csr-reporting

GRI revises employment standards. Shoot me now.

2024-07-03T19:40:00.000+03:00

Yes, we’re back at the CSR Reporting Blog. Apologies for too long an absence due to so much time working on reporting rather than writing about reporting. But this new GRI brainchild was too good to pass up.

GRI has published exposure drafts for the first phase of its employment and labor standards revision, introducing new and completely unique disclosures. Just when you thought ESRS was enough to mindblow even the most energetic of reporters, GRI has generated 13 original multipart disclosures and revised (expanded) 8 disclosures, all from 5 existing ones. It’s the GRI multi-stakeholder Mary Poppins at work again pulling more metrics out of the bottomless carpet bag.

We are truly in the age of mega mushrooming of metrics, where every new standard adds to the reporting burden in a way that I fail to believe is what's needed to advance sustainable development and protect people, society and the environment. There’s a point at which disclosure becomes dysfunctional rather than constructive. It makes you wonder when we will have a metric for how many times people use the bathroom – broken down by gender, region, employee category (including workers who are not employees) and time spent per visit. Let’s just hope that this disclosure requirement doesn’t include details of bathroom activities.

Despite reverberating declarations of cooperation, collaboration and undying love between the prominent standard setters (notably GRI, IFRS and EFRAG), here we go again: GRI proposes more unique disclosure requirements that do not appear in any other standards (as far as I can ascertain). But don’t worry, I am sure, once the new standards are finalized, GRI will publish an interoperability guide. That will make everything so easy. Not.

(The GRI-ESRS Interoperability Index will need quite some updating.)

What does this first phase revision cover?

This first phase covers topics relating to

Employment practices and conditions
Working life and career development
Worker’s rights and protection

that are part of GRI’s existing standards:

GRI 202: Market Presence 2016 (Disclosure 202-1)
GRI 401: Employment 2016 (Disclosures 401-1 and 401-02)
GRI 402: Labor/management Relations 2016 (Disclosure 402-1)
GRI 405: Diversity and Equal Opportunity 2016 (Disclosure 405-2)

There is also a new draft, Standard Interpretation to GRI 2: Control of work, which aims to clarify the ‘control of work’ concept which is used to identify reporting requirements in some of the standards.

All drafts and surveys are available here for public comment by October 4th. Sorry if that ruins your summer.

General takeaways

More policy please: In line with more recent GRI revisions, these new standards integrate topic-specific management disclosures in addition to the management disclosures required by GRI 3: Material Topics 2021. This means you can’t get away with a high level policy overview – each topic includes disclosures that are mandatory within that standard and, in some cases, require quite explicit responses.

Gender expansion: Gender has expanded in the reporting world these days. Most of the proposed disclosure requirements ask for data breakdown by gender. In addition to female and male genders, there are now two more categories: Other (Gender as specified by the employees themselves) and Not Disclosed (Gender is not disclosed by the employees themselves.)

Enter the age of the non-employee worker: GRI’s new disclosures relating to employee practices now expand to include information and metrics relating to both employees AND “workers who are not employees’. EFRAG (ESRS) calls these “non-employees” which rolls off the tongue a little more easily. Apparently, the interoperability spirit did not sync far enough to align on terminology. (I will continue here using the EFRAG term to reduce keystroke fatigue and lower my typing-time carbon footprint.)

GRI’s new guidance on who is a non-employee aims to unblur the rather confusing guidance already published. “Workers who perform work for the organization and whose work is controlled by the organization but are not in an employment relationship with the organization. Control of work implies that the organization directs the work performed or controls the means or methods for performing the work. ….. [for example]….agency workers, apprentices, contractors, home workers, interns, self-employed persons, sub-contractors, and volunteers”.

It’s still a bit blurry, I think (EFRAG actually does it better, see ESRS S1 AR61-65).

The draft standard goes further than any previous standards regarding the reporting of many aspects of policies and practices relating to non-employees. For example, required reporting for BOTH employees AND non-employees incudes aspects of external and internal recruitment, performance management, performance reviews, data protection, termination, hours of work and rest, remuneration rates, social protection contributions and management of the effects of operational changes including redeployment or upskilling. These disclosures can be understood when accounting for impacts on own workforce, but the need to report so extensively on non-employees seems excessively burdensome to me. By comparison, ESRS S1 Disclosure Requirement S1-7 requires: The undertaking shall describe key characteristics of non-employees in its own workforce. This includes “disclosure of the total number of non-employees in the undertaking’s own workforce, i.e., either people with contracts with the undertaking to supply labour (“self-employed people”) or people provided by undertakings primarily engaged in “employment activities” (NACE Code N78).” All other details about non-employees in ESRS are optional disclosures (except in the case of health and safety, Disclosure Requirement S1-14, which makes sense).

I believe that organizations should indeed be held accountable for work arrangements for non-employees (such as safety, privacy, working hours and conditions etc.) and in all cases should take measures to ensure non-employee rights are upheld though proactive monitoring/auditing of contracts with employment agencies or contractors or self-employed parties. I think there’s a case for separating these disclosures: one standard should apply to direct employees, and most companies would identify own workforce or subtopics thereof as material; a separate standard should cover the way organizations manage practices related to non-employees, which could be selected by companies that identify non-employee issues as material, perhaps those companies employing a very high rate of such workers. Jumbling up everything all together to me places an unnecessary burden on reporting companies and dilutes focus.

NB: Let’s not confuse non-employee management with misclassification of workers as per the Uber ruling, where drivers were deemed to be workers and not self-employed. This form of “disguised employment” is addressed separately in the draft disclosures from a policy standpoint.

In Accordance – too much? There was a time when declaring compliance to the full GRI Standards by being In Accordance was seen as a mark of leading practice among reporters. Many companies claim to report In Accordance to signal leading transparency (although there is quite some corner-cutting in most cases). Now, I am wondering if the burden of such extensive reporting will lead companies to pick’n’mix, preferring to “reference” GRI Disclosures rather than aim for In Accordance. I have always advocated for relevant transparency, not all-out transparency. I think these new draft standards proposals step over the line of reasonable and constructive disclosure. Read the drafts. Decide for yourself.

Key takeaways: Employment Draft Standard GRI 404-1

Got a grievance? GRI’s got you covered: The strong influence of human rights thinking is clear in this revision, with almost all disclosures referencing grievance mechanisms, appeals processes, adherence to fundamental principles and rights at work or worker representative engagement on different issues. If your reporting has conveniently glossed over human rights issues, this revision means no more.

Do you pay your interns? You probably should, because now you will be asked to give a full account of remuneration for interns and explain why they are not paid, if they are not. No need to disclose what they have for lunch.

Surprise surprise, privacy matters: You will need to disclose policies regarding employee and non-employee personal data collected, processed and monitored as well as how you obtain informed consent. It will be interesting to see how many employers collect information about employee shoe sizes or ice cream flavor preferences. Regarding the latter, I’ll happily give my informed consent. Additionally, a quantitative disclosure requires reporting of the number and types of incidents related to personal data protection and privacy of employees and non-employees. Incident means legal action or complaint or internal discovery of noncompliance. Companies are just going to LOVE this one. All that dirty washing hanging out there. Can’t see that happening any time soon.

Saying goodbye? Now say how: A new full disclosure devoted solely to termination practices, including a description of the valid reasons for termination. I doubt any company will publish a policy relating to involuntary termination for reasons other than poor performance, misconduct or layoffs or variations on those themes. GRI explains that “This new management disclosure aims to increase accountability on the termination of employment or work. The termination policy is related to job security.” I am not sure how explaining your policy on firing people is related to job security. I would have thought the opposite is true.

More and more and more data: Currently, the data requirement for the GRI 401-1 new employee hires and turnover indicator includes “total number and rate of new hires during the reporting period, by age group, gender and region,” and the same for turnover. The proposed draft expands this to include reasons for voluntary turnover and termination AND internal recruitment rate for employees and non-employees AND length of tenure by region for four different employee categories AND the number and turnover rate for non-employees by region. Ugh. Might as well just include a link to your HRIS database and be done with it. Another example: Currently, GRI 404-3 requires reporting of the percentage of employees by gender and employee category that received a performance review. In the new draft standard, it is also required to report how many non-employees received a performance review, and for those employees and non-employees who did not receive a review, why not! Hmm. Good luck with that one too.

Key takeaways: Labor and Management Relations Standard

This set of three multipart disclosures expands the single disclosure in GRI 402 that requires reporting the minimum number of weeks’ notice provided to employees regarding significant operational changes that affect them. The exposure draft goes way further to encompass details of how such changes are managed for both employees and non-employees.

Don’t forget to consult: A key feature of disclosures here are how a company consults with workers’ representatives. Everything from termination and appeals procedures, notice periods and severance payments, the number of weeks spent in consultation with workers’ representative ahead of implementing changes and more are part of the draft disclosure requirements.

Don’t forget to mitigate: For employees and non-employees, reporting requirements include actions taken to mitigate the effects of significant changes including redeployment, training and reskilling or layoffs.

Key takeaways: Remuneration and Working Time

This set of disclosures has gone into overdrive with more information and data requirements than ever before with three management (policy) disclosures and four multipart remuneration disclosures. Prepare to get granular on rem. This section includes elements from existing GRI 202-1, 405-2 and 401-2 and more.

From minimum wage to cost-of-living: In GRI 202-1, reporters were asked to describe employee remuneration policies relative to the local minimum wage rules, if available. In the draft disclosures on remuneration, companies are asked to define remuneration policy including how this accounts for cost-of-living estimates and provide, for significant locations of operation: median gross hourly basic pay by employee category AND the number of employees who are paid at the local minimum wage AND number of non-employees who are paid at the local minimum wage AND the cost-of-living estimate AND the number and percentage of employees whose basic pay is at or above cost-of-living estimate, including a breakdown of employee category and gender AND steps taken to address gaps between cost-of-living estimates and basic pay for employees and non-employees. GRI conveniently provides a suggested template (one of several template proposals in this revision) for presentation of the cost-of-living metrics. For companies with more than three “Significant locations of operation” and more than three “Employee categories”, this is going to stretch the spreadsheet limits.

By comparison, the ESRS requirement on remuneration references “adequate wages” where adequate wage is defined as the legal minimum wage or, if not available, in line with other relevant benchmarks. The organization is required to report (ESRS S1 Disclosure Requirement S1-10) “whether or not its employees are paid an adequate wage, and if they are not all paid an adequate wage, the countries and percentage of employees concerned.” C’est tout.

There is also the question of what data or benchmarks to use to define cost-of-living estimates in each country of operation. GRI recognizes that there is no universal formula for calculating cost-of-living, and this can vary extensively depending on what you include. GRI guidance explains: “Cost-of-living estimates are approximate calculations determining the necessary amount to cover an individual and their family's basic expenses like food, housing, and healthcare in a specific location. Different methodologies can be used to derive the cost-of-living estimates as there is no international agreement.”

I also wonder if the often-referenced living wage concept is different from the cost-of-living concept. Either way, any reporter counting this as material will need to set up a whole new database to meet the needs of this disclosure, and every reporting company is likely to interpret cost-of-living differently. I have to wonder how valuable this is going to be in the grand scheme of how we ensure that remuneration is fair and decent for everyone.

Working time – all is revealed: New disclosures 2 and 7 are dedicated to working time and requires detail of policies defining working and rest hours by day, week and year and metrics demonstrating how these were applied, including a breakdown of employees by type as well as non-employees with details of the number of hours worked by each type across four working-hour bands, in addition to other disclosures relating to additional aspects of working hours. Specifying overtime hours worked is not a requirement but in case anyone wants to volunteer, GRI generously shares an example template for presenting information on the number of overtime hours worked by employees by gender at significant locations of operation, with a breakdown by three bands of overtime hours. Additionally, the proposed draft asks organizations to describe how the working time policy considers the specific needs of vulnerable groups, including young workers and pregnant and nursing workers.

Gender pay gap - still on the table: This disclosure is similar to the current GRI 405-2 and asks for percentage difference in average gross basic hourly pay of men and women for each employee category. No momentous change here, except that very few companies actually report a gender pay gap except for in those countries where it is a legal requirement to report, such as in the UK and certain other countries.

Social protection coverage: This is another extensively expanded disclosure requirement building on existing GRI 401-2 Benefits provided to full-time employees that are not provided to temporary or part-time employees. Rather than requiring companies to specific which benefits they provide (as current), organizations will now need to specify whether they provide any of a set of 8 benefits categories, alongside other disclosures relating to who gets what and where and if it’s required by law or otherwise. Specifically, there is a requirement to report how a company monitors that social protection contributions are made to relevant authorities according to local regulations for non-employees.

*******

In conclusion, with this first phase of changes, GRI has created a wish list of disclosures in a topic that is material to most reporters in some way. Disclosure should never be just for the heck of it. It should provide useful and meaningful information that helps us understand the impacts of a company on society and the risks it faces. If the second phase of the labor standards revisions take the same mushroomy approach, it’s hard to predict an enthusiastic adoption rate by most reporting companies.

These disclosures differ drastically from what was hailed as "disclosure standards on steroids" with the introduction of ESRS. ESRS went further than any other sustainability disclosure standard. Despite all the wonderful collaboration going on, these proposals are not aligned with ESRS in a way that enables reporters to comply with both ESRS and GRI interchangeably for a single disclosure on these labor topics: reporting fully against ESRS would not meet the disclosure requirements of these GRI draft standards. I have to wonder who has lost the plot here. Oops. Maybe it’s me! Obviously, I need more ice cream.🍦🍦🍦🍦

elaine cohen, GCB.D: ESG Competent Boards Certified (2021), Sustainability Strategy and Disclosure Specialist, former HR Professional, Ice Cream Addict. Owner/Manager of Beyond Business Ltd, an inspired Sustainability Strategy and Reporting firm having supported >160 client reports to date; author of three books and several chapters on Sustainability Reporting and the Human Resources connection to CSR; frequent chair and speaker at sustainability events and judge in several sustainability awards programs each year. Contact me via Beyond Business

15 First Time Reports from 2022

2023-01-04T16:45:00.000+02:00

You may have heard me mention that I love first time reports. A first report is always an achievement, overcoming many new hurdles, organizationally and practically, to source and disclose sustainability information. First reports need a level of dedication, persistence, creativity and vision that enables everything to come together in the best way it can. Some first reports are very slick; they adopt the latest advanced reporting practice, the most widely used standards and bring a fresh design approach. Others are more basic and an obvious (painful) first effort at transparency. Either way, I have an extra helping of respect for first time reporters. So, as 2022 draws to a close, and we expect regulation and market forces to drive more companies to report in 2023 and beyond, this post is about how first timers are faring, and if they have learned from 30+ years of reporting practice.

The post includes a list of 15 reports in alpha order, selected at random from reports I have come across from different sources. Ice cream cones denote my overall impression of clarity, credibility, transparency and appeal. More cones = more impressed. Maximum cones = 6. No report got 6 cones 😉

Before we start, a few overarching comments:

🔎Few reports include a number for annual revenues or turnover in these standalone sustainability reports. I always look for this to get a sense of company size and impact (in addition to the number of employees). I recommend inclusion of this stat.

