Back to basics (8): Schumpeter's disequilibrium today

Another often quoted economist and political scientist is Joseph Schumpeter (1883-1950). He was actually born in Moravia, became Austrian and then left for the US where he taught in Harvard, an interesting career. In his book “Capitalism, Socialism and Democracy” (1942) Schumpeter introduced the concept of "creative destruction" in which the old ways of doing things are endogenously destroyed and replaced by the new. He described that the real driving force of capitalism is “disequilibrium”, opportunities coming up by new (today: global) demands, inspiring innovation, a recipe to also avoid monopoly power. He also warned governments not to protect certain markets or organizations that were unable to succeed in transformation processes. One could argue that this is pure Darwinism for economy dummies.

Those who understand sustainability as the roadmap to successfully implement globalization should nowadays find Schumpeter quite inspiring because his baseline for a healthy capitalism is very much in line with what is really needed now: we are facing the fact that we need to overcome several divides between the global North and South (e.g. market divide, digital divide, education divide, etc.), dematerializing by at least factor 10 until 2050, while another 3 billion people will join us until then, the majority of them in the developing and emerging market countries. The ecological footprint (a methodology to measure the planet’s biocapacity that is already used up, invented by several institutions now captured in the “Global Footprint Network”) tells us that we have already overstretched the global capacity by 20%, growing to 100% until 2050, meaning we would need TWO planets if we allow business as usual. What else than “creative destruction” can be the way forward to successfully integrate countries into the global world markets?

We already see first successful examples of creative destruction in countries like India, Mexico and Brazil, wonderfully captured by C.K. Prahalad in “The future at the bottom of the pyramid”; completely different business models that absorb the needs and adapting to the infrastructural shortages of differently developed markets. Some global companies are amongst these examples, but most of the innovative ones are rooted in developing or emerging market countries. The title of this book already indicates the failure of any “top down” approach, just exporting Northern business models to the global South in an attempt to just simply copy what has worked in the global North.

Interestingly, the year 2000 Lisbon EU strategy for innovation explicitly mentioned Schumpeter’s creative destruction as a way forward to foster innovation, enabling social and environmental renewal. It broadly aimed to make Europe the most competitive and the most dynamic knowledge-based economy in the world by 2010. Not too much has been achieved since then, so one should not wonder that companies from developing and emerging markets that have successfully tested their business models in their local markets now start to also take over their Northern competitors that are stuck in a protective political climate, trapped in existing infrastructure and sunk capital investments. To sum it up, Schumpeter’s ideas today seem to better work in the bottom-of-the-pyramid context where opportunities are just simply taken when they arise, no foot on the brake. If Schumpeter would still be alive he might have again packed his bags, heading towards India or Brazil!?!

Back to basics (7): Recalibrating the "invisible hand of the market"

The critics of the concept of sustainable development and CSR always argue with Milton Friedman’s famous quote that “the business of business is business” and also refer to Adam Smith’s theory of the “invisible hand of the market”. They see especially CSR as an attempt to more regulation through the backdoor and a way to restrict the market power and the players within their specific markets; overall CSR is bad for modern capitalism. Even worse, these two famous quotes seem to permit amoral behaviour if there are no laws against certain ways to pursue self-interest.

But wait a minute! When Adam Smith published “An inquiry into the nature and cause of the wealth of nations” in 1776, partnerships were the dominant form of enterprise in which ownership and management meant the same thing. Adam Smith was against the idea of corporations, or "joint stock companies." Why that?

Sad but true, most lobbyists of the "invisible hand of the market"credo are not aware that Adam Smith did also publish “The theory of moral sentiments” in 1759, where he explains that the self-interest of the market players (buy and sell side) needs to be pursued by people of conscience and with a clear moral capacity; he argues that sympathy is required to achieve socially beneficial results. The self-interest he speaks of is not a narrow selfishness that allows whatever market transaction, but something that involves sympathy. He regards pure selfishness as inappropriate, if not immoral, and that the self-interested actor has sympathy for others. He continues that the self-interest of any actor includes the interest of the rest of society, since the socially-defined notions of appropriate and inappropriate actions necessarily affect the interests of the individual as a member of society. This context is useful to understand why Adam Smith was against the idea of corporations or joint stock companies, where he already envisaged the problems of a disconnect between ownership and management.

