What would you say to the UN?

If you had the attention of the UN General Assembly in a debate about "Elements for a Monitoring and Accountability Framework for the Post-2015 Development Agenda", what would you tell them? I suppose it depends on who you are, where you come from and what you see.

If you have been one of the leaders of the most dominant business accountability organizations for the last ten years and have had a top position in the Dutch government, in charge of human rights, climate change, and scientific research, and had several international leadership positions, such as chair of an OECD Working Group, OECD President of donor governments to the Sahel, and Vice Chair of the Oversight Committee of the Consultative Group on International Agricultural Research (hosted at the World Bank, with UNPD, FAO, IFAD and 60 governments) and climate change director during COP 6, when agreement was reached on the Kyoto protocol under the UN Climate Change Convention, what would you say?

If you are also a board member of WWF Netherlands, the second largest national WWF network with almost 1 million contributing members, and of  the International Institute of Environment and Development, a global leader in sustainable development, and of CORDAID, a large international development organization with almost a thousand partner organizations in 36 countries, combining emergency aid and structural poverty eradication, and of the SEED Initiative, a global partnership for action on sustainable development and the green economy, and of  Women in Europe for a Common Future (WECF), an international network of over 100 women’s, environmental and health organizations implementing projects in 40 countries and advocating globally for a healthy environment for all, assuming you found the time to take a trip to New York, what exactly would you tell the UN General Assembly, headed by Ban Ki Moon and including delegates from 193 countries?

If you are a dynamic, thoughtful leader with a vision for a better world where business plays a positive role, how would you formulate your advice to the UN delegates?

This person did that yesterday, May 1, 2014, in the General Assembly. Yes, of course, I am talking about Teresa Fogelberg, Deputy Chief Executive of the Global Reporting Initiative. And this is what she said: 

"
A successful post-2015 Development Agenda will require a robust, inclusive and transparent monitoring and accountability framework. Accountability extends beyond government, and applies to all stakeholders being held accountable for their role in implementing a universal development agenda. And that is what I will do today: address business accountability.

There is a unique momentum bringing together two global currents, two movements: 1) the business and stakeholder movement behind the growing integration of sustainability considerations in business and 2) the growing accountability practice developed in the field of Sustainability Reporting over the past years, with the overall inter-governmental monitoring of Sustainable Development Goals (SDGs).

The reality is that the private sector is diverse. Fortunately the number of companies that appreciate the importance of their social and environmental performance is growing. But this realization is still far from universal. The UN Global Compact, the World Business Council for Sustainable Development and the Global Reporting Initiative are the central global players advancing this practice. We have joined forces in a new Alliance to establish a strong link between this growing practice among business and their stakeholders and the SDGs. We call our alliance the Post-2015 Business Engagement Architecture. We felt proud when UN Secretary-General Ban Ki-moon launched it in September 2013.

The plan is to develop private sector guidance that will help companies enhance their sustainability management and reporting with a view to global sustainable development goals and targets. The Alliance partners will work together to add a chapter to GRI’s global standard to make the connection to the forthcoming SDGs. This would provide an important element; a crucial piece of the jigsaw in crafting the Monitoring and Accountability Framework for the Post-2015 Development Agenda. It would mean that the wheel would not have to be re-invented, and that thousands of companies would bring their commitment and experience to the post-2015 implementation arena.

So what is the current global business accountability mechanism, used today as standard practice by thousands of companies from all continents? The topic of private sector accountability has appeared prominently on the agenda for over two decades now. The drivers have been a lack of public trust and a more restrictive operative license for companies. Opportunities for establishing a green economy and new markets have also arisen. There is no accountability without transparency – so sustainability reporting has become a key accountability tool for many companies and their stakeholders.

