presents a pathway to protect consumer trust, investor confidence and workforce loyalty. If there is a simple lesson that we can relearn, it is that CSR practices can act as powerful tools when responding to a crisis."

I reviewed 30 Sustainability Reports that were published in the last few weeks (those that have crossed my radar through announcements and alerts) and produced the following analysis:

• The majority of companies include references to COVID-19 in their 2019 Sustainability Reports, though a third of them are only doing so via a brief mention in the leadership (Chair, CEO or other senior leaders) letters. 
• The number of companies providing extensive updates about their actions to support their stakeholders during the COVID-19 challenges are few - just 8 companies out of 30 specifically reference more than a single stakeholder group (e.g. employees, customers, suppliers, communities or new business activities). 
• Most of the companies that have included COVID-19 references in their Sustainability Reports also have a COVID-19 update on their website homepage.
• Three companies that do not provide COVID-19 updates in the 2019 Sustainability Report include a reference on the company homepage. 
• Five companies - radio silence.

These results surprised me a little. There has been no greater global social or economic crisis in recent years than the coronavirus pandemic, affecting billions of lives, forcing businesses around the world to a standstill, a slowdown, or for many, bankruptcy. There has never been a period in our lifetime when the ability to work and deliver economic output has been so drastically affected. There have never been so many layoffs in such a short period, nor so many employees affected by the virus or by sickness or deaths of loved ones, neighbors or colleagues. Never has "materiality" been subordinated to a single overriding issue that affects everything corporations are doing.

In this unprecedented scale of crisis, all corporations face both risk and opportunity - the familiar duality of CSR or sustainability. The annual Sustainability Report is a core communication tool to disclose the impacts of companies on people and the environment, as well as the sustainability risks and opportunities companies face, and how they are dealing with them. By the time the next report is published, in 2021, although companies may still be navigating the "new normal", whatever that looks like, their actions now are what counts and what stakeholders seek to understand. A page on a website may get lost in time, a Sustainability Report is a permanent attestation to a company's commitment. Business is not currently "as usual". Sustainability Reports published in 2020 should also not be "as usual".

Yet, in more than a quarter of the recent reports I reviewed, companies say nothing at all - not even: "Hey folks, stay safe." For many others, the mention is cursory. On the positive side, there are examples of comprehensive disclosure such as Infosys, Samsung and Moody's (see below).

Here are a few examples from the 30 reports I reviewed (alpha order):

B2Gold: 2019 Sustainability Report - Raising the Bar

B2Gold's President and CEO references COVID-19 in his opening letter - not the first thing he addresses, but it is there on the first page of the letter and a commitment to work with governments, health authorities and other players to support navigating the pandemic. Separately, B2Gold includes a half page update of key COVID-19 initiatives and commitments addressing employees, health and safety and community - referencing more details on the company's website.

Notably, all forecasts and data shared for 2020 is footnoted in B2Gold's report with the words: "based on current assumptions, subject to variation due to impacts of COVID-19 pandemic."

GasLog Ltd: Sustainability Report 2019

This is a first report from this company, and nothing like a baptism of fire, facing both the challenges of first time reporting AND the COVID-19 pandemic all at the same time. GasLog's Chairman's first words in his opening letter addresses this. In fact, the first paragraph of the Chair's letter includes the word "challenges" three times - a symptom of today's market and reporting environment. In addition to this, GasLog briefly references the measures taken to protect employees and maintain operations.

Infosys: Sustainability Report 2019 - 2020

Infosys provides detailed coverage of its COVID-19 response, starting with a reference in the COO letter to the contribution made by the Infosys Foundation to support local communities. Later, a dedicated section in the report focuses on Infosys' risk management approach and support for the health and safety of employees and vendors, and business continuity plans for customers.

