Over the last 10 years, in Australia and the rest of the world, there have been too many examples of similar corporate behaviour that have led ordinary citizens to think that unless companies can demonstrate otherwise, they should assume that self-interest and pushing ethical decision-making boundaries to breaking point, is the boardroom norm rather than the exception to the rule.

We have moved from being believers to sceptics.In 1987 a new standard for company transparency was emerging by which triple bottom line reporting moved from an idea to a well articulated guideline. The Global Reporting Initiative (GRI) developed a tool that assisted stakeholders including civil society and business, articulate what transparency and accountability means in a leading 21st Century company.

Company reporting was not however a new phenomena. Occupational Health, Safety and Environment reporting in the 1980s and 1990s responded to the NGO’s voice for disclosure on these issues. Companies decided that what was relevant was usually governed by the legislative baseline.

The Global Reporting Initiative process

So what was so different about GRI? Answer: The multi stakeholder process that forms the basis of indicator development within the guideline, and the process by which it advises companies to begin their own reporting journey, revolutionised standard setting.

It starts with, and I would like to suggest ends with, your stakeholders. All of them.

Indicators are developed from an outside in perspective.

For the first time, companies and the industry standard setting bodies were not completely in control of what they were being asked to disclose.

Was the list of indicators that stakeholders developed so impossibly scary? Not really. In my experience, 85% of the data is already being collected though business management systems inside well-managed companies. The big leap of faith for companies is in honestly releasing data into the public domain, in a meaningful way for stakeholders. Transparency.

A corporate responsibility report is an outcomes document. Results are what really matter.

For the last few years, there has been a worrying trend globally when it comes to reporting. I hear many people –report writers and report readers saying the same thing. The number of reports is rising but unfortunately, that has not necessarily meant that the quality of reports is improving.

Analysts are still reticent to use non-financial information because reports can often concentrate on meeting some management consultancy or reporting awards formula that promotes form over substance. Such things as: Was every indicator in the GRI reported? How comprehensive is the report?

GRI actually requires reporting against only relevant indicators and the notion of how comprehensive a report is, is quite possibly the wrong question. This cannot be judged solely by the number of indicators a company reports against.

What is material?

The main game is: what is material? The quality of the content, not how much content there is. Here is the GRI definition of what material is:

“The information in a report should cover topics and indicators that reflect the organisation’s significant economic, environmental, and social impacts, or that would substantively influence the assessments and decisions of stakeholders.”

Stakeholders will want to know what your goals were last year and what your aspirations next year are concerning relevant sustainability issues. How did you improve or change your business processes to give you a better sustainability outcome? How much improvement have you made? What was your non-financial performance?

Judy Kuszewski from Sustainability UK says:
“Materiality matters because it goes to the heart of what is meant by corporate accountability. Stakeholders, whether NGOs, investors or employees, have the right to expect a company to be accountable for their decisions and performance …”

My advice to companies is that if you would like to understand how good your sustainability report is – revisit your stakeholders, including employees and analysts. Ask them if you met their expectations on all the material issues. How can you improve in the following report? Were you open honest and transparent about the things that really matter to them?

G3 – the third generation of the Global Reporting Initiative Guidelines – gives us a timely reminder on this issue. The revised standard emphasises what has been forgotten in the rush to get an award for the biggest, brightest and best report.

How to begin?

Start with your stakeholders then look to the GRI for sustainability key performance indicators in the relevant economic, social or environmental areas and then use the technical protocols that will ensure that on that issue, your data will be comparable to other companies. This helps analysts using your report understand that you are a strategic company with strong management frameworks around material sustainability issues. Not a ‘box ticker’.

If after building your report around disclosures on material issues important to your stakeholders, you also win a report award – fantastic!

In 2006, the Australian governments Parliamentary Joint Committee report Corporate Responsibility: managing risk and creating value agreed with the majority of the submissions they received: companies that develop business strategies in response to all of their stakeholders are acting with enlightened self-interest.

They also recommended that the Australian Stock Exchange Corporate Governance Council provide guidance under their Principles of Good Corporate Governance to the effect that companies should inform investors of material risk in their top five non-financial sustainability risks.

At present only 44 of the ASX 200 companies, produce sustainability reports. Compare this to the fact that in Australia, 120 private companies, public utilities and privatised or government owned institutions report publicly. Compare this also with Europe where 90 of the top 100 companies produce sustainability reports.

Corporate responsibility reports are not a panacea to bad behaviour, they will not guarantee that a reporting organisation will never make a bad decision or ever act against environmental and social sustainability principles.

From an ordinary citizen perspective, corporate responsibility reports are a window into the hearts and minds of the organisation. I want to understand the companies that I am investing in.

Increasingly from an analyst’s perspective, they are a review and strategic direction document. Just as important as your full year financial results.

A recent report from the Enhanced Analytics Initiative shows that ignoring non-financial information can lead investment managers to lose sight of stock performance above the benchmark index – that is to “leave alpha on the table.”

CIO of Investec Hendrik du Toit says: “When an investor systematically integrates all relevant variables into their decision making there is no such thing as an extra-financial factor: just enhanced analytics.”

There is a growing movement away from tomes to summary reports and web links for detailed data. Indeed, after the launch of G3 and with implementation of its thinking on materiality into future company reports, the emphasis of quality over quantity will increase.

As a citizen and investor with much of my superannuation invested in Australia and International companies through my superannuation portfolio – I’m still concerned about two things:

1. Are the mainstream analysts and investment advisers, who are custodians of my superannuation (and the rest of Australia’s superannuation) keeping up to date with the sustainability data that in the end separates the ordinarily managed companies from the ‘outperforming’ companies globally. Are they leaving Alpha on the table?
2. In Australia and globally, mainstream analysts are operating under very difficult conditions – not all companies believe in being transparent. In Australia, analysts only have one quarter of the information they need to make the best investment decisions for us. It is the equivalent of expecting them to invest in companies when the only financial information they have is the revenue data. The best companies are the ones with the biggest revenue. Right? Wrong.

And so, I humbly ask, will the remaining 156 companies on the ASX 200 who don’t do sustainability reports, please come forward and join the other leading Australian companies who have discovered that sustainability reporting can be a strong bridge to rebuild trust with all of their stakeholders.

What is the Global Reporting Initiative?

The Global Reporting Initiative (GRI) uses a Sustainability Reporting Framework to encourage companies to report on economic, environmental and social performance. With its secretariat in Amsterdam, the GRI is “a large multi-stakeholder network of thousands of experts, in dozens of countries worldwide, who participate in GRI’s working groups and governance bodies, use the GRI Guidelines to report, access information in GRI-based reports, or contribute to develop the Reporting Framework in other ways – both formally and informally.”

Linda Funnell-Milner held senior managerial positions with three of Australia’s top 10 corporations (National Australia Bank, Westpac Banking Corporation, Lend Lease Corporation) in developing strategic change programs to enhance the organisation’s ability to recognise and respond to relevant business risks and opportunities concerning environmental, social and reputation issues.

Linda was the Director of her own company Corporate ResponseAbility advising boards and senior executives of Australia’s top companies on how to make sustainability a business reality, not business rhetoric.

Linda joined Energetics Pty Ltd in January 2007 as their National Director Sustainability and Reporting. Linda provided leadership in her role in the development of reporting frameworks globally within the finance industry through the United Nations Environment Program for Finance Institutions, including a significant role in the development of Australian benchmarks on sustainability. From 2002 to December 2006, Linda held the position of Chair of the Global Reporting Initiative Stakeholder Council based in Amsterdam.

www.energetics.com.au
www.globalreporting.org