If everybody wants to know about your "sustainability performance", how can you possibly take care of your day job of working toward sustainability? Investors are increasingly asking about your carbon emissions; and ratings agencies are selling their assessment of your human rights record, the gender balance on your board and what you do with your waste water.
Sound familiar? It should -- the proliferation of ratings, rankings, listings and indices is getting more and more attention. GreenBiz even captured some of the evolutionary process in their article Filing in the Blanks.
While in most jurisdictions companies are not required to report such non-financial information, several countries, local governments and even stock exchanges have started requiring companies to report on sustainability issues. An overview of these growing regulatory trends can be found in GRI's report, Carrots & sticks -- promoting transparency and sustainability.
It's a common story -- companies and other organizations are increasingly receiving multiple requests for sustainability performance data, from different sources and in different formats. The number of sustainability raters is at an all-time high. So how can companies sift through the growing pile of surveys and questionnaires landing on their desks?
One key point is to recognize that mainstream investors are increasingly using sustainability information. Not only are asset owners researching these issues on their own, but they are also asking their asset managers to commit to researching, analyzing and integrating sustainability into their investment process. Yes -- there is even a supply chain ripple here too -- asset managers supply money management services to asset owners.
This growing demand has created an entirely new type of research that is dramatically changing the way everyone sees 'sustainability performance'. It is crucial to understand not only who is conducting this type of due diligence, but also how entire sectors are being compared and contrasted on both quantitative and qualitative disclosures.
All the surveys you're getting are just the tip of the iceberg, hinting at the proliferation of rankings, ratings, listings, research tools and sustainability indices. Companies aren't aware of how many entities constantly monitor, analyze and convey sustainability information about them and their competitors, entire industries and/or entire indices.
A lot of raters rely on already public information, but they can also flood you with requests for more data. That can be overwhelming as you deal with queries around an ever-widening list of performance metrics, both financial and non-financial.
Get your Story Straight
In this age of transparency, it is critical for companies to align their stories. Various departments such as marketing, public relations, government affairs, environment, health & safety (EH&S), human resources and sustainability teams are all putting out some sort of story about the company's overall performance.
In these economically challenging times, these departments are crucial resources and key partners when addressing the growing number of sustainability requests. They are also key to ensuring that the story being told about the company's overall performance is consistent across the organization.
For example, every company in the Russell 3000 has received some sort of questionnaire about its energy performance (that is, its carbon footprint) from some type of research firm. The Carbon Disclosure Project (CDP) is probably the most well known organization soliciting this type of data. Initiated in 2003, the CDP currently represents more than 550 institutional investors, holding more than $71 trillion in assets under management.
The CDP has expanded its focus to include water, and is also working with major procurement bodies (companies and governments) to help these large-scale buyers gather consistent information from large supply chains. Note that CDP questions are likely to be entering your company through a range of inboxes, but most likely enter through Investor Relations.
Next page: Find out who's asking
Another significant development in the demand for sustainability information was the launch of the United Nations Principles for Responsible Investment (UN PRI) in 2006. With more than 850 investment institutions as signatories, the UN PRI represents asset owners and managers with approximately $25 trillion under management. It helps investors integrate the consideration of environmental, social and governance issues (ESG) into investment decision-making and ownership practices, and thereby improve long-term returns to beneficiaries.
In addition to the demand being created by groups like CDP and the UN PRI, there has been an exponential increase in the amount of interest in sustainability issues from all corners of the economy. Local mayors have their own green business initiatives, current and future employees want to work for "good" companies, corporate customers and the average consumer all want to know they are doing business with "sustainable" and "responsible" companies. All this awareness leads to demand, which leads to supply.
A recent study by independent think tank and consultancy SustainAbility mapped the expanding universe of sustainability "raters" and identified more than 100 of the most recognized firms. SustainAbility's four-phase study eventually narrowed the field to 21 raters, and provides and in-depth reviews of them. It offers a very useful overview of the market and helps companies understand the types of organizations involved and helps prioritize responses.
These organizations outlined in SustainAbility's reports are the "suppliers" of sustainability performance information on companies, cities, academic institutions and products. You can't go a week without seeing yet another list of the best of worst performers in sustainability. It is important for companies to understand these entities, how they analyze information and how they serve their respective markets.
Bloomberg on the Block
Another very dramatic change affecting this entire area has been the entry of Bloomberg, which not only saw the growing demand for sustainability information as a business opportunity, but also recognized the need to be credible in the area of sustainability -- to 'walk the talk."