I would argue that Adam Smith’s idea of the self-interested market player that has developed a moral capacity and can make informed market decisions in the aim to achieve socially beneficial results will find a lot of merit in integrating sustainability thinking and CSR as a tool to implement that thinking into his/her understanding of necessary fair market conditions: a better understanding of the needed changes in legislative frameworks (and its enforcement) to support sustainability as a means for fair markets, a changed mindset about the basic role of a company (counterpoint to Milton Friedman), the need for broader education on sustainability issues in all economic curricula (to disable amoral behaviour and enable Adam Smith's concept of "sympathy"), and a broadly developed set of indicators of economic, environmental and societal impacts of the transactions of the organization and of the individual (to increase the available information to make good market decisions). Needless to say, GRI plays a crucial role to achieve continuous improvement of some of these mentioned points through its multistakeholder global platform for dialog, its guidelines and sector supplements. GRI’s learning services add to solving some of the educational challenges.

Adam Smith, a sustainability activist more than two centuries ago - a very different take on his legacy? At least he was somebody sustainability advocates of today can lend more credit from than the narrow-minded lobbyists of modern capitalism who haven't got the whole story about Adam Smith.

Day 4: Transparency takes center stage

The keynote speaker today was Sir Michael Rake - former KPMG boss and four weeks into his chairship of the British telecomms giant BT.

Several months ago, in his position as aruguably the most influencial accountant in the world, Sir Mike started to stir up the business, accounting, and investment community by saying its time for a new sort of business reporting - and the past should not be used as a road map for the future. He called for a redesign in reporting standards, and the incorporation of metrics that show a more three dimensional view of a company - including economic, environmental, and social risks.

Sir Mike gave a thought provoking speech today at the conference - addressing a wide ranging number of topics such as how to rebuild trust in the corporate sector to how companies can use their products and services to gain buainess advantage while tackling some of the worst global development and environmental issues.

But I was glad to hear during the question answer period his reference to the GRI and the role that disclosure can play in building trust, and also to justify atttention and expenditure on social and environmental risks.

Day 3: Greenpeace and Coca Cola are now friends

The buzz on the opening day of the annual BSR Conferece here in San Francisco was a story Gerd Leipold, Executive Director of Greenpeace, was telling about its former arch enemy Coca COla. After well over a decade of Greenpeace pressure, Coke has agreed to install Greenfreeze refrigeration units at the Beijing Olympics and other venues worldwide (about 100,000 units total I think) that will save several thousand tons of hydroflourocarbons (HFC) over their lifetime. HFC's are a nasty contributor to climate change. (You might recall chloroflourocarbons CFC's were banned in the 1980's in most industrialized nations for their contribution to Ozone Layer depletion - at that point most refrigeration units shifted to utilizing HFCs instead).

Some people thought this was very good news. It showed that long term committment to issues by NGOs do result in sigificant change, and that civil society can work together with businesses to take on the difficult challenges of our times. It gave hope to people who had previously lost hope or interest in these sorts of collaborations.

But others were disappointed in Greenpeace. After 10 years of work how could they claim that Coca Cola's 100,000 frig units was a success story? Why did it take so long? Why not a complete phase out of HFCs? Why did they settle? What happened to the Greenpeace of old?

For me every small victory is a victory and it all adds up. It shows that we have changed a lot as a global community as well - for the better perhaps. Collaborative instead of confrontational. Celebrating the postive rather than the negative. Building the foundations for future collaborations and wins.

Day 2: Tech sector gets material

The Global e-Sustainability Initiative (GeSI) is an industry association of 20+ members - mainly European telecomms but some other global players in the ICT sector are also among the membership. They are working together to address the common sustainability issues their sector faces. One of their projects is on the topic of accountability. To improve their accountability for impacts caused by their products and services, GeSI decided it was time to first agree - on a general level - on what issues were most "material" for the industry. They hired BSR to conduct some research on the subject and today I was invited to attend a stakeholder dialogue to review and discuss the results of this research.

I read the 40 page paper before hand and was generally impressed at its depth and breadth, but there was certainly room for some stakeholder dialogue on how to expand, focus, and improve it!

Firstly, their definition of materiality was important to note. They decided to rank issues according to its importance to the companies and the importantance to "influencial stakeholder groups". The old addage "if a tree falls in the forest and nobody hears it" came to mind. What if the sector was having a huge sustainability impact in a certain area but there just didnt happen to be an influencial stakeholder group that was fighting for it? Does this mean the companies are off the hook?

Secondly, lets look at their issues identification. They clustered their issues into ten categories:
1. Climate change
2. Waste and materials use
3. Access to ICT
4. Freedom of expression
5. Privacy and security
6. Employee relationships
7. Customer relationships
8. Supply chain
9. Product use issues
10. Economic development

Stakeholders in the room suggested that it may be more helpful for the industry to re-organize these issues differently so they could be better understood: impacts on environment, impacts on suppliers, impacts on employees, impacts on customers, etc. Others thought that some key issues were left out or were not prominent enough - such as labor issues, human rights, and water.

