A Year in Sustainability (2014) - A collection of short pieces on trends and developments in sustainability published by Paul Davies
The following is a collection of short articles I published on trends and developments in sustainability in the past year.
Are we about to murder ISO 26000?
Over the past 25 years, we have witnessed a revolution of thinking around societal obligations, accountability, shared responsibility, trust and what we as a society want and rightfully expect around the behaviour of business. The appearance of ISO 26000 has aligned with this shift in expectations; it seeks to provide conceptual guidance for the development of approaches and new models of organisational governance, sustainability, transparency and inclusiveness that support sustainable development and address the interests of stakeholders.
ISO 26000 is about to undergo its first revision since it was first published four years ago, and more than a decade after its conception. What could be the impact of this revision on a unique and pioneering standard in social responsibility and sustainability?
Guidance rather than requirements
The idea of âconceptual guidanceâ is what sets ISO 26000 apart from other, more familiar ISO standards. ISO 26000 is not a technical or a management standard, or even a framework for delivering social responsibility, nor is it focussed on corporations per se. It is not meant to be prescriptive or to specify; rather it is meant to encourage and guide the thinking, conceptualising, facilitating and enabling of organisations in understanding their role in relation to social responsibility[1] and how that in turn affects sustainable development.
In its current form ISO 26000 doesnât set specific requirements, but rather relies on recommendations, guidance and context. It currently does not lend itself to certification by second or third-parties (although some opportunistic organisations have already incorrectly and quite wrongly issued ISO 26000 âcertificatesâ). Its global uptake since 2010 has been difficult to measure, partly because ISO 26000 isnât a certification standard and therefore does not leave a distinct footprint from organisations that have embraced or adopted all or part of it.
The ISO 26000 revision process
The first edition effectively took eight years to complete â a long gestation period that reflects not only ISOâs efforts at having a truly inclusive multi-stakeholder development process, but also the sheer challenge of developing a presentable guide that tries to capture, condense and streamline in a digestible form the concepts and implementation of social responsibility. By some accounts the ISO 26000 development process was quite lively, with clashes in views occurring on a regular and vociferous basis amongst the members of the 450-strong working group (somehow â450â and âworking groupâ struggle to stay in the same sentence).Â
ISO standards are typically reviewed on a three-to-five-year cycle; the next review of ISO 26000 was scheduled for 2013, and the process has been initiated in several countries, including Australia, with initial inputs facilitated by national standards bodies such as Standards Australia. The review itself, whilst timely, needs to ensure that some of the key innovations in the development and application of ISO 26000 are preserved, in particular:
ISO 26000 needs to be able to continue to evolve and take account of ânew and emergentâ thinking and frameworks, rather than to seek to âlock in current thinkingâ and concepts;
ISO 26000 should not be âstraight-jacketedâ into a prescriptive âmanagement systemâ style standard that sets hard criteria for what constitutes social responsibility or how that is to be implemented within an organisation; and
ISO 26000 should remain in the form of a ânon-certifiable standardâ so as to avoid the likely consequences of certification de-railing the intent and value of it, and in doing so also potentially retarding the momentum around social responsibility and sustainable development.
Letâs now consider each of these in turn.
The need for ISO 26000 to continually evolve and take account of new and emergent thinking
In the dozen years since ISO 26000 was first conceived there has been significant thinking, discussion and evolution around concepts of social responsibility, sustainability, shared value, social return on investment, frameworks of accountability, corporate governance, ethics and non-financial assurance, to name a few. There is no reason to think this will slow down any time soon. We are still in the midst of defining issues that underpin social responsibility and sustainable development, both in the developed and the developing world. We have had a least one major ethical crisis masquerading as a financial crisis. And we continue to be confounded by the inability of governments and corporates to stem the tide of major, and quite public, governance failures. Â
To me the true strength of a âguidanceâ style standard is the elasticity it offers to capture, consider, reflect and promulgate new and emergent thinking, rather than institutionalise current thinking in a prescriptive or dogmatic framework. I have previously worked with an ISO âguidanceâ document in the field of best practice in testing and calibration (ISO Guide 25) for more than a decade before it became an ISO standard (ISO/IEC 17025). The guidance document was highly effective for users in the marketplace to implement best practice and at the same time it retained the flexibility to evolve and mature as the industry thinking evolved and matured. The result I think was a much better, more considered and more robust âstandardâ in the long run, a key point that should be considered in the current revision of ISO 26000. Â
A prescriptive âmanagement systemâ style standard wonât work for ISO 26000
Before taking this point further, I want to be clear that I am not anti-management system standards. I have worked at a senior level in standards and certification for a national industry body for the best part of 20 years and have seen the birth and widespread adoption of two of the best known series of management standards in use today â ISO 9000 and ISO 14001. Whilst their benefits to many organisations are evident, I have also seen how they can be inappropriately applied and misused in the marketplace. I am also cognisant of research findings that question the causal relationship between management system implementation and improvements in organisational performance.
But quite apart from this, is ISO 26000 an appropriate candidate to become a management standard? From a practical sense right now, my answer is no.  The absence of any requirements in ISO 26000 means it is impossible for an organisation to be certified against it, as conformity cannot be established. More importantly, from a âvalue-addingâ perspective, it is an even bigger NO from me. It is simply too soon in the life of this standard and the thinking that is still evolving around social responsibility and sustainable development, to start locking in requirements to âmanageâ social responsibility in order to realise sustainable development. As Adrian Henriques points out in his review of ISO 26000 and sustainable development, âIt is not clear whether, if ISO 26000 had been a management system standard, this would have led to greater social responsibility and better sustainable development outcomes.â[2] To try and recast the intent of ISO 26000 as a management âtick-the-box exerciseâ is to strangle it, both from the point of view of enabling further substantive development of its fundamentals, and in enabling organisations to interpret and apply its content to their own unique context.
A sure way to kill off the intent and potential of ISO 26000 is to certify against it.
