Sustainability in Mainstream Financial Reporting

Speakers

• Amy Augustine, Director, Corporate Program, Ceres
• Mike Wallace, Director, Focal Point USA, Global Reporting Initiative
• Jessica Fries, Director , The Prince’s Accounting for Sustainability Project (A4S)
• Eric Dziedzic, Director of Corporate Responsibility, Merck
• Roberto Bossi, Sustainability Planning and Rating Manager, Eni S.p.A.
• Laura Commike Gitman, Managing Director, Advisory Services, BSR (Moderator)
• Dunstan Allison Hope, Managing Director, Advisory Services, BSR (Moderator)

Highlights

• In an increasingly transparent world, reporting gives companies a chance to present an accurate narrative of their efforts on relevant long-term business issues.

• Companies pursue a broad range of approaches to reporting. Some are starting to create fully integrated reports, while others have not been able to combine financial and sustainability reporting.

• Reporting is becoming increasingly important to more stakeholders—from investors to stock exchanges, and from customers to buyers. At the same time, reporting standards are evolving, and companies have a unique opportunity to shape future expectations.

Memorable Quotes

“Bloomberg terminals are now able to allow users to quantitatively compare and contrast companies on reported data … Companies who do not report will [appear with] a blank. That blank sends a big message to the world.” —Mike Wallace, GRI

“What would be helpful for business in our reporting journeys is consensus on what integrated reporting really means. Until then, everyone will be defining their own version of integrated reporting, which leads us to the situation where we are now—too many questions left in too many people’s minds.” —Eric Dziedzic, Merck

“People are going to find the information [about your company]. They might find the right information; they might find the wrong information. You should tell your [own] story.” —Amy Augustine, Ceres

Overview

Hope opened the session with the observation that we are in an interesting moment in time in the evolution of sustainability reporting. He pointed out three trends: the movement toward integrated reporting, the increasing quality of sustainability reporting, and the growing experimentation in regulation by governments.

He then opened the first of three topics for discussion—sustainability reporting standards. Wallace began by introducing the Global Reporting Initiative (GRI) and highlighting the next set of GRI guidelines, dubbed the G4. He invited attendees to participate in its development through the G4 online survey.

Wallace then discussed multiple trends. First, he pointed out how many stock exchanges were beginning to refer to—if not require—disclosure along the lines of the GRI guidelines. Second, he drew attention to how organizations with large procurement arms (such as the U.S. General Services Administration, or Microsoft) were requiring reporting from their suppliers, either directly through supplier reports or indirectly by producing reports themselves that involve gathering information from suppliers. Finally, he talked about regulatory bodies that are passing legislation referencing GRI guidelines.

Fries then introduced her organization, the International Integrated Reporting Committee, which also welcomes feedback on a recently released discussion paper on integrated reporting. She went on to differentiate integrated reporting from combined reporting. Rather than simply combining separately produced financial and sustainability reports, integrated reporting is ideally the result of “integrated thinking”: It starts with the business model and is an output explaining how the company is creating value. This method requires a different approach to materiality, a company’s footprint, and its time horizon.

Hope then asked each table to discuss reporting standards. One theme that emerged from multiple tables is the chicken-and-egg relationship between the reporting process and the strategic thinking process: Both influence and support each other. Gitman then opened the next discussion about companies’ reporting experiences.

Bossi began by describing Eni’s experience producing an integrated report. He walked the audience through the process, talking about how the company began by gathering stakeholder perspectives on how the business could be more sustainable. He described how simply inserting sustainability indicators into the main financial report did not work; it did not tell the whole story. Ultimately, the company created a brand-new document that started with overall strategic objectives and illustrated the alignment between business results and sustainability outcomes.

Dziedzic followed by describing Merck’s experience with corporate responsibility reporting. He described how the company progressed from a GRI E-level report in 2007 to an A-level report in 2010. By conducting a materiality assessment, the company became progressively more focused on the issues that were most important to the business—halving the number of KPIs reported from 80 to 40. He acknowledged the next step in the company’s reporting “journey” was adding credibility to its reports via third-party assurance.

Gitman then launched more table discussions around participants’ own experiences with reporting. After these discussions, one common frustration voiced was that often, no one else in the organization cares about producing a sustainability report. Solutions offered in response were creating data-collection systems and combining them with accountability.

Augustine then introduced CERES, a coalition of investors and public interest groups focused on business sustainability. She said that after recent events, such as the financial crisis, oil spills, and climate-related disasters, investor attention to sustainability is on the rise. In addition, the growing use of social media and general increased access to information is setting new expectations about transparency. Augustine pointed out that the increased demand for reports is an opportunity for companies to collect relevant data and use these reports to tell the story of their efforts, rather than letting the story be shaped by others.

Gitman launched the last set of table discussions around report usage. Feedback from those discussions included the idea that investors do care, but not enough, and that companies have the opportunity to demonstrate to them why they should care.

In closing, both Augustine and Gitman reiterated that while reporting is evolving, this is the time for innovation—for companies to shape the reporting process of the future, rather than have the process defined for them.