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How momentum grew this year towards making sustainable development a common framework for companies
Earlier this year, in its fifth annual monitoring and analysis of S&P 500 Index company reporting, the Governance and Accountability institute found that 81% of the companies included published a sustainability or corporate responsibility report in 2015.Sustainability reporting has been gathering speed and momentum: in 2011, the figure was less than 20%.
The Global Reporting Initiative (GRI), which provides the world’s most widely used standards on sustainability reporting and disclosure, says 92% of the G250 (the world’s largest 250 corporations) now report on their sustainability performance.
A number of established organisations, initiatives and frameworks exist to support and enable effective reporting, including CDP, the UN global compact (UNGC), the World Business Council for sustainable development and the Sustainability Accounting Standards Board (SASB). However, for the private sector to be able to align itself with the 2030 sustainable development agenda, an over-arching, common framework is needed.
At the start of 2016, the World Economic UNGC Forum saw the launch of the business and sustainable development commission (BSDC). Its proposition: “Businesses that join global efforts to end extreme poverty and protect the planet’s finite natural resources can reap great rewards and protect their long-term performance.”
The BSDC’s mission is to make the case for why business leaders should seize upon sustainable development as the “greatest opportunity of a lifetime” and to demonstrate how the sustainable development goals (SDGs) provide the private sector with a framework for achieving this market shift.
The SDGs are set to transform corporate reporting, but it is a transformation that is likely to develop slowly. Adopted by UN resolution in September 2015, the SDGs are radical in their scope and ambition, articulating the interrelationships between social and environmental priorities. One of the most striking aspects of the goals is their universality: they apply to all countries and segments of society, including business.
“The SDGs lay out a significant role for business,” says Eric Hespenheide, the GRI’s interim chief executive. “This is new and of critical importance because we know that without concerted effort by the private sector, we will exhaust the resources that drive our economies and create prosperity for us all.”
Business strategy and SDGs
The 17 SDGs and their 169 targets allow companies to align their business activities with the goals, in a concrete way. “The SDGs present businesses with an excellent opportunity to get a better grip on their responsibilities,” says Hespenheide. “They provide a framework for the alignment of actions that collectively can help create the conditions necessary for sustainable development.”
It is in the interests of business to adopt the SDGs as a framework for reporting. As Malcolm Preston, global sustainability leader at PwC, told Ethical Corporation back in July: “As the governments of the world attempt to implement the SDGs, they will most certainly use levers such as subsidies, fines, regulations and taxes. If you don’t understand whether you are helping a country achieve its goals or hindering that country, you have no idea what that regulatory horizon will look like.”
In his speech at the Ethical Corporation Responsible Business Summit in June, PwC’s Preston said that aligning business strategy with the SDGs was not just about reducing risk; it was also about achieving competitive advantage.
Analysis undertaken earlier this year by Ethical Corporation into 21 CSR and sustainability reports showed that Ericsson, SABMiller, ARM and IKEA Group have so far done the most in terms of integrating the SDGs into their reporting.
“The SDGs provide a framework to move towards a more equal and sustainable world,” says Camilla Ohlsson, IKEA Group’s strategic communicator in group sustainability. “[They] should guide and inspire companies, not be seen as a box-ticking exercise.” However, she points out that many businesses still struggle to know what is the most relevant data to present in relation to the SDGs in their reporting.
But things are changing. At the UN Private Sector Forum in September, GRI and the UNGC launched SDG Leadership through Reporting, a new initiative to promote and advance corporate reporting on the SDGs.The two organisations will work together to develop a list of disclosures for tracking business contributions to the SDGs and will release a publication on SDG reporting.
The collaboration is aimed, says Hespenheide, at making SDG reporting accessible to all businesses, in particular SMEs. “We currently do not have appropriate means for measuring business contributions to all of the SDGs,” he says.
Another recent development is the GRI sustainability reporting standards (GRI Standards), the first-ever global standard for sustainability reporting. Rather than merely providing guidance, the progression to standard means GRI’s reporting framework will be even more appropriate for businesses to use in the context of the SDGs.
“This will support responsible business practices through disclosure for thousands of organisations around the world,” said Lise Kingo, executive director of UNGC. Paul Druckman, CEO of the International Integrated Reporting Council, commented: “A company’s natural and social capital provide an integral indication of its future success and past performance. The GRI standards will ensure companies are able to report on their holistic performance, including in an integrated report.”
Human rights challenge
When it comes to the environment, sustainability reporting is fairly straightforward, but effective disclosure on thornier subjects, such as human rights, is more complicated. “Environmental data is, for the most part, numbers – it’s easy,” Joe Jones, principal sustainability consultant of SustainIT, told delegates to Ethical Corporation’s CR Reporting and Communications Summit in October. “When you start talking about qualitative rather than quantitative data, it’s much harder to talk about that authentically as the data doesn’t lend itself to easy analysis.”
The UK Modern Slavery Act requires any company with a financial year ending on or after 31 March 2016 to publish a report on their efforts to prevent human trafficking and forced labour, while a new EU directive on non-financial reporting comes into force in 2017 that will expand the existing reporting rules to cover a range of ESG matters, human rights included.
This month, GRI and Centro Vincular-PUCV published a report titled Shining a light on human rights disclosure, a study of 464 sustainability reports published in 2015. It analyses how companies in the mining, energy and financial services sectors are reporting on their human rights performances. Results were mixed. Despite 87% of the 30 companies involved identifying human rights as a material issue, just 57% have human rights policies in place.
The study also revealed low reporting levels for specific disclosures on human rights across all three sectors (29%, 34% and 35% for financial, energy and mining, respectively), and just 30% of companies report on human rights impacts in their supply chains. On the positive side, from the qualitative study, 82% of the mining sector and 76% of the energy sector report on health and safety topics.
While corporate reporting on sustainability has come a long way, investors and customers are no longer prepared to accept greenwash, meaning companies need to provide evidence that they are embedding sustainability principles into their day-to-day operations. The SASB’s first annual state of disclosure report, published this month, reviewed and analysed current sustainability disclosures from hundreds of SEC filings across every major industry.
On the surface, their findings that 81% of all disclosures show some level of sustainability disclosure is encouraging, in that it indicates recognition of the material impact of sustainability to their business. However, fewer than 24% of these disclosures contain metrics and more than 53% use boiler plate language, demonstrating that many companies take a minimally compliant approach to sustainability disclosure.
“Companies must improve the quality of these disclosures to improve their usefulness in investment decision-making,” says the SASB.
As GRI concluded in its December study, it’s clear that the journey towards full transparency is a long one. “It’s still early days and many businesses are still integrating the SDGs into their sustainability reporting,” says Hespenheide. Nevertheless, there are some pioneering efforts by companies in GRI’s GOLD Community: Enel, CEMEX, CLP and Banco Galicia to name a few. “We expect that more and more companies will begin reporting against the SDGs in the years to come,” he says.
This is issue 8 of our top 10 issues that shaped sustainability in 2016. To see the full list, click here.SDGs GRI SASB Ikea sustainability reporting