🔎Many reports include tedious narrative about policy and approach and general descriptions of processes. In my last post, I referenced a Policy Bank - commuting this evergreen narrative to the web so that the annual sustainability report can focus on what was actually done in the reporting year. I recommend first time reporters consider this as part of their first reporting cycle.

🔎 Many first-time reporters are new to disclosure but not new to sustainable practice. Sometimes this is reflected well in the first report, sometimes the first report is more basic, containing evergreen policy content rather than descriptions of actual progress. Some first reports barely cross the threshold of what I would actually call a report. BUT. It's important to appreciate the amount of effort that any first disclosure requires - even though the report itself may be lightweight in terms of progress and data. It's important to encourage first time reporters by providing practical feedback they can use in their second reports.

🔎 The list of first reports published in 2022 that I wanted to share is way longer than these 15 that bubbled up to the surface from different sources. The selected reports are not necessarily representative of the full first timer landscape, but the variety presented below may provide insights for different companies at the early stages of their reporting experience. As a general rule, publishing a press release to announce the report publication helps it get on the radar.

By the Numbers

6 countries, with 7 reports from the USA (most press releases!)
10 publicly traded companies, 5 privately owned
6 reports reference GRI including 2 In Accordance (Core Option) and 1 referencing GRI 2021
6 reports use SASB
3 reports use the TCFD Framework at some level
5 reports have some level of assurance
12 pages is the shortest report (two reports actually) while 123 pages is the longest. 8 reports are between 55-80 pages
6 reports have ESG in the title
8 reports have sustainability in the title

Here is the summary of reports covered and their CSR Reporting Blog Cone Score:

Cedar Fair Entertainment Company 🍦
Cimpress plc 🍦🍦🍦🍦
Corus Entertainment Inc. 🍦🍦
EG Group 🍦🍦🍦
Galaxy Digital Holdings 🍦🍦🍦🍦🍦
MAG Silver 🍦🍦🍦
Patrick Industries, Inc. 🍦🍦
Phibro Animal Health Corporation 🍦🍦🍦
Primark Limited🍦🍦🍦🍦🍦
Pyxus International, Inc. Fiscal Year 🍦🍦🍦 🍦
Ranger Oil Corporation 🍦🍦
Selina 🍦🍦🍦🍦
Vog Products 🍦🍦🍦🍦
Welch’s 🍦
Zentiva 🍦🍦🍦

*****************

Cedar Fair Entertainment Company 2022 ESG Strategy Report
Country: USA

Entity: Publicly traded (NYSE: FUN)

Sector: Amusement-resort operator

Report: 12 pages

Cone-worthy 🍦

# This is not an actual ESG report but the promise of a report. It's 12 pages of narrative about what the company plans to do, starting in 2023, and report on annually. But, it's something. And something is always better than nothing. Clearly considerable effort has gone into developing something.

# Presents a five pillar ESG strategy. Each pillar is apparently supported by aspirational goals, strategies to achieve those goals, and the tactics needed to implement the strategies, but none of this is shared at this time. The "report" describes the actions Cedar Fair is planning to take in each of these pillars.

Cone opportunities:

#Time will tell whether Cedar Fair delivers on its ambitious promises. I have made a note in my Google calendar to check back in 2023 for the publication of Cedar Fair's first actual ESG report to see how they are doing. Since Cedar Fair states its purpose as "Make people happy", it will make me very happy to see a report that contains at least a few core data points.

Cimpress plc FY2022 ESG Report

Country: Ireland

Entity: Publicly traded (Nasdaq: CMPR)

Sector: Customized print, signage, apparel, gifts, identity merchandise

$ annual revenues: $2.9 billion

Employees: 16,000

Report: 123 pages, no frameworks

Cone-worthy 🍦🍦🍦🍦

# Super slick professional report that presents a positive picture of a company that has been implementing sustainability practice for some time.

# "Informed" by GRI and SASB, it does not apply these standards but discloses four years of data for most core metrics that these frameworks would demand, including full Scope 1, 2 and 3 GHG emissions.

# Some targets for environmental impacts (including Net Zero by 2040).

# Fabulous design (only missing navigation tools) that presents data clearly and showcases local designers.

Cone opportunities:

# Material topics are listed as those "important to us and our stakeholders", whatever that means. Sounds like plug-and-play. I'd like to see a detailed materiality assessment process in future.

# Highlight targets upfront - currently they are in-chapter. I like to see where a company is heading before I know where it's been.

Corus Entertainment Inc. Sustainability Report 2022

Country: Canada

Entity: Publicly traded (TSX: CJR.B)

Sector: Media and content

Report: 55 pages, SASB, TCFD

Cone-worthy 🍦🍦🍦

# Well-structured and clearly designed report that has a fun feel. Good navigation. Interesting section on journalistic standards - a relevant topic for a media company.

# Honest responses to TCFD disclosure - for example, why the company has not set carbon targets.

# Stakeholder voices - internal and external - throughout the report in quotes with images.

Cone opportunities:

# Reference to having completed an "ESG Maturity Assessment" and a suite of goals seems great, but these are not disclosed in the report. I wonder why not? This report would be more credible if we knew what Corus is committing to.

# Would be good to see a broader set of data points in addition to DEI and carbon.

EG Group ESG Report 2021

Country: UK

Entity: Privately owned

Sector: Convenience retail

Employees: 58,493

Report: 63 pages, SASB, TCFD, SDG (goal level), Assurance

Cone-worthy 🍦🍦🍦

# Double materiality assessment with a definition of what this means for EG Group

# Full suite of ESG targets in three strategic pillars, plus a set of ESG Fundamentals that are not strategic but important in terms of maintaining responsible practice (without specific targets).

# Nice focus on people with images short bios of Board members and employee testimonials.

# Good climate disclosure with detailed narrative and data across all three Scopes.

Cone opportunities:

# Data presented for one year (2021) though this is clearly not the first year of data-collection for EG Group. I recommend three years in future reports.

# I am a little puzzled at the connection between ESG targets and materiality assessment. For example, community investment is positioned at the lowest level on the materiality matrix but EG has two public community targets. Items that are highest priority in terms of materiality (product packaging and plastics, diet and health and land and biodiversity impacts) do not have dedicated targets. Although materiality "informed" target setting, the correlation is not entirely obvious. Perhaps greater alignment here might be considered in future.

Galaxy Digital Holdings 2021 Sustainability Report

Country: USA

Entity: Publicly traded (TSX: GLXY)

Sector: Financial services in digital asset, cryptocurrency, and blockchain technology sectors

Employees: 281

Report: 73 pages, GRI 2021 (referenced), SASB, TCFD, SDGs (target level), GHG Assurance

Cone-worthy 🍦🍦🍦🍦

# This is a report with a unique kind of chic and makes a strong statement. With a mission "to engineer a new economic paradigm" through blockchain technologies and the crypto economy that most people (including me) still quite don't understand, it's a report that stands out from the crowd both in content and design.

# Overview of contribution to SDGs on a target-by-target basis with relevant supporting actions.

# Background and context articles to help us understand the crypto world and how ESG is relevant.

# Galaxy uses this report to showcase the work of photographer/artist Claudia Pawlak, with a special message about art and ESG.

Cone opportunities:

# Materiality is defined as "relevance" to internal stakeholders on the one hand, and to external stakeholders on the other. What does "relevance" actually mean? Impact on? Financial benefit? This needs to be clarified.

# Great detail about Sustainability Program oversight but no goals or targets. Makes me wonder what the 10 ESG Steering Committee Members are actually overseeing.

MAG Silver 2021 Sustainability Report

Country: Canada

Entity: Publicly traded (MAG: TSX / NYSE A)

Sector: Silver mining

Employees: 2,929

Report: 72 pages, UNGC 10 Principles, SDG overview (goal level)

Cone-worthy 🍦🍦🍦

# A congenial first report, written in plain language that people can understand, no frills or fancy jargon.

# First internally developed materiality assessment covering "significance and relevance to MAG Silver’s business and potential ESG impacts" - the process is well described.

# Good suite of corporate ESG policies to supplement reporting.

Cone opportunities:

# It would be nice to see the adoption of a reporting framework such as GRI in future.

# Design is double spaced - difficult to read

# A final proof always helps😉 (See image below on Security)

Patrick Industries, Inc. 2022 Responsibility & Sustainability Report

Country: USA

Entity: Publicly traded (NASDAQ: PATK)

Sector: Component solutions provider for the leisure lifestyle and housing markets

Annual revenues: $5.1 billion

Employees: 11,000

Report: 41 pages, SASB

Cone-worthy 🍦🍦

# A focus on people, more than half of this report is about company culture and people development and community contribution. A good start in demonstrating responsible people practices.

# The section on "where we're going" describes the broad next steps for this company, clearly at the initial stages of its structured sustainability plans

Cone opportunities:

# Tip of the iceberg transparency .. this report contains a limited amount of data, partially explained by the fact that the company has just started to put in place robust data collection processes. A world of opportunity awaits for achieving greater transparency in Patrick's second report.

Phibro Animal Health Corporation 2022 ESG Report

Country: USA

Entity: Publicly traded (Nasdaq: PAHC)

Sector: Animal nutrition

$ annual revenues: 942 million

Employees: 1,800

Report: 56 pages, GRI referenced, SASB

Cone-worthy 🍦🍦 🍦

# Phibro addresses a good range of ESG-related topics in this report, albeit most of the content is general narrative rather than specific reporting year content. The declaration that "Phibro is in the early stages of our ESG journey" is honest and credible and inspires confidence that Phibro will continue to evolve its approach and practice to include a defined strategy and targets in key areas.

Cone opportunities:

# First materiality assessment reflects issues "perceived to be most important to our customers, employees and stakeholders and are most relevant to our business" That's a good start. But it still leaves me wondering what "most important" and "relevant" mean. Is it about opinion, impact or profitability? Perhaps this could be defined more precisely.

#Material topics are not disclosed. Alongside the description of the materiality assessment process, there is a list of "beliefs". It's not clear if these are material topics or a value system.

# More pictures of animals would be nice. I love animals.

Primark Limited Sustainability and Ethics Progress Report 2021/2022

Country: UK

Entity: Owned by Associated British Foods plc (ABF)

Sector: Fashion apparel

$ annual revenues: Approx. $9 billion

Employees: 72,000

Report: 57 pages, Assurance. Primark also contributes to ABF's annual sustainability reporting.

Cone-worthy 🍦🍦🍦🍦🍦

# Primark is no stranger to reporting through its parent company Associated British Foods (ABF), but this is the first separate Primark report. It rests on the reporting foundation of ABF ABF's 2022 Responsibility Report here for reference), and is included in several sections of ABF's report, mostly narrative but some data. Certain statements in the Primark report are externally assured. As such a large business in its own right, it's a good move by Primark to add this solo venture into the world of transparency.

# Great set of Primark Cares commitments, some of which are quite bold, for example, the product commitments: improving durability of clothes, all clothes to be recyclable by 2027, all clothes to be made of recycled or sustainable sources by 2030. I think these are quite transformative for a company that is part of an industry criticized for fast-fashion, throwaway quality and resource inefficiency.

# Clear report structure in an easily navigable report that covers People, Planet and Product impacts in a coherent way, with case study examples. The narrative is easy to read, provides contextual background and avoids language that is overly gushy or superlative. It's actually a fascinating report with interesting content, reflective of a wide range of actions and impacts.

Cone opportunities:

# Beyond big credit for producing a standalone Primark report, recognizing that sustainability data is included in ABF reports, I believe there is a missed opportunity to include a selection of core data points that are specifically Primark. Carbon emissions are included but there is little other data. Human resources for example, with 72,000 colleagues, and a target to strengthen the position of women at Primark - no data is presented on diversity and inclusion, women or other groups.

Pyxus International, Inc. Fiscal Year 2022 Sustainability Report

Country: USA

Entity: Publicly traded (OTC Pink: PYYX)

Sector: Agricultural produce

$ annual revenues:

Employees: 2,943

Report: 78 pages, GRI Core, GHG Assurance

Cone-worthy 🍦🍦🍦🍦

# Symmetrically structured report with each core chapter presenting Our Ambition, Moving the Needle, How We Measure and Our Results, supplemented with case studies where relevant. I like symmetry in reporting, it gives me the impression that reporting is intentional not random.

#A materiality matrix representing impact materiality, one of the few that do this in line with GRI requirements.

# A full suite of SMART ESG targets to 2030 including Net Zero value chain emissions by 2050. An impressive set of commitments in a first report.

# Use of case studies to demonstrate environmental and social action in practice.

# Appealing, attractive but simple design, with appropriate use of images and supporting design elements and a useful bottom navigation bar.

Cone opportunities:

# Pyxus disclosure could provide a more transparent picture of its activities in future reports. For example, the (material) section on Supply Chain Integrity describes important ethical supplier management practices, but discloses no information or data about what was actually done in the reporting year. The section on Motivated, Skilled and Engaged Employees contains no data at all about employees apart from two data points on women in leadership. Seems that Pyxus disclosure muscles need flexing a little.

# Pyxus presents a materiality matrix with 12 topics, 7 of which are top-right quadrant. Yet, despite declaring GRI In Accordance: Core Option, the GRI Content Index includes only three standards: 206 (Anti Competitive Behavior), 305 (Emissions) and 413 (Communities). Health and Safety is the most significant material topic on the matrix but GRI 403 (Occupational Health & Safety) does not appear in the Content Index. The report includes a section with a couple of data points on health and safety but this should be reflected in the Index.

Ranger Oil Corporation 2022 ESG Report

Country: USA

Entity: Publicly traded (NASDAQ:ROCC)

Sector: Oil & Gas

Employees: 136

Report: 35 pages, SASB

Cone-worthy 🍦🍦

# This is an ESG report in the true sense of the word, created for investors, following SASB Standards. It provides a glimpse into the world of sustainability-related financial materiality disclosure that covers only those topics defined by an investor-focused ESG framework and providing single-year data as required by the selected SASB standard. Consistent with this approach, The Chair and CEO write a joint letter to "Shareholders and other Stakeholders". While I personally look to see an impact (or double) materiality disclosure, I acknowledge Ranger Oil for adopting this approach and running with it.

Cone opportunities:

# I'd like to think that, at some point in the future, Ranger Oil's leadership would write a joint letter to "All Our Stakeholders", and include a materiality assessment of impacts on people and the environment, in addition to impacts on the business.

# Most of this report is policy statements and descriptions of processes. There is little that reflects progress in this first reporting year. Hopefully the second report will offer more insights into how Ranger is delivering its policies and taking meaningful action.

