The GRI Global Conference held in Amsterdam last week brought together sustainability practitioners, finance professionals, consultants, and academics for what many had been eagerly awaiting – the unveiling of the new G4 reporting framework. Beyond discussions of the new reporting requirements, all present were keen to share ideas about how companies, governments, and investors need to act collectively on urgent issues such as climate change, supply chain accountability, and labor rights. After three days of debate the message was clear – there is a need for all actors who are a part of the sustainability puzzle to move beyond disjointed incrementalism towards enabling systemic, transformational change worldwide.
What we heard at the conference revolved around four major areas: the function of reporting in driving change within companies and on a company’s performance; the need for systems thinking; the role of investors and ESG-financial integration; and finally the crux of the new reporting framework – a strong focus on a company’s material issues.
So how can reporting on a company’s ESG (Environmental, Social and Governance) performance help bring about transformational change? How does reporting relate to recent daunting problems such as climate change refugees in the US and the tragic factory collapse in Bangladesh? Panelists and participants alike asked such questions and offered various perspectives on the value of reporting. Achim Steiner of UNEP commented that information is power – the power for businesses to differentiate themselves in the eyes of their stakeholders, and for the market to reward companies that are transparent and sustainable. Others noted that reporting allows us all to use the same set of information, initiate dialogue, and spark behavior change.
In terms of how reporting can be improved, three overall themes emerged:
- Pavan Sukdev, author of Corporation 2020, pointed out that one of the fundamental problems with our current accounting of ESG issues is the lack of inclusion of externalities.
- James Gifford of UNPRI said that ESG data needs to be more timely, comparable, and audited so that it can be used effectively by analysts and investors.
- Numerous conference speakers highlighted the need for focused, material management and reporting of ESG issues.
A focus on these themes will help companies engage their critical stakeholders and push toward the systemic changes we need. The pivotal role of investors as key stakeholders was reiterated. In fact Peter Bakker of WBCSD stated that our biggest challenge is involving investors in these conversations. He called for a fundamental reboot to capitalism in the face of rising social tensions, an unabating economic crisis and the need to involve capital markets in ESG issues. James Gifford noted that while most investors do not consider ESG issues to be material, investor interest is growing. Questions were raised about how to foster investor demand for impact investing, curb financial short-termism, and speak the language of investment professionals. In response, Sandy Frucher from NASDAQ suggested that we must persuade financial analysts to start asking ESG-related questions to CEOs and CFOs during quarterly calls. Others pointed to integrated reporting as a way to show the direct connection between financial and sustainability performance. Despite plenty of interest and numerous suggestions, it is clear that how to influence investors to include ESG issues in their financial assessments still remains a million-dollar question.
As everyone debates the merits of the G4 framework in the coming weeks, we encourage business leaders to keep the bigger picture in mind. Reporting is just a tool – albeit a valuable one – and companies intent on real progress must seek to account for their externalities and embed integrated thinking deep within their strategy and operations. As Pavan Sukhdev remarked, change is going to take place either through design or disaster, so companies need to rethink their role, not just as managers of future risk but as designers and architects of a sustainable future.
This article was coauthored with London Analyst Rida Bilgrami