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It is an old truism that wise investing depends on good information.
While there are well-developed, government-regulated mechanisms
for collecting and disseminating accurate and relevant financial
information from publicly traded companies, the means for gathering
and distributing non-financial information are relatively early
in their development. But the demand for non-financial reporting
is growing as even mainstream asset managers and institutional investors
increasingly appreciate the importance of issues like greenhouse
gas emissions and other environmental and social liability potential.
Many companies have responded by reporting publicly on sustainability
performance, as well as responding to specific information requests
from socially responsible investing (SRI) research firms, asset
managers and institutional investors.
Highs and Lows
As non-financial reporting has grown, many companies have realized
a number of benefits from their reporting efforts. There is the
potential for inclusion in sustainability-related financial indexes
like the Dow Jones Sustainability Indexes, FTSE4Good and the Domini
Social Index, as well as positive relationships with stakeholder
groups that appreciate transparency on environmental and social
matters. And the process of reporting non-financial information
can make companies aware of opportunities for improved performance—social,
environmental and even financial.
"Reporting financial and non-financial results at the same time
gives our stakeholders a more accurate picture of our business,"
explains Debra Dunn, senior vice president, corporate affairs and
global citizenship, HP. "And internally, the reporting process has
allowed us to align our business and global-citizenship strategies,
and set comprehensive goals and metrics." HP recently received the
Best Sustainability Report award from Ceres-ACCA North America for
its 2004 Global Citizenship Report.
There is consistent growth in requests for transparency. The increase
in information requests has been most pronounced in Europe, where
attention to social and environmental performance is more acute,
and "survey fatigue" has been growing for some time. A study by
the London Stock Exchange of a representative sample of British
companies found that responding to these questionnaires costs corporations
an average of seven person-days per month. The Financial Times last
year referred to the phenomenon as "the unexpected cost of corporate
virtue."
As a result of the growing demands for reporting, a number of efforts
have been started to consolidate reporting standards and streamline
data gathering. In Britain, the London Stock Exchange has developed
an online tool called the Corporate Responsibility Exchange, which
consolidates data entry for the Global Reporting Initiative and
a number of European reporting standards, allowing results to be
published online. Similar efforts are under way in the United States.
Global Reporting Initiative
The Global Reporting Initiative (GRI) is a set of sustainability
reporting guidelines conceived as a credible framework for non-financial
reporting. Since its first-generation guidelines were introduced
in 2000, GRI has done an impressive job of consolidating a bewildering
array of stakeholder concerns into a single reporting framework.
The growth of GRI-based reports has blossomed, well beyond the goals
GRI set for itself just a couple of years ago.
But as public corporate-citizenship and sustainability reporting
has been consolidating around GRI, requests from SRI institutions
and researchers have also proliferated. In October 2004, a group
of social-research analysts at 18 investment firms representing
more than $230 billion in assets under management issued a statement
encouraging investors and research institutions to rely on GRI reports
first for information. The group acknowledged that, according to
the World Business Council for Sustainable Development, the GRI
already covers 80 percent of the data requested in SRI-related surveys.
Additionally, GRI is currently working on a new version of the reporting
guidelines that will meet more of the demands of the SRI industry,
as well as those of other stakeholders, making it a more powerful
standard. The new version, referred to as G3, is expected to be
released next year.
While complete GRI-based reports can provide most of the information
SRI analysts need, there will always be additional surveys from
analysts and institutions to satisfy demands for more specific information.
In response to these reporting challenges, a number of U.S. companies
and other stakeholders have begun to develop tools that can be used
to help companies meet the reporting demands of the SRI industry.
Two of these tools are SRI World Group's OneReport and Future 500's
Global Citizenship 360 tool.
OneReport
SRI World Group, a Vermont-based provider of social investing and
corporate social responsibility information, has developed an online
reporting tool called OneReport with the help of multinational corporations
and leading sustainability research and rating firms. OneReport
is designed specifically to help corporations report to research
and rating agencies, whose analyses provide a basis for much of
the socially responsible investing activities of asset-management
companies and institutional investors. Ultimately, SRI World Group
intends OneReport to become the primary global conduit of corporate
sustainability data.