Selina 2021 ESG Report

Country: UK

Entity: Publicly traded (NASDAQ: SLNA)

Sector: Hospitality

Employees: 1,840

Report: 69 pages, references GRI (no Content Index)

Cone-worthy 🍦🍦🍦🍦

# This report is appealing for its familiar, straightforward back-to-basics style. It's about culture, connecting, caring and communities. As a young company, it's just ramping up its structured ESG approach, and the report explains its approach without the jargon-rich language of large company reporters. It has a simple authenticity that may resonate with its target millennial audience.

# Selina gives an honest explanation of its environmental approach, with aspirations to align with Paris on emissions, measure emissions at all locations (currently 11%), eliminate single-use plastics by 2025, rolling out low-flow shower heads globally. Sounds like these initiatives are just ramping up but the direction is set.

# Describes ESG priority impact areas aligned to SDG goals.

Cone opportunities:

# This report was published just before Selina became a publicly listed company traded on NASDAQ. It will be interesting to see Selina mature its ESG programs and disclosures to meet both regulatory and investor demands in its next report while retaining its focus on culture.

# A more detailed build-out of the ESG Strategy, defining the strategic goal in each strategy area and establishing targets and core metrics for each could help Selina advance its ESG performance and impact.

Vog Products Sustainability Report FY 2020/2021 and 2021/2022

Country: Italy

Entity: Privately-owned

Sector: Food products

Employees: 209

Report: 40 pages, GRI Core, covers two years, SDGs (goal level)

Cone-worthy 🍦🍦🍦🍦

# This report applies a GRI structure by dedicating a chapter to each material topic (fortunately there are only five 😁). Each chapter follows the same flow which includes a description of impacts, core activities, measures, objectives and stakeholder cooperation. This is an earnest approach to meeting the requirements of GRI while ensuring a full and balanced disclosure. The fact that objectives are included for each material topic is evidence of a considered and focused approach to disclosure.

# The materiality assessment clearly explained: "How do our actions as a company have an effect, both positive and negative? This was the question at the heart of the impact analysis which the company carried out in autumn 2021. It focused on social, environmental, and economic aspects."

# Three-year data summary tables included at the end of the report.

# Most of the content of this report is focused on actions rather than evergreen policy.

Cone opportunities:

# Change the title. "Sustainability is part of our DNA" is one of the most overused and meaningless phrases in the history of sustainability reporting. But maybe a first time reporter might not know that.

Welch’s 2021 CSR Report

Country: USA

Entity: Privately-owned by cooperative

Sector: Fruit-based food and beverage

Report: 12 pages

Cone-worthy 🍦

# Welch's is a private organization owned by a cooperative of about 700 family farms across the U.S. This first report deserves credit for being a first report.

# The report provides a high level overview of a strategic approach to corporate responsibility.

# Selected data points demonstrating progress are presented.

Cone opportunities:

# While any report is better than no report, Welch's has a great opportunity to enhance the transparency of its reporting to include meaningful data and more detailed practices and progress. As it stands, the report presents a summary of progress in each strategy area, but the selection of datapoints seems rather random, or possibly, the only positive data the organization has available or can present. For example, one data point is that 98% of growers are tracking and reporting their sustainable farming practices. If there is such a wealth of data available from almost 700 growers, Welch's has an opportunity to share a glimpse of the broader impact of the cooperative's activities and its wider impact on farming and environmental practices. The fact that growers report is less useful to know than what they report.

Zentiva 2021 Sustainability Report

Country: Czech Republic

Entity: Privately-owned

Sector: Pharmaceuticals

Employees: 4,700

Report: 35 pages, GRI referenced (no Content Index) GHG Assurance

Cone-worthy 🍦🍦🍦

# This is a credible report of a growing company clearly, in the early stages of its structured sustainability journey. As a privately owned company, it does a meaningful job of presenting its position across a range of sustainability topics with thought and consideration. Data is presented selectively, with the most transparency in environmental metrics over two years.

# A strategic framework – People Partners Planet – creates a language and structure for this company’s sustainability plans, and a set of 30 material topics and 10 goals underpin its commitments, including carbon neutrality by 2030 and gender balance in leadership roles by 2026.

# This report is aesthetically designed. The layout is clean, tables and charts are clear and creative design elements make this report a pleasure to view.

Cone opportunities:

# As this company advances its plans and becomes more mature in its reporting, there is an opportunity for greater transparency in key areas such as human resources, safety and supply chain.

# Beyond the direct ESG impacts of Zentiva’s business, it would be of value to understand its impact on healthcare; topics related to access and affordability, innovation, patient engagement etc. are core to Zentiva’s contribution to sustainable development. Greater discussion of these topics would help balance this disclosure and put its sustainability efforts in context.

# Stakeholders may be interested to understand more about the materiality analysis– stated as conducted using S&Ps ESG self-audit framework – for example, how the topics are defined for Zentiva and why they are material from an impact and/or financial materiality standpoint.

BONUS REPORT

World Coatings Council Sustainability in the Global Paint & Coatings Industry Report

I am a fan of industry and trade association reports, as I believe they provide a helpful overview of sustainability issues that matter from an industry perspective and set standards that companies in the industry can learn from and align with. This first 40-page report from the World Coatings Council is well worth a look.

*************

That's all, folks. I expect there will be many many first time reports in 2023, so expect a much longer list this time next year. In the meantime, Happy 2023! and Happy Reporting!

elaine cohen, GCB.D: ESG Competent Boards Certified (2021), Sustainability Strategy and Disclosure Specialist, former HR Professional, Ice Cream Addict. Owner/Manager of Beyond Business Ltd, an inspired Sustainability Strategy and Reporting firm having supported >160 client reports to date; author of three books and several chapters on Sustainability Reporting and the Human Resources connection to CSR; frequent chair and speaker at sustainability events and judge in several sustainability awards programs each year. Contact me via Twitter , LinkedIn or via Beyond Business

23 Sustainability Reporting Insights For 2023

2022-12-28T09:12:00.000+02:00

2023 will be another dynamo year for the reporting landscape. Alongside the development of standards and frameworks, interoperability, global baselines, materiality debates and promises of comparability, the hard work of reporting goes on and first-time, experienced and expert reporters continue to grapple with old and new disclosure challenges.

Here's a round-up of some stuff that might be helpful as the 2022-2023 reporting cycle kicks in. Some of it may be familiar to regular CSR Reporting Blog readers - I am nothing if not repetitive - I am nothing if not repetitive - haha. But, well, some things need saying twice, or fourteen times. I am nothing if not repetitive. Let's get started:

1. The More You Sweat in Peace, the Less You Bleed in Battle

This saying is attributed to many people so I can't be sure who said it first. Paraphrased for our purposes: the harder you work now at preparing for compliance, the easier it will be to comply when there's no longer a choice. I think we all know that sustainability disclosure is heading toward its legal coming of age. This includes regulatory requirements governing the content of disclosures (especially on climate and nature), the timing and formats of publication and third-party assurance. While there's always a transition period, it flies by quickly. It's well worth ensuring you know which upcoming standards are likely to affect your business, from when, and starting to put in place the necessary building blocks to meet the new demands. A selection of the most prominent changes:

GRI 2021 and updated universal standards: This one should already be in the bag for GRI reporters. The changes apply for publications from Jan 1, 2023. Not regulatory but market-driven.

CSRD: As part of the Corporate Sustainability Reporting Directive, the European EFRAG-ESRS Standards, - the first 12 of them anyway, including climate, water, biodiversity, circularity, workforce, community impacts and business conduct - were approved by the EU and will apply on a phased basis from FY2024 once ratified in EU member countries.

IFRS ISSB: The two initial proposed standards for general sustainability-related disclosures (IFRS S1) and climate-related disclosures (IFRS S2) are expected to be finalized any day soon. Implementation by law will depend on uptake in various jurisdictions. The UK has already thrown its hat in the ring.

2. Out of the Fire and into the Frying Pan

It pays to keep a level head when faced with the hype around how all the new reporting standards will make everything so much better/easier/more consistent. Agreed, there is some convergence that removes a layer of clutter and an acronym or three. IIRC, CDSB and SASB are now all one organization. But wait, the last time I looked, there is a new set of investor-focused standards called ISSB, as well as a set of SASB standards that ISSB will most likely consume or interoperabilize. There is another evolving set of European CSRD ESRS standards with its expected array of sector standards in the future. And GRI is continuing.. slowly but doggedly.. to develop its own suite of sector standards. TCFD and its nearly-newborn cousin TNFD are squarely in the mix. In addition there are stock exchange requirements around the world, including the upcoming intensification of climate disclosures for the U.S. SEC, and oh, let's not forget, the SDG framework and the politically correct imperative of public alignment. We have materiality, sustainability-related financial materiality, double materiality, dynamic materiality, none of which are applied using a consistent, clear or, in many cases, auditable methodology. Throw WEF SCM and CDP into the mix and even UNGPBHR. And how could we not mention the all-new bells-and-whistles UNGC COP with its multiple choice online questionnaire that resembles a low-grade intelligence test for reporting interns.

So what's changed? Fewer acronyms? More optimistic rhetoric? Belief in a new era of interoperability and comparability? What no-one is saying is that reporting will be no less challenging, no less complex and no more comparable in the future. Best not to get too taken up with the time you will save in this new disclosure utopia and and focus on developing robust internal processes that will ensure you tackle this complexity in the most efficient way. For example, ensure a consistent data collection process to create core datasets that can be easily sliced and diced to meet different reporting needs. As we are now in the frying pan, you'd better get better at making omelets.

3. Switch out FOMO with JOMO

Fear Of Missing Out (FOMO) is not a good basis for disclosure excellence. Following the herd may not be the right thing for your business. By focusing on what you must disclose (regulators rule ) and what you need to disclose (your impacts, your accountability, not everybody's impacts), you can travel along the reporting highway at speed and get to your destination without unnecessary baggage. This is the Joy of Missing Out (JOMO) approach. Be joyful in saying: "No, this does not add value." GRI+ISSB(SASB)/CSRD+TCFD+CDP (plus regulatory requirements in different markets) seems to be the majority-rule common sense mix moving forward. They cover the information that anyone should reasonably need to know to evaluate a company's environmental and social impacts and risks. Maybe companies should work at disclosing diligently against these frameworks and only add more metrics if there is an explicit compelling business case to do so.

4. Be a Futurist not a Historian

Sustainability reports should reflect a year of past performance (frankly, I don't need your timeline going back to when you first learned the term sustainability) but increasingly, we expect reports to predict a little of your company's future and the way it plans to navigate the sustainability challenges ahead, mitigate risks and achieve its goals. Reporting content should balance the current state of play with future plans and initiatives. What you have done is not a guarantee of what you will do, so how you are moving forward is critical for an understanding of the level of your company's commitment and sound sustainability management. Oh, and a one-liner entitled "Looking ahead" that says "continue to contribute to xyz" doesn't really cut it. If you have no plans to drive progress on material topics, you should develop some.

Here's an example found in a 2022 ESG Report, one of a series of stated goals:

Of course, there is much behind-the-scenes work that goes on in any company to maintain compliance with regulations, including anti-competition laws. Compliance is a business process that requires resources and attention and diligent management. But, for this company, anti-competitive behavior was not explicitly declared as a sustainable development material topic, and there is no discussion about anti-competitive challenges in the report itself. What's the value of a target such as this? Isn't it a bit like having a goal to brush your teeth every morning? Or a goal to walk the dog twice a day? For me, a goal is not about maintenance, unless maintaining the status quo is expected to be extra tough because of new challenges that would send you off-course if you took no action. If so, I would expect to read about the challenges and the step-change that a goal such as this is designed to deliver. Otherwise, it's a bit of a stocking filler.

5. Target Targets

I continue to be astounded that companies who declare "sustainability is in our DNA" while publishing creative and elaborate ESG strategies and attesting to intensive stakeholder engagement do not state their targets in key sustainability performance areas. Maybe they don't have any? Or maybe they are secret? Either way, lack of targets means lack of credibility. These days, when I read and review sustainability reports, I follow this path: (1) CEO letter (2) Materiality (3) Targets (4) All the rest. I look for consistency among the first three reporting elements. If there is a total disconnect, or if any of these elements are unconvincing, oops, I read all the rest with a high degree of skepticism, no matter how well-written or how beautifully designed it is. Companies that are serious about sustainability set SMART targets: Specific, Measurable, Achievable, Realistic, and Timely. Here's an example:

This is from RDM Group, a privately owned recycled cartonboard business in Europe. This set of goals in the company's 2021 Sustainability Report is impressive to me because the goals are simply stated with a clear base year benchmark, long term targets and current progress. You get the full picture, quickly. Nothing fancy. The targets cover a range of sustainability topics rather than only climate or environment like many companies. Also, each of these targets represents progress. I can't comment on the degree of stretch or effort required to deliver these targets - that's a question for another day - but the public commitment is credibility affirmative.

6. Pathways Are to Targets as Fish is to Chips

Great. You published your 2030 targets, or your Net Zero by 2050 targets. Fantastic. But how many of your leadership team will be around in another 8 or so years to deliver your 2030 targets? Even fewer in 2050. To really get the credibility brownie points, you need to show how you will achieve these targets. Climate change reporting is getting better at this, with many companies sharing a pathway to Net Zero target delivery. But in almost all other areas, it's a guessing game, especially if the current performance is a step change away from the targeted performance.

Anglo American's 2021 Sustainability Report provides a Net Zero by 2040 pathway that visualizes the complex elements of their decarbonization plan.

7. Comparability Will Always be a Myth

The thing about standards and frameworks is that there are always gray areas, and there are always companies who bend the rules, smoothen the edges and adapt the guidelines to what they can or want to disclose. Perhaps regulation might make a difference, but standards need to be extremely prescriptive in order for companies to use them in exactly the same way. Take a simple metric such as "Percentage of women in management". Every company has a different definition of what constitutes a management position, from first line supervisory to senior executive. Any benchmark I have ever done (and I have done many) of reports using GRI Standards are almost never comparable on a metric for metric basis. That's probably because no company is the same as any other, and the context in which any company operates is always unique to that company. I have never truly understood the obsession with comparability, between companies at least. For me, comparability for me means comparing any company against itself and its prior performance. That's why it's important to report consistently year on year, and explain any changes in methodologies or scope or underlying assumptions.

Companies that issue a detailed metric calculation methodology make it easy for report users to know how metrics were developed, especially non-standard ones. Kingfisher plc does this well each year with detailed explanation of every core metric reported.

8: Materiality + Materiality

Double materiality, or impact materiality and (sustainability-related) financial materiality, seems to be the way to go. Makes sense. Most of us want to know how a business is affecting our lives and the world (impact materiality) while the financial and investor community need to know how life and the world are affecting the business in order to evaluate investment risk. The material thing about materiality is that there is no universal methodology to define and prioritize sustainability impacts on and of the business. Many companies reference "importance to the company" or "significance to stakeholders" without actually defining what this actually means. Does importance to the business mean social license to operate or does it mean profitability? Does significance to stakeholders mean the issue is directly affecting them or that their general opinion is that the topic is important? Either way, companies should DEFINE what materiality means in their context and how they assess topics as material. In many cases, the process goes something like: "We created a universe of topics from a range of sources, we analyzed them with input from internal and external stakeholders and then selected the top 20 topics which were approved by the Board." This tells us nothing about the basis for analysis or prioritization. I believe there is an urgent need for a materiality assessment methodology to create a certain consistency in defining material topics.