Over the last 25 years, we seem to have fallen victim to a mindset that says unless we can capture current thinking, emerging concepts and best practice as explicit management requirements, and then independently establish compliance to those requirements, the approach lacks legitimacy amongst users and value in the marketplace. We seem to feel uncomfortable with the notion that standards can be stimulants for innovation rather than being used solely as a means of cementing currently accepted approaches and practices in place. I fully recognise that there is market demand for a certifiable equivalent of ISO 26000, but demanding something does not legitimise it.
Back in the 90s, the market demand for ISO 9000 was as much driven by corporate marketing departments and board rooms wanting the âISO 9000 badgeâ as it was by managers wanting to improve their quality management systems. Suddenly a process for enhancing the management of an asset such as quality was being misused as a product certification label, or to claim that the company itself was a âquality organisationâ.  Stakeholders, such as purchasers and investors, were in many cases being misled or misguided about how to interpret ISO 9000 certification. Many âcertifiersâ quickly jumped on the bandwagon to get a slice of a very large and lucrative quality âcertificationâ pie, which not only added little to the value of ISO 9000, but probably degraded its true worth in the eyes of many users.
Should we now risk a repeat performance of that same scenario twenty years later with ISO 26000? What would the market make of âISO 26000 certificationâ? Would a company that became certified to the standard believe that they have fulfilled all the requirements of a socially responsible and sustainable organisation? Would customers, employees, investors, suppliers and regulators similarly believe that ISO 26000 certification equates to a high performing, best practice, trustworthy, caring entity that does no harm. What would marketing and corporate communications departments do to âpackageâ and âdumb downâ ISO 26000 certification as they so ably did with ISO 9000 certification two decades ago?Â
Most of all, what would wider society make of something that says to business âyouâve ticked all the boxes in social responsibility, youâre certified - so feel good, stop trying and focus your energies now on something more important âŠâ.  To some degree the erosion of ISO 26000 by âcertificationâ has already started, even though ISO and others have made it clear where they stand on certifying against this standard. Certifiers and consultants can be an inventive lot, and they will no doubt lobby for certification largely as an income source. Even if ISO 26000 remains in the guidance realm, expect to see certificates on some company walls claiming theyâre now certified âsocial championsâ or âsustainability leadersâ.Â
The revision of ISO 26000 is much more important than just what might happen to the standard itself. Get it right and the benefits of an innovative, evolving and supportive standard will continue. Get it wrong and we may well not only murder something yet to deliver to its full potential, but do significantly wider harm to the credibility and legitimacy of what it means for an organisation to be socially responsible.
[1] ISO 26000 goes beyond just addressing social issues to also dealing with environmental, governance and economic responsibilities â that is, sustainable behaviour more broadly.
[2] ISO 26000 and sustainable development; Standards for change? Adrian Henriques â 2012
Sustainability reporting - getting that elusive return on investment
It may surprise you to know that at least some of our clients who do sustainability reporting[1] believe that the report itself isnât the primary outcome. Whilst the report is the tangible objective (in some ways the âeasily identifiableâ goal), the primary benefits they receive from reporting are what the process itself delivers to the business, and the opportunities it provides to help them move their sustainability agenda forward.
So why do some reporters recognise this and others donât? Why do some organisations grind away on their reports year after year, feeling like reporting is a treadmill that doesnât advance their management of, or performance around, sustainable outcomes? How can reporting be leveraged within business so the publication of the report isnât the end of the process, but rather a means to an end?
What happens when preparing a sustainability report?
When you break down best practice reporting into its fundamental components, distinct processes are evident that involve consultation, information collection, decisions, data aggregation, cross checking, goal setting, approval and distribution. These processes can be categorised into steps that are familiar to many reporters â stakeholder engagement, materiality, report development, review, (possibly assurance), and finally publication. The following article looks at each of these steps and how they can be leveraged by your organisation to advance your sustainability agenda and hopefully benefit other business functions at the same time.
Inclusiveness is increasingly being recognised as not only a desirable trait of organisations, but an expected behaviour. Stakeholder engagement on its own is not inclusiveness, as many believe. Inclusiveness is more than just asking your internal and external stakeholders whatâs on their mind, or whatâs annoying them about your organisation. Itâs about looking to involve them in anticipating the future, identifying emerging issues, asking if they are interested in helping to identify solutions or, in fact, to be part of the solution â in other words, it is looking to establish a working relationship rather than a conversation.Â
Stakeholder consultation in reporting creates the opportunity to consider, on a systematic basis, who your stakeholders really are, how they have changed in the recent past, how their expectations of the business shifted, and how they have reacted to what your organisation has delivered over the last year. Reporting provides both a regular prompt and a legitimate reason (if you need one) to engage stakeholders across a range of issues and to offer them the opportunity to contribute their knowledge of particular (and often complex) issues in the outside world to benefit your strategy development, planning and response management.    In 25 years of engaging stakeholders around reporting I have rarely heard a stakeholder complain that it is a waste of their (or the businessâ) time, or been asked âwhy are you coming to me nowâ, which so often happens when organisations apply a reactive, rather than a proactive, stakeholder engagement model.
Those of you who have read my other articles on materiality[2] may wish to skip this section, as I remain unashamedly enthusiastic (almost evangelical) about the power and potential of this process, over and above its role in reporting.
Materiality is the key link between stakeholder inclusivity and organisational accountability. Many organisations focus on applying materiality just to their reports, which is not wrong but does restrict its potential to fully benefit the business. Materiality is typically siloed in one particular part of the organisation with limited penetration into other areas, as itâs still seen largely as a reporting tool. Yet materiality actually has more in common with organisational processes such as strategy development, risk management and business planning than it does with reporting. Materiality can be applied across the organisation where there is a need to cut through the clutter and uncover opportunities and risks. It has the added benefit of bringing an external perspective on issues and performance, something not typically inherent in internal planning and risk management processes. When taken beyond reporting to help assess how well management decision-making and response processes are working, materiality really does deliver on its potential. Â
There are any number of ways to approach developing your report. Some are passive, objective-driven and largely restricted to sustainability managers and/or corporate communications teams. These usually have a singular goal of getting the report done as quickly and efficiently as possible, with minimal investment and fuss, published and consigned to websites and library shelves. Job done, next!
