What's the purpose of sustainability reporting?
We all know the mantra that what gets measured gets acted on, but is sustainability reporting changing the world and what does the future hold?
This is a particularly poignant moment to be asking these questions. At the very moment the Global Reporting Initiative (GRI) has grasped the nettle by unveiling new simplified G4 guidelines, the broader territory of measurement and transparency is in danger of becoming more complex and potentially confusing.
The GRI has been the go-to place for sustainability reporting for years and has responded to growing concerns at the sheer weight of metrics by going back to core principles such as materiality and dropping its perverse incentive of giving a better score to companies that ticked more of the boxes.
But the sigh of relief is tempered by practitioners now having to grapple with how to relate their sustainability programmes to the emerging integrated reporting movement.
In particular, the International Integrated Reporting Committee (IIRC) is currently piloting its methodology for companies to produce one combined financial, environmental and governance report that can illustrate how they are creating value over time. There are also new reporting tools being developed, with particular interest focused on the US-based Sustainability Accounting Standards Board (SASB), which is developing sector-specific key performance indicators to appeal to the financial markets.
Sutainability practitioners need to get to know these new frameworks and understand how they relate to each other. This is important. While financial analysts like clarity and common metrics, so they can benchmark performance, it is also vital that companies take the time to think through their specific societal impacts and build relevant associated KPIs.
While these questions need to be wrestled with, it is also important at moments of great change to go back to the beginning of the journey and to remember the purpose of reporting and what difference it can truly make.
To help build our understanding of the opportunities and challenges, we have asked some of the world's top reporting experts to give their views on the purpose of reporting in the current, more complex business environment. We would love it if you can add your comments below to deepen and broaden the debate.
Bill Baue: corporate sustainability architect
The purpose of sustainability reporting couldn't be simpler to define. It answers the question whether present practice can persist – that is, continue to build more value than it destroys. At this historical moment when evidence tells us so many practices can't continue (burning carbon beyond our budget, overshooting freshwater supplies, supply chains of collapsing factories), sustainability reporting isn't asking itself this fundamental question.
Instead, it asks how companies can be less unsustainable – how they can staunch their haemorrhaging of social and natural capital. It's high time for sustainability reporting to live up to its name, and actually measure progress toward achieving (and ultimately surpassing) sustainability. That would require measuring by real-world yardsticks – the planetary boundaries and social foundations needed for us to shift from unsustainability toward "thrivance".
Paul Monaghan: director of Up the Ethics
The purpose of sustainability reporting remains essentially unchanged. When undertaken with integrity, warts and all reporting can be a massive driver of improved performance. It is the bedrock of any serious CSR management system or strategy. Nothing else quite motivates senior management to tackle an inconvenient ethical or environmental problem so much as the prospect of the world being 'in the know'. Sunlight really is a fantastic disinfectant.
Unfortunately, Juvenal's observation still rings true in many cases: 'Honesty is praised and left in the cold.' Business is geared to hype the good news and kill the bad news. But doesn't the reporting of negatives make the positives all the more believable? Doesn't the presence of criticism in a report's assurance statement make the compliments all the more real.
Sustainability reporting is here to stay, but let's keep it real.
Allen White: co-founder and former CEO of GRI, founder and co-chair of Global Initiative for Sustainability Ratings
In the late 1990s, corporate sustainability reporting was virtually unknown. Yet, in little more than a decade, it has evolved from the extraordinary to the exceptional to the expected. By the standard of major innovations in business practices, it ranks among the most remarkable in recent years.
While corporate accountability and performance improvement initially drove to the reporting movement, years of practice have revealed a purpose is even deeper and more transformational. That purpose is the redefinition of corporate value and value creation.
In a complex, perilous and uncertain world, reporting is playing a vital role in reframing the meaning of value. The dominance of short-term shareholder value is under more scrutiny than at any time in last three decades. Slowly but steadily, a new definition of value is emerging, one rooted in multiple capitals that encompass human, social, natural alongside financial.
In the future, the valuation of a company can and must accord parity to all forms of capital. The planet's well-being and business prosperity alike are at stake. Sustainability reporting stands to play a leading role in this seminal transformation.
Paul Hohnen: independent consultant and associate fellow, Chatham House
The good news is that business is operating in a more complex environment. Austerity programmes and investor and consumer caution are taking their toll. The bad news is that ecosystem and related changes (eg climate variability) will make life even harder in the future.
If governments and business are to navigate successfully through the sustainability challenges that lie ahead, greater innovation, resilience and adaptability will be needed.