My approach to double materiality is to first create a list of potential impact areas, drawing from internal and external sources, and, after due analysis and discussion, assign an impact level to each, based on criteria that include business strategy, scale, scope and long-term effects of each impact. The result is a list of impact material topics. To determine sustainability-related financial materiality, the start point is the list of impact material topics, which is analyzed using additional criteria to assess the impact of the topic on the company's long-term profitability and overall success. Both these outputs deliver a single list of material topics, where some topics are material from an impact and a financial standpoint while the rest are material from an impact standpoint only. There are no financially material topics that are not material from an impact standpoint - if there were, these would be part of the financial disclosures, not sustainability disclosures.

A good example of this is from Sri Lankan Talakawelle Tea Estates in their Annual Report 2021/2022.

Sustainability topics are assessed from both an impact and financial standpoint and all topics above a certain threshold are discussed in the Annual (and sustainability) Reports. Each topic is also correlated with risks and opportunities and explanations of how each topic was assessed in terms or risk or opportunity is described in detail.

As methodologies go, this seems good to me. (N.B. I first saw this type of double-materiality approach used by Enel's 2021 Sustainability Report (p38). That's worth a look too, including a detailed description of how they did it).

Here is another option from Westpac Group's 2022 Sustainability Supplement. It's a list with a few icons carefully positioned for visual interest. What I like about this is that it splits the material topics into two parts - those that are primarily impact materiality, and those that also have a sustainability-related financial materiality element and are therefore included in the Westpac Annual Report (although not necessarily financially material from a corporate accounting standpoint). This is also a clear double materiality approach.

9. Ditch The Mystery Matrix

There have been multiple debates about the materiality matrix over the years, and I have always maintained that it's a misleading, distracting and time-wasting visualization of materiality prioritization. We need to know which topics a company considers material from an impact and/or a sustainability-financial standpoint. From my perspective, if it's material, it's material. Period. I don't think we need to mess around with shades of materiality...high materiality, low materiality, average materiality.... what difference do these labels make in terms of management attention, resource allocation, due diligence? All material topics should be assigned the level of resource required to address the need, the relative priority is superfluous to requirements. Typically, when faced with lots of dots on a matrix, I look to see which are the top topics (top right) and which are the bottom (bottom left). I then always find myself wondering why the bottom left topics are actually ranked so low by comparison to the ones ranked so high. It's mostly a big mystery.

There are as many ways of presenting a materiality matrix as there are companies who publish them. But even disregarding the visual creativity, the force-fitting of dots or topics on a matrix is even more mysterious. Check this one out:

What's the point of having a matrix if all your topics are in one box? Why have 9 boxes when two will do?

Here's a similar unmatrix from Mondelez 2021 ESG Report. Why use a matrix representation for four equally prioritized material topics?

On the other hand, if some visualization is needed because you have several issues and a simple list might be rather long, there are other options. This one from Marvell's 2022 ESG Report is clear enough.

10. If it's Material, Write About It

This might be obvious to many, but if you have identified a topic as material in your materiality mystery matrix or list of material topics, then please include content about it in the body of the report. Too many times the list of material topics seems like a garnish on the side of the plate, and not the actual main course. How would you like it if you went to a restaurant and ordered spaghetti bolognese and all you got was spaghetti? Ideally, you should help your report users find your material content. Here's a good example from Asus's 2021 Sustainability Report that shows the description of each material topic and the chapter of the report in which the topic is discussed.

11: Focus on the Delta - Invest in a Policy Bank

Annual sustainability reporting should concern itself with what I call the delta - the difference you made in the reporting year, i.e. actual actions and progress made. All the management approach and policy type disclosures are what I call evergreen, and do not need to be / should not be repeated every year. As an essential part of disclosure, however, they can live their evergreen life on the company website as reference documents for those who need them, with occasional updates when a policy changes. Eliminating this blurb from your annual report saves time and space and enables your report to be compact and focused and yes, useful. I am seeing companies do more of this these days. Here are a few:

Johnson & Johnson ESG Policies and Positions

Caesars Entertainment Public Policies and Positions

Tesco plc Group Policies

Dell Policies, Positions and Guidelines

Oracle Policy Positions - this is a single downloadable PDF with a set of positions, rather than single items on a website

(Disclosure: I count Johnson & Johnson and Caesars Entertainment as valued clients and assisted in development of their policy banks.)

12. Scope 3 is IN

If you haven't started to grapple with your Scope 3 emissions yet, now's the time. Scope 3 is buzzing and will be included in new (likely regulated) sustainability reporting standards going forward, requiring disclosure by Scope 3 component categories. Many companies are doing this well today, and those who disclose to CDP have generally considered this and created the relevant connections and reporting processes. Scope 3 is awkward of course because it relies on the collaboration of suppliers and other value chain players to collaborate in providing data.

Microsoft's 2021 Environmental Sustainability Report reports Scope 3 in detail and is super-informative about the ways it addresses Scope 3 management and disclosure.

13. Assurance is IN

And you are probably also aware that third-party assurance of sustainability disclosures is now becoming a must-have. Building confidence in reported data is seen as a critical building block of trust and credibility in reporting. That's not to say that assurance always catches every glitch, but it introduces a robustness to the reporting process that is advantageous to companies, whether it's required by law or not. Limited assurance or reasonable assurance, of part or all information will definitely be part of the new game plan for ISSB and CSRD going forward, and U.S. SEC disclosure requirements on climate will also likely be subject to some form of assurance. Better get ahead of the game with some external verification in the next reporting cycle, because, in my experience, if you have never ever externally assured your sustainability information, the first time will be a heavy lift, and maybe the source of a few not-so-nice surprises. Good to iron out the creases before you have to disclose them.

14. Ice Cream is IN

Do not even attempt to start preparing your next sustainability report without a freezer stocked with ice cream. Believe me, it's essential. I am actually dismayed that ice cream does not feature anywhere in the new ISSB or CSRD standard proposals. As a minimum, Maintaining a Continuous Ice Cream Supply should be a core reporting principle.

15. SDGs are More than Icons

It's almost not a sustainability report if it doesn't contain a selection of SDG icons, the most overused icons in the history of reporting. These days, every ESG strategy, every sustainability aspiration, every community case study and almost every second paragraph has an SDG icon or several in close proximity. Apparently we will respect your sustainability performance more if it's SDG iconized. That might have been the case when the SDGs were all new and shiny back in 2015. Now, it's SDG-wash. Unless you can be explicit about the SDG targets you are directly contributing to, it's probably not worth the extra ink. If your company truly endorses the SDGs as a strategy and not as an afterthought or a PR pickup, you will disclose how you are contributing to advancing which SDG targets with some specificity. General stuff like "We occasionally donate to food banks" is not a meaningful response to SDG 2 Zero hunger. Setting a target to increase women in management is not quite enough to advance SDG 10 Reduced Inequalities. These actions may be in the right ball park but it's like telling the taxi driver to take you to Arizona when your actual destination is Big Looney's Ice Cream Truck on Ruby Way in Cottonwood, Arizona.

Here's an example from Capgemini's 2021-2022 Environmental Sustainability Performance Report - explicit actions to support SDG targets.

The Airport Authority Hong Kong's 2021/2022 Sustainability Report does a similar job, with several targets for each priority SDG.

16. Design for Use

I recently posted about report design (what works well, what to avoid) so I won't reproduce all of that here. Let me just stress one point. PDFs are read online. ONLINE. No one prints reports. We read them on screen. That means they must be suitable for on screen reading. Logical, right? Cue: NAVIGATION TOOLS. We need a way of moving around the report quickly and efficiently without having to CNTRL+HOME to get to the contents page every time we want to find something. Believe me, having reviewed more than 130 reports in two reporting award competitions in the past couple of months, the amount of time I wasted clicking back and forth in unnavigable reports probably amounted to longer than it takes me to binge watch 18 seasons of Grey's Anatomy. There are so many easy navigation tools available to report designers from hyperlinked side or top menus to a navigation tool bar that has home, forward and back buttons and any other number of alternatives.

Hankook Tire and Technology's ESG Report 2021 2022 is easy to navigate. There is an unintrusive top menu that gets you back home and to any main chapter, and sections within each chapter are hyperlinked on each section lead page.

17. Out Your Board

As a graduate of the ESG Competent Boards Certificate Program (Business Professionals cohort, 2021), I am now keenly aware of the role of the Board of Directors in guiding corporate sustainability practice. I have also read Helle Bank Jorgensen's book, Stewards of the Future, that also reinforces the critical role that company directors play in guiding company's to address ESG challenges. Therefore, I look for evidence of the Board's impact and engagement in sustainability practice as I read sustainability reports. Occasionally the Chair of the Board may make opening remarks, in addition to the CEO (or sometimes one letter with two signoffs). Occasionally Board members are quoted. Even more rarely is there a picture of the Board or any additional insight from directors. I think this is an opportunity. Why not bring your Board out of anonymity in your Sustainability Report and let us see how engaged they truly are. Of course they are, right?

Here's a nice Board Statement in Wilmar's 2021 Sustainability Report.

18. Highlight the Highlights

Reports are big chunky things that contain lots of information. Some companies publish Executive Summaries or short report versions for those who want the headlines without all the headaches. But even shorter than that, a highlights page in the early part of your report is a good way to get a few key messages across for those whose attention span is about 1 minute. It's also a good cheat-sheet for employees to use through the year in their interactions with their different contacts. Highlights pages come in many shapes and formats. Here's a few:

Home Depot 2022 ESG Report

Kroger 2022 ESG Report

China Life Insurance 2021 Sustainability Report

Majid Al Futtaim ESG Report 2021

19. Check out ReportAdviser

I recently agreed to become an Ambassador for ReportAdviser, a useful reporting hub for professionals that brings sustainability disclosure guidance from multiple reporting standards and frameworks with reporting examples and explanations in one place. With GRI, SASB, NFRD, TCFD, ISO 26000, S&P's CSA, SDG and sector guidance materials, it's a quick reference guide that can be extremely helpful for reporters needing to check out reporting needs or benchmarking reporting examples without having to trawl through different websites and endless pages of reporting standards. There is also an ESG Data Search that enables you to input any search term and find related reporting examples. I input the term ice cream and got page examples of several sustainability reports mentioning ice cream. YAY! As the sustainability landscape is constantly changing, so ReportAdviser is continuously updating its database and guidance. Worth checking out!

20. Don't Be Late

The average time for publication of a sustainability report from the end of the reporting period is 3.4 months, according to WBCSD's 2022 Reporting Matters, now in its 10th anniversary edition. This is down from a six months average as per the very first Reporting Matters in 2013. In the past few years, report publication date within three months of the reporting period has been steadily increasing.

With GRI 2021 Universal Standards now requiring a publication date to be disclosed in sustainability reports (Disclosure 2-3c), and general pressure to create more alignment between financial and sustainability disclosure timing, a long delay between the end of the reporting period and publication of the sustainability report is becoming rather uncomfortable. Sounds like being at the party is not enough. You have to get there on time.

21. 80% of Something is Better than 100% of Nothing

While some may say it's important to strive for perfection, with about 160+ reporting projects under my belt, I feel justified in saying that perfection is a relative concept in sustainability reporting. It's practically impossible to satisfy everybody's demands and preferences in a single report that must meet multiple needs and disclosure requirements, even with the best of processes. In many cases, reporting managers must navigate demands from different parts of the organization, grapple with disclosures that many may prefer not to include, deal with delays in getting data, approvals, legal signoff, images and design work completed and a host of other challenges. Often there's a trade-off or two or twenty. So while there is no such thing as the perfect sustainability report, what there is is a published report that is the best that can be done under a unique set of circumstances in any company in any given year. It's part of a continuum of annual reporting that should keep improving. That's perfect enough for me. The idea is to embrace feedback / criticism / suggestions for the future and go at it again in the next cycle.

22: Make Your Report Work for You

You hit publish. The report is out there. Phew! Now it's time for a well deserved rest. But is it? Maybe a day or two. Immediately thereafter, there are three things you should be doing:

Thanking all the folks who collaborated and contributed
Starting the planning process for the next report
Driving the outreach and communications plan to ensure the report actually gets used.

Your sustainability report has a life of several months (assuming timely publication) during which you have an opportunity to use it in a targeted way to continue to build trust and positively influence your company's reputation. Raising awareness goes beyond a single email blast to employees and an external Press Release. Your report amplification plan (which should have been developed well before publication date) is an important part of the reporting process. Use the months post-publication to genuinely engage with employees and onboard them as willing ambassadors of your company's sustainability progress and transparency. Repackage messaging and stories from the sustainability report to different audiences to drive real conversations about what works and what doesn't. Link up with business schools teaching sustainability and offer to engage with students about your report, answer their questions and respond to their criticisms. There are many ways to benefit from bringing your report to life after publication. After such a significant investment in producing the report, why not get a little mileage?

23: Surprise

There is no 23. This post is long enough. I am amazed you even got to 23. But it is an opportunity to say Happy New Year! Have a fun and productive reporting season!

😉

Five Examples of Beauty in Reporting

2022-10-27T13:04:00.000+03:00

At a time when everyone is focusing on standards, data and metrics, there’s another side to reporting that often gets overlooked: the graphic design of the report. While the content is the key, the design turns the key to make the content sing🎵. Inspired design makes content more accessible and appealing for those who actually want to read reports, rather than just mine the data. Beautiful reports are inspiring for employees as well attractive for all stakeholders.

It's clear that some report designs are constrained by in-house branding guidelines that prescribe fonts, colors, shapes and even layouts, so most report designs don't start with a blank page. Even so, there may be some design touches that help liven up the content. The key elements of great report design (in PDF), in my view, include:

Pages that are pleasant to look at – not too empty, not too crowded, with a clear focus for the eye as it rests on the page. The thing that stands out should be the thing that’s most important, not just some random callout factoid.
Consistent design language – I like the design to have its own language throughout the report, creating a familiarity and sense of expectation as you read through it. Disjointed, disconnected imagery and random font sizes and colors drive me a bit crazy.
Clear tables and charts - legible and consistent across the report. Clear headings. NOT ALL CAPITALS. Block capital print is hard to read.
Fonts – rightsized fonts, not too many either. Three different font sizes at most. They should be legible at 100% on my screen.
Format – horizontal PDFs seem to work best for me. The wider sizes offer more room to play with on the page.
Original photos – not image banks with plastic people and Amazon views. Real photos of a real business make the report more credible.
Interesting design elements - little splashes of color or illustrations or (careful) icons, that complement and provide a pleasant eye-tonic alongside the text.
Navigation navigation navigation. I want to sail through the PDF, back and forth, section to section, with single clicks. The navigation needs to be accessible, easy to follow, intuitive, interactive. Navigation tools are useful too. Love a home button that takes you to the contents page.
Ice cream: The more images of ice cream, the better.