This is how the Global Reporting Initiative (GRI) was born. It started as a multi-stakeholder movement by companies, civil society, labour unions, the World Bank and various foundations.The UN Environment Programme (UNEP) welcomed GRI as a collaborating center and facilitated its establishment as an independent international organisation, based in the Netherlands (and now with satellite offices on all continents). GRI established key partnerships through Memorandums of Understanding with inter-governmental organisations like UN Global Compact (UNGC), the OECD and UNCTAD, where GRI actively contributes to the intergovernmental Working Group on International Standards on Accounting and Reporting (ISAR). Over the years, investors and stock exchanges have increasingly become engaged in business accountability and sustainability reporting or disclosure, as they call it. One important initiative launched in Rio in 2012 is the Sustainable Stock Exchanges Initiative, hosted by UNEP/FI, UNGC and UNCTAD.

Governments first referred to environmental reporting at the United Nations Conference on Environment and Development in 1992. In Agenda 21 of the Conference, they agreed that business and industry should be ‘encouraged to adopt and report on their environmental records, as well as on the use of energy and natural resources’. Building on this, the World Summit on Sustainable Development also underlined the importance of reporting by noting the need to enhance corporate environmental and social responsibility and accountability, including through actions such as ‘public reporting on environmental and social issues’.

In 2002, at the UN World Summit on Sustainable Development in Johannesburg, GRI launched the first mature version of the GRI Guidelines. These had been created as a de facto standard through a formal multi-stakeholder due process, with all stakeholder constituencies and geographic regions represented. GRI was referenced in the World Summit’s Plan of Implementation. Paragraph 18 of the Report reads as follows:

Enhance corporate environmental and social responsibility and accountability. This would include actions at all levels to: (a) Encourage industry to improve social and environmental performance through voluntary initiatives, including environmental management systems, codes of conduct, certification and public reporting on environmental and social issues, taking into account such initiatives as the International Organization for Standardization standards and Global Reporting Initiative guidelines on sustainability reporting, bearing in mind principle 11 of the Rio Declaration on Environment and Development; (b) Encourage dialogue between enterprises and the communities in which they operate and other stakeholders; (c) Encourage financial institutions to incorporate sustainable development considerations into their decision-making processes; (d) Develop workplace-based partnerships and programmes, including training and education programmes. 

The GRI Guidelines consist of accountability principles and standard disclosures or indicators in the environmental, social, and economic and governance spheres. Examples of standard disclosure fields are employment, gender equality, human rights, climate change, biodiversity, pollution, water use, corruption, as well as payments to governments and local communities. All of these disclosures are based on key sustainable development-related UN Conventions (for example, the Universal Declaration of Human Rights, the three Rio Conventions, many ILO conventions, and CEDAW). In addition, the GRI guidelines provide a reporting language for three of the most important international normative frameworks: the UNGC ten principles, the OECD Guiding Principles for MNEs and the UN Guiding principles for Business and Human Rights.

In May 2013, GRI launched the fourth generation of the most widely used comprehensive sustainability reporting framework in the world, its Sustainability Reporting Guidelines - G4. The launch marked the culmination of two years’ extensive stakeholder consultation and dialogue with a diverse constituency of hundreds of experts across the world. G4 places the concept of materiality at the heart of sustainability reporting. This means encouraging organizations to report only on issues that are material to their organization, on the basis of a dialogue with their stakeholders. This in turn will result in sustainability reports that are more strategic, more focused, more credible, and easier for stakeholders to navigate. Such reports will center on the issues critical for achieving the organization’s main goals, and managing its economic, environmental and social impacts. An organization might monitor many sustainability indicators, but it should report only on the most material ones.

The result is stunning. Today, 5,800 companies from around the world measure their sustainability performance, and can be held accountable through their public reporting. The majority of these (3,600) are officially registered GRI reporters. However, 5,800 companies is just a small part of the 80,000 or so existing large companies. The single largest factor in the acceleration of business accountability is government policy. Governments use different policies to advance sustainability reporting, ranging from incentives such as transparency awards (for example in the Netherlands), credit and investment facilities, and voluntary guidelines, to regulation and mandatory reporting. As the “Carrots and Sticks” research by UNEP, GRI and Stellenbosch University has shown, there has been a steep increase in reporting policy. The latest data - collected in 45 countries - indicate that there are 180 regulations, of which over 70% are mandatory. Research by the Harvard Business School has revealed that mandatory corporate sustainability reporting increases the social responsibility of businesses.