One of the most interesting ideas I have heard in a long while came out at this meeting. We always do life cycle assessments for our products and services which focus on the environmental impacts. What about a social or societal LCA?

BSR and GeSI will take our feedback and conduct two further dialogues in Europe and Asia. An updated list of material issues will surface and will help companies in the sector focus on the right things, and work collaboratively to tackle some of the most challenging issues.

Day 1: Responsible Procurement UN-style

The UN Global Compact is trying to stir up some interest for building sustainability into procurement practices. I attended a workshop today in San Francisco with about 50 others. We spent the day pondering the various challenges and huge potential that weaving sustainability into supply chains has for putting sustainability at the heart of business operations globally.

The day was opened with remarks by Aron Cramer, president of BSR, who pointed out that if sustainability requirements were woven into procurement contracts this could have a very powerful effect worldwide on environmental and social spheres. He also noted that due to the interconnectivity of supply chains today it was important that businesses do not compete in the realm of sustainability - but instead collaborate to raise the bar. The market would suffer if companies with similar supply chains started demanding all sorts of different standards, disclosures, and requirements. It would be a win-win-win for companies, suppliers and society if there was more collaboration in this area.

My favourite panel of the day was a threesome that included a major multinational that provides cafeteria services for tens of thousands of office employees in five locations in the US, the catering company that services these cafeterias, and a representative of a group of small organic farmers in the California region that the catering company sources from. They all had the opportunity to talk about what sustainable procurement meant to them, the opportunities it offered, and some of the stumbling blocks they faced. It was the first time I had seen a real "supply chain" sitting together and talking openly about the challenges they face as they transform their businesses towards more sustainable practices.

I think the other companies in the room were inspired by the degree to which they could work with their caterer to integrate sustainability into their service. The caterer was able to show how they were able to add value up and down the supply chain by brining new options and solutions for sustainability for both the client and the source farmers. And finally the farmer perspective made us all realize that small scale and local agriculture is superior to mass agriculture in terms of health and taste, and we need to find ways to improve their market access.

If you are interested in supply chain issues, visit my colleague Joris's blog on the topic.

A week of sustainability in San Francisco

I will be in San Francisco, California, all week mainly to attend and participate in the annual "BSR Conference" run by the American industry association called Business for Social Responsibility.

I will blog at the end of each day to reflect back on things that I saw, heard, and learned!

Back to basics (6): Ever heard of "craggers"?

I just returned from Germany speaking at a CSR roundtable that E&Y has started to offer quarterly in their offices, this time Düsseldorf. The Anti-Law of Jante (see Back to basics (5)) immediately came to my mind when the organizers told me that this was now the second meeting where the normal 20% no-show rate of registered participants didn’t work, the place was packed with 120 people and extra chairs were necessary. It was a nice mix of male and female participants, coming from several sorts of organizations, many of the participants still pretty young. Are we finally all waking up?

On my train ride back to Amsterdam I found this article in the International Herald Tribune* that caught my attention because it introduced a new abbreviation: “CRAG”, meaning “Carbon Rationing Action Group”, groups of volunteers (you might say on grass-roots level) that “aim to hold each other to account by imposing fines on members of the group who fail to keep their individual emissions under a certain quota”. This CRAG phenomenon has started in the UK, but I learnt that there are not only around 20 CRAGs with more than 160 individual members in the UK, but already many more that started in the U.S., in France and many places elsewhere. The members of the group define the rules, so fines are not common everywhere. A London 60 staff consultancy has also decided to voluntarily attempting to keep their personal annual emissions under the British average of 6.000 kilograms CO2. Some CRAG’s allow their members to roll over their credits accumulated during a low-carbon year to allow for occasional high-carbon indulgences like flights.

Two things are worth mentioning here. First, what would all of this be without transparency, both in terms of now being able to define allowed emissions for each individual (based on the available data), and secondly to be able to be held accountable based on the individual real consumption of CO2. These people test out new ways of living together, helping each other through learning, and last but not least can share experience with those who like the idea that every individual should have an emissions account in the future. Well, why not, if this system allows for some flexibility (where do you live, what are available options and barriers to access new technology, available income, cultural differentiation, etc.)?

Secondly, this is the prototype of testing the possibility of the Anti-Law of Jante where the individual can show that a different world is possible without going back to Stone Age and that “the public perception that you’ve got to be rich to be green” is not true. Clearly, the major problem remains to “persuade the wider public that individual efforts, resulting in only microcosmic cuts, were worthwhile, particularly at a time when emissions are skyrocketing in other parts of the world like China”. I am convinced that we all need to start somewhere, why not starting a CRAG?