Things I hate in report design:

Text that is not horizontal. I have ruined two computer screens when they fell off my desk as I tilted them to read vertical text. Haha.
An abundance of meaningless icons
Massive fonts
Photos of palms holding globes
Images representing diversity that are clearly misrepresentative of the organization

Not all reports that I consider beautiful adopt these design preferences. But they are all beautiful in one way or another because of the colors, visuals, tasteful imagery or other design creatives that bring the narrative to life in an attractive and inspiring way. To me, this shows a level of care and thought in the way the report is presented that helps me believe the intentions of the reporting company. I realize this may not always be a logical correlation, but, in their own way, beautiful reports are inspiring. Here are a few to feast your eyes on (while you are feasting the rest of you on your favorite ice cream):

Roma Group 2021/2022 ESG Report

Roma Group is a privately-owned small-business valuation and technical advisory services firm in Hong Kong, employing around 60 people. This is the Group’s fifth ESG Report, it’s In Accordance with GRI Core Option and complies with the Hong Kong Stock Exchange ESG reporting rules. At 49 pages, it’s compact, focused and a delight to view. In fact, all Roma Group reports are beautifully designed – take a look at them all.

Roma Group reports have a few signature design approaches for all reports that I like very much. First, the design links to the annual report theme - for example, this year's theme is "The Pursuit of Sustainability". The report creative uses a camping trip to illustrate this theme. This demonstrates that the designer is not just laying out any old content on a page, but thinking creatively about how to reinforce the report messaging.

A second design approach is a creative top menu bar. Although not interactive (a Home button linking back to the contents page would make navigation easier), each report chapter has a unique top menu illustration. A menu is not just a menu - it's an opportunity for creativity.

A third element is the design of headings. A heading is also an opportunity for creativity. In the examples below, you can see how the paragraph subheadings are embellished with design elements that provide visual interest, especially on text-heavy pages.

Finally, all tables are clearly presented, using a light touch of color to help differentiate different topics. Roma Group includes a GRI Content Index as well as a Hong Kong Exchange ESG Reporting Index.

I award Roma Group my highest Ice Cream Accolade. Five cones. 🍦🍦🍦🍦🍦.

S Hotels & Resorts Sustainable Development Report 2021

S Hotels & Resorts is a Thailand-based operator with 38 properties in some of the most beautiful locations in the world. No surprise then that the imagery in this report reflects the beauty of the views that visitors can enjoy while consuming their Thai ice creams.

Aside from the spectacular images, the design of this report includes thoughtful ocean-related illustrations on every page and small icon-type illustrations for callouts and highlights. The style complements the narrative and turns each page into a work of art, rather than simply words and paragraphs. Data tables are neatly drawn. Here are a few pages:

Definitely a four-cone design. 🍦🍦🍦🍦

Gucci Equilibrium Impact Report 2021

Gucci is part of the global luxury group Kering that develops and markets fashion, leather goods, jewellery and watches. This second annual Gucci Equilibrium Impact Report references the company's Environmental Profit and Loss accounting, a practice pioneered by Kering several years ago. The Gucci EP&L is not detailed in this report, but Kering's group EP&L is referenced.

The Gucci report combines vivid colors with light-touch design elements throughout the report. Using thread-like elements on each page to liven up images and creative icons for bullets, the report is super attractive in an understated sort of way. A compact navigation top menu on each page helps you get around this 42-page report. In fact, the report is a horizontal wide-page design that fills the screen from end-to-end, where each page actually holds the content of two regular pages, like double spreads. This adds a nice flow to the content and enables continuity on certain pages, such as the timeline page. Oh, and if you are looking for page numbers, don't bother. There are none in this report. Can't decide if that's a good thing or not - certainly one less thing to crowd the page, but perhaps less functional. Don't forget to stock up on luxury ice cream to view this sample of pages from the Gucci report.

Four cones to Gucci 🍦🍦🍦🍦.

Genesys 2021 Sustainability Report

California-headquartered cloud-based software and artificial intelligence (AI) technology company Genesys has created a beautiful report out of a lot of white space and a focused color palette.

Using bold colors, brush-stroke design elements and a handwritten-style callout font, it all hangs together in a truly appealing way. Bold images for the section landing pages are captivating, and little touches such as the illustrations on the inclusion timeline chart add visual interest. A full navigation top menu makes navigation super easy. This report is quite masterful in projecting a clean, uncluttered design approach while incorporating a range of content, images, tables, charts and graphs.

The more I look at the Genesys report, the more I appreciate it's simple appeal. Genesys gets four cones from me, proving that less is more 🍦🍦🍦🍦.

Metaxa Hospitality Group Sustainability Report 2021

The Metaxa Group is a Greek-based group operating on the beautiful islands of Crete and Santorini. The Metaxa report projects a Mediterranean calm, inviting you to relax by the deep blue waters of the a hotel pool (don't forget the ice cream) as you peruse its pages.

The beauty in this report is in the flowing lines of the pages, the awe-inspiring imagery of the local landscapes, the colors that remind you of a sandy beach and the careful page composition that, on several pages, includes photos, callouts, data and text. Although sometimes it's quite a lot, it's tastefully put together and maintains a peaceful, calm design feel throughout. Some images are used as page backgrounds, but care is taken not to render any text illegible. The top menu is not interactive, which is a pity, but it helps you know where you are in the report.

Four cones also to Metaxa 🍦🍦🍦🍦.

**************

That completes today's roundup of beautiful reports. There are many other fabulous report designs out there - so many different styles and formats - many more that are very impressive. And of course, no matter how beautiful the report, it's the content that we are all looking for. But, at least, just in case you were wondering, now you know that there is also beauty in reporting.

GRI Reporting: The Case of the Invisible Employees

2022-10-13T16:05:00.001+03:00

In the middle of all the raging debates, exposure drafts, ESG wars and explosion in the number of ways you can say materiality, serious reporting companies are gearing up for their next reporting cycle. For those who report GRI, this includes getting ready for the introduction of the new GRI Universal Standards for reports published in 2023.

You may have noticed that there are some early adopters of the new Universal Standards applied in reports published in 2022. It’s good to see companies showing leadership in transparency and paving the way for use of the Universal Standards. We can learn much from how they do things. Thank you to all the companies I mention below.

The Universal Standards represent somewhat of a stretch for companies who have reported GRI Core Option in the past. Less so for Comprehensive Option reporters but still some adaptation is required. It’s not quite enough to continue to report as you were doing and just add new labels.

Disclosure 2-8 is a case in point. This disclosure is an upgrade to previous GRI 102-8-d (2016) which required reporting of “Whether a significant portion of the organization’s activities are performed by workers who are not employees. If applicable, a description of the nature and scale of work performed by workers who are not employees.” A sub-clause of 102-8, this disclosure was largely overlooked and reported only occasionally by companies. Disclosure 2-8 now requires a detailed disclosure:

Let’s start by trying to understand who the workers are who are not employees. This is a tricky one and not as clear-cut as you might think at first glance. My initial assumption was that this refers to agency employees or contingent workers – people who work for an employment agency who replace employees on leave, or supplement employees at peak times etc.

But, hey, wait, it’s not that simple.

Reading the GRI guidance in the Standards, you realize it’s all about who controls the work. If the company controls the work of the worker who is not an employee, that worker is in scope for Disclosure 2-8. The guidance says: workers who are not employees are those who perform work for the organization and whose work is controlled by the organization but are not in an employment relationship with the organization. Control of work implies that the organization directs the work performed or has control over the means or methods for performing the work.

But, hey, wait, it’s not that simple.

How do you define “control of work”? Control can be interpreted in different ways. Does control mean setting wage scales? Supervising the work? Prescribing the work methods? Monitoring attendance? Defining materials to be used? Scheduling hours of work and rest? All of the above? GRI guidance talks about workers of one of the organization’s suppliers, where the organization instructs the supplier to use particular materials or work methods to manufacture the products or deliver the services.

The “extent” of control plays a role here. If it’s control to a high extent, it’s control. If it’s control to a limited extent, it’s not control. Aaaaaaaaaaaargh. In order to solve this conundrum, I went straight to the source and would like to thank GRI's Bastian Buck, Chief of Standards, and Sharon Hagen, Senior Coordinator of Sustainability Reporting Standards, for their insights and guidance. Nothing like getting to folks who created the problem to sort it out for you 🤣. Ultimately, companies will have to define and declare the scope of control they apply in when using Disclosure 2-8. That’s comparability out of the window as reporters will inevitably report in different ways. But heck, comparability is a myth anyway.

So now we know. Disclosure 2-8 is sort of a DIY disclosure. Make it up as you go along.

Applying the insights above, here are examples of workers who are not employees, and how Disclosure 2-8 applies to them or not.

INCLUDE Employees of high-control outsourced operations: An example is people employed by a contract manufacturer that provides a dedicated manufacturing operation (but not necessarily in a dedicated facility), employing a team of trained people to deliver defined products in accordance with a company’s specification. The company prescribes the work in quite some detail, defines the materials to be used, the nature of the work and even some or all of the work processes. Let’s call this high control.

EXCLUDE Employees of low-control outsourced operations: There are several examples – outsourced warehousing, outsourced logistics, outsourced call-centers etc. In these cases, although a company might prescribe an overall approach to the work, for example, safety standards, a Code of Conduct, ISO certification, or certain processes, generally it is the outsourced operation (supplier) that controls the practice of work on a day-to-day basis to meet contractual requirements. The outsourcing provider sets wages, manages employee terms and conditions, hours of work, shift patterns, training, discipline etc. In this case, the company has low control over the work itself.

INCLUDE or EXCLUDE Employees of hard-to-define control outsourced operations: In some cases, operations may be outsourced with a high level of prescription about the work to be done and the processes to be used without detailing day-to-day specifics. It really depends on how much freedom the supplier of the service has to choose the way it instructs its workers to perform he work. Less freedom = more control. More freedom = less control. The rule of thumb here is: if in doubt, make a decision and explain it, and then apply it consistently.

INCLUDE Employees of on-site service providers: Employees of contracted services usually performed onsite such as cleaning, catering and security services are usually required to perform their work under a high level of control by the company. Hours of work, place of work, type of work – generally it’s the buyer that decides.

INCLUDE Agency or third-party contingent workers: These are individuals who are supplied by external employment agencies to do specific jobs in the organization, in place of or in addition to the permanent workforce. For example, cover for maternity leave or sick leave, additional resource on packing lines or in laboratories etc. They join the team and do the work required, directed by the Team Manager or Supervisor. Clearly high control is at work here. Haha. A pun.

INCLUDE Contractors: Contractors manage and/or deliver construction or engineering-type projects. Often a General Contractor will bring in its own team and specialist sub-contractor companies and their employees to complete a project. They work on the company site or help build new sites, under the guidance and responsibility of the General Contractor who meets the contractual obligations of the contracting company who agrees the work plans and prescribes aspects of the work.

INCLUDE Independent workers: This may include what GRI refers to as self-employed workers or home workers. They are generally considered an extension of the internal workforce, doing work an employee might do. For example, an independent laboratory worker who joins the team for a specific period of time to do work directed by the Lab Manager, or a homeworker who provides call-center services on contract to the company directed by the inhouse Call-Center Manager.

INCLUDE Interns/Apprentices: These are included in GRI’s definition or workers who are not employees, even though, in many instances, interns and apprentices are not performing full work roles, but provide supplemental project work as they learn in the organization. For good orders’ sake, these we count these as in scope for 2-8 as control is with the company.

INCLUDE Volunteers: If the reporting organization is a nonprofit or non-commercial entity, volunteers may be the primary providers of work in the organization, and may be managers, staff or occasional volunteers. Their work is determined by the organization.

EXCLUDE Employees of general suppliers: Suppliers employ people to make and deliver goods and services. The people employed in the broader supply chain (excluding outsourcing examples above) are managed by their own organizations with no control of the procuring company. They would not be considered part of a company’s extended workforce unless they are specifically dedicated to providing custom work as noted in the examples above.

EXCLUDE Employees of providers of professional service providers: Employees in legal and accounting firms, auditors, compliance organizations, manpower agencies, design firms etc. While these individuals provide a dedicated, custom service, their work is not controlled by the company.

EXCLUDE Independent consultants: An external consultant who works on contract to supply a service against a Statement of Work or other contract. Similar to providers of professional services.

EXCLUDE Robots: A robot performs work but is not an employee. But a robot is not a person. Well, not really.

EXCLUDE Non-Human Animals: If you use animals to perform work, for example, horses to pull carts, cats to catch mice, dogs to guard the yard, these would also be outside the scope of Disclosure 2-8. But you can report about them anyway. We love non-human animals.

Complicated, isn’t it?

But you get the picture. In order to understand a company’s full employment impacts, the categories to include above, in addition to the direct workforce, represent the overall number of people involved in a company’s activities. This number could be significantly larger than the direct workforce, especially in the case of organizations that outsource many operations. Take a company like Inditex. All garment sourcing is outsourced. Inditex employees 165,000 people directly. But has more than 1.3 million people employed in its supplier factories around the world. Although not yet using GRI Universal Standards 2021, Inditex reports extensively on workers in its outsourced factories and even publishes a special report: Workers at the Centre.

Given the close control Inditex exerts over its garment suppliers, and the detailed strategies and due diligence deployed to drive responsible employment practices in the supply chain, with my new understanding of GRI’s guidance, I would expect these workers who are not employees to be in scope for Disclosure 2-8 when Inditex reports using the Universal Standards next year.

Workers who are not employees – the invisibles

Whichever category of “workers who are not employees” companies adopt, it seems that in any case, a lot of them are invisible in the disclosures of companies using the new Universal Standards. I have looked at reports from early adopters (selected randomly) and, in my analysis, in 16 reports:

One company disclosed in compliance with the requirements of Disclosure 2-8

Six companies provided some kind of information but not all required details or clarity

Two companies omit Disclosure 2.8 from the GRI Content Index

Two companies hide the disclosure

Three companies advise that the information is not available

One company provides the wrong information

One company just doesn’t report

So, a one-in-sixteen (7%) hit rate for complete disclosure on workers who are not employees. 93% are more or less invisible.

Let’s take a look:

One company disclosed in compliance with the requirements of Disclosure 2-8

Hong Kong power company CLP Holdings Ltd does a great job. CLP is no stranger to strong sustainability reporting and always delivers highly transparent, well considered reports. In this latest report using GRI Universal Standards 2021, CLP clearly identifies direct employees and different categories of non-employees where labour supply refers to people provided by manpower companies. See CLP’s GRI Content Index.

