'Investment managers look beyond the financial balance sheet now'

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: Indian companies are making a mark in sustainability reporting globally. ITC and ABN Amro India were amongst the winners of the Readers’ Choice Awards for sustainability reporting at the recently concluded Global Conference on Sustainability and Transparency in Amsterdam, which was organised by the Global Reporting Initiative (GRI). The winners were chosen by about 1,700 readers of sustainability reports in 70 countries. A collaborating centre of the United Nations Environment Programme, GRI has formulated a global sustainability framework comprising principles and disclosure items with performance indicators to enable organisations to measure and report on economic, environmental and social performance. In an email interview with FE’s Rajiv Tikoo, GRI chief executive Ernst Ligteringen talks about the significance of the awards, the GRI Sustainability Reporting Guidelines and the benefits of reporting. Excerpts:

The GRI Readers’ Choice Awards for Sustainability Reporting were dominated by India and Brazil. What’s the inference?

The large number of scores for reports from Latin America and India shows that sustainability reporting is far from the preserve of companies in Europe and North America. Sustainability is a global concern and sustainability reporting is a global phenomenon. Readers in these countries gave higher scores than those in Europe, showing that they want to reward those organisations that are leading with transparency and accountability in their region.

What is the message in the larger context?

The readers viewed adherence to sustainability reporting standards and telling a balanced story—reporting on the good and the not-so-good news - as vital to building trust and credibility. This is vital if sustainability reports are to be credible.

Openness in disclosing economic, environmental and social impacts can give companies a competitive edge, but people aren’t fools. They read reports with a purpose and they want the truth and the whole truth—not just selective reporting where their performance is good.

There are other reporting tools, too. How are GRI Sustainability Reporting Guidelines different?

There are useful tools out there for reporting on different elements in the sustainability mix, however only G3 Guidelines (third version of the GRI Sustainability Reporting Guidelines), cover a wide range of indicators. They have been developed in conjunction with business, civil society and others, thus creating a globally applicable standard. There are no other sustainability reporting guidelines that have the breadth of input that G3 has, nor are there any guidelines as widely used and recognised as G3.

What are the challenges that you face in making reporting more universal?

The concept of sustainability reports is a relatively new one and much has been achieved in a short space of time. GRI itself is only ten years old and during that time GRI has pioneered the development of the world’s most widely used sustainability reporting framework by bringing business, NGOs, labour organisations and others together. The resulting framework that sets out the principles and indicators that organisations can use to measure and report their economic, environmental, and social performance is a testament to the success of this multi-stakeholder approach.

GRI is committed to the continuous improvement of the guidelines and their application worldwide through supplements for different industry sectors and countries, thus ensuring their universal applicability.

Voluntary sustainability reporting seems like a procedural formality. Does it in any way influence action in the first place?

In order for a reporting organisation to understand its impacts on people, planet and profit, it must first analyse and report on these impacts. Thus, sustainability reporting following the tried and tested GRI Guidelines really does drive action. Once a reporting organisation’s sustainability performance is made transparent, it can be compared in a like-for-like way with its peers. Pressure for improvement can be made from within and from outside the organisation.

Wouldn’t the guidelines always have a limited role because they are more about social and environmental issues than economic issues ?

It is impossible to separate a company’s sustainability performance from its financial performance. While a traditional and narrow financial report can tell you how profitable a company is, a sustainability report enables you to look at the value of the company in economic as well as environmental and social terms. A sustainability report helps one understand the true value of a company over the longer term. This information is crucial to investors and other stakeholders.

Why should sustainability reporting interest investors?

Increasingly, investment managers are looking at issues beyond the financial balance sheet, which is prompting more and more companies to issue sustainability reports. The investor community represents one of the key stakeholder groups for sustainability reporting. GRI has an essential role in ensuring that there is consistent and reliable information on sustainability performance available to financial markets. Without standardised information, investors and the financial markets will be unable to integrate environmental and social factors into decision-making.

Does following GRI guidelines yield any dividends?

According to the Edelman 2007 Trust Barometer, based on global research by US firm Edelman Design Communications, a majority of opinion leaders believe that “global business plays a role that no other institution can in addressing major social and environmental challenge”. Businesses are aware of the potential for damage to brand reputation through perceptions of their sustainability performance.

Earlier this month—alongside the Readers’ Choice Awards—we released Count Me In: The readers’ take on sustainability reporting. GRI commissioned KPMG of the Netherlands and SustainAbility of the UK to undertake the work of analysing the views of the readers of sustainability reports. The survey found that 90% of sustainability report readers agreed that their views of a company had been influenced by reading its report. Of these, 85% reported a more positive perception of the company. Companies therefore generate trust through issuing a sustainability report, which is a crucial component in generating and retaining business.

Are there any tangible benefits?

Issuing a sustainability report also brings benefits to companies through the cost reductions inherent in sustainability. Reporting organisations often find that in preparing a sustainability report, they are confronted with issues, like energy use, that they weren’t aware of and can act accordingly, thus improving the sustainability of the company, including its financial balance sheet.

So, is it time for guidelines to become standards?

While the G3 Guidelines have become the de facto global norm in sustainability reporting, we wouldn’t like them to be set in stone. The evolution of the guidelines is crucial in ensuring their relevance to business, governments and wider society. Both sustainability reporting and our knowledge of serious issues affecting people and planet today are relatively new and we can thus improve our understanding and application of both through further learning. Now would be the wrong time to tell organisations that they must report against the G3 Guidelines and forever.

The third version of your guidelines came out in 2006, but the development debate has changed since then. For example, climate change is now on top of the agenda. So, how do the guidelines keep pace with changing priorities?