* Neighbors agree: Thou shalt not emit, IHT, October 17, 2007, Page 1 and 10

Back to basics (5): The Law of Jante

In one of his last books* Paulo Coelho explains to the reader the meaning of the “Law of Jante”, first introduced by the Scandinavian writer Aksel Sandemose in his 1933 novel A Fugitive Crossing His Tracks. In short the Law of Jante means something along the lines of “You are worthless; no one is interested in what you think, therefore you had better opt for mediocrity and anonymity. Do this and you will never face any major problems in life.” Coelho continues by saying “that it is thanks to the Law of Jante that the world has been manipulated in all kinds of ways by people who often end up achieving their own evil ends; we see the great gap between rich and poor, see social injustice, violence and people who are forced to give up their dreams.”

What will happen a couple of generations from now when people will look back at the beginning of the new millennium? Will they realize that civil society, business and politics, although knowing all the facts that have been presented by the IPCC and clearly communicated by leaders like Al Gore, haven’t really done enough to prevent climate change, so that everything got worse and made life impossible in many areas of the planet, causing huge migration waves and decimation of humankind by until then unknown diseases that appeared because of an immense number of people living on very limited space in megacities of 50 million citizens and bigger? Will they simply say “well, blame it on the Law of Jante?”

I prefer Paulo Coelho’s proposal to create an “Anti-Law of Jante” to prevent things from getting worse: “You are worth much more than you think. Your work and your presence on this earth are important. Of course, such ideas could land you in a lot of trouble breaking the Law of Jante, but don’t be intimidated. Continue to live without fear, and you will triumph in the end.”

With Al Gore and Rajendra Pachauri (for the IPCC) receiving this year’s Nobel Prize for Peace the Nobel Committee in Stockholm has sent a clear wake-up call to the world today: let’s not allow this to happen. All necessary information is transparent; let’s fight the Law of Jante now!

We in GRI are proud of having had the chance to hear Al Gore at the first GRI Global Conference on Sustainability and Transparency in 2006 and are already looking forward to the second conference in May 2008 when Mr. Pachauri will be with us.

* Paulo Coelho: Like a flowing river, HarperCollins Publisher, 2006

We want to work for the good guys

Graduates seek out socially responsible companies as employers, according to PWC research.

In a study of 2739 graduates from China, USA and UK published by PWC earlier this week, 86.9% of all the graduates questioned said that they actively seek out employers whose corporate social responsibility behavior reflects their own. 90% of the graduates from the USA agreed to this statement compared to 87.2% in China and 71% in the UK. The graduates were questioned as part of a larger study about their expectations of work and careers.

Employees and prospective employees are some of the most important audiences for sustainability reports. People want to work for companies that share the same values as they do. Although there have never been more people on earth as there are now, all reports say that finding and keeping great staff have never been harder.

There is a category in the GRI Readers Choice Awards for best report from the perspective of employees. Get online and score your employers report today!

Source: 'Managing Tomorrow’s People: The Future of Work to 2020’

Back to basics (4): Who reads sustainability reports?

Last week GRI launched the GRI Readers’ Choice Awards, giving readers a platform and a voice what they value most in sustainability reports and which reports they liked most because they addressed the material issues in a convincing way. We thought it was necessary to address the question “who is reading all these reports and is it really worth the effort?” This is of course exciting, and the first days after the website was launched the interest was already huge. But still, two things make me really wonder:

Firstly, I am always amazed how much capacity and money is available in nearly all companies that I have seen for their normal annual reporting process and print design, while sustainability reports still have to be produced with budgets that are “too much to die, but not enough to live”.

Of course, there are difficult, sometimes overwhelming legal requirements to fulfil when pulling together annual reports. And yes, strict assurance practices are necessary as well; all that has to be well prepared and does cost money. However, it is mainly a look into the rear mirror, addressed to one stakeholder group only and not really covering the long-term future needs (in that sense: sustainability) of the company. One could argue that all these efforts are necessary for the readers, but – let’s be honest – how many readers do annual reports really have apart from maybe 200 industry sector specialists, asset managers, ranking institutions, an probably some competitors and employees? How many printed short versions of annual reports have you personally thrown away into the bin without having taken one single look at them?