At the other end of the spectrum, and still very uncommon in our experience, is using the report development process as a unique opportunity to collect, consolidate and compare quite disparate performance data, look for trends and patterns in that data, assess the relevance of that information to your organisation and its stakeholders in terms of its materiality, and realise that this is the opportunity, once a year, to look at a dashboard of sustainability-related data and see if and how it fits together. Â A lot of this thinking needs to be done for the report itself but we often see that, once the report is completed, this information and effort gets put aside and âforgottenâ. If you are subsequently developing or revising your business sustainability strategy, re-evaluating your risk management, or setting short and long term goals for the business, this information already captured in the report offers the chance to holistically re-examine and reflect on recent organisational performance, and decide what areas need more attention or resources in the coming year. Again, itâs about extracting that extra return on investment.
As noted above, your sustainability report offers you the opportunity to develop and publicly commit to meaningful sustainability targets designed to lift the organisationâs game around its material performance issues. Being prepared to set and disclose clear and unambiguous targets for your reporting is a powerful tool for sustainability managers and teams to get traction for change within the organisation. Stakeholders are also looking for clear public commitments to change, and expect organisations to have a transparent agenda to try and improve in the areas that matter to them.
By using the reporting process to identify, craft and publicly disclose well-considered sustainability goals not only sends a message to your stakeholders that you take improvement seriously, it also encourages a stronger internal focus on delivery against those targets and thus increases the likelihood that your organisation will actually improve in those areas.
Assurance (and GRI compliance)
As with the report itself, assurance and GRI compliance are simply a means to an end, rather than an end in themselves (as many of us can be lured into believing). If you are developing your report to satisfy the GRI or the assurers, then you may want to rethink why you are reporting in the first place.
The good news is that the effort to both produce a GRI compliant report and to prepare for, and undergo, assurance has the potential to significantly enhance your business practices. Both processes bring additional discipline to reporting and record keeping around data collection, completeness, traceability, reliability and accuracy. In addition, the information gleaned from assurance can be used not only to build public confidence in your report, but also to reinforce stakeholder confidence in the organisation, to identify improvement opportunities in your reporting processes, and to encourage change within your business around systems and management.
Beyond the final assurance statement, the assurance process can (or should) deliver meaningful recommendations to the organisationâs leadership team or senior management to enhance organisational accountability, management or performance. The work and effort needed to deliver the assurance statement simultaneously unpacks much about the underlying systems and processes that generate data, monitor performance, set targets and performance indicators, and manage risk.
I would estimate, purely on intuition, that probably 70% to 80% of the reports I have helped write as a consultant, or evaluate as an assurance provider, get printed and distributed, or published on websites, and then are largely forgotten by the organisation. They may get registered on the GRI database or on Corporate Register, or get a media launch, but their usefulness beyond publication rapidly diminishes over time.Â
The time, intellectual and human resource investment in the report goes well beyond its actual monetary budget. In many ways this is the saddest aspect of the whole process in terms of return on investment. If this were any other company product, some serious questions would be asked about its value to the business.Â
The usefulness of a sustainability report should not end with its publication. Its materiality outcomes and performance targets should be circulated within management or the board for review, discussion and integration. Its content (which, after all, is key information about the performance of the business in terms of its governance, economic, social and environmental responsibility) should be discussed at stakeholder forums and shareholder meetings. It should be included in the welcome kit for new (and prospective) employees. Its key findings should become a core part of investor information packs, given the trend for investors, risk assessors and financial advisers to now look beyond the financial disclosures.
The opportunities to leverage the content of sustainability reports to add value to the business only needs some creative thinking and commitment to realise. Surely thatâs got to be worth the effort.
[1] âSustainability reportingâ in this article should be considered synonymous with triple bottom line, CR, CSR, ESG and some forms of âintegratedâ reporting.
[2] eg. Materiality â unlocking its potential for reporting and business improvement; Three ways to stop your sustainability report becoming a taxi driver conversation; The Step up to G4.
To boldly go where no sustainability strategy has gone beforeâŠâŠ
With apologies to Captain Kirk, it would be fair to say that supply chains are one of the final frontiers for many corporate, government and not-for-profit sustainability strategies. Having expended thinking, time and resources on tidying up in-house practices in relation to responsible and accountable performance, the supply chain âskeleton in the closetâ is one that for many organisations is a door too confronting to open (or at least open too wide). To keep the idioms rolling, supply chains in terms of sustainability are seen by many otherwise responsible organisations as a bridge too far, a can of worms or even a house of horrors. They can seem unbounded, outside of direct control and likely filled with untoward practices that become the favourite fodder of current affairs shows and Greenpeace documentaries. But that doesnât mean that companies can simply close that door and hope for the best.Â
Over the past two decades, many iconic companies that have publicly professed to be leading practitioners of responsible behaviour have then been nailed to the wall over their ignorance, complacency or naiveté around what is happening in their supply chains. Banarra has witnessed some of the underlying causes of this over the past decade; such as:
A narrow interpretation of the boundaries around sustainability, accountability and organisational risk;
A limited awareness of which suppliers represent the highest risks in terms of sector, location and product/service;
Risk management systems that struggle to acknowledge or deal with sustainability-related reputational risk in supply chains; and
Sustainability managers/departments that sit in isolation to other managers and departments within the very same company that are dealing with risk and procurement. Â
There are some fundamental questions that businesses need to be asking of themselves so the efforts they make to address risk and encourage sustainable practices within their supply chain are well focused and meaningful, rather than futile and wasteful âwindow dressingâ. These questions include:
What are we really asking of our suppliers?
How should we design and then test our approach?
While there are no generic answers to these, I can offer some thinking to help contextualise such questions so that you can start considering the best way forward. The following reflections are based on Banarraâs extensive involvement in supply chain sustainability over almost a decade. We have helped design, evaluate and deliver supplier sustainability approaches to companies across a range of sectors from financial to retail, and many in between. We have delivered supply chain strategies, labour practice workshops, Sedex training, and other supply chain aspects. My involvement has been primarily to help companies develop and implement policies to encourage sustainable supplier practices, writing supplier codes of conduct, and designing and delivering supplier audit programs. My comments below are based on what those experiences have taught me.
What are we really asking of our suppliers?
