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A Public Plea to GRI: Enforce or Explain

Earlier this month, we (the Center for Sustainable Organizations) issued a press release in which we called for GRI to either enforce the ‘sustainability context’ requirement in its standard, or explain why it doesn’t.  Motivated, in part, by GRI’s own Report or Explain Campaign, in which GRI exhorts businesses around the world to issue sustainability reports or explain why they don’t, our campaign is aimed at GRI itself. (Read the press release here)

Sustainability context, as GRI points out, is critically important to non-financial measurement and reporting.  When measuring water use, for example, it is not enough to simply report the volume of water consumed this year versus last.  Rather, as GRI puts it (Technical Protocol, p. 6), organizational performance should be reported….

… in relation to information about economic, environmental, and social conditions in relevant locations, e.g., discussing water consumption in relation to available supply in a particular location[.]

As GRI further explains (p. 11):

Information on performance should be placed in context. The underlying question of sustainability reporting is how an organization contributes, or aims to contribute in the future, to the improvement or deterioration of economic, environmental, and social conditions, developments, and trends at the local, regional, or global level. Reporting only on trends in individual performance (or the efficiency of the organization) will fail to respond to this underlying question.


You can learn more about context-based sustainability reporting from Mark when he speaks at The Future of Sustainable Metrics, our latest 1-day event this October 24th at The Wharton School in Philadelphia!


That said, such context is almost universally missing from contemporary GRI reports.  This is a serious problem, since it is literally the case that sustainability measurement and reporting cannot be done without including the kind of context GRI’s guidelines call for.  Nevertheless, GRI fails to enforce its requirement in three ways: 1) by not providing sufficient guidance for how to comply with it, 2) by awarding and/or endorsing superior ratings for reports that are entirely context-free, and (3) by excluding context itself in its own reports, thereby setting the wrong example.

As long as GRI adheres to its policy of failing to enforce the need to include context in sustainability measurement and reporting, corporate sustainability reports will amount to little more than eco-efficiency reports, citizenship reports or what have you, but not sustainability reports in any intellectually honest or authentic sense of the term.  Indeed, in order for sustainability reporting to be meaningful, the social, economic and environmental impacts of an organization must be measured and reported relative to norms, standards or thresholds for what such impacts would have to be in order to be sustainable – the substance of which should be based on conditions on the ground, as it were.

In our work, sustainability context is determined by following a three-step procedure. 

  1. First we identify vital resources in the world (human, social, economic and environmental) an organization is already having impact on, or ought to be having impact on, in ways that can affect stakeholder well-being;
  2. Next we identify the parties or populations responsible for preserving, producing and/or maintaining such resources (i.e., are the responsibilities for ensuring the resources shared or exclusive?);
  3. And third, based on 1 and 2 above, we determine what an organization’s proportionate share of and/or burden is for preserving, producing and/or maintaining the resources involved.  This gives rise to norms, standards or thresholds against which actual impacts on the same resources can be measured and reported by a specific organization – and managed, too.

I have often likened context-based sustainability reporting to income statements in financial reporting.  Indeed, they are very much alike except for the obvious difference in focus on financial resources in the one case versus non-financial resources in the other.  Context is always present in financial reporting, most notably in the form of expenses or costs in income statements.  Profitability is contingent upon revenues exceeding costs.  Imagine an income statement in which costs were missing.  How in the world could we draw any meaningful conclusions about profitability performance in such a case?  Of course we couldn’t.

The same is true for non-financial performance.  There are thresholds involved against which top-line performance, if you will, must be measured in order to draw meaningful bottom-line conclusions – about sustainability performance, that is.  Indeed, if sustainability performance on, say, the environmental front is all about living within our means, exactly where are the means expressed in mainstream reports?  And if missing in such reports, how are we supposed to know whether or not the impacts being reported are within our means or beyond them?  In other words, how are we supposed to know if the performance being described is sustainable?

Including context in sustainability reports begins with quantifying the means or resources an organization is having impact on insofar as stakeholder well-being is concerned, followed by an allocation of the responsibility for preserving, producing and/or maintaining them to a specific organization.  That, then, provides us with standards of performance against which actual impacts on the same resources can be measured and reported.  This is sustainability measurement and reporting in the plain sense meaning of the term – impacts that conform to thresholds are sustainable, impacts that don’t are not.