In contrast to this I have met so many companies where employees have learnt so much about their company (especially when they were large and/or multinationals) and have used sustainability reports as a reference document when visiting customers, shared them with friends and still have them at home, keeping every single version. I have seen students reading reports when figuring out which company could be a good employer, MBA students using the GRI matchmaker program to study sustainability reports in their MBA courses and discuss the question what a specific company should be responsible for and how they would react in case of a certain dilemma, digging deep into the problems and build understanding of the rationale behind a specific decision that had to be made. We see more and more of the usual suspects for annual reports consumption reading sustainability reports because they want to learn how to invest more sustainable and long-term, making investment decision with a real sense - while still making money. We see more and more suppliers reading sustainability reports because they expect to be asked next about their specific responsibility in the supply chain by their customers, and we see more and more communities and ministries really thinking about making sustainability information a requirement for their own procurement activities. So, is there anybody out there who likes to follow my bet that already more people really read sustainability reports than annual reports?

Clearly, I am not arguing that less money should be spent on annual reports if it’s absolutely necessary. But it’s definitely time to make sure that sustainability reporting processes get the budgets they deserve! If the budget for the preparation of a good sustainability reports remains low over time a clear story is told: it is not the lack of money, but the wrong prioritization of sustainability as a really important issue.

Secondly, isn’t the basic question asked not also a warning signal that stakeholder engagement is still not fully understood? While it is pretty clear that during the development of the sustainability report stakeholders need to be involved to define material issues, the question how to continue to involve stakeholders after the publication of the report still seems to be a weak spot. Or has the communication strategy suddenly ended with the launch of the report (maybe with an A5 card in the back as feedback form?) instead of making the launch of the report the starting point for even more stakeholder engagement (=input for the next report)? In summary the fact that we still ask ourselves the basic question about the readers of sustainability reports makes it clear that some inefficiency in the overall reporting and feedback process still exists. Answers are welcome; therefore please join the GRI Readers’ Choice Awards.

Back to basics (3): The business case for sustainability

"Business cannot succeed in failing societies", how often have we already nodded when this quotation has been used in articles, brochures or presentations. But if that is a given, why do we so often discuss the question "What's the business case for sustainability (and sustainability reporting)?" Here’s my take on it:

Organizations often lack a vision what sustainability really means for them and what they want to achieve over the next 20 or 30 years for itself, for society and the environment. Or in short: what responsibility is taken over by whom and for whom? If I read sustainability reports I very often read about objectives and targets for the next reporting period, maybe for 2 years, but only a few organizations present a long-term vision and define mid- or short-term targets through “reverse engineering”, deciding through that lens what the necessary next milestones need to be. What gets lost is the overall context and rationale why and how the organization will contribute to solve global problems through its specific business model or how its business model design is already influenced by those problems today. The GRI G3 Guidelines purposefully ask reporters to make exactly that two-way assessment in the strategy and analysis part.

A lack of a long-term vision will consequently lead to a lack of understanding what investment is really needed and when it is needed. All expenses for CSR today are therefore seen as costs and necessary capacities for the longer term will not have been properly budgeted. CSR managers are too often pushed into a corner where they are only tolerated because they help to secure a basic compliance to laws; they do lack the acceptance to be seen as important multipliers for business opportunities. In this environment an understanding for the long-term value of sustainability cannot really grow.

Reading sustainability reports offers a simple litmus test if an organization is willing to go the extra mile to explore the real value of sustainability : how is sustainability/CSR organized within the organization? Is CSR simply managed by an add-on department (extra question: “Is at least someone from the top management responsible for that department?”)? Are there responsible managers in all corporate departments, business lines and regional operations (matrix organization)? Are there policies that are properly enforced by measurement and reporting processes? Finally, is sustainability/CSR integrated into corporate or business development and gets regular top management attention? Shouldn’t it belong there if the connection to the business strategy is so urgently needed? Clearly, the level of organizational integration reveals if sustainability is seen as a risk reduction necessity (survival strategy) or an opportunity for long-term business development (growth strategy).

Apart from the question on how CSR is organized my personal check list while reading reports continues like this (starting with the lowest priority for the business model): how much do I read about philanthropy activities, then about efficiency programs (e.g. some years ago zero waste costing was really en vogue), then about integration into risk management; next would be integration into corporate governance, and finally into research & development and/or (corporate) business strategy? That simple check list is a nice and easy rooster to quickly detect where an organization stands with regard to CSR.

From my perspective sustainability needs the attention of top level strategists and integration into business model development. This ensures a connection with long-term target setting and the translation into strategies and milestones. The question about the business case for sustainability should then become obsolete. It’s a simple truth that if you don’t know where you’re going, you might simply not get there.

The value of sustainability information

The big buzz around here this week is the launch of the GRI Readers Choice Awards. These are not just awards for the sake of awards - they represent a whole new era for sustainability reporting.

