The Global Reporting Initiative (GRI) hosted the 3rd Amsterdam Global Conference on Sustainability and Transparency on 26-28 May, 2010. Described as the largest multi-stakeholder conference focusing on the role of organizational transparency in a sustainable global economy, GRI says this was the first meeting of this size and global composition. The conference urged radical and urgent reform in the way organizations assess and report their contributions to a sustainable global economy.
A diverse, comprehensively representative group of over 1200 participants from 77 countries expressed broad support for two specific propositions, those set out by GRI in the opening plenary:
- By 2015, all large and medium-size companies in OECD countries and large emer-ging economies should be required to report on their Environmental, Social and Governance (ESG) performance and, if they do not do so, to explain why.
- By 2020, there should be a generally accepted and applied international standard which would effectively integrate financial and ESG reporting by all organizations.
Drivers of Change
Participants identified several compelling reasons for why the time is ripe for a major global change in reporting practices.
Accumulating sustainability risks require urgent attention. The results of over consumption and poor management are resulting in an unsustainable use of natural and social capital. Climate change will add further pressure on the natural systems on which our social systems and economies depend.
Current definitions of “economic growth” and financial reporting are ‘blind’ to the needs of a sustainable global economy. Shareholder oriented financial systems fail to properly reflect the real value of natural systems and to tackle issues such as poverty, development and over-consumption. It is time to put human development and nature at the center of decision-making. Sustainable businesses can only be built on sustainable societies and ecosystems.
There is a need to harness the power of markets and the business sector. The business sector has demonstrated enormous capacity to innovate and deploy new technologies, systems and services. The full potential of capital markets to incentivize sustainable behavior has yet to be exploited and will be essential to achieving a sustainable global economy.
Research on ‘green growth’, moreover, suggests that benefits will include the creation of new technologies, new jobs, and reduce poverty and pollution.
The Case for Reporting Reform
Proposition 1: Routine ESG Reporting by 2015 Participants’ discussion of this proposition identified supporting arguments such as:
- ESG reporting and the GRI Framework have demonstrated substantial value for businesses. The business sector has been quick to recognize the importance of sustainability information and ESG reporting has become the norm among leading companies worldwide.
- Most reporting organizations refer to the GRI Sustainability Reporting Framework. Among other things, GRI reporting is used for: assessing risks and opportunities; engaging and partnering with stakeholders; innovation of products and services; improving internal and external (e.g. supply chain) management systems; and shaping overall organizational strategy.
- The transition to a sustainable global economy and improving organizational governance go hand in hand. In facing the sustainability crisis, all organizations need enhanced governance structures, policies and processes that enable them to more fully understand, improve and communicate their impacts – positive and negative. ESG information is needed to meet the different needs of managers, shareholders and stakeholders and provides the foundation for thriving partnerships.
- Governments also stand to benefit from improved ESG reporting from all corners of the economy. More transparency promotes more effective and efficient markets and helps governments deliver on the goal of a sustainable global economy.
Conference Marketplace
Key challenges and approaches highlighted during the discussion included:
- More ESG reporting is needed by the BRICs (Brazil, Russia, India, and China) and SMEs (small and medium-sized enterprises). While some emerging economies (e.g. Brazil) are now leaders in the ESG reporting field, other countries (e.g. China) are still at the beginning of the journey. Even in advanced economies, some sectors are largely silent on ESG performance.
- It is imperative to incentivize SMEs to understand and report on their ESG performance – most current ESG reporters are larger companies.
- Government leadership will be essential to create the conditions for ESG reporting to become common practice. A range of policy options are possible; voluntary and regulatory approaches can effectively complement one another. Some countries, such as
- Denmark, have made ESG reporting mandatory on a ‘comply or explain’ basis, but leave companies with flexibility on what they report. Non-regulatory tools include clearer policy support for ESG reporting, use of ESG reporting in government investment and procurement decisions, and support for promising ESG initiatives. Increased support for partnerships, education and capacity building is also required.
- For its part, business does not need to wait for regulations to improve ESG reporting. There are multiple benefits from being pro-active as ESG reporters. The results of a survey of ESG report readers and report writers conducted by KPMG, Futerra and SustainAbility supported this argument. The key findings included: the main purpose of reporting is seen as improving organizational performance; effective ESG reporting is not considered to be ‘greenwashing’; and reporting is largely recognized as improving an organization’s performance over time.
Proposition 2: Integrated Reporting by 2020
If there is to be any chance of achieving a sustainable global economy by 2020, ESG considerations need to be fully integrated into the strategy, structure, and management of all organizations in the same way that financial reporting now is. The establishment of the International Integrated Reporting Committee (IIRC) is seen as a step in the direction of creating an international standard for integrated reporting.
Participants saw integration of financial and ESG reporting as a logical next step. Supporting discussion points included:
- Integrating ESG data is a practical way of internalizing so-called ‘externalities’, redu-cing the current emphasis on short-term thinking and returns, and addressing ESG reporting gaps (i.e. organizations not repor-ting material data or not reporting at all). Leading companies are already exploring combined financial and ESG reports. Early experience suggests this can be technically challenging but operationally and financially rewarding.
- Integrated reporting will also help ensure that sustainability becomes a part of organizational strategy.
- Is the goal of 2020 too far away? In the interests of transitioning to a sustainable global economy, it is important to make the most rapid progress possible.
- How an integrated reporting standard is developed is just as important as what is in the standard. In this respect, a robust, balanced and expert multi-stakeholder approach is needed GRI’s proven experience in this area would be helpful.
- Governments need to be involved, but how? The G20 process offers a possible avenue of political support. However, experience with larger processes (e.g. the 2009
- Copenhagen climate negotiations) raised questions about the effectiveness of detailed intergovernmental mechanisms.
- Government encouragement and support, and later adoption, might be all that is necessary. Better implementation of existing ESG reporting provisions and requiring financial analysts and ratings agencies to consider ESG reporting could be more productive first steps.
- the need for greater attention to capacity building (especially in emerging economies and among SMEs);
- closer monitoring of data quality (materiality, accuracy, consistency and compar-ability);
- improved data accessibility (including stakeholders with and without access to internet);
- and the need for greater incentives for reporting (including indicators showing positive development impacts of activities undertaken).
- improving education and awareness about ESG reporting and its benefits;
- continuing to update its guidance (e.g. to provide indicators enable reporters to show their positive impacts); and
- by broadening its network of national focal points and efforts to build capacity, especially in emerging economies.
Among cautions and caveats, participants noted the following:
RCA Awards Ceremony - Winner: Marco Aurelio Picini de Moura from Banco Do Brazil (The Engage Award, The Investor Award, and Best Overall Award)
HRH Prince Charles's recorded video message at the Opening Plenary session
Recurrent themes included:
Furthering GRI’s Mission
Many voices recognized that GRI has made a major contribution over the last decade to the process of bringing ESG considerations into the heart of organizational governance. While the GRI Guidelines are used in many countries and by many organizations, there is still a long journey ahead.
Conference participants looked forward to GRI updating its guidelines with the release of the proposed ‘G3.1’ revisions, expanding on guidance on human rights, community impacts and gender.
Participants encouraged GRI to continue promoting both more reporting and better reporting worldwide. This should be done by:
They also welcomed GRI’s active role as a member of the International Integrated Reporting Committee and looked forward to hearing news of its work towards a global standard on integrated reporting by 2020 or earlier. A next version of the GRI Guidelines could promote experimentation with the integration of ESG and financial reporting forming a potential stepping stone towards the development of an Integrated Reporting standard.