What are we trying to do and why?Â
Many supplier programs are vague about their intended goals for the company and desired outcomes for the suppliers; ending up unfocussed, expensive and lacking performance measures. Are you trying to manage real risk in your supply chain or sending a message to the market about your commitment to responsible business behaviour?
Being clear on this helps you to decide whether you should be going down a âcomplianceâ style approach setting minimum acceptable standards of supplier performance, or an âencouragementâ based approach supporting suppliers to progressively change their behaviour, and go beyond compliance. If it is be more compliance focused, will your approach be punitive (comply or else) or more one of âgentlyâ raising the bar over time (recognising your likely limited resources and that of your suppliers)? If youâre looking to be âsupportiveâ, what are you prepared (and resourced) to do for suppliers by way of helping them? Â
Do as we say, or do as we do?
If you are going down the âcomplianceâ route, you may be putting your credibility on the line. âDo as we doâ, rather than âdo as we sayâ should always underpin such an approach â firstly by checking and demonstrating that your own house is in order on the social, environmental and governance performance areas that youâre expecting suppliers to meet in order to avoid a classic and often highly visible double standard. If there are significant shortcomings in your own sustainability performance, you have two choices: wait until your own act is together before demanding compliance from your suppliers, or transparently acknowledge to your suppliers that your business still has work to do to lift its sustainability game, and encourage them to work with you to improve outcomes.Â
Identify the breadth or focus of your approach
A successful approach is predicated on tying together program intent, available resources and risk evaluation. Are you intending to engage your whole supply chain? Should your focus be primarily on your high spend, first tier suppliers, or on suppliers operating in particularly high risk sectors (e.g. clothing, contracting, etc.) or in geographical regions known for poor labour, governance, safety or environmental standards? It is worth identifying what information currently resides in your procurement department about supplier performance that can help identify higher risk or habitually poorly performing suppliers. If supplier risk information is lacking, then your top 10 or 20 suppliers by spend may be a useful starting point.Â
Supplier sustainability schemes can be overly ambitious in what they are trying to achieve. Several years back I read with interest a major bankâs elaborate plans to launch a sustainable supply chain program involving multiple supplier audits in the first year. By the end of year one, they announced a grand total of one supplier had been audited (from the tone of their report I donât think they quite understood the actual message that outcome sent to the market). Most, if not all, companies have to rationalise their program scope and intent with their available resources, so donât try to do it all at once.
Align and marshal your forces
Many organisations make the mistake of running supplier sustainability programs as a solo exercise out of their sustainability departments. To get the best possible outcomes you need to engage both your risk function and your procurement team in the development of the approach, including where to target the program and how it will be delivered. You will also likely benefit from the public endorsement of your Board or senior executive to give it the legitimacy it needs to be taken seriously both internally and externally. Â
Get your corporate communications team on board to align and promote the program with other corporate initiatives and help you craft a clear and unambiguous message to suppliers about what you are planning to do, when and why. Suppliers will no doubt have questions about this, so be prepared to respond to them in a coordinated, consistent manner across the business.
How should we design and then test our approach?
Engage your internal and external stakeholders in designing the approach
Trying to design a supplier program in isolation from those who will use it (internal stakeholders) and those who will be subject to it (suppliers) is not particularly smart. Sustainable supplier policies, supplier codes of conduct, supplier questionnaires, and supplier audit models all need to be considered from both the user and the recipient point of view. Getting them engaged not only provides invaluable feedback on aspects such as relevancy of criteria, affordability, practicality and integration but also creates buy-in to the process on both sides. Suppliers should have a say in what you are asking of them. There is, for many suppliers, a high degree of discomfort with what can be perceived as a client essentially imposing their values and principles on them. To then be held to account for something they had little or no say in developing can be particularly challenging for them.
Run a pilot and assess the results
To be successful, all the elements of your supply chain sustainability program need to integrate seamlessly. For example; your policy, code of conduct, audit tools and audit approach all need to be consistent and complete before you can confidently roll out the program across your chosen suppliers. The only way to gain this confidence is to test them in a controlled, contained and âsafeâ manner. Running a pilot amongst a select group of suppliers or within one particular procurement area provides such an opportunity to demonstrate what works and what doesnât.Â
I would also urge you to consider piloting a range of different models of auditing if you are heading down the supplier performance verification route. Supplier audit programs are a trade-off between adequate coverage of your supplier base versus sufficient evidence-gathering so as to minimise risk. âLight touchâ audit approaches (usually largely desktop review-based) are relatively cheap and cheerful but are barely worth the money they cost. In many cases they are worse than no audit at all as they run a significant risk of creating a false sense of security and comfort for you about your suppliers. Some sort of onsite verification is usually essential, given our experience that suppliers are highly variable in relation to the âaccuracyâ of their responses to questionnaires.
But âonsiteâ doesnât necessarily mean expensive. We have trialled a range of models for major banks that retain some onsite component, but vary the size of that according to supplier risk, size, location, complexity and past performance. You may want to have a âlighterâ touch model for your low risk or low spend suppliers, but at the same time retain something significantly more intensive (and therefore more cost and time demanding) for high risk, high spend, major suppliers.Â
Be prepared to change your approach if it isnât delivering the outcomes and confidence you need. There is little doubt that your process will (and needs to) evolve over time as you gain more experience, or take it offshore, or commence second round audits of suppliers. And do continue to seek input from your suppliers, both during and well beyond the pilot phase, to determine whether they are truly gaining some benefits too. Bringing suppliers together to compare experiences with your approach can be a useful exercise, but be prepared for a range of views and be willing to respond to that feedback.
You are not likely to see substantive change overnight in terms of sustainable supplier behaviour. Many of your suppliers, even some of the smaller ones, are probably doing okay from a sustainability perspective already, and may even be doing better than your company. Itâs the laggards that youâre most trying to reach, assess, influence or remove.Â
Be smart about not painting all suppliers with the one brush. Acknowledge and reward good supplier performance more often than berating those who fall short. Celebrate and promote their achievements to their peers in your supply chain â a particularly effective means to stimulate a response. A PwC survey last year revealed that 81 per cent of businesses who rate sustainability as important favour collaborating with their suppliers to create a responsible supply chain footprint and procurement framework.Â
The skeleton doesnât have to stay in the closet. Or at least check that both the skeleton and the closet were made sustainably.