For both GRI and all of the companies out there that either already do, or aspire to, disclose their sustainability performance, the question you have to ask yourselves is can there be sustainability measurement and reporting without norms, standards or thresholds for what performance would have to be in order to be sustainable?  Can there be sustainability reporting for water use, for example, without making reference to the water resources involved?  Or of solid waste emissions without reference to the landfills involved?  Or of carbon emissions without reference to CO2 concentrations in the atmosphere?  Or of employee compensation levels without reference to livable wage standards?  The list goes on.

And so given the growing urgency of understanding and managing the sustainability of economic activity in the world, we call upon GRI to enforce this most basic principle of non-financial measurement and reporting, by 1) specifying procedures for how to measure and report performance in context, 2) modifying its rating guidelines so as to withhold superior ratings for reports that fail to include context, and 3) setting the proper example itself by including context in its own reports from now on.  The legitimacy of sustainability measurement and reporting hangs in the balance.

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CSO Response to GRI Re: "Enforce or Explain" Campaign

Editors Note: The following letter was publicly released by CSO in response to the letter sent by GRI earlier this week, which can be read below. 

This week, we were contacted by GRI with a response to the Enforce or Explain campaign we launched at the start of the month.  That campaign called for GRI to either enforce the ‘sustainability context’ principle in its guidelines, or else explain why it doesn’t.  Before commenting on the response we received from GRI, we would like to express our gratitude to them for taking our campaign seriously and for the time and effort they expended in preparing their response (attached above).

Below are repeated several of the statements made by GRI in their response to our campaign, followed by further responses of our own:

“Since GRI provides the Guidelines for organizations to follow, it should not judge the quality of resulting reports.”

To be clear, our call was not for GRI to assess the quality of sustainability reports prepared in accordance with its Guidelines.  Rather, our call was for GRI to appropriately enforce its Guidelines by (a) specifying procedures for how to measure and report performance in context, (b) modifying its rating guidelines so as to withhold superior ratings for reports that fail to include context, and (c) setting the proper example itself by including context in its own reports from now on.

Here it should be clear that to specify procedures for how to measure and report performance in context is not to ‘judge the quality of resulting reports’.  Rather, it is to provide guidance for how to prepare them.  Second, the same can be said for the third request.  Namely, that to expect GRI to set the proper example by including context in its own reports is not to ask or expect it to judge the quality of others’.

As for the second request, we understand that the rating system employed by GRI (i.e., its Application Level Check) is largely a non-judgmental one, in the sense that the scores received under its criteria are mainly a function of how many indicators are featured in a report, and are not a function of the quality of the information provided.  On the other hand, we all know that A, B and C ratings or grades are value-laden: A is better than B, and B is better than C.  Why else make the distinction if not to make judgments?  Thus, there is judgment going on in the rating system, whether GRI itself is directly involved in applying it or not.  In all cases, it is at least indirectly involved by virtue of the rating system it promotes and controls. 

GRI goes on to explain:

“The Application Levels specifically measure the extent to which the GRI Guidelines have been used, and examine completeness, 2correctness and usability. The Principle of Sustainability Context is not examined in the Application Level Check as this would constitute a value judgment that GRI cannot make.”

First, to say that a report either does or does not include context and therefore either does or does not comply with a set of guidelines – which is all we’re asking for – is not to call for a value judgment at all.  Rather, it is to simply state a fact.  A thing is either there or not there, regardless of how we feel about it.  The fact is that GRI’s Guidelines call for the inclusion of context – and for good reason.  Thus, we think it not too much to ask that the Application Level Check that GRI provides include consideration of whether or not context has, in fact, been included in a report, just as it does for completeness, correctness and usability – the latter of which, incidentally,are absolutely judgments of quality.

Of more concern, perhaps, in GRI’s response to our campaign is its apparent willingness to put up with the continued absence of sustainability context in mainstream reporting, despite the fact that (a) its Guidelines call for the inclusion of it in all reports, and (b) sustainability measurement and reporting cannot be done without it.  That the dominant international standard for corporate sustainability measurement and reporting in the world seems content to tolerate the status quo is frankly shocking – very much akin to what things would be like if FASB failed to enforce the inclusion of expenses in Income Statements.

Of course the solution to all of this is quite simple.  As earlier indicated, GRI should (a) specify procedures for how to measure and report performance in context, (b) modify its rating guidelines so as to prevent the assignment of superior ratings by others to reports that fail to include context, and (c) set the proper example itself by including context in its own reports from now on.