COVID-19 references also appear in different sections of the report, describing, for example, research initiatives on the effects of the pandemic, and a hackathon hosted with IBM to address issues such as crisis communications and remote working. Another example is converting the company's internship program to operate virtually so that interns can stay on course in their careers. There is also a specific case study on smart building automation as a key factor in managing uninterrupted operations in buildings, including critical infrastructure like data centers.

Further, Infosys reports pushing out its climate ambition from its commitment to achieve carbon neutrality in 2020 to 2021 due to COVID related uncertainties. Interesting. With all the travel restrictions, lockdown and virtual working, you might have thought that the carbon neutral commitment would be even easier to achieve in 2020. But apparently it take more than zoom meetings and cancelled flights to deliver a long-term step change in carbon performance. It's notable the the company is acting with a measure of caution and publishing an updated commitment to stakeholders. 

Mondelez International: Snacking Made Right 2019 Report

Several references are made in different sections of the report, covering employees, safety, communities in addition to a brief mention by the CEO in his opening letter.

And this is a final comment from the General Counsel:

So, not overly detailed, but clearly representing different dimensions of the Mondelez COVID-19 response. Mondelez also maintains a website page, accessible from the homepage, with a detailed list of actions currently being taken across different aspects of the business.

Moody's Investor Service: 2019 Corporate Responsibility Report

Moody's covers its response to COVID-19 through its CSR Report across different dimensions of its activities, with a focus on helping customers and markets navigate this pandemic and managing risk.

Interestingly, as an employer of 11,000 people worldwide, Moody's makes no reference to what it's doing to support its employees through the challenges of COVID-19, choosing to focus on market and customer-facing actions. Moody's coverage of its COVID-19 response is prominent on the company's homepage and covered in a coronavirus blog. You can also download a Moody's COVID-19 status report, an early example of what I suspect will be a flurry of standalone COVID-19 Response Reports that many companies will publish starting in late 2020 and through 2021, supplementing regular annual and sustainability reporting. Sooner or later, someone might even develop a standard for COVID-19 CSR Reports (GRI? Anyone? 😂)

Regency Centers:  2019 Corporate Responsibility Report

Recency Centers publishes a strong report that is GRI, SASB and TCFD compliant, well-structured and nicely laid out. This applies also to their COVID-19 response, grouped on one page, covering support for employees, communities and ethical conduct. There's something to be said about grouping COVID-19 updates on one page (or two) - providing a sense of scale and coverage to a company's response, This way, the reader can appreciate the company has a considered response, rather than a fragmented (uncoordinated) one. 

Samsung Electronics: 2020 Sustainability Report

Samsung Electronics has one of the most extensive (and impressive) examples of coverage on COVID-19, and, in this 13th Sustainability Report, introduces a dedicated chapter covering the COVID response and other mentions throughout the report. Specifically, the CEO opens up with understanding the challenges everyone faces and wishing everyone well. Nice. Then a dedicated chapter covering Samsung's COVID response for employees, suppliers, customers and some stories.

In particular, thanks to COVID, we meet Kim. Kim, I assume, is a fictitious employee and Samsung shares the changes to her day as a result of COVID-19 measures in the work environment. I note she didn't take time for ice-cream, but maybe this wasn't a typical day!

Beyond this, Samsung shares in the dedicated COVID-19 chapter,  (and in a case study later in the report) how the company helped boost mask production in Korea by 51% through deploying support personnel to optimize the production process for local mask-makers, and engaged more than 100,000 employees in brainstorming and debating ideas to address COVID-related challenges. Samsung also references COVID-19 in its risk management section and the establishment of a separate COVID-19 risk monitoring and response organization. All in all, a comprehensive and creative disclosure on COVID from Samsung, demonstrating a holistic approach to protecting different stakeholders.

STMicroelectronics: 2020 Sustainability Report  

Briefest of mentions in the report. Cursory mention by the CEO and a short reference to triggering risk management protocols to support employees and maintain supply chain continuity. One nice touch: Thank you to report contributors who worked to complete the report in lockdown.

There is no mention of COVID-19 on this company's website 😩.

