Avoiding Greenwash? Sustainability, reporting and materiality..

I’ve been thinking a bit about GRC lately, especially Governance and how it relates to corporate social responsiblity efforts. James Farrar has helped me a lot to understand the realities of CSR –  the dynamics of investors, society, corporate behaviour, standards, governments and NGOs. I’m learning lots, but I have much more to figure out.

Amit discusses sustainability, reporting on a McKinsey conference that he recently attended.

Another director of the Firm announced that McKinsey was currently serving 20 of the Fortune 100 around establishing or building out their corporate sustainability program.

This makes a lot of sense. The investor and broader society are demanding that companies take a more proactive approach towards issues such as global warming. Witness, for instance the recent announcement by Google, Intel and others on climate and technology –  the climate savers smart computing initiative or Steve Job’s long eulogy to the green apple.  (update: for more on green and technology see Chris Lochead on ZDNET)

A quick read of perspectives on responsible sourcing blog points to significant investment from companies such as Nike in CSR and CSR reporting.

Nike has been working on business integration in a big way. “Corporate responsibility is no longer a staff function at Nike. It’s a design function, a sourcing function, a consumer experience function, part of how we operate.”

Investors such  F&C, with over 102 Billion pounds under management, are demanding strong transparency in the extractive industries. This stuff is not just window dressing, I quote from the EITI (extractive industries transparency intitiative documentation.)

As institutional investors representing US$8.3 trillion we actively support the development of international mechanisms to address payments transparency, and encourage other investors to join us in this statement.

Some Investor fund heads such as Karina Litvack take a strong stance on ethical and goverance issues, see here on Walmart. So, investors are demanding clearer, more transparent and better information on sustainability measures. A couple of paragraphs in the annual report and some nice pictures won’t cut it. Research is thorough.  NGOs are quick to pounce on inconstitences. HBSC for instance, were embarassed   by Global Witness. 

Yet it is easy to apply the charge of window dressing or even hypocrisy at some CSR reporting efforts. The modern corporation is hardly the paragon of virtue, so some scepticism is in order.

This brings me to the issue of materiality.

A meaningful definition of ‘materiality’ must effectively identify information that, if omitted or misstated, would significantly misrepresent the organisation to its stakeholders, and thereby influence their conclusions, decisions and actions. (Zadek and Merme 2003)

If Corporate Social Responsibility reporting itself is to be sustainable, then surely it needs to become a lot more reliable, transparent and comparable from company to company and across industry. It will require greater standardisation if it is trully to impact behaviour. Will standards such as ISAE3000 and AA1000 will help drive stronger rigour into CSR reporting?

AA1000 Assurance Standard is a generally applicable standard for assessing, attesting to, and strengthening
the credibility and quality of an organisation’s sustainability reporting, and its underlying processes,
systems and competencies. It provides guidance on key elements of the assurance process.
(www.accountability.org.uk)

 I’ll transplant something that Jonathan wrote when discussing management dashboards,  I think it is equally relevant here.

Dashboards need a certification process for all of the data they contain: goals, initiatives, financial and non-financial metrics. With certification and auditing comes trust. With trust, comes use. With increased use, more impact.

In other words, Reporting is only useful if it impacts behaviour. Words are easy.

I don’t want auditors crawling all over sustainability, but I do want to know that the stuff in the annual report and elsewhere is relevant and material. I want to know who is serious and who is bs’ing me. I worry about greenwash.

I want to hear more about the GE’s of this world, who are driving real innovation around sustainability and developing new business models.

GE reported $12 billion in revenues from ecomagination products and services in 2006, on course to the goal of $20 billion in sales in 2010.

GE GHG emissions in 2006 from operations have been reduced by about 4 percent from the 2004 baseline. GHG and energy intensity have been reduced by 21 percent and 22 percent respectively compared to 2004. GE is committed to reduce its GHG emissions 1 percent by 2012, reduce the intensity of its GHG emissions 30% by 2008, and improve energy efficiency 30 percent by the end of 2012.

I want to see sustainablity innovations clearly documented, so that as an investor and as a citizen I can make informed choice. If AA1000 helps bring this about, then I’m all for it.

I also want to know when the GE’s of the world aren’t doing what their messaging tells me it is. (tip james) 

I’ve just ordered this book and this one too. Mark Crofton’s old School are doing  interesting research on sustainability.

Global capitalism is at a crossroads. During the last two decades of the 20th century, free trade produced mixed results at best. Wealthy and developed countries have grown richer, while the vast majority of nations and people in the world have been bypassed or damaged by this process. Furthermore, the underlying natural systems that support human economies – forests, fisheries, soils, ecosystems and climate – have continuously declined. Anti-globalization demonstrations have made it apparent that if corporate expansion is seen as coming at the expense of the poor and the environment, it will encounter vigorous resistance.

For global business, therefore, it has become increasingly clear that the historical separation between competitive strategy and social contribution must be eliminated. Rather than treating social and environmental issues as expensive luxuries, companies are increasingly fusing social mission with competitive strategy. Indeed, a form of “new capitalism” is emerging where environmental and social performance is embedded in the competitive strategy of the firm.

Sustainable global enterprise represents a new private-sector approach to achieving the goals of sustainable development – by creating profitable enterprises that simultaneously raise the quality of life for the world’s four billion poor and conserve the ecological integrity of the planet.

Lots to think about. Sustainability is not just about reporting. It isn’t just about Green either.

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