Finally, GRI also said:

“The purpose of the GRI Guidelines is to ensure transparency….”

Of course we understand and agree.  But that is the point of all this, isn’t it?  If the purpose of a sustainability report is to disclose information about the sustainability performance of an organization, such disclosure cannot possibly take place without the inclusion of context, because sustainability performance is determined byreference to context – inextricably so.  

Indeed, if GRI is truly committed to ensuring transparency in corporate sustainability reporting – and we believe it is – it must take its own ‘sustainability context’ principle seriously, and enforce it in the ways we have described. To continue to tolerate its pervasive absence from mainstream reporting does nothing but invite ridicule to the value and legitimacy of sustainability measurement and reporting in general.  It makes a mockery of what so many of us – including GRI itself, no doubt – feel is so important in these times, or in any time for that matter: true sustainability reporting!

Mark W. McElroy, PhD
Founder and Executive Director
Center for Sustainable Organizations

 

GRI Response to CSO "Enforce or Explain" Campaign

Editors Note: The following letter was publicly released by GRI in response to the above article and CSO's "Enfore or Explain" Campaign

This month, the Center for Sustainable Organizations (CSO) announced:

“CSO is calling upon GRI to enforce this most basic principle of sustainability measurement and reporting by (a) specifying procedures for how to measure and report performance in context, (b) modifying its rating guidelines so as to withhold superior ratings for reports that fail to include context, and (c) setting the proper example itself by including context in its own reports from now on.”

GRI believes that sustainability context is vital in all reporting. This is emphasized by the Principle of Sustainability Context in GRI’s Sustainability Reporting Framework. GRI is committed to the continuous improvement of its Guidelines, including the Principles that underpin reporting.

Since GRI provides the Guidelines for organizations to follow, it should not judge the quality of resulting reports. The purpose of the GRI Guidelines is to ensure transparency so that different stakeholders cantake on this role – civil society, academics and analysts.

GRI offers an Application Level Check service to companies that have produced a GRI sustainability report, which is separate from any external assurance they might seek from a third party. The Application Levels specifically measure the extent to which the GRI Guidelines have been used, andexamine completeness, correctness and usability. The Principle of Sustainability Context is not examined in the Application Level Check as this would constitute a value judgment that GRI cannot make.

Application Level C means a company has reported on 10 Performance Indicators and a selection of Profile Disclosures. Application Level B means a company has reported on 20 Performance Indicators, has reported on its management approach, and has reported on all Profile Disclosures. Application Level A means a company has addressed all core Performance Indicators, has reported on its management approach, and has reported on all Profile Disclosures. 

The Application Levels do not indicate the quality or accuracy of the content of a report, or the quality of a company’s sustainability practices. 

GRI itself reports at Application Level A, and is committed to improve its reporting practices every year. Following stakeholder engagement, in the next reporting period GRI will follow the NGO Sector Supplement, measuring its program effectiveness and reporting its impacts on sustainability reporting worldwide.

GRI warmly invites CSO to participate in the Public Comment Period that is currently open as part of the development of the next generation of Sustainability Reporting Guidelines, G4.

CSO’s input on sustainability context is of considerable interest for G4’s development. By participating, CSO can also play its part in the multi-stakeholder development process that involves sustainability practitioners and experts from diverse constituencies and geographical locations, ensuring the Guidelines produced reflect all stakeholders’ needs.

G4 will improve on content in the current Guidelines – G3 and G3.1 – with strengthened technical definitions and improved clarity, helping reporters, information users and assurance providers.The results from the Public Comment Period will feed into the development process. Once the feedback has been analyzed, GRI will then begin the process of defining scope and recruiting Working Group members in December 2011. Working Group composition will be influenced by the proposed structure and content of G4.

GRI looks forward to CSO participating in the Public Comment Period, which is now open until 24 November 2011.

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Dear Mark:

Really appreciate your innovative thoughts on why GRI needs to evolve into contextual reality, rather than sitting content with 'sustainability' reporting by companies.

Myself, a CR professional, advising and practicing CR with several MNCs for a decade now.

Please keep me posted with more of your thoughts.

Warmly,

Abhishek


Mark W. McElroy, Ph.D. is the founder and executive director of the Center for Sustainable Organizations and is the original developer of the Context-Based Sustainability method. Dr. McElroy is also the co-creator of the MultiCapital Scorecard™, the world's first… [Read more about Mark McElroy]