Six companies provided some kind of information but not all required details or clarity

Singapore-based City Developments Limited (CDL) is a global real estate company and another leading-light reporter and multiple times winner of the Asia Sustainability Reporting Awards over the years. No surprises that CDL is an early adopter of the GRI Universal Standards. CDL references construction workers in the 2021 Integrated Sustainability Report as workers who are not employees. No mention is made of other categories of workers, such as those involved in site services such as cleaning or security, nor whether this is a typical year or if there is significant fluctuation from year to year.

Diageo discloses against 2-8 in the GRI Content Index of its 2022 ESG Report. This disclosure describes different categories of workers who are not employees, but makes no reference to workers in outsourced production operations. If any of Diageo’s outsourced plants operate under “high control”, they would need to be included. Also, no reference to year-on-year fluctuation.

As with many global garment manufacturers, transparency of the supply chain is more common, whether or not the reporter uses GRI. H&M is however a GRI Reporter and Universal Standards early adopter and provides an overview of workers who are not employees in the supply chain in its 2021 Group Sustainability Disclosure. H&M also discloses much detail about the conditions of employment through their supply chain including wages paid to workers in supply factories in different countries. But as far as Disclosure 2-8 is concerned, there appears to be no mention of other agency or contractor workers at H&M’s own sites.

Korean tire maker Hankook Tire & Technology’s ESG Report 2021/22 includes a brief response to GRI 2.8 in the GRI Content Index. Short and to the point. Not clear whether subcontractors includes all types of services or only production-related work at the plants. But it’s something.

Levi Strauss & Co’s 2021 Sustainability Report (with reference to GRI Standards, does not claim to be In Accordance but includes a GRI Content Index) includes a response to GRI 2.8 that is similar to the approach of H&M, referencing workers at supply chain factories but not other categories of workers.

Houston-based chemical company Westlake’s 2021 ESG Report’s GRI and SASB Appendix includes a GRI 2.8 disclosure that explains the company’s approach but provides no data. Better than no response at all. What’s an insignificant portion of the workforce? Less than 100? Less than 1,000? Westlake employees 14,000 people.

So far, all the companies mentioned have made some attempt at responding to GRI 2.8, even if all but one failed to provide a complete disclosure. The following companies did not provide any information or data, or provided the wrong information:

Two companies omit Disclosure 2.8 from the GRI Content Index

U.S. based specialty food ingredients company Darling Ingredients' 2022 ESG Report GRI Content Index has a neat way of dealing with GRI 2.8. Just omit it from the Content Index.

Galaxy is a digital asset and blockchain leader providing institutions, startups, and qualified individuals access to the crypto economy. Hmmmm. There’s a business I don’t know much about. In any event, Galaxy had the same idea as Darling Ingredients. Just skip it. Galaxy’s Annual Sustainability Report 2021 includes a GRI Content Index.

In fairness, both Darling Ingredients and Galaxy reference GRI Standards and do not claim to be In Accordance.

Two companies hide the disclosure

These companies claim their reports are “In Accordance” and include a page reference for Disclosure 2.8 in the GRI Content Index. But, the disclosures are actually nowhere to be found is nowhere to be found in the reports. Hide and seek, anyone?

Medtronic 2022 Integrated Performance Report

Piramal Pharma Limited Sustainability Report 2021-22

Three companies advise that the information is not available

AT&T’s fiscal 2021 ESG Report GRI Content Index notes:

AT&T is not able to provide this data, as it is proprietary and confidential.

Hmm. I wonder what’s so proprietary and confidential about that?

Ford Motor Company's 2021 ESG Data Book notes:

Information unavailable – this data is not readily available and is not tracked today.

THREDUP’s 2021 Impact Report notes:

This data is currently unavailable. We are working to expand how we report out these metrics in future reports.

One company provides the wrong information

Under Armour’s “In Accordance” 2021 Sustainability Impact Report responds to Disclose 2.8 by referencing the Human Capital section of the company’s Annual Report which provides data on employees who are employees and not workers who are not employees.

One company just doesn’t report

PepsiCo simply advises in the 2021 GRI Content Index:

Not reported.

But PepsiCo does not claim to report "In Accordance". Otherwise a reason for omission would be required.

Clearly, then, the Universal Standards may require a little extra consideration and in some cases, this is not so simple. Disclosure 2-8 in particular is a headache for most companies, as it requires securing data from sometimes complex supply chains. Not surprising then that in this first year of use of the Universal Standards, there are some inconsistencies and some gaps. It's all part of the learning curve and thank you again to all the sixteen companies who have already entered the GRI Brave New World and allowed me to see how it's going down and hopefully allow others to learn.

Clearly, if GRI offered a free supply of ice cream for reporters for full and accurate reporting against Disclosure 2-8, I would have had nothing to write about.

And if you are a worker who is not an employee. Don't despair. I am pretty sure you will become visible in future reporting cycles.

Perspectives from Mr. Impact: GRI CEO Eelco van der Enden

2022-06-17T21:48:00.001+03:00

The new CEO of GRI, Eelco van der Enden is popping up everywhere these days. Webinars, round tables, conferences, colloquiums. And now he is popping up on the CSR Reporting Blog. Of course he is. The CSR Reporting Blog loves GRI (and loves to challenge GRI as well 😁). Eelco obviously has a lot to say on the topic of corporate sustainability disclosure, but then, these days, who doesn’t?!

The current discourse is polarized into two camps: the let’s-live-better camp and the let’s-make-more-money camp. Of course, players in each camp acknowledge the relevance and importance of the other camp (as long as they don’t get too close to the campfire). Some talk about building blocks, some reference interoperability. Some say let’s live better comes before let’s make more money. Some say let’s make more money is necessary to achieve let’s live better. Some say these are equal grounds on the same camp site. Some say they will never be equal. Mervyn King, the South African governance guru, talks about moving from the “current clutter and confusion to a comprehensive global reporting system”. Frankly, the only clutter and confusion at the moment is the weird discourse that’s going on about how to change reporting.

A new, better, fantastic, wonderful reporting system

Everyone seems to think a new era has been ushered in with the development of modern standards, and observers are thrilled with the fact there is momentum, with more exposure drafts to review in these few months than there has been in years. But the reality is that the debate is now about the differences in the new standards and the relative merits of each, rather than about the overall value of better transparency and how it will help safeguard our future. So much so that ERM and Persefone invested time and effort in the production of a report that analyzes the differences between the ISSB, EFRAG and SEC proposals. I mean, where are we? Rather than deploying existing frameworks and standards, the new voices in sustainability reporting are creating new volumes of disclosure and metrics proposals that may have similar cores, but are sufficiently different to require separate reporting considerations, meaning that everyone is now engaged in comparing, contrasting and concluding, rather than in actually improving disclosure. There might be a reasonable endpoint after all of this, but the continued messiness of it all is quite exasperating. Has no-one ever heard of copy/paste?

The let’s-make-more-money camp’s claim to fame is the premise that they know what investors want. Yes, you got it. Make more money. This seems to me to be a fundamental flaw. There are many types of investors, several of whom are looking to make a positive return on investment while aligning with the values of the let’s-live-better camp. I do not believe that a set of standards based solely on financial value creation, that may be influenced by estimated and extrapolated environmental and social factors, is enough to lead investors to decision making that will either deliver better returns or sustainable corporations. Eelco van der Enden often talks about the fact that there are two pillars of corporate reporting – the financial pillar and the impact pillar – and this is a winning concept. He says that each is widely used along fairly consistent lines by the largest companies around the world, and many of the not-so-largest. Eelco asks why we would reinvent the wheel when we have proof of concept? Financial reporting works; sustainability reporting works; taken together, and with ongoing improvements to the existing standards, all the information needed to assess corporate performance and risk is in place, he says. Maybe all we need to do is get better at that, rather than invent new stuff. Eelco told me:

“Thinking you can introduce a new comprehensive reporting system from nothing, I think, is fantasy. We have some very well proven concepts used by basically everyone, so it becomes about convergence and alignment, whether it’s mandatory or not or whether assurance is mandatory or not. But saying what we have all been doing to date is rubbish and now we need to change it all, is not going to lead us to a very good place. I represent a purpose, not a legal entity. This purpose is about reporting facts, not perceptions, for multiple stakeholders, not just investors. In the recent Amazon vote, more than 20% of independent shareholders, including some of the largest investors, voted in favor of greater tax transparency using the voluntary GRI Tax Standard. Other frameworks are using GRI – the WEF Stakeholder Capitalism Metrics use GRI for 17 out of 22 of their metrics. EFRAG is making use of GRI standards with some tweaks, to allow for local regulations, but they are keeping the baseline principles intact. I do not see a need to start all over again. On the other hand, there are proposals for mandatory assurance to put sustainability reporting on an equal footing with financial reporting. I say this is a good thing. If we are serious about the stakeholder-centric model, we must ensure that reported data is robust.”

Christmas Parties with the ISSB

Despite this, GRI has joined hands with ISSB with a Memorandum of Understanding. The ISSB proposals completely bypass anything GRI, other than giving a token nod to the fact that “impact” reporting is somewhere out there on the landscape in the let’s-live-better camp, and may be of interest to someone somewhere. The MOU is hyped as an agreement to create an interconnected approach for sustainability disclosures. What does this really mean? Eelco explains:

“ISSB has an investor lens. But there is not one type of investor, not all of them are only looking at enterprise value creation. IFRS and ISSB appreciate there is a gap on their flank that needs to be covered. With this MOU, they endorse the role GRI has for the other stakeholders which are not in their target group. The symbolic significance of this is important; for the first time, capital markets are expressing themselves in a way that addresses broader needs, and this should be taken note of by investors. It’s definitely a polarizing discussion. Some of the comments we have been hearing include, say, on the one hand, that GRI has sold its soul to capitalism, while on the other hand, the IFRS foundation has taken a sharp turn to the left. The agreement with ISSB is not about the technical aspects – we have a very well-equipped standards division and 25 years’ experience, we will help ISSB if they need help. So, it really comes down to governance. If you believe in the two pillars approach, people will want to see how the balance between the two is being managed, so there will need to be an overarching, aligned governance mechanism that will enable regulators to have sufficient faith in the robustness of this structure and the roles of the players involved. At GRI, we have an extremely robust due process. I personally was on the Technical Committee for the new GRI 207 Tax Standard and I can tell you it was very hard work indeed. We need to get better at the fine art of compromise. Moving ahead, we will see how this convergence works. Focusing on governance rather than technicalities is what will make the difference for regulators.”

My reading of this is that GRI and ISSB will continue to go their different ways, with different objectives, different audiences and different standards. However, rather than being public adversaries, it will be a sort of hands-off co-existence and an occasional joint Christmas Party. Which brings reporters back to where we have always been; a system for financial reporting (including financial-related sustainability topics) and a system for sustainability reporting. Plus ça change… But, in Eelco’s view, that’s not such a bad thing.

GRI – is a 25 year legacy enough?

GRI’s new Universal Standards kick in from January. The reporting burden will be more significant for companies who want to comply in full with GRI Standards. There are more extensive disclosures on governance, human rights, topic disclosures on material topics, and an entire restructure of the General (Universal) Standards, meaning that GRI reporters will have a LOT to do to reshape their disclosures for the next cycle if they want to remain compliant. Given that ISSB and ESRS drafts are now public, coupled with U.S. SEC requirements, reporters have a good idea of the direction of travel. Several companies already bypass GRI and report using SASB and TCFD only. The question will be whether companies will even bother to invest the extra effort to stay with the new GRI Standards, or whether they will simply pick’n’mix, choosing very selectively the individual GRI standards relevant to them, and bypassing the Universal Standards entirely? I wondered what Eelco thought about that. He shared as follows:

“That’s a very good question. It’s more than just about whether the new Universal Standards are more complex or challenging for reporters. It relates to our vision about what the future reporting landscape should look like from an impact as well as a financial standpoint. Yes, it needs effort, the same as every new standard, it will add a burden for organizations because it is different. But the key point is that the Universal Standards are fit for purpose and fit for the future. Five years on from when GRI transitioned from providing guidelines to setting standards, it was time to modernize and renew these disclosure requirements. We have not heard from companies so far that they do not intend to continue to report fully using GRI Standards. But now, of course, there are new options, including the introduction of the ISSB and EFRAG standards. I can only answer fairly if we think about these other initiatives out there. And that’s why we are proposing two pillars. ISSB is based on IFRS international accounting standards. GRI is based on multistakeholder dialogue. Combine these two and you have a system that has been around for more than 20 years. Nearly 11,000 companies use GRI and also report against mandatory financial frameworks. The platform exists. It works. The mandate of the SEC in the U.S. will always be investors, that won’t change. Nothing new from that end. We might see more incorporation of SASB standards into these requirements but the focus will not change.”

That’s an optimistic view. From my perspective, while it tends to make sense, the danger is that new standards may drive companies down to the lowest common denominator i.e., what regulation requires (assuming EU and ISSB standards become law in different jurisdictions around the world). In the absence of regulation, as has mainly been the case so far, voluntary disclosure not only flourished, but it also became a competitive advantage. If your peers use GRI, then you use GRI. In a brave new world where sustainability reporting (of sorts) is mandated, and required to be externally assured, and will carry the same regulatory and legal weight as financial reporting, companies may look to minimize the reporting burden to that which is unavoidable. I think a role of GRI through whatever this transition is will be to truly land the use of GRI Standards as the only way and the right way to provide impact transparency for all stakeholders, both as impact reporting in its own right and as a precursor for additional finance-related disclosures. If only a fraction of everything we have said about the value of sustainability reporting over the past 20 years is true, then ditching GRI for the let’s-make-more-money camp would be tragic. I predict there will be some fallout, and some lack of uptake, but I doubt most companies will do a full U-turn. I think GRI will continue to be the framework of choice for impact disclosure and the basis for effective sustainability disclosure as it affects the financials.

Materiality – mind the gap

So, let’s come back to materiality. Everything comes back to materiality. You all know by now that GRI’s version of impact materiality takes account of the organization’s most significant impacts on the economy, environment, and people, including impacts on their human rights. Impact materiality is central to GRI’s right to exist. Yet even the widespread use of GRI standards has not led to a consistent, clear, due-process-driven, transparent and verifiable methodology for determining material topics. The number of companies delivering a clear disclosure on how they actually determined material impacts, beyond asking selected (friendly) stakeholders for their multiple choice ticks, is probably less than the number of ice creams you can cram into a petri dish. Trying to work out how a company selected material topics is more often than not like staring down a black hole. There is some attempt to correct future practice in the new Universal Standards, in which the definition of materiality has been updated and there is more extensive guidance on process. But, as this is just guidance, I suspect that’s how companies will continue to treat it. (It’s guidance, let’s ignore it). I put this to Eelco: Why does GRI not bite the bullet and create a standard – not guidance or approach – for the process of developing a list of impact materiality topics? Given its central position in sustainability reporting, I find it baffling that GRI has never been willing to address this. Does it serve GRI’s purpose to deliberately leave this vague and open-ended? And his reply:

“Yes, I will go back to the Standards Team with this question. I do believe a systems audit approach is needed, but I am not sure that it’s within GRI’s remit to come up with a standard like this. We have never been prescriptive about defining materiality, and there are many possible ways to address this. We do get questions about whether GRI is planning to develop a standard for preparing a materiality assessment. Perhaps this is something we could influence in partnership with other groups who might be better positioned to develop such a standard. This is something for consideration.”

