Commentary by Bill Baue, Editor in Chief, Murninghan Post
The TakeAway: GRI’s Embrace of Integrated Reporting May Distract from XBRL and Sustainability Context
Last October at the Business for Social Responsibility Conference, Global Reporting Initiative CEO Ernst Ligteringen made an impassioned plea for the G20 to consider mandating integrated reporting, which blends financial and sustainability data. He followed this overture by announcing a clear goal at the GRI Conference this May: “a standard for integrated reporting,” he declared, “should be defined, tested, and adopted by 2020.” Finally, GRI trumpeted its launch earlier this month of the International Integrated Reporting Committee (IIRC), formed in collaboration with the Prince of Wales’ Accounting for Sustainability (A4S) Project.
Here’s the good news: integrated reporting holds the promise of driving sustainability forward by putting environmental, social, and governance (ESG) issues in front of traditional investors and corporate executives, alongside financials. By its very structure, this pairing stresses that sustainability issues deserve the same attention as financial factors. In other words, this puts GRI data on par with GAAP data.
But there is also potential bad news: the GRI is a human organization, with broad aspirations and a limited budget. When integrated reporting cuts to the front of the line, other priorities may fall. The emphasis on integrated reporting suggests that two other key initiatives will get bumped down GRI’s priority list: XBRL and sustainability context.
These two items play vital roles in advancing sustainability in practice, yet have struggled to maintain a foothold on the GRI agenda. XBRL, or eXtensible Business Reporting Language, is a standardized system for tagging information to allow for apples-to-apples and oranges-to-oranges comparisons across companies, and even across reporting systems. GRI was a first-mover on XBRL, writing a taxonomy – or catalog of tags – of GRI indicators to express environmental, social, and governance in XBRL tagging as early as 2007. Since then, XBRL has revised to 2.0 standards, while GRI’s taxonomy stagnates in XBRL 1.0 – limiting its usefulness.
In many ways, XBRL eclipses the significance of integrated reporting, because it enables users to synthesize data in their own ways – across companies, across time, across issues. As BSR CEO Aron Cramer blogged recently, the integrated report may be built on an out-dated concept, as it applies to the artifact formerly known as a report. Yes, “reports” will continue to exist in SEC filings and on flashy corporate websites. But XBRL portends the death of the traditional report defined by clear boundaries of time and space – and the resurrection of a transcendent form of reporting, where data interacts independent of reports.
“Sustainability context,” one of four GRI Reporting Principles on Content, is arguably the most important, as it defines what constitutes sustainability: “the performance of the organization in the context of the limits and demands placed on environmental or social resources at the sectoral, local, regional, or global level.” Almost all sustainability reports, even those claiming GRI adherence, include sustainability data without context – for example, trends in eco-efficiency. Precious few present sustainability data in the context the local, regional or global capacity to sustain a social or environmental impact. In this sense, the term “sustainability report” is a misnomer; these reports won’t really earn their name until they explicitly integrate sustainability context.
Part of the problem is that GRI has outlined the principle of sustainability context, but hasn’t provided guidance on how to actually measure it. To create such guidance will require a process of intellectual innovation and consensus building, since there are many who wonder exactly how it would be achieved. Meeting this challenge will require intensified focus, which is exactly why I worry about GRI throwing its limited resources behind integrated reporting. The danger in GRI advocating for integrated reporting before fully baking sustainability context into the GRI recipe: we risk ending up with half-cooked sustainability metrics in integrated reports.
GRI’s public comment period on Report Content and Materiality lasts until September 22, 2010, so there’s still more than a month to urge GRI to multi-task, continuing to prioritize and advance XBRL and sustainability context.
The views expressed in this commentary belong to the author only, and do not necessarily represent the views of The Transition Group.