OneReport consolidates data requests from more than 20 of the
world's leading research and rating organizations, eliminating redundancy.
These organizations (see inset, OneReport Relationships)
have signed agreements with SRI World Group to accept data directly
from OneReport. Once a company has entered and released its data,
the data is automatically distributed to the research and rating
organizations via electronic feeds and password-protected Web sites.
Data is provided in formats that match the individual frameworks
and technical needs of each organization. If a company chooses to
report using GRI indicators, GRI-related data will be provided to
participating research organizations and other data users around
the world.
Alcan, one of OneReport's early corporate adopters, sees significant
benefits to using the tool, both in terms of efficiency and increased
understanding. "It really does streamline the way that we've been
doing this over the years," says David Hecnar, Alcan's manager of
strategic research and communications. "What you have at the end
of the day is a very organized system where you've got the sets
of questions in logical sections laid out for you, and then what
you can do is work through them to not only put in all of the information
that you have at your disposal, but at the same time you get to
see the wide breadth of what's being required, and so you've got
a much easier opportunity to assess your reporting needs."
Global Citizenship 360
The Global Citizenship 360 (GC360) tool is a software data-gathering
and reporting tool developed over the past five years by Future
500. Future 500, a San Francisco-based 501(c)(3) nonprofit group,
developed the tool with support from several of its larger corporate
members. The tool is used by some of the world's biggest industrial
and consumer products companies, including the Coca-Cola Company
and General Motors.
The Global Citizenship 360 organizes the data-gathering process
into five stakeholder categories: shareholder, workplace, community,
marketplace and environment. Within each category, companies are
prompted to answer a series of questions and upload required data.
The entire GC360 survey includes 200 questions, and the results
can be printed or exported to facilitate survey responses for any
of more than 20 of the leading CSR and SRI standards, including
the GRI, the Dow Jones Sustainability Indexes, FTSE4Good and the
Domini Social Index. (See inset, GC360 Coverage.)
More than a non-financial reporting tool, the GC360 is designed
to facilitate better CSR performance, as well as inform and formulate
CSR strategy. The GC360 helps align overall business objectives
with CSR objectives by business unit. A series of analysis tools
allow for the data to be mined for trends and management information.
Customized reports allow users to identify gaps in CSR performance
and create "to-do" lists for each of a company's business units.
"Once you understand areas of risk, areas of performance, strategic
opportunities and business case elements," explains Aileen Ichikawa,
vice president of corporate accountability practice services, Future
500, "then you can formulate really effective CSR strategies."
As a result of GC360's promise as a management tool, it is a central
element of the Conference Board's Working Group on Global Corporate
Citizenship and Risk Assessment. Future 500's collaboration with
the Conference Board in conducting the working group began last
year, and has been extended to a series of meetings this year.
One of the participants in last year's working group was a privately
held company without the same investor relations pressures felt
by publicly traded firms. Cascade Engineering is a $175-million
manufacturer of engineered plastics with a commitment to the triple
bottom line of sustainability. After producing and publishing a
triple bottom line report last year, the company began using the
GC360 tool to gather and manage information for its sustainability
efforts. "The (GC360) tool showed us that we had several opportunities
to improve our performance. It can provide a roadmap to eliminate
waste or improve performance in many areas," according to Mike Goldman,
Cascade's vice president of business services.
The Road Ahead
Non-financial data collection, reporting and management aids like
the ones profiled here are indications of the growth of corporate
social responsibility and socially responsible investing. By aggregating
disparate and overlapping SRI indicators, these tools help companies
to understand what is meant by CSR, and to begin to formulate strategic
responses. This indicates a widespread acknowledgment among corporate
senior executives that these issues are to be taken seriously.
There is much more progress ahead, though, as the meaning of CSR
is better defined and the development of appropriate SRI indicators
proceeds. Tools that contribute to this progress will mature and
probably proliferate in the years ahead. The hope is that as these
tools develop, the benefits of non-financial reporting will grow
while its challenges decrease.
As Ichikawa states, "Where we're heading, I hope, is that this
becomes a mainstream discipline, just like any other accepted corporate
discipline—like accounting and human resources and operations.
This becomes just as mainstream as that. It will be a little while
before that happens, but leadership companies have already started
to do that."
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