“We now face an urgent need to secure the freedom of future generations to sustain their lives on this planet – and we are failing to do it. We have been plundering our children’s heritage to pay for unsustainable practices. Changing this is a challenge for rich and poor countries alike.” These words by Kofi Annan, the UN secretary-general, in his report to the United Nations Millennium Summit last September, could not have been more blunt.
He stressed that governments could not achieve sustainability alone: “The rapid pace of change today frequently exceeds the capacity of national and international institutions to adapt.” Part of the solution, he suggested, could be found in the emergence of “global policy networks”, which he characterised as “coalitions for change – which bring together international institutions, civil society and private sector organisations, and national governments, in pursuit of common goals.” All partners would see their influence increase in such networks.
One such public policy network that has won wide praise is the Global Reporting Initiative (GRI). This three-year-old partnership among NGOs, businesses, accounting societies, labour and the United Nation’s Environment Programme (UNEP) has been quietly pioneering the development of corporate reporting guidelines that go to the heart of the sustainability debate.
Originally convened by UNEP and the Coalition for Environmentally Responsible Economies (CERES), a powerful US coalition of businesses, investors, and advocacy groups, the GRI has already developed and disseminated two versions of its Sustainability Reporting Guidelines. The guidelines, initially released in draft form in March 1999, were revised and re-released in June 2000 after a period of extensive pilot testing by global companies.
Among the unique characteristics of the GRI is its multi-stakeholder composition. It has been able to bring together senior representatives from the business, labour and NGO communities – North and South – in crafting its voluntary reporting guidelines, and it has held a wide range of meetings in Asia, Europe and the Americas, with inputs from more than 50 countries, including 25 OECD members.
So what do the guidelines actually do? The GRI is built around a simple, but effective, notion. By providing a broadly agreed mechanism to measure environmental and social performance, the GRI aims to assist investors, governments, companies and the wider public to understand more clearly the progress being made towards sustainability, and – to this end – to improve related analysis and decision-making.
Take energy, for instance. Firms using the guidelines would measure total energy usage (in joules) and indicate broadly the types (primary sources, for instance) and uses of that energy. They would describe any initiatives they have taken to move towards renewable energy sources and energy efficiency.
The GRI does not have any particular indicators for social expenditures, but under the “Workplace” category of the guidelines companies can provide information (in a form that is up to them) about quality of management, health and safety, wages and benefits, non-discrimination and training/education. There are many possible indicators for each of these categories, and through experience and working groups, “generally applicable” definitions will be devised for future revisions. However, the pressure to add new indicators will be counter-balanced by the need to ensure the reporting remains manageable.
The structure and content of the guidelines are both logical and practical, as can be seen on the website. Apart from advising on format and content, the guidelines advise on how to phase in the reporting system, and how to normalise and verify data. And leading accounting experts are adapting traditional accounting principles to this new form of reporting. Many well-known companies in the automotive, utility, consumer products, pharmaceuticals and chemical sectors have already published reports that adopted the GRI guidelines in some form. General Motors and Ford are publishing reports.
Governments, too, have indicated interest in using the guidelines to improve mandated reporting standards. The UK government is exploring their application to its agencies, and the US and Japanese Environment Agencies have used the guidelines as a template for their own corporate disclosure programmes.
The GRI makes historical sense. Corporations recognise that they have a “social licence to operate”, which requires greater transparency and accountability in relation to their environmental and social behaviour. Indeed this can improve their competitiveness and shareholder value.
Executives want clear-cut rules and tools with which to navigate complex stakeholder expectations. Investors and civil society organisations want solid, comparable information to enable them to reward leaders and discourage laggards. Accountants recognise that traditional financial measures do not capture critical but often hard to measure intangible assets, and want to improve their valuation of the new marketplace. For example, there is growing recognition in both national and international accounting societies that the failure to value patents, brands and other forms of intellectual capital on corporate balance sheets is leading to distortions in the financial markets.
Similarly, the cautionary tales of Monsanto in the biotechnology and environment area or Nike in the labour arena have taught corporate leaders that in an Internet-driven spotlight they must learn to understand, measure, and manage their social and environmental impacts more diligently. Until now, there has been no accepted methodology for such assessment, which is why scores of international companies are experimenting with the GRI format.
With any new instrument there are pitfalls, dividing lines and trade-offs. Activists would like the GRI guidelines to become more detailed and searching; others worry that if the GRI becomes too complex smaller firms will find it difficult to follow. Some civil society groups would like the GRI format to be reinforced by government mandates and strict verification rules, whereas many companies would like the project to remain voluntary.
In time, a balance between these concerns will be struck. Rigorous technical work and careful consensus building should lead to the “general acceptance” now taken for granted in accounting. The GRI is a key partner in this effort to harness the shared concerns about sustainability, and to do its part to help governments and international organisations move forward.
The historic significance and impact of the GRI will probably only be fully discerned after five or ten years. In the short term, the next major step for the GRI will be the creation of a permanent secretariat. The target date for this is mid 2002, before the World Summit on Sustainable Development.
OECD governments can play an important role in the future development of the GRI. Providing high-level contact points, hosting or funding national or regional meetings, provision of feedback and ideas: all this can help. OECD countries are paying more attention to GRI. They have a key responsibility in crafting a new blueprint for development, which finally puts the leading industrialised countries on the path to sustainable development.
Dr Robert Kinloch Massie
©OECD Observer No 226/227, Summer 2001