First principles still relevant as new sustainability reporting guidelines emerge
It has been a big year for sustainability reporting.
In May 2013, the Global Reporting Initiative (GRI), the leading international body working in the area issued the fourth edition of its guidelines, known as G4. The Sustainability Accounting Standards Board (SASB), based in the USA, has issued reporting standards for the healthcare industry with more sectors to follow soon. And strides have been taken towards ‘integrated reporting’ with a draft framework of principles and indicators issued in April by the International Integrated Reporting Council (IIRC), with a revised version due in December.
So what does all this means for companies that want to do the right thing and produce a report detailing their strategy and performance in the area of sustainability?
It’s a material world
The key concept to grasp around sustainability reporting is ‘materiality’. This has been rising up the reporting agenda for a while now and it made it to top billing in 2013. The GRI, SASB and IIRC frameworks (hope you are keeping up with your acronyms here) all place materiality at their core. While they have different ways of defining the concept of materiality, the bottom line is that companies should report on what is material, or relevant, to create an informed understanding of the issues they face and what they are doing about them.
In theory this emphasis on materiality is a good thing. Having determined what is material, a company can then narrow its data collection and reporting of indicators to those material issues. In the case of the GRI, this is a much-needed improvement. For example, financial services companies are unlikely to need to report on biodiversity impacts as much as a mining company should. Our client adidas Group has expressed some concerns with the GRI on this point, saying in its 2010 sustainability report:
‘we have expressed [concerns] about the relevance of the GRI to a sporting goods company such as ours where our principal social and environmental impacts lie not under our direct control but are within our supply chain.’
For years, as we worked with the adidas Group on how to demonstrate progress on supplier compliance with their standards, the GRI guidelines offered no help. This point about impacts ‘beyond the company walls’ has been tackled in G4 with emphasis on the need for a company to understand them along the whole ‘value chain’. This means impacts both before and after the company adds value, in the supply chain and when the product is being used and disposed of by the consumer. The integrated reporting framework also suggests companies look at impacts outside the narrow company boundaries.
Better but not necessarily easier
The GRI G4 guidelines are an improvement over what has gone before. But that does not mean they are simple to apply. To produce a report that is to-the-letter ‘in accordance with’ the GRI requires a company to have a robust materiality process and a cradle-to-grave analysis of all the impacts associated with its products or services. That is a potentially hefty piece of work.
Tackling an integrated report does not seem much easier. In theory an integrated report falls out of an integrated business strategy. Now while some companies are keen and willing to consider social and environmental concerns, there are far fewer that can say they have a genuinely integrated business strategy. The IIRC have done a good job of encouraging some big name pilot reporters to take the draft framework for a spin. Unilever and Marks and Spencer are, perhaps not surprisingly, among them. These two companies are both already trailblazers on integrating sustainability thinking into their business. There are not many other companies that are as far down that road as they are.
Our advice to companies is not to over-commit to one reporting framework or another just yet. The jury is still out and there is time to decide. While 2013 has seen lots of new guidance on reporting issued, the point is still – and always will be – that every company needs to tell its own complete, accurate and honest story about how it is rising to the sustainability challenges it faces.
Adam Garfunkel, the partner in the London office of Junxion Strategy, has been lead consultant and writer on all 13 of the adidas Group sustainability reports.