Bloomberg started tracking sustainability data not only for the thousands of companies in its databases, but also started understanding its own sustainability performance. It noticed a trend in sustainability reporting: the majority of sustainability reports are done in accordance with the Global Reporting Initiative's (GRI) Reporting Framework. Not only did this inform Bloomberg's research methodology, but it also led it to produce its first sustainability report according to GRI's globally accepted Guidelines.
Bloomberg now tracks and distributes sustainability information on close to 5,000 global public companies. Its terminals sit on more than 300,000 desks around the world, and the majority of the signatories to the CDP and UN PRI have access to Bloomberg data at the touch of a button. Not only can these users see detailed sustainability information on a single company but, more importantly, they can quickly see the sustainability performance on hundreds of companies in the same industry and across hundreds of sustainability data points.
Keeping it Real
Given the developments outlined above, companies need to realize how they are being compared and contrasted with their competitors. The traditional financial metrics used to identify and buy shares in companies have expanded to include a broad range of quantitative and qualitative metrics on a range of environmental, social and governance criteria.
The most widely used and accepted format for reporting on these issues is through the GRI Guidelines. In essence, GRI is to sustainability reporting what GAAP is to financial reporting. Anyone on the user side of data (be it financial and/or non-financial) prefers consistent, comparable and reliable information, which is what the Global Reporting Initiative (GRI) provides.
Next page: Taking your first step, and the steps to follow after that
On the reporting side, the GRI Guidelines provide a tried, true and tested path to successful sustainability reporting. In fact, GRI reporters repeatedly dominate many of the most well-known sustainability listings, ratings and rankings. This includes:
- 95 percent of the Dow Jones Sustainability Index
- 78 percent of the FTSE4Good
- 70 percent of the Global 100
- 70 percent of the NASDAQ OMX CRD Sustainability Index
GRI's story is testament to the rapidly increasing interest in and focus on sustainability issues. GRI has grown from an idea exchanged over a drink in 1997 to the world's de facto standard for sustainability reporting, with thousands of organizations using the Guidelines in 2011. Investors are getting involved in developing new guidance, and corporate boards are showing an interest.
Taking your First Step
One of the first things to do when trying to determine whether or not to report on non-financial performance issues is review the extensive list of organizations that are already reporting according to GRI's Guidelines. The GRI Reports List is updated weekly and is designed so that users can quickly sort the spreadsheet to benchmark themselves against companies from across the world, as well as look at large customers that are very likely to be asking their suppliers for sustainability information.
It also allows the user to see what level each organization has reported, as well as whether the sustainability report was externally assured. The List includes reports with a full GRI Content Index -- thousands more organizations follow GRI's guidance, but don't take the final step of producing the GRI Content Index.
A quick look at the list can show a company where it stands against its competitors, and how it is being compared and contrasted on non-financial disclosure and sustainability performance. A review of competitors' sustainability reports quickly enables a company to see whether or not such reporting is achievable given current internal reporting systems, as well as determine how feasible such reporting will be within the existing organizational governance characteristics.
For many companies, the first step in reporting on such issues is complicated and difficult due to a reticence around voluntarily disclosing this type of information. It is important to remember, however, that by not reporting, a company is also sending a story to the market. An absence of disclosures on these issues leaves a wide range of stakeholders with the need to come to their own conclusions. It is much more beneficial for companies to take the necessary steps and inform these stakeholders in a direct and credible manner, which GRI reporting enables companies to do.
Six Steps Toward Addressing the Growing Demand for Sustainability Reporting
1. To understand who is interested in their sustainability performance, companies should regularly compare their own investor list to the signatories affiliated with the CDP and the UN PRI: Here is the list of the CDP's signatory investors, and here is the list of UN PRI's signatories
2. To understand the ever-changing and dynamic field of sustainability research, organizations should review the series of reports conducted by SustainAbility called "Rate the Raters.
3. To understand the significance of these issues and the market that is growing around this type of research, companies should read this recent article on the entry of Bloomberg to this field.
4. To understand the content and context of sustainability reporting, organizations should review what their peers are doing by downloading GRI's Report List.
5. To understand how to get started with GRI reporting, companies should review the Support for reporters area of GRI's website.
6. To understand who is looking at sustainability information and how this information is being measured, review the presentation Measuring Sustainability Performance, included below.
Tameron Eaton contributed to this article, follow him on Twitter @TameronEaton.
A version of this article appeared in the September print edition of IR magazine.
Top photo CC-licensed by Dave Morris.