In the last month alone, there have been three key examples of government policy and regulation in this area:

The EU Directive on disclosure of non-financial and diversity information by certain large undertakings and groups which was adopted last month by the European Parliament introduces measures that will strengthen the transparency and accountability of about 6,000 companies in the European Union. Public interest enterprises with more than 500 employees will soon have to report on environmental, social anti-corruption, bribery and human rights-related matters on a ‘report or explain’ basis. The statement will have to include a description of the policies, outcomes and the risks related to those matters. There will be no strict requirement on the reporting framework, however, – companies are expected to rely on one of the internationally recognized frameworks (GRI amongst them). The EU regulation is inspired by Danish national reporting legislation. The Danish Government has held an annual review of effectiveness and impact of this regulation, performed by the Copenhagen Business School in collaboration with the Danish Business Authority. The results are quite encouraging. More information is available on the business performance on sustainability and human rights; and the motivation by business is high.

The State-owned Assets Supervision and Administration Commission of the State Council in China is currently working on an updated document called the Suggestions on State Owned Enterprises’ Fulfilment of Social Responsibilities, the first iteration of which was issued in 2008. They have invited a team of experts to review the first draft and provide feedback. The Head of the GRI Focal Point China was included in the consultation process.

India has legislated company expenditures on Corporate Social Responsibility, as of April 1 of this year. The Companies Act 2013 mandates that companies—including foreign firms—with a minimum net worth of $500 million and net profit of at least $5 million spend two percent of their profit on CSR. An estimated 8,000 companies are affected. All these regulations will have a multiplier effect on business accountability.

The Group of Friends of Paragraph 47 is a government-led initiative that was born in June 2012 following acknowledgement of the importance of corporate sustainability reporting in Paragraph 47 of the Outcome Document of the 2012 United Nations Conference on Sustainable Development (Rio+20) – ‘The Future We Want’. The Group, which was initially formed by countries who were pioneers in the practice of sustainability reporting such as Brazil, Denmark, France and South Africa, now has ten government representatives. UNEP and GRI support the group in a Secretariat capacity and provide technical support and guidance in concert with others.

As I explained above, the Alliance partners will work together to add a chapter to the GRI’s global standard to make the connection to the forthcoming Sustainable Development Goals (SDGs). This adapted Sustainability Reporting Framework will provide business, stakeholders AND governments with a tool to assess and to create dialogue about their contribution to the SDG’s. Governments can use the disclosure and reporting by companies at an aggregate level, to review the performance of the companies in their countries. But they can also use it to get information about foreign companies investing in their countries. And civil society and consumer or research organisations can use the data to benchmark business performance per sector, per region.

Preparation work is now fully underway. We cooperate with the Sustainable Development Solutions Network (SDSN), which maps and develops performance indicators, targeted at government and national levels. Performance indicators for business demand a specific methodology. This addition to the global standard would include new elements, depending on the goals that are agreed. One example could be more explicit or detailed disclosure on the financial contribution by companies to the post-2015 means of implementation. That would help governments, auditors general and other stakeholders, to monitor and review business contributions in their own countries. There is also cooperation with the UN Statistics Division: here, the ambition is to facilitate the capture of the private sector’s contribution to sustainable development in the macro-economic indicators being developed to measure progress on SDGs. Sustainability reporting can help with data publicly disclosed by companies.

In conclusion: the private sector is a huge force in a post-2015 development agenda. It is extremely important that companies around the world measure, monitor and report publicly on their contribution to the SDGs – both in terms of their financial contribution to the means of implementation, as well as on the impact of their core business. Let’s use today’s business accountability framework in the field of sustainability reporting: and let’s transform this into a post-2015 Business Accountability Framework. GRI, as a member of the Business Architecture Alliance, and its many partners, is ready to help make it happen.
"

That's what Teresa Fogelberg said, and it was well said.

