Debate – Reporting – GRI: sinking or swimming?

Mallen Baker and Andy Savitz

Ethical Corporation • March 6, 2008

GRI isn’t working for Mallen Baker. Andy Savitz says it’s still on track

Most corporate responsibility practitioners believe that the Global Reporting Initiative is “the only game in town” for non-financial reporting.

But the first round of reports to meet the so-called G3 guidelines, which were launched with much fanfare in October 2006, has raised the question of what the purpose of GRI really is.

Is GRI a de facto reporting standard?

Or is it a useful reporting tool?

One corporate responsibility insider who believes that corporate non-financial reportingmust evolve beyond GRI is Ethical Corporation columnist and advisory board member Mallen Baker.
A fervent GRI supporter, Andy Savitz is a US-based author and senior consultant at Sustainable Business Strategies. His most recent book is “The Triple Bottom Line: how today’s best-run companies are achieving economic, social and environmental success – and how you can too”.

Here they debate the question: is GRI failing as a reporting standard? Let the games begin.

Round one

GRI is failing: Mallen Baker

Dear Andy,

The Global Reporting Initiative provides an excellent resource for companies to draw from in producing their corporate social responsibility or sustainability reports. It has been developed by good people and some of the ongoing work on sector issues will provide further value.

But GRI has failed in its initially stated intent of providing the single standard for reporting, and the state of the art now needs to evolve beyond where GRI seems able to take it.

What does GRI do well? It provides, from its history of involvement from a range of different interested parties, a reference on what some of these groups want to see disclosure about. Every sustainability manager should review it with respect and care.

What doesn’t it do well? It tries to provide a framework that should be applied to corporate responsibility reports that aim to address all stakeholders – increasingly we are seeing that such reports don’t work because most of the stakeholders at whom they are aimed don’t read the reports. The framework has become large, burdensome and expensive because it is such a shopping list of issues, but the value of some of the indicators is questionable.

Nobody, of course, wants to go back to the days when CSR reports consisted of photos of happy smiling children and not much else – and I would never take away from the achievement of the GRI in spreading a more robust approach to reporting. But we can also try too hard to create the illusion of certainty where it doesn’t exist.

Many of the issues facing businesses are highly contextual, highly controversial, and ultimately proven only in the light of history. Focusing too much on the data can sometimes distract as much as it informs. Companies that impress the most are those that take initiatives that will help to shape their marketplace, not just ones that measure what can be measured. GRI reporting didn’t alert anyone to some systemic failing in BP’s health and safety procedures, for instance.

Additionally, plenty of the campaign groups and others that helped to create the GRI do not actually consume the information produced in its name. Other than reports from the big name and high impact companies – such as Ford, GlaxoSmithKline, British American Tobacco – most of the hundreds of reports produced get read by the smallest specialist audiences.

Certainly, the practitioners in some leading companies I know – reporting leaders not laggards – are reacting against a situation where they spend more time gathering data for reporting than they do in driving change through the business.

I expect those companies to continue doing what they already do – evaluate for themselves and in consultation with their own stakeholders what are their most material issues, and to report on these in the way that makes sense for the business.

Increasingly, they will bring the laws of good communication into play, and seek channels other than formal reporting to communicate, and they will aim to reduce the cost of reporting by eliminating redundant data that is expensive to collect and of questionable value. Unfortunately, most businesses will find some of that within the GRI framework.

Ultimately, I just don’t believe that GRI has provided a robust enough quality process to create a standard. When Unctad reviewed this recently, it looked for corporate responsibility indicators that fit certain criteria: “quantifiable”, “within the control of the business”, “provides meaningful trend data year on year” and so on. They were able to produce a small list of key indicators that could be a really valuable starting point – and others who are involved with standards are currently considering whether work needs to be done to bring this area to the next level.

I certainly wouldn’t abolish GRI. But I just don’t see that the next evolution of reporting is either dependent on it or waiting for it.

Best wishes, Mallen


GRI is working: Andy Savitz

Dear Mallen,

We agree that GRI has already accomplished a great deal, but I believe that it has also provided what you say it cannot: a global, generally accepted standard for sustainability reporting.

More than 1,300 organisations now use the guidelines, including the vast majority of the Global Fortune 500, and about 30 companies add their names to the list each month. GRI has evolved far faster than did its financial first cousin – Generally Accepted Accounting Principles – and will ultimately do for sustainability what GAAP has done for financial reporting.

Any company that is burdened with collecting data of questionable value has only itself to blame. As the guidelines make clear, not all indicators apply equally well to all companies and reporters should focus on those areas that drive their businesses, as they should in developing their underlying approach to sustainability.

You say that the guidelines are large and burdensome but you obviously haven’t dipped into GAAP or Sarbanes-Oxley recently, not to mention the US tax code, all of which make GRI appear a model of brevity, simplicity and utter common sense.

GRI asks companies for information related to a grand total of … wait for it … 79 indicators, much of which they have already. A few of the indicators are admittedly difficult to grasp, but the vast majority are recognised as meaningful and relevant.

Some companies are burdened by GRI but not, as you say, because the standard is burdensome. It’s because they lack such basic information as the amount of water or energy they use globally or the gender diversity of their workforce or the total amount of tax subsidies they receive.

Many companies would not even have programmes were it not for the existence of a global reporting standard. Call it the tail wagging the dog, but these companies have started with sustainability by thinking they must have a report and then realising they must have some programmes on which to report!

I don’t know what evidence you have to support your contention that few people read GRI reports, but I have plenty to the contrary. For a start, this magazine reviews them. Ethical indices, such as FTSE4Good, rely on them. And many companies already conduct stakeholder engagement around their GRI reports, and that number is growing rapidly.