I won’t hold my breath. The entire sustainability reporting proposition rests on how companies define materiality, and our trust in their process requires them to disclose it. I believe GRI is absolutely the best placed organization to develop a process standard such as this. Having companies everywhere using GRI standards without a consistent, auditable methodology for determining materiality is like inviting people to a Scrabble game where each player randomly decides the number of points for each letter. You can add up the scores but they actually mean nothing.

When 5 months is like 50 years

I asked Eelco how he would summarize his first five months at GRI and he replied: “Like 50 years”. That’s understandable. More has happened in the past five months in sustainability reporting than has happened since Adam ate the apple.

I asked Eelco what legacy he wants to leave at GRI.

“I’d like to leave a resilient, financially independent organization that, in the two pillar structure, is the globally accepted pillar for impact reporting.”

And some of the challenges GRI is facing?

“Externally, it’s getting GRI back in the front seat. We were not vocal enough about who we are and what we are all about. It’s very simple. We enable society to have a discussion based on facts, not perceptions, providing free standards as a public good. Internally, we need to increase our efforts to raise funds to help us deliver our purpose and create a stronger financial backbone. There is a lot to do. We need to double the size of the standards division, and generate revenues based on more services we provide. We must continue to recruit quality people who are or can become specialists in standard-setting. Our purpose appeals to people, it’s a fun workplace where everyone can make a difference. We must become more efficient, for example, we are now installing a new ERP which will enable us to get rid of a lot of manual work”.

What is Eelco saying to reporters?

“There are criticisms of sustainability reporting and questions relating to how serious companies are about their environmental, social and governance commitments. I think that’s dangerous. Cynicism kills everything. Business leaders and investors should be very serious about this topic, it’s about helping make the world better for everyone. Short-termism is a problem. We must keep the flame alive and also look at how regulators are dealing with this and how large intragovernmental organizations are getting on board. To achieve public accountability based on comparable data, you need to make an investment. You can’t manage with volunteers. It must be managed professionally. It’s too important. Organizations complaining about the burden of compliance are those who are not transparent. It’s exactly that which builds mistrust. At GRI, we advocate for two pillars of reporting, and we are expert in the impact reporting pillar. We encourage all companies to report their impacts on the economy, society and the environment with the necessary degree of investment and leadership attention to help continue to build trust, build inclusive economies and protect our shared future.”

**********

And a little note from me at the CSR Reporting Blog: I’d like to thank Eelco for generously spending time with me talking through these issues. We had a fun conversation and Eelco was not thrown by my direct and sometimes provocative questions. I believe the approach is clear. Do better what you do best and keep communication lines open. GRI’s focus is impact reporting, with a proven legacy of doing that best (although still not perfectly😏). All the peripheral noise around what investors need, want and how much data they can usefully integrate into their algorithms is exactly that: noise. I advocate for GRI-based impact reporting as the essential fundamental basis for corporate sustainability disclosure; starting with broad based GRI facilitates disclosure against every other standard and framework, as well as responses to mile-long investor analyst questionnaires.

As usual, this post was written by me independently. No-one in GRI has influenced or requested to influence how I presented this conversation with Eelco. Of course, had they offered me a month’s free supply of ice cream, I might have used a few more superlatives 😁.

elaine cohen, GCB.D: ESG Competent Boards Certified (2021), Sustainability Strategy and Disclosure Specialist, former HR Professional, Ice Cream Addict. Owner/Manager of Beyond Business Ltd, an inspired Sustainability Strategy and Reporting firm having supported >140 client reports to date; author of three books and several chapters on Sustainability Reporting and the Human Resources connection to CSR; frequent chair and speaker at sustainability events and judge in several sustainability awards programs each year. Contact me via Twitter , LinkedIn or via Beyond Business

Spinning with Sustainability Disclosure

2022-05-08T12:30:00.000+03:00

By now, everyone’s head is spinning, including mine, with the number of new frameworks and exposure drafts of sustainability disclosure requirements. With the hype being harmonization, decision-USEFULNESS, simplification, comparability and yes, interoperability, we might all be fooled into thinking that the life of a reporter will suddenly become a bed of roses. Let me correct that assumption. Perhaps a bed of nails might be a better analogy. Ha-ha. Better stock up on ice cream.

The winds of change are whooshing in three standards that will influence reporting in the coming years. Much has already been shared to explain and interpret these new whooshes, but I keep getting asked to share my take on things so here are some preliminary thoughts.

IFRS Sustainability Disclosure Standard: So far, there are two draft documents for public consultation until July 29,2022

IFRS Standards, created by the newly created International Sustainability Standards Board (ISSB), are intended to be ratified by country jurisdictions to become law, in the same way as IFRS accounting standards are applied. These standards are geared to those who consider sustainability as an element of enterprise value creation only insofar as it affects the financial interests of those who fund and invest in companies.

European Sustainability Reporting Standards (ESRS): The proposed draft for consultation by August 8, 2022, includes a suite of standards required under the EU Corporate Sustainability Reporting Directive (CSRD) proposal that covers the full range of sustainability matters - environment, social and governance - as developed by the European Financial Reporting Advisory Group (EFRAG). These standards, after conclusion of the consultation period and subsequent modifications, will become law, affecting around 50,000 large and listed companies in Europe. The ESRS are designed to address the needs of all stakeholders, not just those with a financial interest. In the next phase, EFRAG intends to publish a set of sector-related disclosure requirements (as they obviously have budget to spare – SASB standards and the ongoing GRI sector standards clearly aren’t European enough). When ratified, the intention is to apply ESRS to disclosures from publication year: 2024 (on a phased basis).

U.S. SEC Climate-Related Disclosure rules for the inclusion of climate related risks and metrics in annual reporting on Form 10-K. This is another investor-focused initiative and will apply to listed companies, with a phased implementation starting from filing year 2024.

Let’s not forget also GRI’s Sustainability Reporting Standards: The revised GRI Standards structure including the new Universal Standards kick in for reports published in 2023. GRI are voluntary standards that are not expected to become law. GRI is keeping behind the scenes when it comes to the EFRAG and ISSB developments, signing collaboration agreements with both, relying on its historical positioning, having driven sustainability disclosure for the past 30 years, well before the EU or any investor community even knew how to spell ESG. GRI may now have succeeded to the point of irrelevance, having created the conditions in which companies may bypass its standards and disclose only what the new laws will require. While the EU standards build on the basis established by GRI, the ISSB standards do not.

Richard Howitt, a long-time influencer in the European sustainability disclosure space, recently set out the forces for convergence and divergence in these new EFRAG and ISSB standards. With only the teeniest smidgeon of optimism regarding whether both the European and the international sustainability reporting standards will actually move in the same direction, he sets out a 10-point plan for better cooperation. Good luck with that.

However, even if we end up with two sets of different standards (ESRS and IFRS/ISSB) (hint: we will), it’s not ever going to be an either/or. Companies in ISSB jurisdictions have stakeholders beyond the financial community and will not be reasonably able to limit themselves to financial-related sustainability disclosures. As we have seen time and time again, it’s the non-financial community that has driven disclosure on specific topics, and this will continue to be the case. This is where GRI claims its relevance – as a complement (or precursor) to finance-related sustainability disclosures as well as being the basis for non-financial disclosures.

Before we do a deep-dive into each of these changes and what they mean for reporters, alongside the many other reporting demands that companies accommodate – local SEC rules in different countries, disclosure demands from rankers and raters, voluntary-non-voluntary frameworks such as TCFD, CDP and PRI, EU Taxonomy, SDG etc. – let’s look at the overarching directions that seem to be emerging.

Materiality: The Star(s) of the Show

We have seen an explosion in materiality related terms – double materiality, blended materiality, nested materiality, ESG materiality, financial materiality and more recently, impact materiality. Materiality is apparently one of the most versatile words in the sustainability reporting lexicon. As I was writing, I even stumbled across a new term (though I doubt it’s likely to catch on): sesquimateriality. I even had to look up the definition of sesqui. This brilliant review by Frederick Alexander (The Shareholder Commons) takes us through the rationale for challenging the ISSB approach on ESG information that affects (only) enterprise value, saying that material beta (non-financial) information is just as necessary as material alpha (financial) information both for investors and for society. He writes: “On its face, the exclusive choice of enterprise value as the measuring stick for materiality means the standards will only be useful for investors who want to use environmental and social data to determine how a particular company will perform financially, in order to decide whether to buy or sell it, or perhaps to use their shareholder rights to push the company to change its practices to improve future cash flows. In light of the diversification mandate of Modern Portfolio Theory, and the importance of beta to diversified investors, this anachronistic hyper-focus on enterprise value is troubling.” Read this article. It’s excellent. (Even though the terminology is a bit of a mouthful). Essentially, the conclusion is that ISSB adopters should report more broadly on impacts and not limit themselves to the narrow scope of ISSB.

A similar point was made by sustainability thought-leader Andrew Winston, who bemoans the use of the term ESG instead of sustainability. He says: Seeing all things through the lens of markets and the quest for shareholder maximization is largely how we got into this mess in the first place. We’ve put profits above literally all else, and it’s leading to ecological collapse and vast inequality……. Just as fossil fuel companies should not lead the planning of our energy future, it seems unwise to let finance lead the journey to a humane, more just, less greed-filled form of capitalism.

ISSB picks financial materiality in its proposed IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information. The materiality scope in IFRS S1 standard includes the following guidance: The objective of [draft] IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information is to require an entity to disclose information about its significant sustainability-related risks and opportunities that is useful to the primary users of general purpose financial reporting when they assess enterprise value and decide whether to provide resources to the entity. Sustainability-related risks and opportunities that cannot reasonably be expected to affect assessments of an entity’s enterprise value by primary users of general purpose financial reporting are outside the scope of this [draft] Standard.

ESRS opts for double materiality – making the distinction between impact materiality and financial materiality. The materiality scope in ESRS 1 General principles includes the following guidance: The undertaking shall report sustainability matters on the basis of the double materiality principle. Materiality is to be understood as the criterion for the inclusion of specific information in sustainability reports. It reflects (i) the significance of the information in relation to the phenomenon it purports to depict or explain, as well as (ii) its capacity to meet the needs of the stakeholders of the undertaking, allowing for proper decision-making, and more generally (iii) the needs for transparency corresponding to the European public good.

Double materiality means that if a topic is material EITHER from an impact standpoint OR from a financial standpoint, or of course, both, it must be included.

Impact materiality is defined as: connected to actual or potential significant impacts by the undertaking on people or the environment over the short-, medium- or long-term, and covers upstream and downstream value chain impacts.

Financial materiality is defined as: triggers or may trigger significant financial effects on undertakings, i.e., it generates or may generate significant risks or opportunities that influence or are likely to influence the future cash flows and therefore the enterprise value of the undertaking in the short-, medium- or long-term, but it is not captured or not yet fully captured by financial reporting at the reporting date.

A shout out to Donato Calace of Datamaran who shared this example on LinkedIn of a new way of representing impact materiality and financial materiality in Enel’s 2021 Sustainability Report.

GRI stays with materiality: As you all know, GRI updated its definition of materiality with the new Universal Standards and this remains plain old materiality (or what the EU is now calling impact materiality) that is defined as: topics that represent the organization’s most significant impacts on the economy, environment, and people, including impacts on their human rights.

The irony is that most reporters have misrepresented materiality in GRI reporting, showing materiality matrices with one axis being the “interests of stakeholders” and the other axis being “importance to the business”. This is sort of double materiality by default, not by design, and it’s not always clear whether the impact on the business is the result of a considered analysis.

For example, Mondelez 2020 ESG Report shows importance to stakeholders and influence on business success, not size or significance of impacts.

Dell Technologies FY2021 ESG Report, on the other hand, shows importance to stakeholders and degree of impact, as defined by GRI Standards, i.e.: impact materiality.

What’s missing in materiality: The overarching issue with materiality assessments is of course the lack of standardized methodology. How does a company actually assess the severity of its positive and negative impacts on society and the environment? The guidance in the standards, old and new, is high-level and directional. Every company does it in a different way, some more structured, some less. Generally, that materiality assessment is the result of surveys and stakeholder opinion, with little consideration of the degree of impact. The results you get depend on the stakeholders you consult and what you ask them.

Almost all materiality processes are not fully transparent. Even the presentation of Enel noted above describes a series of processes… first we analyzed… then we analyzed… and a set of approaches: “The main impacts identified, both negative and positive, were considered respectively according to their degree of severity or magnitude and probability, in the case of potential impacts.” Well, that doesn’t tell us very much, really.

GRI guidance recommends assessing the severity of an actual or potential positive or negative impact by analyzing scale (how grave/beneficial the impact is), scope (how widespread the impact is) and irremediable character (for negative impacts, how hard it is to counteract or make good the resulting harm) as well as the likelihood of the potential impacts occurring. Given the fact that materiality is so fundamental to how sustainability disclosures are defined and developed, I have been advocating for years for the development of a standard that would provide a structure and logical process for materiality assessments, and enable understanding of how impacts are prioritized. The lack of attention to this point in both the ISSB and the ESRS (I gave up on GRI long ago) is a missed opportunity to align companies on how to prioritize material topics for sustainability disclosures as the new standards are being developed.

Getting Closer to the Money

Both standards move sustainability disclosure closer to financial reporting, in an attempt to raise the status of the former to equal or near equal to that of the latter. This is a bit of an uphill battle. Sustainability disclosure may never be anything more than a poor relative in the eyes of the financial wizards, but it’s true that the life of financial analysts will be easier when both types of reporting show up on the same playing field. This has two main implications:

First: Reporting period and publication timing

Both ESRS and ISSB require for sustainability disclosure to align with the period and timing of financial disclosure.

ESRS 1: The undertaking shall retain a reporting period in its sustainability report consistent with the one retained for its financial statements.

IFRS S1: The sustainability-related financial information must be for the same reporting entity as the financial statements and published as part of its general purpose financial reporting. This means the information must be disclosed at the same time as the financial statements.

This is logical development, and not just for the money folks. Too many sustainability reports are published so late after the end of the reporting period, they are already stale before you even get to page one. The late publication of sustainability information may result from a lack of urgency and discipline in organizations for sustainability information, and/or a lack of infrastructure in gathering and organizing data. For sustainability to be better integrated and for decisions to be made in real time (to advance sustainability, not just for reporting), this needs to be professionalized. No more endless excel files for data collection, no more begging colleagues for collaboration, no more scrambling around at the last minute for missing data points. The new standards will force companies to get onto the same timeline as financial reporting, and this will require a step change in both process, resourcing and supporting technology. That’s good for the financial community and, arguably, better for company decision making. But it won’t be easy for most.

