Sustainability Reporting As a Tool for Better Risk Management

GRI is an international organization based in Amsterdam with offices around the world. It produces a set of standards used by organizations in over 90 countries and has become the global standard-setter for sustainability reporting. But as the organization’s Chief Executive, Michael Meehan, explains, sustainability reporting is not about writing a report; it’s the process by which organizations identify their risks related to important issues, like human rights, the environment, labor and other social issues. In a conversation with MIT SMR’s Nina Kruschwitz and David Kiron, he explains GRI’s purpose, how businesses can benefit from sustainability reporting, and what comes next.

Can you describe GRI’s thinking around sustainability reporting?

Let’s cover one thing first that will frame the rest of our discussion.

GRI has become synonymous with the sustainability report, and historically organizations have really only had one way of communicating what they do around, say, human rights, or the environment, or sustainability at large, namely a written report. But that’s no longer the case. It’s not about generating a 300-page report.

Sustainability reporting is important for companies because it’s a strategic exercise. It helps them understand where they’re at and what issues are important for them.

And the process of reporting is really about transparency. When Tim Cook got up at [Apple’s] annual general meeting [in February 2014], they had this activist shareholder group — well, you know what happened, and people said, “Wow, fantastic. Tim Cook is a real visionary for sustainability.” And maybe he is. But I see that more as a transparency issue.

Organizations know — and Apple especially knows — that the information around their supply chain, for example, or human rights will come up and affect company value. Maybe it’s not reflected in share price today, but it will be in the future. It becomes a question of: what’s your window? Are you thinking share price today, or are you thinking 10 years down the road?

That’s how I think of the GRI; it presents a constellation of all these issues that face your organization, and lots of different concerns which may not be relevant to your share price or company value today, but will be in the future. So the sustainability report becomes more like a map of future risk.

When I look at what Tim Cook did, I think it was a stroke of genius, because he knows with this information, transparency is key. Information will get out eventually, so it’s better to own it now and manage your future risk than to just react to it.

And so what’s GRI’s role?

You can think of the GRI like this table we’re sitting at. GRI exists to make sure that everybody — not just investors but advocates for human rights, labor issues, social issues — has a seat at that table. We’re the only organization that does so. That’s what we call a multi-stakeholder approach.

Without that, what business thinks is important in sustainability would then become the only thing that’s important in sustainability. And that’s not something anybody wants. So that’s why GRI’s here, and having that stakeholder engagement is really important.

And that’s the value that I see in all the sustainability exercises that are going on. It’s definitely increasing, which is good.

Do you see that increase as ramping up dramatically in recent years? Or is this a slow rise?

About 93% of the Global 250 are doing sustainability reporting. And it is ramping up pretty rapidly. Almost all of that is GRI; we’re almost solely responsible for this. GRI was the only game in town for a really, really long time. But GRI’s mission is to make sustainability reporting standard practice for all organizations. It’s not quite mission accomplished, but when it comes to the world’s large organizations, it’s pretty darn close.

So the question is: well, now what? What can I do with this information? And a whole market is emerging in which companies are trying to dissect all these sustainability reports to make them relevant to different groups. Give that sustainability report to an investor, and he’ll say, “Hmm. Well, that’s a big report. What can I do with that?” Give it to your board member. “Hmm, that’s a really big report. How can you get information out of that report?” So we’ve kind of gone a little too far. We need to take two steps back and say, “Well, there’s a lot more value in here than just the report itself.”

So even though sustainability reporting is mainstream now, which is great, I think we actually have a bigger challenge in how we can make that useful to a wider range of stakeholders.

There are a lot of different ways of reporting on sustainability for different constituencies. How does your organization in its reporting approach fit in with these other approaches to reporting?

Nobody reports to the GRI. We offer a standard now, not just a framework, but a full standard on how this information gets collected, and how that process goes through — the information that you need to create a sustainability report. And we even offer guidance and actually help create the report itself. It is very far-reaching.

