August 18, 2011 | By isosteam |
It will not come as news to sustainability readers that social and environmental issues can have a short and long term impact on the financial performance of a company. But, objectively measuring a company’s sustainability performance is easier said than done.
Sustainability reports are as different as each of us. They vary in format, material issues selected, boundary and scope, and cultural orientation which makes it very difficult to judge performance based on a common set of indicators.
Investment institutions like Bloomberg, the Dow Jones Sustainability Index or FTSE4Good have some of the more widely recognized methods of reviewing corporate sustainability. But they aren’t the only companies in the game.
Groups like CSRHUB and Sustainability HQ have a deep knowledge of sustainability principals. They have successfully developed systems that make it possible to query a full range of sustainability data and share it with a broad audience. CSRHUB Cofounder Cynthia Figge says, “We aggregate data from more than 100 sources to provide our users with a comprehensive source of CSR information on nearly 5,000 publicly traded companies in 65 countries.”
ISOS Group has capitalized on the standardization of the GRI reporting framework to create another measurement system.
Since the GRI framework is standardized, a true apples to apples comparison is possible. ISOS Group has developed a framework to quantitatively measure the strength of a GRI report, and we have collected dozens of reviews of reports using the framework. These all add up to a strong body of data that allows us to compare companies between sectors on the basis of the quality of their reporting.
In 2010, we assessed Walmart, Southwest Airlines, Qualcomm Incorporated, Bucyrus, Johnson & Johnson, Holland America, NextEra, Medtronic, Mattel, Citigroup, UPS, Sempra Energy, State Street or HP on all tests associated with the Quality and Content Principles in the GRI reporting framework. Although not all of the selected reports were GRI-based, all had referred to the framework to some degree as a guide for developing their reports and therefore, could undergo a common set of tests.
According to the final results, HP rated highest, while Walmart lagged in all areas. On average, most reporters failed to effectively apply Materiality and Stakeholder Inclusiveness, (which are key components of a GRI report). This shows that we are still in the elementary stages of sustainability reporting and that the best we can do is to educate ourselves on the importance of applying the right principles to the reporting process.
In order to improve in these areas, reporters should consider:
- Materiality: Moving away from siloed decision-making on relevant performance indicators. Consider your sustainability context and related impacts, gather input from others, prioritize and chart those that are most relevant for the organization. Explain the process! Refer to Symantec or SAP’s Materiality Matrix and description as best-cases.
- Stakeholder Inclusiveness: First brainstorm all the groups that affect or are affected by your company’s daily activities. Prioritize each group and think about ways that you currently interact with them. Consider methods for obtaining their input on your sustainability related activities. Don’t be afraid of engaging in stakeholder dialogue! Refer to Kimberly Clark’s testament to their interactions with environmental groups for an example on how opportunities can flourish from building deeper relationships with external groups.
- Balance: A purely positive report doesn’t work to transform business practices. Include both positive and negative performance and set targets for improving efforts in the short and long-term. It’s highly unlikely that you will receive criticism for sharing both the good and the bad. Take a look at Weyerhaeuser or 7th Generation’s report for examples of honest reporting.
- Comparability: Readers may not be able to determine whether your performance was positive unless they have something to compare it to. Provide some point of comparison for your disclosures, whether it is based on year-to-year performance, industry averages or against your peers. Utilize tools, such as CSRHUB to draw comparable data and include illustrations! Refer to 2010 Qualcomm Social Responsibility report ‘Total Lost Time Injury & Illness Rate’ or ‘Direct Energy Consumption’ disclosures for a quick example of how easily this can be done.
- Reliability: How reliable is the data when mention of a sound process for tracking and analyzing data is absent from the report? Claims made in the report should be supported by internal controls and systems should be strong enough to undergo possible examination by external parties. Refer to long – time reporter, Advanced Micro Devices (AMD) 2010 report under ‘Transparency’ for a great example!
- Accuracy: Express measurement techniques, estimates, assumptions and bases for calculations so that the reader can trust your claims! Refer to Chevron’s recent report- they do a terrific job at footnoting.
We have already started another round of assessments by looking at 2010 reports from 14 companies with others planned as they come online. In order to build greater value from this education experience, results are then offered to the reporting organizations as critical feedback and to registries, such as CSRHUB.
There is no customary form required by law for this type of reporting, yet there are guidelines we can follow that have been developed and used by thousands of groups globally. Someday, a tool for comparing apples to apples may enter the market. However, until that day comes, we will have to rely on our educated judgment of the GRI to determine the quality of reports and supporting systems. Essentially, mastering the use of GRI’s Quality and Content Principles provides an un-matched authenticity for reporting.
If you want to learn more about the Global Reporting Initiative’s (GRI) sustainability framework and become a certified sustainability reporter, consider attending one of ISOS Group’s GRI certifications in Sustainability Reporting.