The Three I’s of Sustainability Reporting’s Future

The TakeAway: The Global Reporting Initiative leads sustainability disclosure into a new era through Integration, Implementation, and Integrity.

Around the world, thousands of organizations rely on the GRI Reporting Framework and its multi-stakeholder approach to sustainability reporting covering the range of environmental, social, governance, and economic issues.  Worldwide, the GRI network includes 20,000 stakeholders from over 80 countries, representing corporations, governments, non-governmental organizations, consultancies, accountancy organizations, business associations, rating organizations, universities, and research institutes.  The recent launch of Focal Point USA will help reverse the United States’ dismal track record on sustainability reporting at a time when financial reform – depending upon the results of 2 November mid-term elections – changes the relationships among shareholders, companies, and stakeholders.

So what lies ahead?  We’ve identified three interdependent categories for considering the future of sustainability reporting:  IntegrationImplementation, and Integrity.

Integration: Future sustainability reporters will work in a more cohesive environment that calls upon them to demonstrate value across a spectrum of considerations, media platforms, and time frames.

1. Integrated reporting and XBRL. GRI’s collaboration with the Prince of Wales’s Accounting for Sustainability, and the formation of the International Integrated Reporting Committee, advance the idea of “One Report” integrating financial, environmental, social, and governance performance metrics.  But it is one of many pieces in a larger mosaic involving both financial and nonfinancial reporting.  Meanwhile,  the SEC’s recent progress report on its work plan – related to incorporating  International Financial Reporting Standards (IFRS) into the financial reporting system for U.S. issuers – represents another step toward global accounting, despite disagreements over the efficacy of the IFRS framework.  Work remains to be done in other areas of “Integration”, particularly regarding substantive policy areas such as the environment, health and safety, and product quality and safety.  Finally, the convergence of XBRL taxonomies with integrated reporting standards beyond those required by local stock exchanges represents a new frontier for sustainability reporting.

2. Global standards with teeth. Global standards and multilateral agreements in other ESG areas remain aspirational and lack mechanisms for compliance and enforcement, particularly concerning the environment, economic justice, and human rights. This is a question for governments to address, within a rapidly changing global context.  However, standards do provide a baseline from which a common vocabulary and best practice can emerge, potentially leading to enforcement measures within appropriate juridical frameworks.  Government mandates aside, future sustainability reporters will be operating in a hypermedia environment with greater exposure to public sanction, thus increasing reputational risk should their behavior deviate from pledges of commitments.

Meanwhile, on the business and human rights front, next June John Ruggie, the Special Representative of the UN’s Secretary General (SRSG), will release “Guiding Principles for the Implementation of the Protect, Respect and Remedy framework” (“UN framework”), together with Commentaries elaborating upon these guiding principles.  (The Guiding Principles will be posted on the SGSR’s online forum near the end of November, and where views and comments can be shared through early 2011.)

3. Better integration of digital technology and social media for reporting and engagement purposes. At a recent Harvard Business School workshop on integrated reporting, the role of technology in gathering, organizing, and analyzing integrated reporting data emerged as a key theme.  According to the Online Global Leaders 2010 report issued in October by Lundquist, the Italian based communications firm, companies are failing to take full advantage of interactive technology for stakeholder engagement and reporting sustainability performance. The report – the second annual evaluation of how global corporate sustainability leaders utilize the Internet for corporate social responsibility (CSR) communication – states that companies are “locked into a once-a-year reporting mentality, failing to keep stakeholders updated in an engaging and dynamic manner.”  According to Lundquist, “Corporations aren’t keeping pace with the needs of a skeptical audience for dialogue and engagement on the internet – from setting up effective feedback channels to adopting social media.”

Last year, Murninghan Post Editor Bill Baue and I analyzed this phenomenon, making recommendations for improving performance in our report on The Accountability Web, the result of our research conducted for the Corporate Social Responsibility Initiative (CSRI) at Harvard Kennedy School’s Mossavar-Rahmani Center for Business and Government.

Implementation: As standards, rules, and regulations are re-aligned, future reporting organizations will be called upon to demonstrate how well their actual performance corresponds to their rhetoric and reporting.