You can think of this as sort of the constellation of all these things that your organization needs to be concerned about for human rights, social issues, the environment … and then you have very specific things, maybe even demand-led things.

For example, the SEC requirements are one piece of the puzzle. A requirement for integrated reporting could be another.

Maybe you might start with just a few indicators that you need to report to the SEC. But what we want is for you to be thinking of all these other things around human rights and these other issues that may not be going into an SEC report.

So how do we interact with those? Well, it’s all complementary — there are very few truly competitive frameworks in this marketplace. Only GRI has a multi-stakeholder approach, which brings all stakeholder groups to the table. The other frameworks are very specific approaches to reporting. Today, there are maybe half a dozen. Tomorrow, there’ll probably be a dozen. In the future, there could be hundreds.

When I came into this market, I thought, if you don’t get this collaboration stuff right at this stage, you could be in for a very fragmented market, because these frameworks don’t talk to one another.

We want people to use our standards and use them for very specific things. That’s the whole idea. We exist to enable other organizations to succeed, by providing a platform of standards by which they can pick and choose, to be able to advance the sustainability agenda.

I’m from the technology space, and standards in technology are all open like this. In the sustainability world, they’re not. You’ve got organizations that say, “Oh, we’re a standard.” “Oh, how’d you come up with those indicators?” “Hmm, well, we don’t talk about that.” So how can you be a standard when your process is a black box? It doesn’t make sense to me. In the tech space, you’d never see that, but in this space, you see it all the time.

That’s not what we are. We’re completely open. Anybody can see the standard, they can see the entire process by which it was created, and they can even provide input to the standard directly. That’s important.

So if somebody takes these standards and then thinks, “Oh, maybe we should fiddle with this a little bit and add a few more,” just say they evolved and improved, does that get brought back into the GRI?

That’s the challenge we have right now, because that’s exactly what’s happening. G4, which is the current and last version of the framework — now it has become a standard, so there is no more versioning, right? But we reference more than — 70 international conventions and declarations and 19 other reporting frameworks, I think. And with most of those, we have linkage documents to say, “Oh, well, this came out of GRI, and there’s a bunch more things that they’ve added. This is how to translate that into what you’ve already done with GRI.”

The whole idea is that you write once, and report everywhere — which would sound very familiar to technology people. Can you actually do that? Not really, but you can definitely write once and, with minimal work, be able to report everywhere. And that’s the whole idea.

So what is the value that companies get out of reporting their sustainability activities?

There are a couple ways of answering that question. Instead of thinking about materiality, think of relevance. Why is this relevant to you? Why are you reporting this in the first place? What’s relevant to the organization, and what’s relevant to all the various stakeholders in the organization?

By going through this process, companies get a better understanding of what their relevant issues are. Sometimes it’s about future risk. Once they understand the constellation of issues they have, then they can step back and say, “Holy smokes, in two or three years we’re going to have a real environmental issue on our hands,” or, you know, “We’ve got a lot of risk in…” say, social issues or supply chain or whatever. So it’s a mapping exercise of what’s important to your organization.

Other times, it’s driven by policy. You don’t see that a lot here in the U.S., but you definitely do see that in other areas. GRI’s referenced in 25 national or regional policies. And in some of those countries you actually comply with environmental regulations if you use GRI. Which is actually pretty cool, when you think about it. So sometimes it’s regulatory, but we don’t tie ourselves to that.

There are a million reasons that organizations find value in sustainability. Our role isn’t to help them to find the value; our role is to provide a standard by which they can do that easily, and make it comparable across years, and across organizations, so they can compare themselves to others. There needs to be some credible standard in the marketplace that does this. And that’s what we are.

Thousands and thousands of companies use this. Governments use it. Stock exchanges use it. We have more than 19,000 people around the world, trained on the GRI platform. We train thousands of people a year for this. So it’s a real juggernaut, when you think of what’s out there.

In Europe, we don’t usually get the question, “What’s in it for business?” because they do it. Whereas here, there’s a value-for-money question. That isn’t always so clear.

