Why GRI and Sustainability Reporting?
When Queen Elizabeth I charged the Auditors of the Imprest in 1559 with the responsibility for auditing Exchequer payments of the government of England – the first ever institutionalization of the financial audit – how could she know she was setting a precedence for the year 2020 when all companies would be required to provide a sustainability report equal in rigor as a financial audit?
Did I say 2020? Yes, it is my firm belief that by the year 2020 (or maybe sooner) all publicly listed corporations and their major suppliers, private or not, will be required by law to publicize an annual audited sustainability report.
Follow the Money I
Consumers are changing rapidly in the US and Europe and demand for products and services with inherent sustainability value has grown 30% to 50% annually over the last decade. Even assuming slower future growth in these markets, a minimum of 30% of all demand will be driven in whole or part by sustainability value. And remember Europe and USA generate 50% of the world’s GDP (about USD 31 trillion) and while this share will decline by 2020, these two markets will still generate at least 40% with a commensurate influence on supply.
Follow the Money II
In 2000, there were no sustainability stock market indices. Now there are 5 and they are not small. The market cap of the Dow Jones Sustainability World Index is over USD 10,418 billon. Moreover, social investments generally are growing over twice the pace of other investment types. Where will your company get its money from and how will it demonstrate its sustainability performance?
New Money leads to Higher Consciousness!
Maslow correctly predicted that as individuals satisfy basic needs – food, housing, health care, etc. –. They turn to focus on higher order needs – communities, environment, education, and stabilizing social institutions. This is happening in developing countries the world round, with the greatest change expected in China and Brazil. So we can add another USD 10 trillion or 60% of world’s GDP where demand for sustainability category products and services will grow quickly.
Governments are Regulating I
Don’t think governments care about social and environmental impacts of business? Think again. In Spain, China, Netherlands and Sweden all state owned companies are now required to produce a sustainability report. In a host of European countries regulations already require pension funds disclose whether or not they make social and environmental investment and how. The smartest US pension funds like the USD 220 billion CalPERS (the California Public Employees’ Pension Fund) are increasingly and voluntarily making social and environmental considerations in their decision making processes.
Governments are Regulating II
Developed country governments will never be the same after the debts they acquired in the run up to and aftermath of the 2008 financial crisis. Governments will look to substitute regulation for money as they seek to balance the social and environmental impacts of economic activity. And remember, it took Canada, one of the most fiscally conservative countries in the world, over 20 years to balance its books from financial excess in the early 1980s. Regulations are cheap and look to governments to use them.
Unable or unwilling to invest in education and infrastructure as they once did and fully committed to free markets, developed countries are fast running themselves into a uncompetitive corner. As traditional advantages and market barriers become less available or desirable look for governments to impose compulsory sustainability reporting as a means to protect national markets.
Strength of the Internet
It has been said before but must be said again: companies can run but they can not hide from the bad things they may do, on purpose or accidentally, because mobile phones, video cameras and the internet will find them. Does anyone disagree?
Almost as Rigorous
Buildings off of the foundations of financial reports, sustainability reports now have the same fundamental goal: adding to a corporation’s credibility when asserting its corporate record (in the case of sustainability, reporting on sustainability activities and performance) by decreasing the possibility of a material misstatement (deliberate or by error). While too many corporate sustainability reports don’t fully support this goal, the fact there are reporting formats that do, gives confidence that sustainability reporting will soon be as credible as financial reports.
And then there is the GRI
The UN-born Global Reporting Initiative (GRI) is the most important sustainability reporting format in the world. In 2010 there were over 4,000 sustainability reports – that’s an increase of 20% over the previous year and of these, almost 40% used the GRI format. Expect more every year.
Focusing on economic, social and environmental issues, the GRI’s 72 indicators and reporting methodology enable companies to monitor and improve sustainability performance in very much the same way as audited financial reports do. Companies using the GRI can fully integrate sustainability into their business operation as the format facilitates decision making based on globally recognized indicators. This aids management, board and investor decision making.
When will Sustainability Reports be required?
It took auditing 454 years to achieve the standards it has today, in less than 30 years sustainability reporting has achieved almost the same level of rigor.
When will sustainability reports be required? No one can tell precisely but the story of audited financial statements teaches us caution, because its own history shows us that regulation becomes more complex incrementally but can take radical leaps after
crises. Remember Enron?
Is your company prepared?
Companies that work now to developed credible sustainability reports will avoid the cost of being underprepared for regulation, crisis driven or otherwise.
But more important than the reports themselves simply paying heed to sustainability opens a world of opportunities and savings that would make Queen Elizabeth very happy indeed to have contributed to.
By Marc de Sousa Shields
Managing Partner ES Global Consulting
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Marc de Sousa-Shields
Marc encabeza el área de Responsabilidad Social Corporativa de ES Global. Sus responsabilidades principales se centran en la asesoría de estrategia de RSE a nivel corporativo, las evaluaciones de inversión en RSE, y las mejores prácticas de capacitación en RSE para empresas en los países en desarrollo. También ha trabajado extensamente en el campo del desarrollo económico local especializándose en la pequeña y microempresa, incluyendo micro-finanzas en las zonas rurales y urbanas de los países en desarrollo.
Algunos de los clientes de Marc en consultoría y capacitación incluyen el Banco Mundial, la Corporación Financiera Internacional, BAC Credomatic, Statoil, la Fundación Ford, Grupo Modelo, Banco Interamericano de Desarrollo, y varias prestigiosas instituciones de investigación y universidades. Para obtener más información, visita www.esglobal.com