1. Better integration of the outward-facing “reporting culture” with inward-facing “operational culture”. As the BP Deepwater Horizon demonstrated horribly, even the best sustainability reporters can come up short.  Some would argue – like Investor Environmental Health Network’s counsel Sanford Lewis has – that sometimes there is a vast difference between reporting and reality.  This means that, at the very least, reporting organizations will need to avoid “integrated spin” by providing evidence that they are in full compliance with regulatory standards—which BP was not.  It also means that organizations must avoid contradictions between professed statements of “management’s approach” and the daily reality of organizational behavior.

2. The rising importance of corporate secretaries, human resource officers, and whistleblowers to corporate sustainability practices. With greater accountability and transparency come heightened obligations for certain pivotal players within the sustainability reporting operating system—consider them the “human side of sustainability”.  As their roles are invigorated, so must their capabilities be assured.  For example, corporate secretaries serve as gatekeepers between both CEOs and senior management, and boards.  They are in a good position to bridge the gap between external organizational accountability pressures and expectations, and the board’s role in assuring overall risk management, strategic long term sustainability and prosperity, and leadership.  Meanwhile, as Beyond Business CEO Elaine Cohen writes in her new book, CSR for HRhuman resource officers and staff provide another implementation pathway between espoused values and commitments and institutional culture, practices, and team work.  Cohen argues that HR professionals should advance diversity, going green, investing in employee well-being, and upholding basic human rights rather than being stuck in “their traditional roles of organizational development, recruitment, training, and compensation.”  Sustainability reporters will find themselves looking more and more to these individuals for collaborative information sharing, innovation, and feedback.

Finally, in the US the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 gave the SEC the authority to increase bounties and awards for whistleblowers; the SEC set aside $452 million for this, a portion of which will go to whistleblowers who help the SEC prosecute fraud cases.  (On November 3rd the SEC held an open meeting on these proposed whistleblower provisions).  Sustainability reporters can establish independent early warning systems to address potential problems before they reach the whistleblower stage, and fashion appropriate remedies before damage occurs.

Integrity: The  future of sustainability reporting will be determined by the degree of public trust it engenders, which involves the cultivation of integrity.  Integrity is a process, not a result, and is rooted in ethical values.  Integrity involves thoughtful management of all the forces detailed above, in addition to the political, economic, environmental, and social forces that impact on organizational performance.  Climate change, too, generates new risks and opportunities, placing new demands on institutions within all sectors.  To maintain high performance, organizations will need:

1. Adaptive leadership and learning systems that foster flexibility and the ability to quickly respond to new opportunities and challenges.  We live in a complex and ever-changing global environment; future sustainability reporters must know how to get from ‘here’ (current practice) to ‘there’ ( a future state of improved performance and responsibility), and open their borders to broader engagement.  As Harvard’s Ron Heifetz and colleagues write in The Practice of Adaptive Leadership, companies and stakeholders that undertake this journey are creating new modes of communication and problem solving.  They are engaged not only in a change process but are undergoing change as they do so.

2. Cultivation of communities of inquiry and practice. The future of sustainability reporting will include the design and management of appropriate learning environments that help organizations advance sustainability goals.  These environments will enable deeper understanding of important and highly complex topics to which no single answer can be given; they will also help participants develop ‘usable knowledge’through collaborative dialogue.  These settings or ‘learning laboratories’ are called communities of inquiry and practice.  In addition to in-house work they can also involve multi-party engagement from stakeholders.  Content management and knowledge creation will be recognized as a vital part of this engagement, enabling good problem-setting / definition and creative approaches to solutions.

The idea is to build institutional and professional capacity for intelligent resilience and adaptation through a process of ongoing innovation, critical assessment, fine-tuning, and revision.  This increases the likelihood of getting from ‘here’ to ‘there’ more successful, in the knowledge that there always will be another ’there’ just around the corner.

With the rapid pace of change and greater levels of scrutiny, sustainability reporters can’t afford to stick with the status quo.  The 3 I’s represent stepping stones into a future of  sustainable prosperity and justice, throughout the world.

Editor’s Note: This article first appeared in the November 2010 GRI Newsletter.  We at The Murninghan Post thank GRI — in particular Communications and Online Media Coordinator Crystal Crawford — for reprint permission.

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