To the third generation

The Global Reporting Initiative may be nearly 10 years old, and on its third iteration, but the reporting it advocates is no less controversial. Jess McCabe reports from Amsterdam

‘It is not a niche.The old way of measuring value is becoming irrelevant,” said Al Gore of corporate social responsibility (CSR) reporting.

He was speaking at a conference on the Global Reporting Initiative in Amsterdam this October, addressing 1,000 delegates who had come to hear about the launch of the third iteration of the GRI’s guidelines on CSR reporting (see box below).

The entire financial system, Gore continued, is absurdly weighted towards short-term financial gain, to the detriment of the planet and even of long-term profitability – a leftover from a system of accounting and financial reporting that was largely defined in the last days of the British empire, when natural resources seemed infinite.

Al Gore: “the old way of measuring value is becoming irrelevant”

“The entire market is short on long and long on short,” he added.

The GRI, meanwhile, is one attempt to redress the balance, by setting a de facto gold standard companies can use to report their environmental and social performance, and against which reports can be judged.

Set up in Boston in 1997 by US investor and environmental coalition Ceres, in collaboration with the UN Environment Programme (UNEP), the GRI issued its first set of guidelines in 2000, and two years later moved to Amsterdam to become an independent organisation.

The GRI prides itself on its multi-stakeholder approach, and carries out extensive consultation with reporting companies, NGOs and the investment community in producing its guidelines.

But, although an estimated 1,000 organisations use the GRI when compiling their reports, for many this constitutes no more than a passing reference, rather than a strict adherence to its indicators and principles.

Instead, say NGOs and some businesses, many CSR reports are nothing more than corporate propaganda.

Jo Confino, executive editor of The Guardian newspaper in the UK, said that even CSR consultants agree that 90% of reports are “worthless”.

He added: “A lot of reports are still PR exercises… There is a planetary emergency going on and we need to address it. Just to be talking about CSR from a PR angle is not acceptable anymore.”

But Blake Lee-Harwood, campaign director for Greenpeace UK, said that reports are still useful for NGOs looking for information on the corporate sector: “Obviously, there is a pretty thick outer layer of propaganda, but the core data will be there.”

One way to increase the veracity of CSR reports is for companies to bring in a third-party verifier. Indeed, reports compiled using the new GRI guidelines will achieve a higher rating if they are independently assessed. Some firms bring in one of the big four accounting firms to carry out this task. Others, such as Nike and Shell, have set up independent committees of stakeholders to review their reports.

But the GRI is still struggling with the question of how to persuade companies to produce any form of CSR report, let alone a quality report that is a useful tool for financial analysts, investors, NGOs and consumers.

Many argue that the GRI, and sustainability reporting more generally, must show that it is able to drive profits if it is to be embraced by the mainstream of the corporate sector.

Mervyn King, first vice president of the Institute of Directors in South Africa and new chairman of the GRI (see People, page 12), said that companies will adopt CSR reporting “when it is realised that you can actually add value”. For example, he added, it could reduce the cost of raising capital.

But not everyone agrees that there is a true ‘business case’. Some even argue that it is immoral to rely on profits to drive the move towards CSR reporting. Allen White, one of the founders of the GRI, questions the basis of the struggle to find a profit motive.“The belief that this has anything to do with financial statements is very weak,” he said.“Do we ask the question, what is the business case for human rights?”

One way to avoid the need to sell companies on the business case for CSR reporting could be to mandate it, or to expand the remit of traditional financial reporting to include environmental and social issues.

Many commentators, particularly those from civil society, are convinced that companies are failing to report in sufficient numbers, in enough detail and with enough honesty.

In Canada, for example, the Social Investment Organization recently called on the government to legislate to force all companies to use the GRI.

But most commentators do not advocate such a stringent approach. For example, UNEP executive director Achim Steiner said that, while the GRI should be the “basis” for regulation, it should not be prescribed.

Steiner said: “We need to liberate business by providing it with the regulation that it needs to do something differently.”

Sean Harrigan, a GRI board member and former president of US pension giant CalPERS, said: “It’s really up to the business community to respond… if there is a failure on behalf of the business community, we are going to see some regulation.”

But, if regulation comes, will companies be required to produce a separate report, or to integrate their financial results with their CSR performance? Without explicitly advocating a merging of the two types of report, Steiner argues that the distinction – and the very use of the term “non-financial” – reflects the misalignment of priorities in the financial and corporate mainstream.

Reporting is set to hold “an even more vital and central role to inform and underpin a conversation in society about who will be a player in the future markets”, he said.

Roger Adams from the UK’s Association of Chartered Certified Accountants (ACCA) and chair of the GRI’s technical advisory committee, said that any move to integrate the two types of reporting would mean decisions on what to give up. But, he added: “GRI has not said these things should stay separate for ever and ever amen. It seems to be it is perfectly legitimate to experiment with integrated reporting.”