But let’s assume you’re right, that only a small number of people read them. I ask you: how many people read financial reports? Having worked at a large accounting firm, I can say not many. In fact, most of us aren’t even capable of reading financial statements and reports – they are unintelligible to all but the financially educated.

That doesn’t mean they should be abolished or abbreviated. On the contrary, they should be rewritten to accomplish their intended purpose of putting people in the know. But at least analysts can read financial reports, evaluate and compare companies based upon them, and tell the rest of us how they interpret the information. And that’s how GRI reports are being handled right now. Except that anyone can read them.

The idea that because GRI didn’t alert anyone to the systematic failings in BP’s health and safety systems the guidelines must be flawed is nonsense. Not only do the guidelines not work that way, they can’t possibly – no more than financial reports could alert investors or regulators about Enron, WorldCom, Adelphia or Societe Generale. Neither GRI nor GAAP requires or suggests the kind of in-depth investigation necessary to discover those kinds of problems.

But the answer is certainly more disclosure, not less, which is only one reason I think you are mistaken in suggesting that we consider Unctad or some other standard that lowers the bar. The other is that if sustainability reporting is to be meaningful – that is, comparable – the world needs one standard, not several or even two. GRI gives us that ability and, to the extent that what you say about it is true, the answer is to make it better, not to move to something less.

Warm regards, Andy


Round two

Quality not quantity: Mallen Baker

Dear Andy,

I take your word for it on 1,300 companies using the guidelines – I can only find online a list of 719, so it is hard to work out who is reporting to what level. That’s one piece of disclosure that would be useful to the debate!

The fact that other systems are also burdensome is not much of an argument – in any case, it is the relationship between burden and value that is the issue.

You miss my point on who reads the reports. Financial reports are produced for a specific expert audience, principally the shareholders that own the business. Most corporate social responsibility reports seek to address all stakeholders, including customers, employees, suppliers and local communities. Few among these audiences read them.

The BP point is still important. The remaining audiences, shareholders and analysts, are most interested in insight into future performance, not just explanation for past deeds. That something so damaging to the value of the business could slip under the radar is a sign to mainstream investors that the quality of information does not yet meet the task.

Yes, anyone can read these reports, unlike financial reports, but at a cost. The cost of narrative reporting is that the company provides its own context, and in truth nobody trusts the companies to provide a reliable context.

For an example of how far we have to go, I suggest you look at the GRI’s own GRI report. This organisation of 32 staff members has produced a report 88 pages long – an exercise bordering on self-parody. It admits to expending huge resource on the effort. Any company of a similar size looking to this report as a model will be horrified.

Does the document give us greater insight than one of 20 pages might have done? Frankly, no. One of the third party commentators said: “As with most reports, this one must do more than inform; it must also impress and inspire”. Remind me what the function of these reports is again? Accountability? A tool to run the business? Targeted communication to “impress and inspire?” The state of the art remains somewhat confused.

But I never said that GRI should be abolished – I said that the next stage of reporting needs to go beyond where GRI can lead.

To use fewer, carefully selected, key indicators is not to lower the bar, but to raise usefulness to important audiences. One shouldn’t confuse quantity of data with quality of insight. Likewise, one shouldn’t confuse reporting with effective communication.

Best wishes, Mallen


A complete picture: Andy Savitz

Dear Mallen,

The best GRI reporters present clear, compelling, balanced and mercifully brief narratives focused on important triple bottom line issues related directly to their businesses. They preserve clarity by including only those GRI indicators that illuminate these issues. The rest they put in an appendix at the back.

Companies that treat all the GRI indicators as equally important miss the point. GRI wisely calls for reporters to identify a handful of material issues, say why they are important and provide data pertaining to them.

Reporters may still wish to report on other, less critical issues in order to be responsive to stakeholders who care, but this need not detract from the clear, concise, compelling communication that you crave. Footnotes and fine print do not deter financial analysts from finding out what they want to know, and the same holds true for analysts, Oxfam, Ceres, investment funds or Ethical Corporation magazine.

You cite nothing to support your contention that these stakeholders do not read GRI reports and I think there is convincing evidence to the contrary. Even if they don’t, the fact that companies feel compelled to disclose information on GRI indicators has had an enormous positive impact, which is what we both want.

Few people actually read the gigantic reports filed under the “Right to Know” legislation, but merely having to disclose the quantities of toxic materials on hand caused companies to reduce those amounts by about 50 per cent in the first year following the Act.

The BP issue – failing to disclose a serious problem – is simply not the fault of the guidelines. BP chose to ignore the key GRI reporting principle of balance – which requires companies to provide a complete picture, telling both the good news and the bad.

Many companies ignore this critical GRI reporting principle because their lawyers won’t let them reveal a serious problem and most managers don’t see how it could possibly be to their advantage to do so. This is often short-sighted, as it was for BP, because GRI reporting is all about developing trust and credibility with your important stakeholders, which can create enormous value for reporting companies.

Thou doth protest that GRI should not be abolished. But you want better reporting in the future and maintain that GRI cannot lead us to it. You are therefore advocating multiple standards, which, in my opinion, is both wrongheaded and pernicious.

Warm regards, Andy

Dear Andy,

Well, we agree that reporting is a good thing. Done well it helps to drive change. It is clear that the state of the art is still evolving, and honest, vigorous debate is needed to ensure it meets all our shared objectives. A pleasure sparring with you.

Best wishes, Mallen

 

 

 

 

 

 

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