Latest Developments in Sustainability Reporting

By Robert Gibson, Mark Harper 11 July, 2013

Robert Gibson & China Water Risk take you through the latest developments in the field of sustainability reporting

New developments by GRI & IIRC increased focus on material issues
Studies show companies with high ESG ratings have lower cost of capital
47.1% of investor audience unfamiliar with GRI

The world of sustainability reporting has seen a very busy last few months. The Global Reporting Initiative (GRI) launched the 4th generation of their sustainability reporting guidelines G4, and International Integrated Reporting Council (IIRC) CEO Paul Druckman has been touring Asia engaging the investment community on the consultation draft of their Integrated Reporting (IR) Framework.

Sustainability reporting has also been a keenly discussed topic at a number of conferences including Standard Chartered’s Earth Resources Forum last month. Here, Robert Gibson, of City University of Hong Kong, and us take you on a whistle stop tour of the latest developments in the field of sustainability reporting.

GRI Update

With over 2,400 companies issuing GRI compliant reports in 2012, it is clear that it has grown into the ‘de facto’ standard for corporate sustainability reporting. In May this year, eleven people from Hong Kong joined over 1,600 from around the world for GRI’s Conference on Sustainability and Reporting in Amsterdam with the launch of the latest generation of the GRI guidelines; here Robert Gibson, Adjunct Professor on sustainability at City University of Hong Kong gives us his key takeaways from this event:

  • The new guidelines were developed with the objective of increasing the focus on material issues, being more user-friendly and aligning with other international reporting systems.
  • Changes which have been made to provide a greater focus on materiality, including:
    • An enhanced ‘Disclosure of Management Approach’ process on using the principles of sustainability context, materiality, completeness and stakeholder inclusiveness to decide which items to report on and how to report them.
    • The report boundary can now vary depending on the issue being reported. This allows reporter to adjust scope according to the issue. For example reporting on Child Labour risks in major suppliers from countries where these are a concern but not reporting this information from owned businesses where the risks are very low.
    • Replacing the ‘Application Levels’ with ‘In Accordance’ criteria.
      • The G3.1 A, B and C ‘Application Levels’ depended on the number of items reported. There was a common misunderstanding that ‘A’ was better than ‘B’ leading to companies reporting immaterial items in order to achieve it.
      • To avoid this G4’s ‘In Accordance’ criteria focus on only reporting material issues.
  • Additional disclosures on supply chain, governance, ethics & integrity & GHG emissions.
  • Several sessions at the conference covered the relationship between GRI and the ‘Integrated Reporting Framework’ which is under development. The International Integrated Reporting Committee (‘IIRC’) has signed a MOU with GRI recognizing GRI’s primary role in developing sustainability guidelines and standards while GRI recognizes primary role in developing and Integrated Reporting framework. With Integrated Reporting still under development there is some uncertainty on these issues but, as the MOU states, GRI and IIRC are committed to work together to promote the global harmonization and clarity of corporate reporting frameworks.

Integrated Reporting (IR) Update

Separately China Water Risk attended an event hosted by ASrIA where Paul Druckman from the IIRC ran a workshop on IR and its value to investors and asset managers. He stated that IR evolved out of the principle that “Investors don’t want more reporting they want more relevant reporting.” Note, that IR is a separate reporting framework, it is not as simple as merging the financial and sustainability reports, nor is it a replacement for GRI G4.

  • Academic studies seemingly agree that companies with high ratings for ESG factors have lower cost of capital in terms of debt and equity
    • Click here for more information on this please see here (link to mining spend article) and this study by Deutsche Bank.
    • We will be looking at this in more detail in future newsletters so please keep an eye out.
  • CLP who presented on their participation in the IR pilot programme, remarked that the big challenge they faced with IR and sustainability reporting is the quality of non financial data, due to:
    • No specific accounting standards
    • Non-financial data is generally not externally audited
    • Concerns over corporate and director liability for inaccurate reporting
  • A standard criticism for sustainability reporting, whether it’s GRI or IR, is that there is a lack of universally accepted metrics for sustainability indicators. Without which you are only able to measure management and strategy and use them as a proxy for performance. Yet despite this there is an appetite for sustainability reporting from investors, as was exemplified by Guy Jarvis Standard Life saying that they “Need to understand full picture of company not just financial results.”