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Reporting is never easy and reporting in CoronaWorld is even less easy. Well done to all these companies and others who are maintaining reporting, with or without references to their COVID response in this period. I have no doubt that the pressures at this time on all businesses could easily turn into an excuse to delay/shelve disclosure. Having said that, the way companies are behaving through this pandemic is a direct reflection of their values. Does no COVID disclosure = no values? Well, that might be going a little far, but no disclosure certainly risks eroding stakeholder trust. 

What's the best way to disclose? Report? Web? Social media? Answer: All of the above. But failing to include any form of COVID response in sustainability reports publishing this year is a missed opportunity and one that stakeholders are not likely to forget. Even ice cream may not help.

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 107 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   

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      

10 ways not to attend the Asia Sustainability Reporting Summit

The first week of September is going to be #reportingmania week in Singapore, as the third annual Asia Sustainability Reporting Summit (ASRS) on 4th and 5th of the month promises to be the biggest and bestest yet. With 70 speakers from almost as many countries, it's going to be a packed two days of learning, inspiration and exchange. So here are 10 coping mechanisms just in case you cannot make it this year. 

1. Spend 30 minutes a day meditating, using the collage below of ASRS 2019 speakers as your inspiration - it won't help you predict what they might say, but it will make you realize what you are missing. If you start now, there will be just enough time to register before the start of the Summit.

2. Sign up for my pre-conference workshop. You will be compelled to continue the conversation for a further two days at the Summit. 

3. Order a three day supply of ice cream in a range of flavors. Only ice cream 🍦🍦🍦can take away the pain of not attending the most fun Summit on Sustainability Reporting in Asia. 

4. Sign up for the live-stream conference feed. Ooops. No live stream. You will just have to book your ticket. 

5. Gather your thoughts about whether sustainability reporting should be mandatory or self-regulated. This will be an illuminating debate in a panel session with 5 leading figures in the Sustainability Reporting world. While the session is taking place, you will be able to imagine yourself following the insights of these experienced practitioners and agreeing or questioning their thoughts.   

6. Plan a vacation in Singapore to coincide with the two days of the conference. Once you get to Singapore, you will be magnetically drawn to the Novotel Clarke Quay Hotel to register for the conference. Who needs vacations anyway? 

7. Take a look at the Summit Agenda and try to imagine yourself sitting at home or in the office while all this is taking place. Do you really think you can do it? Be kind to yourself and resolve this inner struggle by signing up without delay. 

8. Reconnect with #womenpower. 57% of the speakers at ASRS 2019 are women. This summit is a celebration of women's leadership in sustainability. If you are  a woman, man or individual of any gender, you will know that women's leadership is always INCLUSIVE. And that means inclusive of YOU. So sign up for the Summit and be included.  

9. Focus on the future. Think about your next sustainability report and how you will refresh your reporting, ensuring you are abreast of innovation, frameworks and new regulation in the region and globally. Think about how you might get a concentrated boost of energy, motivation and inspiration to fuel your next reporting cycle. Don't let your mind wander to the fascinating debates and insights that will take place at ASRS. Don't dwell on the time you will waste by not attending ASRS where you have everything under one roof over 48 hours. Got a plan? Think you can cope without attending the Summit? Feeling confident?  Great, but if not, you might want to send in your ASRS registration. Jus' sayin. 

10. Finally, if all the above doesn't work, you will probably need the Deep Detox solution. Book in at the Sustainability Reporting Detox Clinic for a two day intensive full body and mind detox, where the words sustainability and reporting are banned and people talk only about sunshine, beaches, Netflix, gourmet meals, ice cream flavors and places to visit when you retire. Any mention of anything connected to sustainability reporting sends you to solitary confinement for your entire stay with no internet, no phone, no connection to the outside world and no ice cream. Best to do this before the Summit starts, so that if it doesn't work, you still have time to register. 

For all of you for whom these coping mechanisms are not likely to work, see you in Singapore!

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