“Now, explain it to me like I’m a four year old,” says Denzel Washington to Tom Hanks in the 1993 film Philadelphia. We pose this same question to the Global Reporting Initiative, the standard-setter for sustainability reporting.
In October 2010, the GRI Board of Directors issued Resolution 2010.15 "to develop the next iteration of the GRI Guidelines, tentatively called 'G4'." Among several Development Priorities, the Resolution called on G4 "to improve guidance on identifying 'material' content – from different stakeholder perspectives – to be included in the sustainability reports," which falls under the Materiality Principle, one of four first-order Principles (in addition to Sustainability Context, Stakeholder Inclusiveness, and Completeness) for defining report content.
Fast forward to the February 2012 Webinar for GRI Organizational Stakeholders sharing results of the first Public Comment Period (PCP) on G4 (which ran from August to November 2011), when GRI stated in its slide deck that the "GRI Principles are not under revision."
Now, explain it to us like we're four year olds. On the one hand, G4 must address the GRI Principle of Materiality; on the other hand, G4 cannot address any of the GRI Principles. We applaud GRI for their great work doing the near-impossible task of steering a multi-stakeholder network in the development of world-class sustainability reporting standards, but we're at a loss on how they intend to perform literal impossibilities such as this one.
We agree with the GRI Board: G4 needs to improve guidance on Principles such as Materiality ("the organization's significant economic, environmental, and social impacts")—as well as its twin, Sustainability Context ("the performance of the organization in the context of the limits and demands placed on environmental or social resources at the sectoral, local, regional, or global level."). Public Comment Period respondents also agree:
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"[T]here should be greater recognition of the link between Materiality and Sustainability Context—they must relate to one another, or else the reporting organization runs the risk of defining reporting factors based on navel-gazing, and never acknowledging the overall sustainability transition," commented one respondent. "Sustainability context is currently underreported in sustainability reports, whereas this provides a key insight into the company's position in society and sustainability. GRI should provide more guidance on how to report on sustainability context," wrote another.
All told, the PCP Survey found 33 percent of respondents wanting to improve guidance on Materiality, followed closely by Sustainability Context (32 percent), the highest results for all Principles. Shareowner resolutions receiving this level of support commonly result in companies shifting to more sustainable policies and practices. We call on GRI for such responsiveness.
In fact, we have already encouraged GRI to be more accountable to its own Principles (in addition to our PCP submission). In September 2011, the Center for Sustainable Organizations (CSO) launched an "Enforce or Explain" campaign (riffing on GRI's "Report or Explain" campaign) to provide guidance on and require inclusion of Sustainability Context in sustainability reports that follow GRI Guidelines, to which GRI responded by stating "CSO's input on sustainability context is of considerable interest for G4's development." Again, explain it like we're four: how does barring this Principle from revision in G4, as GRI has done, demonstrate "considerable interest"?
"GRI believes that sustainability context is vital in all reporting," GRI stated in its response. Then please explain (like we're four) why GRI's own Sustainability Report (released on March 7, 2012) fails to include Sustainability Context, as CSO's reply called on GRI to do to "set the proper example…" GRI admitted that it plans to "contextualize performance data" in its next Sustainability Report, which we welcome.
In the absence of example-setting from GRI, companies are increasingly integrating Sustainability Context into their operations by measuring their environmental, social, and economic impacts, and pegging their own performance targets to actual ecological and social thresholds. For example, Mars, the world's third largest food company, is "choosing target numbers based on the best science about global environmental limits rather than targets based on what they think they can achieve," according to Hal Hamilton of the Sustainable Food Lab.
"If we follow the logic of what Mars has adopted for operations, we would set targets in relation to global limits (for example, how much water is available in each geographic region, and how much greenhouse gas emissions each production system can put into the atmosphere without the globe's temperature rising more than two degrees centigrade)," Hamilton added.
Likewise, Autodesk has developed a "Corporate Finance Approach to Climate-Stabilizing Targets" (C-FACT) that aligns corporate GHG emission reduction targets with the Intergovernmental Panel on Climate Change (IPCC) goal of reducing absolute GHG emissions 85 percent by the year 2050 in industrialized countries, adjusting companies' proportional responsibility relative to their contribution to global GDP.
"Figuring out the sustainability context for your organization is one of the toughest challenges for sustainability reporters," says Jennifer Woofter, founding president of Strategic Sustainability Consulting, a 24-employee firm that rose to the challenge with its 2011 Sustainability Report, themed "Thinking about Context."
We at the Center for Sustainable Organizations have worked directly with Agri-Mark to develop and implement a context-based sustainability approach to operations of the Cabot Creamery Cooperative, renowned for its cheese. Collaborating with CEO Richard Stammer and Sustainability Director Jed Davis, we brainstormed a means of measuring the sustainability of the organization's water use on the regional level.
And reaching back half a dozen years, we worked with Ben & Jerry's (which pioneered sustainability reporting with its 1989 Environmental Report) to apply our Global Warming Footprint methodology to its 2006 Social and Environmental Report. These are first steps toward corporate sustainability footprinting, to use the term we established in 2011, and the path forward is increasingly clarifying.
Some of the most important initiatives driving corporate sustainability forward are embedding Context into their DNA. The Global Initiative for Sustainability Ratings (GISR), a joint project of Ceres and the Tellus Institute that is creating a generally accepted sustainability ratings standard, explicitly integrates Sustainability Context in its Principles.
The Sustainability Accounting Standards Board (SASB), an initiative launching in April 2012 modeled on the Financial Accounting Standards Board (FASB) that will define the materiality of environmental, social, and governance issues, is baking context into its identification of industry-based key sustainability performance indicators (KSPIs) to guide company 10-K filings with the SEC.
"We care about Sustainability Context greatly—it is integral to the SASB approach," SASB Executive Director Jean Rogers told us.
And the International Integrated Reporting Committee (IIRC) is creating guidance on fusing financial and sustainability reporting, "a new approach to corporate reporting that demonstrates the linkages between an organization's strategy, governance and financial performance and the social, environmental and economic context within which it operates."
GRI plays a prominent role in each of these initiatives, whose work cascades from the foundation GRI set for sustainability reporting and context—which amplifies the need for GRI to show leadership in continuing to deepen understanding and guidance around Sustainability Context.
Indeed, GRI invented the term "sustainability context"! Last month each of us met with GRI Co-Founder and former CEO Allen White, who originally proposed inclusion of the concept in GRI guidelines back in 1999.
"Today, I continue to argue that without such context, there can be no real, rigorous sustainability measurement, reporting, and performance assessment at all," White told us.
We thank Allen for this pioneering work, and urge our mutual GRI colleagues to honor this vital concept, which perhaps more than any other element, defines GRI's Vision of "a sustainable global economy where organizations manage their economic, environmental, social and governance performance and impacts responsibly and report transparently."
In the climactic court scene in Philadelphia, Denzel Washington asks, "what do you love about the law?" to which Hanks answers, "It's that every now and again – not often, but occasionally – you get to be a part of justice being done. It's really quite a thrill when that happens." We look forward to the thrill of working with GRI to be a part of sustainability, in its full and rich context, being done.