At most companies, work on 2013 sustainability reports is well underway. But it's not too late to take stock and assess whether you're giving enough consideration to four major issues recently cited by Ernst & Young: materiality, conflict minerals, social compliance in supply chains and reporting requirements in emerging market stock markets. Its publication "Let's talk" is an easy read and does a nice job of laying out the issues at a strategic level.
As I read, I thought, "So how does this affect my clients and other reporters right now?" Here's a recap of each trend, with some tips and tools you can use to take action.
1. Focus on materiality
The leading sustainability reporting frameworks (GRI, SASB and IIRC) may differ in their definition of materiality, but they all agree that a focus on relevant issues is essential to meaningful, strategic reporting.
Tip: Check out the new Materiality Matters service offered by the Global Reporting Initiative. Its new "Materiality Matters" check verifies that the General Standard Disclosures G4-17 to G4-27 were correctly located in both the Content Index and in the text of the final report. Reporters who apply for and receive the Materiality Matters check receive a "badge," or icon, which they are advised to place on the cover or inside cover of their report.
Tip: Be sure to check out the interactive How to Define What Is Material on the GRI's beefed-up website, which keeps getting easier to use.
2. Mandatory conflict minerals disclosure
The first filing deadline to comply with the U.S. Securities Exchange Commission's (SEC) conflict minerals disclosure requirements covering calendar year 2013 is June 2. Per the legislation, companies must investigate their supply chains for conflict minerals and report on their origin.
Conflict minerals are those mined in countries such as the Democratic Republic of the Congo and are most often used in electronics: things that buzz, blink or beep, as the E&Y newsletter notes. For a deeper dive, read Ernst & Young's "Conflict minerals: What you need to know about the new disclosure and reporting requirements and how Ernst & Young can help" (PDF).
Tip: For guidance on working with conflict mineral suppliers, the Electronics Components Industry Association (ECIA) recommends use of the Electronics Industry Citizenship Coalition (EICC) GeSI template. EICC, working the Global e-Sustainability Initiative, developed the only industry-wide standard reporting template. ECIA suggests that component manufacturers could use this template to post conflict minerals information on their internet sites to support supply chain members and end users. In late January, the ECIA released a position paper with further guidance on conflict mineral reporting.
Tip: To see how leading technology companies are disclosing their performance related to conflict minerals, let's look at Dell. Dell offers multiplatform communication on its policy and actions related to conflict minerals, as befits an electronic manufacturer which has comprehensive corporate citizenship communication.
First, Dell describes its approach to conflict minerals in its 2013 Corporate Citizenship report (PDF) in the sections on Supply Chain and Human Rights. The topic is discussed in further detail on a page on its website and covered at length in a six-page white paper (PDF) released in early 2013. You can be inspired by the company's example as you consider your own approach.
3. Reducing supply chain risk
Supply chain management is complex and in the spotlight after recent tragedies such as the clothing factory fires in Bangladesh. The new Global Reporting Initiative G4 guidelines raise the bar on supply chain disclosure through the expansion of the boundary concept for determining the scope that reporting should cover.
Two key areas of the G4 guidelines are the General Disclosure requirement of a description of the supply chain (required for both Core and Comprehensive reports) and the Specific Standard Disclosure EC9 on Procurement Practices. In addition, the guidelines set forth disclosure of supplier assessment and grievance mechanisms in the areas of environmental, labor, human rights and society performance.
Tip: Consider best practices in supply chain disclosure and evaluate which make sense for your organization. Begin by considering Nike, which has been out in front when it comes to supply chain disclosure, with in-depth coverage in its FY2010/11 progress report from 2011.
In addition to plentiful infographics and candid narratives on its manufacturing and labor practices, Nike's website features an interactive global manufacturing map which allows users to search using filters by brand, product type or event.
4. Stock exchanges requirements for environmental, social and governance (ESG) disclosures
A growing number of stock exchanges around the world are beginning to recommend that companies report on select environmental and social indicators, or explain why they do not.
This trend is likely to spread because the NASDAQ OMX and New York Stock Exchange are participating in the Investor Network on Climate Risk Sustainable Stock Exchanges Working Group, currently collaborating on a standards proposal. The proposal submitted to the World Federation of Exchanges in October sets forth three major requirements:
• A materiality assessment
• A hyperlink in annual financial filings to the Global Reporting Initiative (GRI) Content Index
• Corporate ESG disclosure, on a "comply or explain" basis
Now is the time for companies to establish systems for capturing key ESG metrics and develop non-financial data metrics before guidance becomes mandatory.
So how do you do that?
Tip: Explore new metrics. Some possibilities were presented at the New Metrics of Sustainability Conference I attended at the Wharton School in Philadelphia last fall. I shared some ideas in this post.
Tip: In the longer term, your company can collaborate with peers in developing ESG measurement techniques in your sector.
In the private equity area, for example, KKR has advanced industry-wide guidelines and pioneered ESG disclosure. A signatory of the UN Principles for Responsible Investment, KKR worked with other members of Private Equity Growth Capital Council to develop Guidelines for Responsible Investment in 2009. These guidelines provide a platform for responsible investment efforts in the private equity industry. (Disclaimer: KKR is one of my ESG reporting clients.)
Currently, KKR is also collaborating with the Environmental Defense Fund and others in the financial services industry to develop a common framework for ESG reporting performance indicators for the private equity sector. The firm has also contributed to the Sustainability Accounting Standards Board sector guidelines.
Share your ideas
How is your organization responding to these trends in its sustainability report this year? Share what you're doing and help us all advance the quality of non-financial reporting.
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