Sustainability reporting will not become a mainstream practice unless a freeflowing market for such information develops. People who stand to benefit the most from sustainability information as disclosed by companies today either don't know this information exists, or it comes to them in a form that is not usable or optimal. Who are these current and potential beneficiaries of sustainability information? Journalists, employees or prospective employees, investors and analysts, board and management team members, NGOs, consumers, and broader civil society.

Until now GRI has focused on the information issuers by creating Guidelines and supporting materials for them to use as the basis for reporting economic, environmental, and social information. But now GRI is trying to create, stimulate, educate, and add value to the information users side. The Readers Choice Awards are designed to engage these information users/report readers directly and give them an avenue through which they can express their opinion.

Readers are invited to select the reports of interest to them, and then assign scores to each of these reports based on their assessment of the quality and usefulness of the report to them.

Reports that gain the highest scores in nine different categories will be declared the winner in a high profile ceremony in May 2008 - but really its the readers and the movement towards better accountability and transparency that will be the real winners.

We predict that the results of the scoring will lead directly to changes in the current practice of sustainability reporting. By getting a better understanding of what readers/users want and need, report preparers will thing about reporting differently.

Early signs look good - after only 48 hours online the Readers Choice website had nearly 2000 visitors from 70 countries and hundreds had registered and started to score reports. We certainly hope thousands and thousands will join these early participants. I will keep you posted as we progress in this big experiment!

Public sector still needs convincing

We were lucky enough to have Phil Hughes visiting us this week in Amsterdam. He traveled over from Melbourne to meet with various members of the GRI staff to reflect back on our three years of partnership and look ahead to the future. GRI helped to co-found the Centre for Public Agency Sustainability Reporting, which Phil now directs, with ICLEI-ANZ, City of Melbourne, and State of Victoria's EPA.

We were comparing notes on the rate of uptake of the GRI Guidelines among public sector organizations (such as municipalities, federal departments, other public agencies) and the rate of uptake among businesses. The practice has been slow to take hold in the public sector, and Phil surmises that it is (at least in part) due to the lack of recognition of the three dimensional role these agencies play, and the size and complexity of their impacts.

But I reflected that it was not that long ago that companies were in the same place. We seemed to have crossed over from that lack of awarness (whether purposeful or not!) to an understanding that companies do have complex impacts (postive and no-so-positive) on societies, economies, and the environment - and we are moving into an era of action. Maybe public agencies are a few steps behind, but Phil and I decided we had reason enough to remain optimistic that they would move along this curve some point soon as well.

Back to basics (2): Globalization and sustainability

For quite some time I do start my presentations with a slide that shows the famous graph of the world population growth in developed and developing countries. "Oh, that one again ;-(" the audience might think, but honestly, do we really understand the impact of what's in front of us?

China - although still applying a one-child policy - will grow by another 150 million people by 2050 (another one of those "rebound effects": due to a higher life span a full generation of Chinese people will "mathematically not have died" between 1990 and 2050). India will see another 500 million Indians until 2050, more than the population of whole Europe today. 90% of all kids below 18 years now grow up in developing countries - NINETY PER CENT! The sheer size of these numbers should make us think what that means in terms of sustainable development. Also, what does that say about tomorrow's markets? Here’s my take on it:

What would happen if the countries that are integrated in world markets today fail to integrate developing countries into the world markets? For sure, waves of migration, war for resources, new epidemics and negative effects on climate change strategies would be some of the effects. Our Western (and emerging) societies will simply not be able to cope with the overwhelming brutality of these effects. So, as failure would be a disaster, there is simply no other way than to accept the challenges of globalization and its world market logic. But how does that link with sustainability?

Isn't sustainability just simply a synonym for a situation where everybody on this planet has the opportunity to participate in (globalized) world markets without being restricted by any rule that favours one person or place over another? The terms fairness and balance come to mind as well. And isn't sustainable "development" not just the broad highway in front of us, aligned by stable crash barriers (meaning globally accepted and globally applicable rules of behaviour that ensure fairness and balance, based on transparency and openness)? The question that remains though: how much time do we still have to continue walking barefooted on that highway? That is the picture that I always have in mind when I read the latest about WTO's never ending tragic soap "Nightmare on Doha Street". In that sense - for me - sustainable development is the blueprint for a successful implementation of globalization.

Anniversaries: ISO 14001 is 10

Stumbling across ISO 14001 certification figures a few days ago jogged my memory to the days when it was first released - I must admit that discovering 14001 was released 10 years ago this past June was a bit of shocker - time flies!

It was controversial back then. The standard had the backing of governments and many businesses were stongly incentivized to get on board with it. I remember when Ford and GM joined forces a year or two later and made it mandatory for any company providing products or services in their supply chain to become certified under ISO 14001.