It’s an efficiency in itself for companies — is that a fair summation?

I think that’s totally true. And I don’t think that that’s the way a lot of organizations think of it, to be honest with you.

Sometimes reporting is a means to an end, not the end itself. A lot of organizations create the sustainability report, because they think “Oh, we’ve got to make that report.” But that’s not the value of the piece, right?

Say you’re a multinational, and your subsidiary in the U.S. reports to the SEC. Well, great. You should take your GRI data, do the mapping exercise, and have SASB take care of your SEC requirement. That’s the way it should be. Or I’ve got all this information, and I want to do integrated reporting for my South African contingent. Sure, go ahead. Use our data, start there, and use it for other things, so you don’t have to keep reinventing the wheel.

Now organizations, or companies, are looking at this going, “Hmm, well, all these reporting frameworks. Which one do I choose? Do I do an integrated report, or do I do a sustainability report?” It’s actually a false question. You can’t do one without the other. You have to have a sustainability report to do integrated reporting.

So one of the values that companies get from going through the reporting process, the mapping process, is that it’s an opportunity to discover things about themselves. Like, what’s material? What’s really important to them?

Absolutely. That is definitely part of this.

This reporting isn’t something to do just because you care about the environment. This is something to do because you care about your business. It’s definitely a strategic exercise. It’s the mapping by which you need to plan out the next X number of years in your business. In fact, I struggle to see how successful businesses could do it without this.

They do the report, and then they look at it and say, “Oh, you know what, we could use this for all kinds of strategic planning…” We enable their decision-making, right? That’s the whole point behind this.

Now, in the early days of GRI, the whole idea was, “Well, let’s get behind the sustainability report, because that gives everybody a common goal to work towards.” Even though the value is in the process, you had to pick one thing that everybody would rally behind.

Well, great. Job well done. We all did really well at that. Now we’ve got 22,000 reports sitting here, we have thousands and thousands of organizations putting this data in … you’ve got a ton of data, and you’ve got a lot of different interests on how that information is relevant to the business. Now what? And that sort of sets the stage for what’s next.

All right, let’s get into that. What is next?

Historically, the GRI’s done two things, and done them extremely well: one is influencing policy on an international level, and the other one is creating more reporters and better-quality reporting.

But now that sustainability reporting has really become pretty mainstream — almost all major corporations do it — what’s next? Is there another pillar for the organization, which is really beyond reports? What about small-to-medium-size enterprise? What about having the sustainability standard as cornerstone to investment in the developing world? That’s not about reports, right? That’s really about: how can you use this data to do new things with these guys? How can you take that and turn that into something actionable?” And there’s that whole middle ground there, that there are a lot of interesting things going on.

And to be honest, I think that’s our role. That’s not the role of other reporting frameworks that are specifically focused on investors, or insurance, or boards, or the SEC. That’s not their job. And they wouldn’t say it’s their job. It is only GRI’s job to figure that out.

So now that sustainability reports are there, now that we’ve amassed an incredible quantity of data, it’s time to make that information relevant to the different stakeholders on what they can do, not necessarily for the sustainability report itself.

And then there’s the fourth area, which is a little more future-thinking. GRI has launched new frameworks, it’s launched new standards, it’s launched thousands and thousands of sustainability reports, career startups, you name it, just by being in the middle of this market, just by being the standard for sustainability. And it hasn’t really seized that. It’s never really seen itself as sort of an incubator, or a launch pad for innovation. And I really think it should be.

So how do other organizations innovate using GRI? Because we’re not here to enhance the GRI; we’re here to make sure sustainability is cornerstone to all decisions made in business and government and so on. So can we be a launch pad for innovation.

We actually have been, in spite of ourselves. So can we capture that in some way, and build on that? I think the answer is yes. There’s a whole world out there once you stop focusing on the report itself, and focusing on the standard, and how that can ensure that these sustainability metrics and the sustainability information gets embedded in so many different areas of business. And that’s where things are going to get exciting.