But alternatives to prescriptive legislation are already starting to emerge. The Dutch government is in the third year of issuing an annual benchmark which ranks companies on the quality of their CSR reports. Speaking at the conference, the Dutch minister for foreign trade, Karien van Gennip, said that almost half of the companies included showed some improvement between the first and second year of benchmarking.

“On the whole, legislation on CSR will not necessarily make companies more sustainable. Our fear is that companies will take a minimalist approach,” she said.

But despite these misgivings about the extent to which the GRI project can deliver accurate, unbiased and comparable CSR reports, some argue that it has the potential to do even more.

Achim Steiner, UNEP: GRI should be the “basis” for regulation

Stuart Hart, professor of sustainable global enterprise at Cornell University, said that later versions of the GRI guidelines could become “a driver of sustainable enterprise”.

Although the GRI has “leaned forward” on these issues, he said, it has so far failed to provide a driver for changes of this magnitude.

Hannah Jones, director of corporate responsibility at Nike, agreed:“We need to be sure that the questions that are asked in reporting frameworks are the ones that lead to change not simply the building of reputation.”

Even within the current GRI structure, many see room for new indicators and new areas of coverage.

For example, Adams of ACCA suggested that future versions of the guidelines could ask for more information about how much tax a company pays in each of the countries in which it operates, and how companies tackle bribery and corruption.

“At some time, further improvement is necessary in regard to the human rights issues,” added Gemma Crijns, CSR project coordinator at the Centre for Research on Multinational Corporations in the Netherlands, questioning why the GRI still fails to make reference to the full breadth of international human rights law.

Further work will also need to be done, Crijns added, on encouraging more companies in the South to use the GRI – at the moment, 90% of GRI reporting is from industrialised- world countries.

On the other hand, some worry that an ever more stringent set of GRI guidelines will price some firms out of reporting altogether. Lex Holst from Shell said: “We must not raise the bar to a level where it becomes almost impossible for companies to start reporting.”

Ultimately, though, GRI’s objective will be to increase the number of companies that use its standard to report on their environmental and social performance. GRI founder White told the conference:“We have got to get to the tipping point.We are passing 1,000 [companies that report]. How long will it take to double that to 2,000? I say three years.”

By 2011, there could be 4,000 reporters and, as the GRI becomes more mainstream, this could double to 8,000 by 2012, he added.

But, to achieve this critical mass, White said that the GRI must set targets for the numbers of reporters that use its guidelines.“ GRI needs to step up and say we have targets. Sony has targets, General Motors has targets, BP has targets. GRI needs targets.”

 

What’s new in G3?   The third version of the Global Reporting Initiative (GRI) guidelines, referred to as G3, includes a set of indicators for measuring performance on environmental and social issues.Although there have been comparatively few changes to the indicators themselves between G2, released in 2002, and G3, each indicator is now accompanied by a protocol giving precise guidance on how to use it. In addition, G3 includes a set of principles setting out how companies and other organisations should decide on what to report based on materiality – or what is relevant to them and their stakeholders. The G3 also includes tools to help companies report on their management approach and policies. While the indicators produce figures that are theoretically comparable between one company and another, these tools let companies use a narrative approach to set out how they work in practice. The format of the guidelines has also been substantially streamlined – a move welcomed by small business owners in particular. In previous versions of the guidelines, companies could either report using the GRI, and be registered as “in accordance” with it, or simply make use of the guidelines and be registered as “in reference” to it. According to UK-based CSR consultancy Context, only 2% of CSR reports are in accordance with the GRI in the US, compared with 10% in Europe and the rest of the world.The GRI, however, puts the total global figure at closer to one fifth. G3 introduces a ratings system, which means that reporters can self-classify themselves between C and A depending on how many indicators they have made use of. There is also an additional rating of C+ to A+, which indicates if a report has been externally verified. For example, to achieve a C rating, a report must include 10 or more indicators, but to achieve an A rating, it must report on all of the core indicators, and those relevant to the company’s particular sector, or explain why it has not done so. Environmental indicators include total water use, emissions of greenhouse gases by weight and percentage of materials used from recycled sources. To achieve a B rating or above, a report must be balanced, accurate and comparable. As well as providing report users with an indication of the quality of a particular report, the ratings are intended to provide new reporters with a way into the GRI, and a way to progress once they become more experienced. Ernst Ligteringen, chief executive of GRI, told Environmental Finance:“The distinction between ‘in accordance’ and all the rest was just too blunt.” Reporters have two years to bring themselves into line with G3 before the 2002 version of the guidelines is phased out.