But pushback came from companies and environmentalists who said that the standard was causing weaker performance - not stronger. Some companies in Japan, the US, and western Europe had already adhered to high levels of environmental management, and the ISO standard - built with wide global uptake in mind - actually lowered the bar instead of raising it. Of course, there were the to-be-expected complaints of cost and burden as well.

Some say that ISO 14000 has been a solution to many problems: unintentional trade barriers created by environmental standards; the inefficiency of command and control regulations; and the plethora of permits, inspections, regulations and standards faced by companies trading across international borders.

I think the standard has done much for environmental management overall - not the least by creating a standardized set of vocabulary, expectations, actions, and (10 years on) a worldwide infrastructure of practitioners that can help companies cope with their environmental risks.

But is it actually improving performance? Does anyone out there know of any studies or impact assessments of ISO 14000 certifications?

Back to basics (1): The value of transparency

Sometimes overwhelmed by so many different views, details, different priorities and cultural takes on sustainable development, I find it useful to really go back to the "heart of the matter", summarizing what we really need to achieve for a better future.

I'll start with an exercise that most of us go through at a certain moment of their career in GRI, trying to explain to others in not more than 60 seconds why GRI and sustainability reporting are so important. Here's my take on it:

"In today's globalized world transparency is absolutely fundamental to create trust, which is the basic ingredient to create partnerships (we already know that we will only be able to create sustainable change in partnerships!); only through partnerships continuous improvement will be possible, which finally is a necessary essential to create sustainable change. Accepting this logic simply means that without the right level and depth of transparency sustainable change will not be achieved.

Since we know that trust in most organizations is at an all-time low all over the world (open any newspaper on any day and just count how many articles you will find on this or somehow related topics), we need to work towards higher levels of transparency to recreate the necessary trust.

This is where using the GRI Framework can help. GRI facilitates the necessary dialog of all stakeholder groups from all over the world to define the aspects any organization should take into account while assessing how to close their own transparency gap. The problems we need to solve are global, so the format that structures the expected level of transparency to create sustainable change needs to be global as well. There is no other format than the GRI Framework that serves this purpose. So, why hesitate using it?"

We all need to decide if we can agree to this simple logic. Otherwise the other simple logic of W. Edwards Deming applies: "It is not necessary to change. Survival is not mandatory!"

ISO 14001 - on the menu in Asia

I was somewhat surprised to find out that International Organization for Standardization (ISO) does not officially track the number of certifications to its 14001 environmental management standard. All these years I have been jealous of ISO assuming that they can track certifications with ease due to the compliance oriented nature of their standard. We are have always struggled to track the users of the Sustainability Reporting Guidelines because they are a flexible framework - certifications are not required, nor are companies required to inform GRI (or anyone else) when they have issued a report based on the Guidelines.

Anyway, I stumbled across some data from the German Environment Agency (UBA) while surfing the web this evening that seems to be the closest thing we have to a tally of total certifications. They tracked just over 129,000 certifications worldwide by the start of 2007 - they claim this figure represents a rise of about 25% from the previous year. I took that as a good sign that ISO 14000 is still growing that strongly.

Organizations in Asian countries account for over 45% of certifications globally - with Japan and China in the number 1 and 2 spots respectively (approximately 20,000 certifications each), and South Korea, India, Taiwan, and Thailand all in the top 20.

The ususal suspects from western Europe can be found in the top 20 as well - Spain (11,000 certifications - good for #3 spot), Italy, Germany, UK, Sweden, France, and Switzerland. But possibly more interesting is the appearance of some new CEE nations rounding out the bottom of the table - Romania, Czech Republic, and Hungary make the top 20 for the first time with a combined certification total of nearly 5000.

The USA is 5th on the list with 8000 certifications, and Canada is 11th with nearly 2600. No African companies made the top 20, but the survey shows that South Africa has over 400 certifications to-date.

I wonder if reporting rates will or do follow ISO certification rates. Has anybody out there seen any correlation?

Frankfurt Motor Show: Environment on Parade

The International Motor Show or Internationale Automobil-Ausstellung (IAA) is the world's largest motor show and it opens today. IAA is held biennially in Frankfurt, Germany and is known in English as the Frankfurt Motor Show. It will attract at least 1 million visitors and will debut no fewer than 250 new passenger vehicle models.

I am no car junkie, so don't follow this closely but I did watch a segment on the morning news today previewing the models that visitors will be treated to when they arrive at the show this year. Clean, green, hybrid, electic, and other environmentally friendly prototypes will dominate the show apparently. I saw images of tiny space-age looking electric cars, and fancy luxury brands like Audi with the word HYBRID painted over the distinctive sleek bodywork.

