New Metrics
Do Winning Sustainability Reports Measure Up?

Ahead of his breakout session on Strengthening Your Brand with Context Based Sustainability at Sustainable Brands '09, Mark McElroy writes on The Global Reporting Initiative's (GRI) call for context in all sustainability reporting. While even award-winning sustainability reports have a hard time putting their achievements into context, their relevance relies upon it.

Last month on these pages I explained the difference between context-based and context-free sustainability measurement and reporting. I showed how the leading international standard for corporate sustainability measurement and reporting, the Global Reporting Initiative (GRI), strongly advocates for context-based reporting.

GRI's Principle of Sustainability Context (from G3):
  • Performance information should be placed in context.
  • The underlying question of sustainability reporting is how an organization contributes to the improvement or deterioration of economic, environmental, and social conditions at the local, regional, or global level.
  • Simply reporting on trends in individual performance (or the efficiency of the organization) will fail to respond to this underlying question.
  • Reporting organizations should therefore seek ways to express their individual performance in relation to broader environmental and social sustainability.

I then argued that most of what passes for mainstream sustainability reporting these days actually excludes context, and therefore tells us very little, if anything, about the true sustainability performance of organizations. To include context, a sustainability report would have to express organizational performance relative to real social and environmental conditions in the world.

Water consumption, for example, would be measured against renewable supplies; solid wastes would be measured against landfill capacities; and impacts on social and economic conditions would be measured against societal needs. In the absence of context, sustainability reporting is fatally flawed.

This time around, I'd like to highlight a few examples of how mainstream sustainability reports - even award-winning ones - almost always fail to include context, and therefore fail to tell us anything meaningful about the sustainability performance of the organizations they describe.

Several such reports were recently named by CERES and the Association of Chartered Certified Accountants (ACCA) as winners of their annual Sustainability Reporting Awards program for 2008. Here are the top 4 winners:

Now lest anyone think that any of these reports were not intended to be sustainability reports, per se, and should not, therefore, be held to a sustainability standard, let me first point out that all four reports were prepared in accordance with GRI's Sustainability Reporting Guidelines (G3). A company wouldn't use GRI's G3 standard for reporting if it were not its intent to prepare a sustainability report in the first place. That said, the titles given to the four reports varied widely:

To be clear, none of the four winning reports - none, that is - included the kind of sustainability context specified by GRI as essential for reporting. And so if anyone reading the reports has the intention of learning whether or not the companies involved are, or were, sustainable in the years described, they will be sorely disappointed.

What they will find, instead, are descriptions of goals (not that there's anything wrong with that), discussions of programs and initiatives aimed at achieving the goals (nothing wrong with that, either), and lots of top-line performance data, pertaining to water consumption, greenhouse gas emissions, gender diversity in employees, philanthropic contributions, etc. (also fine) - but no context in which to interpret any of that.

Take water use, for example. GE in its report indicated a 2 percent drop in water consumption from 2006 to 2007. Is this a good thing or a bad thing? Without context, no one can possibly tell. For all we know, the 2006 level itself was wildly unsustainable to begin with, and so a 2 percent drop might be wholly inadequate. Worse yet, available water resources in the areas where GE does business could have been declining at twice or three times the rate in recent years, in which case a 2 percent drop in 2007 could actually constitute worse performance than in 2006, thanks to more rapidly diminishing supplies.

Context is also critical on the non-environmental side of sustainability reporting. For example, understanding a company's social sustainability performance requires an understanding of what society's needs are, and the extent to which a company is helping to either cause or cure those needs. This can be done at a local, regional, national, or international level. Reporting the extent to which a company has contributed a fair or proportionate share of resources towards achieving the UN's Millennium Development Goals, for example, is one such way of doing so at an international level, with context fully included.

Context, more broadly defined, consists of the state of vital resources in the world that people rely on for their well-being. These include natural resources, human resources, social resources, and material resources. Together we can think of these resources as vital capitals. Sustainability, then, is all about managing impacts on vital capitals such that their quality and supply are sufficient to ensure human well-being.

How, though, are we supposed to translate an understanding of the state of vital capitals in the world to the task of measuring and reporting an individual company's sustainability performance? Is every company somehow responsible for all the world's problems, and to be measured against that? Of course not. But that doesn't mean we can't hold individual companies accountable to (a) a standard of at least not diminishing human well-being in terms of their impacts on vital capitals, or (b) contributing their fair or proportionate share towards curing or alleviating deficiencies in vital capitals, if and when they have the resources to do so.

But how is a company supposed to know or determine what its fair or proportionate share should be for having such impacts on vital capitals? How much of the global poverty problem, for example, is allocable to an individual company? Or analogously, how much of a region's water resources should a company be entitled to use? These are very similar questions, because what they both try to establish is a standard of performance that can be used to measure and report a company's sustainability. Indeed, in the final analysis, sustainability reporting is a blow-by-blow accounting of actual impacts on vital capitals relative to context-based standards or norms for what such impacts ought to be.

There are at least two ways to make the kind of allocations I speak of as a basis for measuring sustainability performance. One is to view an organization as nothing more than a collection of individuals (workers), who collectively perform joint acts. Such joint acts have consequences in the world (on vital capitals), the effects of which can be attributed to the people who perform them (the acts). This approach, then, allocates duties and obligations to have impacts in the world to individuals in a company, on a per capita basis. If your company has a thousand employees, for example, it would have a thousand-person share or duty to use water resources, alleviate global poverty, etc. The actual share would be lower, though, since people only spend part of their lives at work.

Another way to allocate duties or obligations to have impact on vital capitals is to do so on economic grounds. A company's proportionate contribution to GDP, for example, could be used as a basis for allocating water resources to individual facilities in a watershed; or for determining what its fair contribution should be towards helping to achieve the UN's Millennium Development Goals in a nation. Other economic criteria could also be used.

Several companies in Vermont, and perhaps others elsewhere, are already making headway towards incorporating context in their sustainability management, measurement, and reporting efforts. These include Ben & Jerry's Homemade, Cabot Creamery Cooperative, and Green Mountain Coffee Roasters. Standards for all of this still do not exist, although the GRI standard, as explained above, clearly calls for organizations to seek ways to include context in their reports. At this stage of the game, then, a company's own best efforts to do so is all that is expected, even if inconsistent with the efforts of other companies.

Indeed, there is nothing stopping individual companies from defining context standards of their own. In fact, if the alternative to including locally-defined context in a sustainability report is to not include context at all, then I ask, what's the point? A sustainability report with no context is no sustainability report at all, since it prevents us from understanding what the actual sustainability performance was of the organization that wrote it.

But this, of course, is what passes for best practice today - context-free reporting masquerading as meaningful. If ever there was a case of the emperor's clothes, this is it, because in the absence of context, real sustainability reporting is completely impossible!

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