Here, two things are essential. Everyone must have a better understanding of the dimensions of the problems we face and be engaged in responding to
them. Widely practiced, comparable and trusted sustainability reporting on material issues are central to this.
Reduce the burden on business, but not by throwing sustainability babies out with the 'it's not working' narrative bathwater. Do it by reducing taxes on labour, setting (and abiding by) clear goals, and by helping sustainability reporting become the powerful change agent it can be.
John Elkington: executive chairman of Volans
I recently stood down from both the Board of the GRI and the International Integrated Report Council. Not because I believe reporting is unimportant — indeed the opposite is true. But my decisions were driven by an uncomfortable sense that we have made almost too much progress down a particular, company-led reporting trajectory, whereas what we now need, urgently, is a more systemic approach.
When we founded Environmental Data Services (ENDS) back in 1978, companies didn't report and weren't minded to do so— so, yes, today's world feels like real progress. But the only way all of this will work in terms of building resilient, equitable economies is if integrated reporting is not simply operated at the company level again — but, instead, is both retrospective and prospective, and integrated across supply chains, stock exchanges and economies, with meaningful links to societal and biosphere health. Work to do!
Victor Kjær: deputy general director, Danish Business Authority
Steen Brogaard/Victor Kjær
For both business and society it more important than ever to manage both positive and negative impacts of business activities.
For businesses, sustainability reporting means knowing your non-financial risks and opportunities and showing what you do to manage them. The purpose of reporting, is to create greater transparency and accountability and to allow for better informed and more robust decision-making in a context where financial and non-financial challenges are becoming still more interdependent.
This is why Denmark in 2008 introduced a mandatory but flexible comply-or-explain type of approach to reporting covering the largest companies. The good news is that businesses themselves have responded positively. However, to succeed we need to work globally. Last year together with Brazil, France and South-Africa we formed the so-called Group of Friends of Paragraph 47 in the aftermath of Rio+20 to promote the uptake of sustainability reporting globally.
Solitaire Townsend: co-founder Futerra
Many companies report simply because companies report. That must change. The new purpose of reporting should be conversation. Reporting must give data for debate and provide evidence for engagement. As social media fundamentally resets relationships between institutions and people, the conversation has become the predominate communication in the world. Two-way, flat, authentic and therefore both dangerous and transformational.
This digital conversation is powerful, but not always evidence based. As stakeholders, consumers and staff move online, so verified and material proof will be important. Relegate your 'report' into a mere repository of information, and enter a permanent 'reporting' mindset.
Sustainability will be coordinated through billions of people talking to each other, and talking to your brand. Relevance and responsiveness will be crucial. Current reports are rarely either. In this world social media could kill sustainability reporting. Or save it.
Nicola Robins: director, Incite South Africa
Sustainability reports provide stakeholders with a reflection on past performance and a view to the future in respect of environmental, social and governance (ESG) initiatives.
Although the broad purpose of sustainability reporting has not changed, the publication of the draft integrated reporting framework is significant. Previously, some sustainability reports sought (covertly) to interrogate the limited approach to value informing mainstream annual reporting; others fell squarely into the PR domain.
With the dawn of integrated reporting, the specific purpose of a sustainability report should be determined by the IR process. Varying from company to company, it might include:
• Addressing stakeholders beyond those targeted by the integrated report (financial capital providers);
• Detail on the organisation's competitive positioning in the emerging sustainability space;
• A more detailed overview of organisational initiatives relating to social, human and natural capital.
Whatever the purpose, it is likely that stand-alone sustainability reports will get shorter and that on-line offerings will become more comprehensive and closer to delivering real-time ESG data.
Jason Perks, director, Two Tomorrows
We have barely scratched the surface of the sustainability challenge. This is not because reporting has failed, just that reporting is one imperfect tool in a rather bare toolkit.
But its inadequacy is no reason to throw it in the bin. The purpose of reporting remains roughly what it always has been – a way for companies to understand and communicate progress and plans for creating value and more sustainable outcomes for business and its stakeholders. In the past the focus has been mainly on the historic performance of metrics. What is heartening is that the focus of reporting is now more clearly about understanding the key issues and their relevance to core business. Leaders are recognised for having a coherent and ambitious strategy, not just for putting together a decent account of past progress (although that is still important too).
So now the world is more complex, reporting becomes even more important as a key tool by which companies understand that complexity and develop a coherent focussed strategy to address key issues and deliver long-term value, backed up by metrics that show progress along the way. But it's just a tool. Sustainability can be enhanced if the tool is wielded more effectively by companies and used better by stakeholders, especially investors, but it never has, nor will it ever be, the answer to the sustainability challenge.
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