In a world where not enough companies are engaged in advancing sustainable development,  and those that are have a lot more to do, despite progress made so far, Teresa's call to action to make sustainability reporting more central to business, more relevant, more transparent where it counts, and more aligned with the needs of our shared future, is exactly what the UN General Assembly needed to hear. I just hope they listened.

elaine cohen, CSR consultant, winning (CRRA'12) Sustainability Reporter, HR Professional, Ice Cream Addict. Author of Understanding G4: the Concise guide to Next Generation Sustainability Reporting  AND  Sustainability Reporting for SMEs: Competitive Advantage Through Transparency AND CSR for HR: A necessary partnership for advancing responsible business practices . Contact me at www.twitter.com/elainecohen   or via my business website www.b-yond.biz   (Beyond Business Ltd, an inspired CSR consulting and Sustainability Reporting firm)

6,000 European Sustainability Reports... coming soon

Get ready, folks. The sustainability reporting revolution has just heated up. Congratulations to the European Parliament for taking this major step towards the transparency and accountability of European business. On 15th April, 599 members of the European Parliament passed a vote to amend Directive 2013/34/EU and require mandatory disclosure of non-financial and diversity information by certain large companies and groups  on a "report or explain" basis for all European-based "Public Interest Entities" (PIEs) of 500 employees or more (or by parent companies of European-based 500+ PIEs). This Directive will come into force when ratified by the EU Member States in the European Council which is expected to formally adopt the proposal in the coming weeks.

(PIEs include listed companies as well as some unlisted companies, such as banks, insurance companies and other companies that are so designated by Member States because of their activities, size or number of employees.)

RCV= Roll Call Vote: In favor, against, abstentions on 15th April 2014

For those of you who want to see all the detailed published by the EU Commission, you can find them here. For those of you who want the headlines that I picked out from the EU communication docs, including the Q&A, read on (red highlights are mine).

Companies covered by the Directive, aka PIEs, will be required to disclose in their management report relevant and material information on policies, outcomes and risks, including due diligence that they implement, and relevant non-financial key performance indicators concerning environmental aspects, social and employee-related matters, respect for human rights, anti-corruption and bribery issues, and diversity on the boards of directors.

This information should include:

• a brief description of the group's business model
• a description of the policy pursued by the group in relation to those matters, including due diligence processes implemented;
• the outcome of those policies
• the principal risks related to those matters linked to the group's operations including, where relevant and proportionate, its business relationships, products or services which are likely to cause adverse impacts in those areas, and how the group manages those risks
• non-financial key performance indicators relevant to the particular business. 

Where the group does not pursue policies in relation to one or more of those matters, the consolidated non-financial statement shall provide a clear and reasoned explanation for not doing so.

Companies will retain flexibility to disclose relevant information in the way that they consider most useful, whether this is as part of their annual report or in a separate report. References to acceptable international frameworks include the UN Global Compact, the German Sustainability code, ISO26000, OECD Guidelines for Multinational Enterprises  and of course, GRI.

Currently, around 2,500 large EU companies disclose environmental and social information regularly. This Directive, applying to PIEs with more than 500 employees, will affect around 6,000 large companies and groups across the EU.  Millions of SMEs are excluded from this legislation, which makes sense.... for now.

The Directive does not require comprehensive reporting on environmental and social aspects (although the Commission certainly encourages it). The Directive requires only the disclosure of certain information on policies, outcomes and risks. This is estimated to result in an additional direct cost for large companies of less than €5,000 per year. (Though who knows how this was calculated!)

Several measures have been taken to limit the administrative burden for larger companies. For instance, the disclosure requirements may be fulfilled once at group level, rather than by each affiliate in the group, and auditing aspects are limited to an annual check. However...

The Directive requests that the Commission examines and reports back by July 2018 on the possibility of introducing an obligation requiring large undertakings to produce, on an annual basis, a country-by-country report, containing information on, as a minimum, profits made, taxes paid on profits and public subsidies received.

The Directive focuses on environmental and social disclosures. Integrated reporting is a step ahead, and is about the integration by companies of financial, environmental, social and other information in a comprehensive and coherent manner. To be clear, this Directive does not require companies to comply with integrated reporting.