Squeezing the value out of that shiny new sustainability report
I would estimate, purely on intuition, that probably 70% to 80% of the reports I have helped write as a consultant or evaluate as an assurance provider, get printed and distributed, or published on websites, and then largely forgotten by the organisation and their stakeholders. They may get registered on the Global Reporting Initiative (GRI) database or on Corporate Register, or get a quick internal launch, but their usefulness beyond publication rapidly diminishes over time.Â
The time, intellectual and human resource investment in producing the report goes well beyond its actual monetary budget. When we, as a small consultancy, recently costed our own sustainability report using these investment parameters, the actual dollar figure was somewhat confronting. I suspect that if many organisations were to evaluate their own report from an ROI perspective, just as they do with their other products and services, some serious questions would be asked about its value to the business.Â
The returns to the business of your sustainability report mainly happen after its publication. Therefore instead of just planning to create your report you need to start planning to use your report. Planning its use will help determine the shape and format of your report. Why produce something in a printed format that is then prohibitively expensive to circulate to your key stakeholders? Why park the report somewhere on your website hoping it will be discovered seventy five clicks down into your indexing system?Â
Your reportâs intent and content can be leveraged internally and externally to achieve a better return on investment. Here are some points you may wish to consider in squeezing that extra value out of your next report.
A best practice sustainability report, at its simplest, should be about identifying and responding to the organisationâs most material issues. If you have applied a materiality process to shape the content of your report then the outputs of that process (the material issues) are a rich source of information for other business management processes such as strategy development, risk management and business planning. Materiality actually has more in common with these organisational processes than it does with reporting.
Not just the outcomes, but the process of materiality itself can be applied beyond reporting, wherever there is a need to process and distil a diverse range of internal and external inputs to identify key business opportunities and risks. The additional external perspective which materiality provides on issues and performance complements internal planning and risk management processes. It can also help assess how well management decision-making and business response processes are working, by tracking the relative importance of material issues over specific time periods. Â
Sustainability reporting also provides a unique opportunity to develop and publicly commit to meaningful sustainability targets designed to lift the organisationâs performance around its material issues. If you are prepared to set and disclose clear and unambiguous targets for your reporting it acts as a powerful tool to gain traction on key issues within the organisation. Performance targets should be circulated within management or the board for review, discussion and integration. Your stakeholders are looking for clear public commitments to change, and expect your organisation to have a transparent agenda in responding to those targets you have identified in your report. This encourages a stronger internal focus on delivery against those targets and thus increases the likelihood that your organisation will actually improve in those areas.
Done properly, your completed report will contain key information about your organisationâs performance in relation to governance, economic, social and environmental responsibility. This is the very information that investors, fund managers, financial advisers, customers, employees and others are now saying (and even demanding) they want more of. The available evidence suggests that such information is helping to drive better decision-making among stakeholders as it moves beyond the one dimensional, short term and (for many) barely digestible information that plagues traditional financial reports.
Your completed report should be:
promoted and discussed at stakeholder forums and shareholder meetings. Its key findings should become a core part of investor information packs, given the trend for investors, risk assessors and financial advisers to now look beyond the usual financial disclosures.
included in your welcome kit for new (and prospective) employees. A law firm we have worked for has done much in using their sustainability report to attract the kind of employees they want at their firm. They take their reports along to information days for new graduates and use it as a point of differentiation for an increasingly sophisticated graduate market, many of whom look well beyond the immediate remuneration and tangible benefits to the intangibles of culture, values, work-life balance and gender equality. Their report addresses all those aspects and more and is ready made for such use.Â
woven into the fabric of your organisationâs corporate communications plan for the coming year. Many of your other stakeholders likely want to be informed or engaged on your non-financial performance. Â
promoted to your clients. We are seeing suppliers under increasing scrutiny from their clients around sustainable practices, particularly in areas such as labour practices, governance and environment. Having a report at hand that can be provided to your existing and potential clients when tendering for new work is increasingly important and becomes an asset for positioning your firm in the market. It can also save you a lot of time filling out supplier questionnaires too.
To use a well-worn phrase, none of this is rocket science, but then again it doesnât happen as often as it should. Is the publication of your report currently seen as the culmination of your effort? If so, thatâs a real shame as itâs somewhat equivalent to buying a new car that never leaves your garage. Â
There needs to be a thoughtful, planned, proactive effort to get your report out in front of your internal and external stakeholders, to have key information in it extracted and integrated into other internal management systems and external communications and marketing. If that sounds like too much effort then spare a thought for the energy, time and money  you just expended pulling all that information together only to have it gathering dust on the corporate bookshelf.Â
Sustainability â is it really moving from novelty to normative?
Caution is needed when surveying the uptake of sustainable practices in business
McKinsey has recently published the results of its latest Global Survey on the strategic worth of sustainability to business.[1] Itâs an interesting read, offering both hope and cause for concern, and in many cases raising more questions than it answers. Its bottom line is that business executives see sustainability as increasingly important for their business. Yet it also finds that many companies have a long way to go to realise all the value-adding opportunities of their sustainability endeavours.
In reviewing the outcomes of this or any such survey on sustainability as a business enhancer, a number of questions spring to mind that temper how we understand and interpret such findings. There is value in these surveys as indicators of trends but there are also risks in reading too much into the findings and accepting them on face value. The overall conclusions of the survey are based on questions and responses that are nuanced by a number of considerations, which Iâve touched on below.
When we use the term âsustainabilityâ what are we really talking about?
One of the fundamental challenges in running a survey like that of McKinsey is the subject matter itself, in terms of a common understanding amongst responders of what we mean by âsustainabilityâ. Even when a survey such as this provides a definition of the term, over the past 25 years there has been intense debate and a high degree of frustration on nailing the meaning of âsustainabilityâ. A quick online review indicates that there are now hundreds of diverse definitions of sustainability, further confounded by the highly interchangeable and undisciplined use of related concepts such as triple bottom line, ESG, CSR, corporate responsibility, corporate citizenship, shared value and so on. Sustainability is a term much bandied about in business circles, yet with such little common agreement on definition that it effectively undermine the clarity of the responses.
