How to make corporate reporting more meaningful

How to make corporate reporting more meaningful

In a recent article in Green Money Journal, Amy Domini of Domini Social Investments pointed out that largely through the efforts of sustainable investors, the number of companies issuing sustainability reports over the past 30 years has exploded from a handful of outliers to more than 80 percent.

Thousands of those companies are using the standardized framework of the Global Reporting Initiative (GRI) to compile the data included in those reports. But are companies providing information that authentically measures steps toward attaining true sustainability in their business operations? And, for that matter, are sustainable investors and other advocates doing enough to pressure companies to provide such meaningful data?

According to Mark McElroy, the Executive Director of the Center for Sustainable Organizations (CSO), none of the principals mentioned -- the GRI, sustainable investors, or the companies themselves -- are doing enough to ensure that the necessary steps toward sustainability are being taken with sufficient urgency. Focused intensively on issues relating to sustainability for the past 15 years, McElroy founded the Vermont-based CSO in 2004.

McElroy is openly critical of the GRI's shortcomings. "The irony is that GRI provides guidance up to a point in a way that would help to resolve the problem, but fails to follow through," he told SocialFunds. And the key performance indicators (KPIs) currently in use "are demonstrably insufficient," he added.

The problem, McElroy observed, is that measurements included in corporate sustainability reports fail to account for a context in which performance can be accurately linked to targets that must be met to achieve sustainable business practices. "Most of what passes for mainstream sustainability measurement reporting fails to express sustainability performance in any literal or authentic way," he said. "While I applaud the fact that so many companies are focusing on this and putting out reports, few of these reports actually express sustainability performance."

"Even progress made on reducing greenhouse gas emissions may not be enough progress," McElroy said, adding that he thinks most companies would like to effectively report on such issues.

"I just think the state of the art -- how sustainability performance is being measured and reported -- is deficient," he said.

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To help correct the deficiency, McElroy devised a system of Context-Based Sustainability. According to McElroy, the system interprets an organization's sustainability performance based on how its impact on resources compare to stakeholder-driven norms or standards. It also looks at thresholds for what such impacts would have to be in order to be sustainable.

"If you're going to try to determine whether the activities of a company are sustainable, you have to have a standard of reference against which you can compare their social and environmental impacts," he said, pointing to a company's use of water resources as an example.

"Much of what we see today simply tells how much water a company uses from one year to the next," he said. "But there's no connection in measurements like that to the actual state of water resources in the place where a company is doing business. You have to be able to compare the rate of water use by a company to the rate of available water supplies."

"Our measurement actually sets a threshold for what the water use would have to be to be sustainable," he continued.

While social impacts may seem more difficult to quantify, Context-Based Sustainability creates metrics by comparing instances of child labor, for instance, to "contextually relevant standards or statutes pertaining to such use."

The concept of natural capital is increasingly applied to environmental issues, and McElroy pointed out that other forms of capital -- such as human, social, and constructed -- can be applied to social issues. "In practice, we look at an organization and determine what its impact on each of these capitals would have to be in order to be sustainable," he said.

McElroy also acts as an expert adviser to the Global Initiative for Sustainability Ratings (GISR), an initiative launched last year by Ceres and the Tellus Institute. The goal of the initiative is to create a single standard for rating the sustainability performance of companies.

"The goal is to develop a set of guidelines for independent rating agents focusing on capital markets, with an eye toward trying to understand sustainability performance," he said. "The rating methodology developed over the next five years will take authentic, rigorous measurement into account in ways that GRI does not."

Anticipating the GRI's current revision of its framework, McElroy was also instrumental in forming the Sustainability Context Group, consisting of almost 100 thought leaders from the fields of academia, sustainable investment consultancy and corporate sustainability management. The members are "concerned about how the issue of sustainability context is not being enforced by GRI, nor fully explained in the current standard," he said. The group will present a formal statement to the GRI by the end of this month.

McElroy is calling on the sustainable investment industry to take up the cause of context-based sustainability. "To my knowledge, there aren't any sustainable investment organizations that are using context-based metrics at all," he said. "The opportunity for that in the capital markets is enormous. I'd like to see the sustainable investment world become more involved in cutting-edge thinking on this topic."