Here's help with solving the new 'sustainability math'
Last week I went surfing for the first time. The quote on my instructor’s shirt read : “Life, like surfing, is all about wave selection and balance.” For me, finding the right balance and wave was not easy — as continuous adjustments are needed to remain on the board.
Companies are facing similar challenges adapting to the “new sustainability math” as finding the right balance between investor, consumer and stakeholders interests is riddled with complexity and confusion. Which sustainability reporting standards to adopt? Which rating survey to respond to? Which environmental initiative to engage with?
At the core of this challenge is finding the sweet spot between providing investors with the quantitative demonstration of the direct link between sustainability initiatives and value creation, while authentically telling consumers the company's sustainability story through qualitative communication.
The perceived confusion and proliferation, or so-called "alphabet soup," of sustainability initiatives, standards and frameworks has been blamed for the pullback recently observed in the business world. For instance, far too many companies appear to be scaling back their sustainability investment and taking a step back on sustainability reporting. Others seem to be in a holding pattern in deciding the next big steps in sustainability performance improvement.
In other words, many companies' seeming concern can be encapsulated in Bob Dylan’s song “Along the Watchtower”: “There must be some way out of here, said the joker to the thief. There's too much confusion, I can't get no relief.”
But a deeper dive into this proliferation of initiatives unmasks solutions, innovations and opportunities, and suggests reasons for companies to engage more deeply at this time.
Many companies have mischaracterized the proliferation of sustainability initiatives in a negative light, where innovation is mistaken for chaos. More forward-looking companies, however, realize we are approaching the next phase, where new standards for sustainability disclosure and measurement are being developed and harmonized. They understand that this new ecosystem of standards promises to help companies scale sustainability at the pace required to address global sustainability challenges.
Five years from now we may very well look back and regard this time not as a time of confusion, but rather as the Renaissance period of the global sustainability movement — where companies that embrace the new sustainability math and engage in the next generation of sustainability standards will be more likely to emerge as the future fit companies of the 21st century.
The emergence and convergence of sustainability standards
An unprecedented opportunity exists today for business and investors to collaborate and build on this vision of sustainability leadership. Four key sustainability initiatives are gaining momentum, and each is ramping up stakeholder participation. Organizations, particularly companies, now have a window of opportunity to engage to shape this next generation of sustainability standards. These include:
1. SASB. The Sustainability Accounting Standards Board is developing sector-based accounting metrics suitable for disclosure in standard filings such as the Form 10-K and 20-F. Through its evidence-based approach, SASB dramatically will improve the precision, materiality and disclosure of sustainability indicators to integrate ESG factors into financial markets.
2. GRI. The Global Reporting Initiative is the de facto standard for corporate sustainability reporting. Thousands of organizations have produced more than 10,000 corporate sustainability reports following GRI guidelines. GRI recently has hired a dynamic new executive director, Michael Meehan, who encouragingly said in his first interview that collaboration and finding "common ground" with sustainability disclosure standards was a top priority.
3. IIRC. The International Integrated Reporting Council, a disclosure initiative, is a predominantly industry led effort designed to help companies communicate about businesses’ multi-dimensional value creation as the next step in the evolution of corporate reporting. Already, hundreds of companies are experimenting with integrating financial and sustainability information. IIRC is convening new programs such as the Corporate Reporting Dialogue launched in June to foster “better alignment and reduced burden in corporate reporting.”
4. GISR. The Global Initiative for Sustainability Ratings is a new participant in the family of initiatives aimed at making capital markets agents of, rather than impediments to, achieving the post Rio+20 sustainability agenda. GISR’s mission is to create a world-class corporate sustainability ratings standard and Center of Ratings Excellence as an instrument for transforming the definition of value and value creation by business in the 21st century.
Collectively these standards and frameworks, each with a distinct but linked role in the emerging sustainability information landscape, will:
- Transform the way corporate sustainability information is disclosed by developing new disclosure standards for material sustainability information and value generating strategies;
- Reposition corporate reporting to tell a more complete story of how an organization’s strategy, governance, performance and products lead to the creation of value over the short, medium and long term;
- Improve the precision, materiality and disclosure of sector-based sustainability (ESG) KPIs and accounting metrics;
- Accelerate the integration of ESG factors into investment and credit rating decision making.
An illustrative example of the conceptual framework for this emerging ecosystem of sustainability standards is depicted below:
Call to action
The achievements of SASB, GRI’s G4, CDP, IIRC and GISR point to 2015 as a watershed moment for accelerating the transition — and moving markets — toward more sustainable outcomes.
The shift away from myopic focus on short-term financial returns to a more expansive, long-term focus on vital capitals is an idea whose time has come. Such a transformation is no longer an option, but a necessity if the next decade and beyond is to avoid a “sustainability cliff.”
Companies committed to sustainability excellence and leadership should consider pursuing the following to optimize sustainability ROI over the long-term:
• Closely examine the GRI’s G4 Guidelines and, in particular, the Principles for Defining Report Content and Quality (PDF) and commit to publishing a CORE level report by 2015.
• Report following CDP’s climate change and water use disclosure protocols.
The time has passed for small commitments, hyperbole and platitudes. Now is the time for leadership, investment and action. Companies that remain on the sidelines will sacrifice their opportunity to shape their own, and the planet’s, future.
Top image by Seamartini Graphics via Shutterstock.