In many ways, sustainability grew out of environment movement of the 90s, and still wears the environmental âcloakâ in many sectors of industry. So the persistence of thinking evident amongst a large number of our own clients that sustainability âis mainly about the environmentâ is not surprising.  For many businesses and industries, âenvironmentâ is a relatively straightforward, familiar, measurable expression of responsible business practice. Whilst this thinking is not âwrongâ it does restrict understanding and appreciation that âsustainabilityâ can and should embrace other business performance areas as well. Outside of âenvironmentâ, other aspects of âsustainable business behaviourâ are struggling to gain serious attention, particularly in areas such as human rights, supply chain, community investment, governance and ethics.
Surveys aside, it is worth considering whether common agreement (or lack thereof) on the meaning of sustainability has enhanced or retarded its uptake by business. One might argue that the very flexibility of the term has been important to enable the idea of sustainability to evolve and take root in companies. Yet logic would suggest that trying to implement an idea that defies a precise (or at least a commonly accepted) definition would be a barrier to its pursuit by business. The related consideration is whether businesses see sustainability as an end in itself (i.e. a goal), or as a âmeans to an endâ (i.e. a process), and if so, what end are we talking about? When are you actually âsustainableâ?
If youâre trying to be sustainable, do the reasons matter?
The McKinsey survey results also indicate that corporate leaders and executives are ârallying behind sustainabilityâ but that many still do so for reasons of managing company reputation, believing this has the greatest potential value-add for their business. Reputation management, and brand protection, have long been seen as key to maintaining and enhancing business value. Given that many companiesâ market value is now vested much more in their brand than in their assets, it makes absolute sense to pursue business objectives that achieve this outcome. But is sustainability, at its core, mainly about creating value for the company? Iâm completely on-board with the need to justify the business case to expend time, resources and effort on any corporate initiative, but sustainability has never just been about adding value to the company.
The problem I have with reputation as the key business driver to be sustainable is that its skews the field in regard to what get prioritised in the companyâs sustainability strategy or agenda. If you consider a strategic approach to sustainability to be about identifying, prioritising and responding to key opportunities and challenges for the business in managing its impacts and externalities in the medium to longer term, then how do reputational considerations align with that? Having worked in corporate affairs for the best part of 15 years, I was compelled to focus much more on the tactical than the strategic. I realise Iâve probably alienated the majority of my fellow CA practitioners with this statement, but itâs the truth. Reputation management has a high tactical focus around dealing with the here and now rather than focusing ten to twenty years down the road, which is where sustainability is able to deliver its true worth.Â
I think the business drivers for being sustainable do matter. I have similar concerns with the increasingly popular concept of shared value. Like reputation management, shared value has an embedded proposition predicated on âwhatâs in it for meâ. Whilst itâs perfectly sound to identify opportunities for the business to get a return on any investment, the concept leads to the questionable premise that businesses should only contribute to solving significant issues where there is value to be had for the business. This also applies to reputation management as a driver for sustainable or socially responsible endeavours. There are certain to be a whole bunch of local, regional and global issues that intrinsically need addressing but may not fit the shared value or âreputationâ model â which makes them less likely to be considered worth solving by business, no matter how morally or intuitively wrong they are. Â
âIntegratingâ sustainability â what does that actually mean?
According to the McKinsey survey, executives believe that sustainability is becoming a more strategic and integral part of their businesses. It notes a trend that more and more companies are seeking to align sustainability with their overall business goals, mission, or values - with more CEOs saying sustainability is their number one priority.
In the course of engaging with many board and executives in my current work as a sustainability consultant I canât help but raise an eyebrow when I hear the well-worn catch-phrase âsustainability is woven into the fabric of our businessâ. My somewhat sceptical reaction is based on parallel conversations with sustainability managers and other employees elsewhere in that same business. I honestly believe that those executives who profess the âfully integratedâ sentiment are not trying to take me for a ride, but rather genuinely want to believe that their business is being aligned with sustainability principles. They can point me to strategies and policies that seek to embed sustainability ideals, but somewhere between the boardroom and the office floor the enactment falls short. The McKinsey survey supports this reality, with respondents clearly indicating the challenges they face in execution, particularly in the face of the competing pressures of short-term earnings, the lack of performance incentives and the lack of broader internal accountability on implementing sustainable measures.
The positioning of sustainability within business over the past 25 years is worth noting.  Traditionally, sustainability teams (or sustainability departments) were very much evident in the early efforts at igniting sustainability within companies and are still quite common these days. This has in places led to a somewhat âtrophy-likeâ or arcane view of sustainability within companies (â...and thatâs our sustainability team over there â theyâre really busy, so donât disturb themâ). More recently, sustainability is being seen as everyoneâs responsibility in the business, with true embedding as the goal - no siloing, no evading ownership, no âout of boundsâ. Even though it sounds the way to go, is it in fact working?  There remains, in my view, a distinct lack of evidence for the success of this approach in relation to accountability, direction, goal setting, guidance, innovation and momentum. Many businesses that have embraced sustainability are still struggling with successfully transitioning from the âteam-centricâ model to the âcollective-accountabilityâ one, mainly at the implementation level.
The foregoing is not to denigrate the value of surveys such as McKinseyâs â they do offer insights into current business thinking on sustainability (by whatever definition respondents choose) and where opportunities may exist to truly step up the âembeddingâ of sustainable practices. But we need to retain a healthy amount of caution in forming conclusions around the extent to which sustainability is being prioritised in companies and the reasons why. We also need to accept that sustainability wonât be seamlessly embedded just because the board and leadership team said âmake it soâ through directives, policies, and strategies. Like the survey findings, my experience of helping companies to infuse sustainable practices over the past seven years strongly suggests that the desire to become sustainable needs to be matched by a serious commitment of resources, leadership and accountability.
[1] http://www.mckinsey.com/insights/sustainability/
Assuring Integrated Reports â A Double-edged Sword?