Second: Auditing and assurance

The other longstanding complaint about sustainability information is that most of it is not externally assured and therefore confidence in its accuracy is low. The move to auditable and audited sustainability information is also a good thing. This addresses more than verification of GHG inventories or climate reporting, which many companies now externally assure, but all the material quantitative and much of the qualitative information that companies disclose. With sustainability being incorporated as part of financial disclosures (ISSB) or management reports (ESRS), they will be required to be assured to at least a limited level. What a gift for the accounting/assurance firms who are now gearing up for a fuller workload and an even fuller revenue stream. And companies that have never assured data in the past, be prepared for some surprises in your audit results.

Silo Busting: Sustainability Connectivity

The new standards whoosh in the concept of connectivity between financial and ESG information. This is not so new. It was attempted with the six capitals approach of the Integrated Reporting framework, but it never made real headway in practice in demonstrating true linkage, I believe. With both ISSB and ESRS standards emphasizing the principles of connectivity, we may start to see some new tools to help this understanding. The EU Taxonomy is perhaps one, and the scenario-planning approach that became the high-jump of the TCFD guidelines is a driver of more holistic thinking about the way the risks will affect the numbers. ISSB is also planning the release of the IFRS Sustainability Disclosures Taxonomy (yes, they have a big budget too).

IFRS standards allow information to be referenced i.e., it can be part of a separate document. ESRS requires all information to be contained in the management report… a throwback to the days when GRI reporting purported to have sustainability information “all in one place”. Today, GRI reports are often a menu of references to many other documents, making it difficult to actually track what’s being reported.

However, the focus by both on connected information and impacts is explicit:

IFRS S1: An entity shall provide information that enables users of general purpose financial reporting to assess the connections between various sustainability-related risks and opportunities, and to assess how information about these risks and opportunities is linked to information in the general purpose financial statements.

ESRS 1: The undertaking shall adopt presentation practices that promote cohesiveness between its sustainability report and: (a) the information provided in the other parts of the management report ... (b) its financial statements; and (c) other sustainability-related regulated information. …

The implication for organizations is not to be underestimated here. Some might see it as an elevation of the role of the CSO to the level of the CFO. Others might see it as the gobbling up of the CSO by the CFO. Either way, it will be interesting to see how this develops in corporate organization structures. Both standards are saying that the sustainability voice must be heard more clearly. It’s no longer just about disclosure. It’s about strategy that, for the first time in many companies, should actually integrate sustainability thinking, and not as a series of projects (emissions reduction, diversity and inclusion etc.) but as a way of doing business through the entire value chain and reflecting the interconnectedness of it all on society, the environment and on the sustainable profitability and growth of the company. No more part-time sustainability leadership. No more adding it on to an already busy executive’s to-do list. The new standards give more oomph to the role of sustainability leadership in an organization and it must be resourced appropriately.

History Lesson Over. Enter Goals, Pathways and Glidepaths

The sustainability report as a history book is now a thing of the past. Sustainability disclosures of the future are expected to be a set of promises, a pathway to deliver and an update on progress. The TCFD four-part model of Governance, Strategy, Risk Management, Metrics & Targets has become a useful role model, leading to more of a forward-looking disclosure than has ever been common practice. ISSB’s draft Climate Standard IFRS S2 adopts this approach in full, possibly an indication of things to come in future ISSB standards. The ESRS standards also emphasize the need to report on the future: ESRS 1 When defining its action plans and setting targets, the undertaking shall adopt time horizons that reflect its strategic planning horizons and resource allocation plans. Also, in ESRS_E1 Climate Change standard, companies are required to disclose plans to ensure the business model and strategy are compatible with the transition to a climate-neutral economy and with limiting global warming to 1.5 °C in line with the Paris Agreement.

This is another good development. Way back in 2018, when we all lived in a very different world, I wrote about the importance of targets in sustainability reporting. I continue to find many reports that talk a great sustainability story but do not back it up with clear commitments. And I don’t mean just an emissions or energy efficiency target, but a set of targets that underpins strategy and promises progress across a range of environmental and social impact areas. But if in 2018 I talked about setting targets, today, it’s about setting targets AND (alert: jargon ahead) transition pathways. We all want to know not only what your target is, but how you plan to deliver.

There is SO MUCH MORE to say about these new standards proposals. I didn’t even mention the new Climate Disclosure Rules of the SEC. I am hoping to carve out enough time to post detailed analyses and commentaries about the ESRS and ISSB drafts, and the SEC new rules in the coming month or so. In the meantime, on the whole, the developments are positive. They are raising the bar for sustainability disclosure and driving the integration of sustainability thinking and practice to become the new business as usual. While I believe the ISSB standards are not tenable as disclosures for stakeholders (as opposed to shareholders), they were never intended to be. On the other hand, ESRS has totally gone to town with their standards: 560 pages of detailed requirements and guidance may be just a little too much for companies to handle.

And will all this make life easier for reporters? Hmmm, not so much. The interoperability approach only goes so far and there will still be multiple and more extensive disclosure demands. New legally-binding standards will require greater compliance effort than the largely voluntary disclosures to date. Digitization with new taxonomies, assurance and scenario analysis will add new challenges to the mix.

Ultimately, the question is whether all this information will actually be used in a meaningful way to further us along the path to sustainable investment and a sustainable world, or whether it’s all just spin. Will ISSB make more money for investors in the long run? Will ESRS help make life better for all Europe’s grandchildren? Will ice cream continue to be the solution to everybody’s problems? I know the answer to the last question. The jury is still out on the former two.

elaine cohen, GCB.D: ESG Competent Boards Certified (2021), Sustainability Strategy and Disclosure Specialist, former HR Professional, Ice Cream Addict. Owner/Manager of Beyond Business Ltd, an inspired Sustainability Strategy and Reporting firm having supported >140 client reports to date; author of three books and several chapters on Sustainability Reporting and the Human Resources connection to CSR; frequent chair and speaker at sustainability events and judge in several sustainability awards programs each year. Contact me via Twitter , LinkedIn or via Beyond Business

Going for G in ESG

2021-11-01T09:42:00.000+02:00

For too long, governance has been a grudging afterthought in sustainability disclosure. It’s probably the most boring part of any Sustainability Report. Like gruellingly yawnful. More often than not, it’s selective copy/paste from the Annual Report, with links to the full report. Occasionally, you get a more compelling disclosure from a company that actually injects some passion into the governance arena. You might be forgiven for thinking that the trend of ESG reporting might actually indicate that governance disclosures would be more extensive than in plain sustainability reporting. Not so. In most cases, the governance elements are sparse. Most ESG Reports should be called “ES and a little bit of G Report” or even “ES and hardly any G Report”.

Not surprising then that the forthcoming fifth Asia Sustainability Reporting Summit, always at the cutting edge of tough sustainability topics, on December 9 and 10 (virtual), will focus on Spicing up the G in ESG. Two half-days of learning and lively debate, with a global speaker line-up and your regular co-chair team of Rajesh Chhabara and Elaine Cohen (me 😊). We will be delighted to hear from Helle Bank Jorgensen, CEO of Competent Boards, the Board and Business Professionals ESG certification program, Judy Kuszewski, CEO of Sancroft and Chair of GRI’s GSSB (Global Sustainability Standards Board), Rajeev Peshawaria, CEO of Stewardship Asia Centre, Singapore as well as from several senior leaders and governance specialists in Asia. See the speaker line-up so far here.

As many of you will have noticed, the new GRI Universal Standards published last month expand the governance disclosures required for reporting companies to remain In Accordance with GRI Standards. I covered the changes to governance disclosures when the Exposure Draft was published back in July 2020 in this post: GRI Governance Galore.

Let’s recap:

In the current GRI Standards, at Core level, all you need to do is report Disclosure 102-18 covering governance structure and Board Committees, including those with responsibility for economic, environment and social topics.

“The reporting organization shall report the following information:

• Governance structure of the organization, including committees of the highest governance body.

• Committees responsible for decision-making on economic, environmental, and social topics.”

With the elimination of the Core and Comprehensive options with the new Universal Standards, companies will be required to disclose ALL governance disclosures in order to be In Accordance.

Most Core option reporting companies report 102-18 minimalistically. The other non-Core governance disclosures – all 21 of them – are mandatory for companies reporting In Accordance at the Comprehensive level – around 20% of reporters according to GRI data. Conclusion: When the Universal Standards kick in in January 2023, 80% of those currently In Accordance at Core level will have to up their game.

My personal view is that it’s rather overkill and that required disclosures are nauseatingly detailed and go beyond the specific elements of corporate governance that are not addressed by other corporate disclosures. After all, sustainability reporting has a unique purpose. It’s not simply a place to repeat what you have already reported elsewhere. I’d have preferred to see a middle ground – more than now but less than new – as well as a requirement to report changes in (sustainability-related) corporate governance that have occurred in the reporting year. Most of the (old and new) governance disclosure requirements are evergreen policy and approaches, rather than reporting on what’s happened or what’s planned.

There are 13 governance disclosures in the new Universal Standards (compared to 22 in the current standards) But don’t be fooled. This reduction in the number of separate disclosure items is the result of combining several current disclosures into single disclosures in the Universal Standards. In fact, little has changed, except reordering and tidying up of the language. Companies reporting GRI Comprehensive option (and reporting in full) will not be challenged by the new Universal Standards on governance. Companies reporting Core may well be.

Here’s my summary of the new governance disclosures in the updated Universal Standards:

My shorthand:

Current GRI General Disclosures (102 series): GD2016
New Universal Standards: UD2021
Board of Directors (highest governance body): BOD

Disclosure 2-9 Governance structure and composition: This is the same as 102-18 and 102-22 combined. But the combinations now means reporters must add six sub-clauses that require details of composition of the BOD AND its committees according to various parameters including gender, stakeholder representation, under-represented social groups, competencies relating to the organizations impacts. Oh my, this is almost report all in itself.

Disclosure 2-10 Nomination and selection of the highest governance body: Description of how BOD and committee members are nominated and selected, including diversity and other considerations. Minor wording changes from GD2016.

Disclosure 2-11 Chair of the highest governance body: UD2021 includes the requirement to explain, if the chair and the senior exec are one and the same, the how conflicts of interest are mitigated. Split personalities is not an acceptable response (I assume).

Disclosure 2-12 Role of the highest governance body: This UD2020 requirement combines five GD2016 disclosures (102-21,102-26,102-29, 102-30 102-31) and relates to the BOD role in setting purpose, values, mission and strategy relating to sustainable development and overseeing due diligence regarding management of impacts. Due diligence has snuck into UD2021 quite a lot so you had better start integrating due diligence wording into your reporting. Quite a lot.

Disclosure 2-13 Delegation of responsibility for managing impacts: This UD2021 requirement combines two GD2016 disclosures (102-19, 102-20). Companies often report this as the sustainability management structure, or sustainability governance.

Disclosure 2-14 Role of the highest governance body in sustainability reporting: This replaces GD2016 102-32 with a report or explain requirement i.e., if the BOD does not approve the report and material topics, explain the reason. Lack of interest, time, energy, ability to read or watching Grey’s Anatomy are not trust-building reasons.

Disclosure 2-15 Conflicts of interest: This replaces GD2016 102-25 with slightly revised language and covers prevention, mitigation and disclosure to stakeholders of conflicts of interest.

Disclosure 2-16 Communication of critical concerns: This UD2021 requirement combines two GD2016 disclosures (102-33,102-34) with slightly revised language. It includes reporting the total number and the nature of critical concerns that were communicated to the highest governance body during the reporting period. Just so that the BOD can’t say they didn’t know, right?

Disclosure 2-17 Collective knowledge of the highest governance body: Replaces 102-27 and requires reporting report measures taken to advance the collective knowledge, skills, and experience of the highest governance body on sustainable development. Reading their own company’s sustainability report might be a good start.

Disclosure 2-18 Evaluation of the performance of the highest governance body: Replaces GD2016 102-28 and covers the BOD’s evaluation of its performance in overseeing the management of the organization’s impacts on the economy, environment, and people.

Disclosure 2-19 Remuneration policies: Replaces 102-35 with little change. This is the place to show how the remuneration of your BOD actually aligns with your sustainability objectives.

Disclosure 2-20 Process to determine remuneration: This UD2021 disclosure combines 102-36 and 102-37 and covers the process of designing BOD remuneration policies and who is involved and stakeholder voting on remuneration.

Disclosure 2-21 Annual total compensation ratio: This UD2021 disclosure combines 102-38 and 102-39 and requires reporting of the ratio of the annual total compensation for the organization’s highest-paid individual to the median annual total compensation for all employees and the percentage increase of same to the median percentage increase of same for all employees. This is a much simplified version of former requirements which referenced not only the top dog but also the top dogs in each country of significant operations.

Now for some examples:

Dow Corporation 2020 ESG Report

This is one of the few reports that applies the Comprehensive option of the GRI Standards. Dow reports on each governance disclosure with due attention and completeness in the body of the report – not sliced and diced from different publications.

For example, current GRI 102-22, soon to be Disclosure 2-9, includes detailed composition of the Board of Directors by age, role, experience and expertise. There are even headshots for good measure.

Pay ratios, one of the more sensitive elements of sustainability reporting, is also clearly reported.

Infosys ESG 2020-2021 Data Book

Infosys also reports GRI Comprehensive option and the governance disclosures are partly in the ESG Report, partly in the separate ESG Data Book and partly in the Annual Report.

The Annual Report includes a 40-page Governance Report which is incredibly detailed. It took me quite some time to locate one or two of the specific GRI-based disclosures, but I got there in the end. Mostly, it was easy, even if it meant straddling three different documents.

Hankook Tire 2021 ESG Report

Hankook always delivers detailed, clear and meticulous reports, using the GRI Comprehensive option. This is the only company I have observed actually publishing a set of governance targets in its three-page governance coverage in its ESG report.

I looked at more than 100 reports from global, large, small and unlisted companies in preparing this post to see if I could find a really exciting or impressive disclosure on corporate governance. Nada. There are some that are nicely designed with graphs and pie charts, a few with Board photos, a few with tables and charts. This one from Genting Plantations Berhad is a little more pleasing to the eye than plain words on a page.

Most governance disclosures remain general, minimal and uninspiring. Going for G in ESG will require a step change in transparency for many companies. Spicing up the G will require a step change in thinking. I foresee a global shortage of ice cream as companies struggle to get more transparent on governance. Everything is better with ice cream.

elaine cohen, CSR consultant, Sustainability Reporter, HR Professional, Ice Cream Addict. Owner/Manager of Beyond Business Ltd, an inspired Sustainability Strategy and Reporting firm having supported 119 client reports to date; author of three books and several chapters on Sustainability Reporting and the Human Resources connection to CSR; frequent chair and speaker at sustainability events and judge in several sustainability awards programs each year. Contact me via Twitter , LinkedIn or via Beyond Business