The Commission shall prepare non-binding guidelines on methodology for reporting non-financial information, including non-financial key performance indicators, general and sectoral, with a view to facilitating relevant, useful and comparable disclosure of non-financial information by Union undertakings. In doing so, the Commission shall consult relevant stakeholders. The Commission shall publish the guidelines no later than 24 months after the entry into force of this Directive.

YEAH!!!

This is a great leap forward for business transparency. The EU statement boldly makes the point:

"Transparency leads to better performance. This is true not only about disclosure of financial information, but also as regards information on environmental and social matters. Transparent companies perform better over time, have lower financing costs, attract and retain talented employees, and are ultimately more successful."

I am sure many many people have been instrumental in working towards this achievement, but I would like to highlight a few that I personally know have been behind this great news. 

At the GRI: Ernst Ligteringen, Teresa Fogelberg and Pietro Bertazzi,  and the rest of the GRI team. This legislation is a fabulous validation of the tireless work of GRI over many years. Teresa Fogelberg, the dynamo behind GRIs government relations  and advocacy team, said in the GRI Press Release:

“This directive is the vital catalyst needed to usher in a new era of transparency in the largest economic region in the world. This is a truly historic moment and I am confident that this is just the beginning of a new era for transparency and sustainable and inclusive growth in the EU.”

This is also a fabulous conclusion to an era at GRI which has been led by the formidable Ernst Ligteringen. Ernst announced his intention to step down from 11 years of GRI leadership earlier this month, and he continues as Chief Executive while the organization seeks its next leader. It is very fitting that this culmination of so many years of effort should be just in time to constitute a tribute to his leadership and contribution to sustainable and transparent business. 

At the EU: European Parliament Rapporteur on Corporate Social Responsibility Richard Howitt MEP proposed this change way back in 1999, and has been working consistently since then to get the Euro folks moving. I heard Richard talk passionately about the need for this legislation a couple of years back, hearing his confidence that such legislation would become reality in the not too distant future. This is a validation of his efforts, as well as all the other EU parliamentarian pioneers that drive positive change in our society. See Richard's notes on Facebook here.

For further light reading, some articles already published:

eRevalue blog: Tuesday April 15th 2014: a good day for the corporate world
The Sustainability Report: European Parliament adopts standards for ESG disclosure
Compliance Week: European Parliament approves new rules for non-financial disclosure


This Directive is, I believe, very wise.

It is non-prescriptive enough to allow flexibility about the nature of disclosure and frameworks and data points so as to enable companies to get on board whatever stage of the journey they are at, without having to start again from a blank page. At the same time, it clearly sets a new standard of expectation for disclosure.

It focuses on relevance, materiality, process and outcomes. Coincidentally, or perhaps not so coincidentally, this is the heart of G4. Disclosure is not for disclosure's sake. It is part of an entire connection of business impacts on society and the environment. This approach will hopefully ensure we don't see just a list of numbers clumped together in an Annual Report, but a serious and sensible, meaningful and valuable account of a company's impacts. 

It exempts smaller and non-listed companies. For the time being. Completely logical. With a target of a total of 6,000 companies, of which only 2,500 currently report, this is going to be tough enough to implement and enforce. Maybe later.... the scope could be expanded. 

All that is needed now is a further Directive which requires all adults in the EU to actually take an interest in the non-financial disclosures of PIEs and provide feedback to such companies as to how they are or are not meeting their expectations. However, I guess that's a Directive which might take a little longer to approve. In the meantime, we are making progress.  Well done to all those involved. Good luck to all those affected.  

elaine cohen, CSR consultant, winning (CRRA'12) Sustainability Reporter, HR Professional, Ice Cream Addict. Author of Understanding G4: the Concise guide to Next Generation Sustainability Reporting  AND  Sustainability Reporting for SMEs: Competitive Advantage Through Transparency AND CSR for HR: A necessary partnership for advancing responsible business practices . Contact me at www.twitter.com/elainecohen   or via my business website www.b-yond.biz   (Beyond Business Ltd, an inspired CSR consulting and Sustainability Reporting firm)