In Johannesburg this last week, the first of a series of forums was held to discuss whether assurance of integrated reports is necessary and what are the benefits and challenges. The key issues to be addressed at this and future forums planned around the globe[1] are the nature of assurance, how different approaches build credibility and trust, and particular challenges that integrated reports will present to assurance providers (including materiality, reporting boundary and of information).
A new approach to accountability?
Integrated reporting presents both exciting opportunities and significant potential challenges. Integrated reporting is not just sticking your sustainability report and your financial report inside the one cover. It is truly attempting to connect the dots between a companyâs financial and ESG performance, and articulate how a companyâs management of those aspects adds value for the business and its investors.
Integrated reports account for value changes within a business over a set period of time, typically a financial or calendar year. At the start of the period the business ascribes value(s) to its key assets (called capitals) that it uses or influences. The businessâ management model is the means through which it transforms value in those capitals over time. This value transformation depends on how the business senses, understands and responds to a range of internal and external factors, which are disclosed in their integrated report.
The potential for integrated reporting to transform and even replace traditional financial reporting is significant. It responds to the one dimensional, short term, backward-looking disclosures that plague financial reports and limit informed decision-making. Â It also creates opportunities to transform business thinking around strategy and accountability.
Yet, by its nature, integrated reporting presents some fundamental challenges to reporters and users of the report alike. An organisation can identify and evaluate changes in the value of its assets over time, but how does it know (or demonstrate) that its own management of those assets has in fact enhanced or influenced their value? Can it truly connected the dots in readersâ minds about where it adds value to its assets or has it just re-arranged the numbers used in its financial and sustainability reports? Can the business honestly claim to have successfully added significant value through careful and integrated management, or did it just get lucky and have a good year? Clearly and unambiguously accounting for such changes can challenge a companyâs credibility with its stakeholders.
But isnât this exactly where assurance can help? Â After all, assurance is primarily designed to bridge the gap between the reporter and the report user in terms of facilitating credibility for the reportâs content and, by extension, trust in the reporter. Yet the challenges facing reporters around integrated reports also face the assurers of those reports. They will be tasked with assuring the legitimacy of the claims made in integrated reports, particularly at a time when integrated reporting is still finding its way towards legitimacy in the broader market, and when appropriate fit-for-purpose assurance mechanisms are not yet fully in place.
What are the biggest challenges around assuring integrated reports?
A number of these opportunities and challenges are raised in a new paper, 'Assurance on <IR>: an introduction to the discussion' [2] released last month by the International Integrated Reporting Council (IIRC). It is complemented by a more detailed document, 'Assurance on <IR>: an exploration of issues'[3] recently produced by the IIRCâs Assurance Technical Collaboration Group (IIRC TCG). Â
In reviewing these documents I believe that some statements and assumptions warrant particularly close attention and thoughtful consideration at the proposed forums, such as:
âThe availability of suitably skilled and experienced practitioners.â Â
This would rank pretty well up amongst my top concerns, as the quality of the assurance practitioner is just as importance as the robustness of the methodology.Â
The integrated reporting framework is a principles-based approach rather than a prescriptive formula for reporting, and it needs an assurance approach that reflects this fundamental characteristic. Rather than a âtick and flickâ auditing exercise, it will need trained auditors who can apply their knowledge and experience to examine not only the fundamental assertions being made, but the assessment of value transformations between different assets (or capitals) of the organisation.
We are in a classic conundrum with this one, as how do assurance practitioners acquire and demonstrate skills and experience with something so new and so ground-breaking as integrated reporting? And please donât let anyone tell you that they can easily transfer their skills and knowledge from assuring financial and sustainability reports. We are talking âchalk and cheeseâ differences here as some of the principles that are fundamental to integrated reporting have never collectively been encountered or addressed before in other forms of corporate reporting; value transformations, future orientation, connectivity of information (to name a few) are still largely untrodden ground for reporters and assurers alike.
âUnwarranted inconsistency or a lack of robustness in assurance processes can have the same effect as no assurance at all.â
I have to say that I disagree with this view.  Weak methodology or poorly undertaken assurance is, in fact, significantly worse than no assurance at all. Assurance is designed and sold as a confidence-instilling tool. External users of reports, as well as the internal stakeholders of the reporting entity, make the natural assumption that the assurance has delivered the necessary confidence in the assertions and data disclosed in the report â and they are often in no position to question the quality or integrity of the assurance process or provider.Â
Once a report has been stamped âAssuredâ, it creates confidence. Inconsistent or weak assurance creates for all stakeholders a false sense of security and comfort that things are âas wroteâ. This creates significant risk for all those parties as a result. Lack of assurance is different â it simply says âbuyer bewareâ to the report user, enabling stakeholders to form their own view as to the level of comfort or scepticism they have about the claims and information in the report.
âSome have suggested that, just as IR is a new approach to reporting, a new approach to assurance is needed, involving a rethink of tenets such as independenceâŠ.â Â
This is spot on, in my view. There have always been significant stakeholder concerns about the independence of assurers and, in my view, these have become more acute in recent years with the rise of sustainability reports and their assurance. Iâm still amazed these days how some assurance providers blatantly profess independence in their assurance statements whilst another arm of their business has been consulting on, or even writing, those very same parts of the report they are assuring.
Integrated reporting is so new and so challenging for businesses to come to terms with, that there is little doubt that many will be seeking significant input and support from external consultants in developing their reports. Many large audit and accounting firms are already positioning themselves in the market to ride this next wave of reporting as a revenue source in these lean economic times. Will we see more of them both consulting on integrated reporting (or on any of the process and strategies that sit behind it) and then âindependentlyâ assuring those integrated reports? I think there is significant potential that assurer âindependenceâ will be more strained than ever before in this pioneering area of accountability.Â
Why is it so important to get assurance right?
Done transparently, consistently and competently, assurance will help integrated reporting to take root in businesses. The future success of integrated reporting goes hand-in-hand with robust, reliable, value-adding assurance. In other words, assurance has the potential to contribute much to the realisation and acceptance of integrated reporting in the wider global market.