“The impact of sustainability on company value – Which frog is being cooked”

This was a title to the only sustainability session at the Standard Chartered Earth Resources Forum. The panel discussion moderated by Robert, comprised of Dr. Glenn Frommer, Chief Sustainable Development Manager, MTR Corporation; Elizabeth Pennie, Group Sustainability Head, CLP Holdings; Marie Rosencrantz, Founder Rosencrantz & Co; Evan Li, Director, Power, Utilities, Renewables and Environment, Standard Chartered.

All the panelists agreed that ESG has an impact on the value of a business. However, Evan Li from Standard Chartered echoed CLP’s concerns, by remarking that the investors he had spoken to, complain about the reliability of non-financial data and the inconsistency in how it is disclosed and presented, which makes sector benchmarking very difficult. The question is whether these new frameworks address these concerns? The answer it would seem is not really, as there is no link to the only International standard on corporate sustainability (ISO26000), and they don’t provide a true measurement of risk. As mentioned earlier it still isn’t clear that the new standards (GRI G4 and IR) will do much to address these concerns.

Yet despite the panels agreement on the importance of sustainability and sustainability reporting to businesses, 47.1% of the forum’s investor audience were unfamiliar with GRI’s reporting framework. So, are investors like frogs sitting unaware in a pot of slowly boiling water, operating on business as usual footing, completely unaware that they are being cooked by the unmanaged water risk they are exposed to.


 

Further Reading

• Want to find out more about disclosure of water risks? Check out our Disclosure section

• Interested in whether current water disclosure within the mining sector accurately provides a full picture of risk exposure? Check this out.

• Read more on Swire’s reasoning behind their take up of integrated reporting.

• Check out Water: A Mining Blindspot for comments by the from the Environment Director of the International Committee for Metals and Mining (ICMM)

• For more on corporate disclosure and Integrated reporting please stay posted for upcoming newsletters

Robert Gibson
Author: Robert Gibson
Robert is both an Adjunct Professor at the School of Energy and the Environment and the Sustainability Facilitator for City University’s campus. He collaborates with Civic Exchange and Hong Kong’s Climate Change Business Forum. His main focus area is the international cooperation on mitigating greenhouse gas emissions which is overseen by the UN Framework Convention on Climate Change. He has attended its meetings in Copenhagen (2009); Cancun (2010) and Durban (2011). From 2007 to July 2010 he was Director Sustainable Development for John Swire & Sons (HK) Ltd with a focus on climate change issues. Prior to that he worked as Finance Director at different times for the Swire group’s aircraft maintenance, beverages and industries operations. He joined Swire in 1980 having previously worked in the U.K. first for the British Aircraft Corporation (as an engineering apprentice) and for Coopers & Lybrand (as an auditor).
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Mark Harper
Author: Mark Harper
Mark was project manager of China Water Risk for 2013 and articles written below were during his tenure at China Water Risk. Mark has worked for nearly a decade managing corporate/NGO partnerships focused on environmental engagement and corporate sustainability. He was previously the programme manager for Earthwatch Institute and Flora & Fauna International. Mark has extensive experience organizing hands-on conservation and educational projects for corporates, schools and communities. He has lived and worked in Sri Lanka, Oxford, Hong Kong, Boston and London. Separately, Mark actively pursues his interest in environmental conservation, by volunteering to monitor great white sharks in California to conducting research on rhino census in South Africa. Mark believes that change is only possible through the collective action of the corporate and investment communities.
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