In addition to building external trust and transparency, assurance underpins internal confidence for the reporting entity. The very nature of integrated reporting makes company directors highly nervous about what they are prepared to sign their name to, so any assurance will not just have to satisfy external stakeholdersâ (i.e. investorsâ) expectations, but sufficiently and successfully bridge the gap between principles and pragmatism to satisfy internal stakeholders too. Assurance offers the very confidence-building tool that company directors need to get comfortable with integrated reporting.
Having been a member of the IIRC TCG, I found a lot of good thinking being done around assuring integrated reports. One significant concern remains however - the ability of assurance to fulfil its fundamental intent of providing confidence that public claims made around value creation are real and evidence-based.Â
[1] Other forums are being organised in Australia, Belgium, Brazil, Japan, Malaysia, Singapore and the US.
[2] http://www.theiirc.org/wp-content/uploads/2014/07/Assurance-on-IR-an-introduction-to-the-discussion.pdf
[3] http://www.theiirc.org/wp-content/uploads/2014/07/Assurance-on-IR-an-exploration-of-issues.pdf
Sustainability Reporting on a Budget
As the 2015 sustainability reporting cycle begins, Pro Bono Australia spoke with Paul Davies, Chief Operating Officer at sustainability firm Banarra, to hear his advice on getting a head start in the reporting process for 2015 Â - particularly in resource-constrained environments.
Australia is the fourth fastest climber internationally in terms of corporate reporting.
The Global Reporting Initiative (GRI), a Collaborating Centre of the United Nations Environment Programme (UNEP), produces a comprehensive Sustainability Reporting Framework that is widely used around the world.
The KPMG Survey of Corporate Responsibility Reporting 2013 showed that GRI guidelines were the dominant reporting framework used in Australia, employed by more than 83 per cent of companies in their reporting. The Australian Council of Superannuation Investors has cited GRIâs Guidelines as the framework of choice amongst the ASX100, with 80 percent of reporting companies using the framework.
In May 2013, the Global Reporting Initiative (GRI) launched the fourth generation of its Sustainability Reporting Framework: The G4 Guidelines. G4 is different to previous iterations of GRI Guidelines, focusing on materiality and encouraging companies to report on the issues that are critical to achieving their strategic goals.
After December 2015 all reports will be published in accordance with GRI G4 guidelines â so companies must begin the transition. In Australia in 2014, six companies reported in accordance with G4.
GRI recently engaged Australiaâs Early Adopters of G4 to capture their experiences and advice working with G4. Paul Davies, Chief Operating Officer at sustainability firm Banarra, was among them.
Pro Bono Australia News spoke with Davies for his tips on where companies should aim to be in the coming months and how they can maximise the resources available to them.
Material topics for a reporting organisation include those topics that have a direct or indirect impact on an organisationâs ability to create, preserve or destroy economic, environmental and social value for itself, its stakeholders and society at large.
Davies says that at this point, organisations can put themselves in the best position by focusing their resources on narrowing down down the issues that are material to them.
âIf I was going to focus my time now on getting my business ready for the transition to G4, the first place I would be looking between now and writing the report is getting a handful of those key material issues to focus on.â
âThe number one thing is to get their materiality process truly disciplined and under control. If theyâve got a weak materiality process, they wonât have any luck with G4 if their materiality is not robust enough to whittle down all the things they could talk about to just a handful of issues.â
Unfounded trepidation around the materiality process has the potential to hold companies back, Davies says.
âA clear head and appropriate strategy, used as a means to an end, will prove effective.
âSome people feel a bit overwhelmed by materiality - they feel, if Iâm going to do it, Iâm going to have to hire a new staff member and spend six months engaging external stakeholders. Iâm going to have to do fifty other things and only then will I have a materiality outcome that I can trust.â
âItâs the [issue[ theyâre afraid of the most. They overly complicate it a lot of the time - they get so caught up in the process. Itâs like the process is more important than the outcome. I think organisations with a bit of thought could apply any number of processes to quickly whittle down some sustainability topics that gives their report some legitimacy.
âThereâs sort of this aura around materiality where organisations think, âIâm going to do this, and I hope to god I get it right! And if I donât get it right, my whole report is going to be completely undermined.â
âThereâs that fear factor, and unfortunately consultants play on that a lot. I think a lot of the time organisations can cut themselves a break and do some solid internal engagement to tease out five of six key issues that they can then use as the basis for going forward with G4.â
Davies says some shortcuts may be necessary where time and money is tight - and that solid outcomes may still be achieved.
âWith materiality, you donât really need to take it to the nth degree to get some outcomes that are meaningful in focusing your report on some key issues.[Having it] at any level is better than not doing it at all. Itâs a bit of a sliding scale. You donât have to always do it brilliantly to industry best practice.
âG4 doesnât set a minimum standard for materiality, so thereâs some leeway there. As long as a company is prepared to say what they did, they donât have to convince GRI or anyone else their materiality process is the best in the world, they need to be able to say weâre going to talk about these issues in our report, and this is the way we decided what they were and the the reader can decide if in fact those issues are legitimate or not.â
Stakeholder engagement in the materiality mapping process is one of the most resource-demanding aspects of the process - and also one that can be done smartly and strategically to save time, he says.
âYou canât run a materiality process and ignore your stakeholders. Thatâs not going to work. You can canvass stakeholders directly, which is the tradition - for example, face-to-face engagement or supplier surveys - but thatâs very resource intensive and very intensive. Some organisations prefer that, and like to do that every three to five years for that extra confidence.
âBut on the other hand, maybe for two out of those three years, they can do some indirect canvassing of stakeholder views - research into whatâs in the media, talk to key stakeholder relationship manager within business, they can talk to their procurement guy and say, âwhat are the issues your suppliers have brought to you in the past twelve months?â.
âYou could use the embedded knowledge in the head of the HR manager, the procurement manager, the risk manager. Have some confidence in these people working with these people on a daily basis.
âYour heads of department will give you those insights into what are some key material issues for the business and its stakeholders without having to engage 20 different external stakeholders and spend all that time and money. The results are still robust enough to say âI may not have got all the issues, but Iâve got a bunch of issues that clearly resonate with the business and its stakeholders and theyâre the ones weâre going to report onâ.â