Growing up not far from Detroit MI where the annual Auto Show dominates people's calendars, I remember it was all about being big and bad in those days! Large Hummer-type vehicles, trucks with industrial grade power being sold on the consumer market, and big heavy fuselages (I know that is an airplane term, but some of the cars were so large they looked larger than a small plane!).

Nice to see that the most anticipated new models this year are the enviro-friendly ones. They will have their place in the spotlight over the course of the next two weeks in Frankfurt - but the real road test will come when they hit the market. How will consumers vote?

Where I was on September 11th & how GRI helped

It was a terrible morning that most people won't ever forget. I recall arriving at work around 8.30am at the Tellus Institute in Boston (where the GRI spent its formative years - Ceres shared office space at the Tellus building back then!) and being aware immediately that something was wrong as I could feel tension, concern and confusion in the air. Some of us crowded around a TV screen in the meeting room and watched with horror as the events of that morning unfolded.

Most of us went home early in shock. Some of the planes took off from the Boston airport which set the city into a state of panic, and many of us knew people that would have reported for work around that time at the Twin Towers in nearby New York and were concerned for their safety.

The next morning Allen White (co-founder and acting Chief Executive of the GRI at that time) called myself and my colleague Mark Brownlie (GRI's former Communications Director) into his office. We were supposed to fly out on September 15th for a meeting of the so-called Measurement Working Group (MWG) - a group of nearly 100 people from all over the world and all backgrounds (corporate, investment, NGO, labor, accountants, you name it) in London where we would facilitate their talks on the development of the 2002 version of the GRI Sustainability Reporting Guidelines. Allen told us that the meeting was not canceled, that he had decided he would go, but that we could back out if we were not feeling secure. We both decided to join Allen and fly out on the 15th - just a few nervous days after 9-11-2001.

We eventually found ourselves in London along with nearly 100 MWG members from over 40 countries who had made the same decision as we did. Many, including Allen and I, had to incur major difficulties and travel itinerary changes to get there due to airport shut downs and new security measures. We were surprised that we had nearly 100% attendance, very few people chose not to come and very few refused to let long queues and fear stop them from traveling to this unique gathering.

I will never forget the way Allen White opened up that meeting. He reflected on the difficulties and risks that all had taken in order to be there and play their part in the development of the 2002 Guidelines. He said that our little microcosm of 100 participants committed to working together to achieve something - despite different languages, cultures, religions, citizenships, beliefs, and professional affiliations (not to mention opinions on how to measure environmental and social issues!) - was even more important post-9-11 than it was pre-9-11. Why? Because as long as we, as a global society, refuse to break down barriers and at the very least respect one another - if not try to understand one another - our future would never be a secure and sustainable one.

Maybe our group was just a drop in the bucket, but it was a start, and we were building something that would help standardize communications about important economic, environmental, and social issues globally which we felt could help break down barriers and misunderstandings even further.

GRI working group consensus-seeking processes are always incredible experiences for the participants as people learn (sometimes for the first time) to reach out across boundaries to try and understand one another - but the meeting in mid-September 2001 in London was an exceptional example of that. It was one of those experiences that changed my life both personally and professionally. I think of it every time I come across the stamp in my passport that marks my arrival at London Heathrow on 16 September 2001.

In memory of Carlton Bartels, climate change innovator.

Harvard Business Review asks how reporting helps manage climate risk

To round out a threesome of unprecedented media interest in GRI recently (see previous two posts this week) the Harvard Business Review was in touch to talk about what everyone is talking about - climate change.

The editor wondered how reporting could play a role in helping companies strategically manage risks and opportunities associated with climate change. Here were some perspectives I shared.

Lagging indicators: The starting point for navigating the risks of climate change is to first understand what impact the company’s operations, products and services are having on the environment. By knowing their own ‘carbon footprint’ with certainty, companies can start to take action to reduce their impacts. Benefits of measuring and reporting include realizing cost savings due to energy efficiency, to remain one step ahead of regulation, and to protect brand value by showing accountability and responsibility for environmental responsibilities.

Real time indicators: The climate change issue is so prominent that companies cannot afford to seem like they are not actively looking at their own impacts and helping to shape a more positive future. Benefits of reporting on these indicators include earning and maintaining a license to operate in the public domain, demonstrating a leadership position on one of the most pertinent issues of our time, and earning customers and clients by differentiating the company in the marketplace as responsible on this issue.

Leading indicators: Scientists tell us that climate change will alter our climatic patterns and our physical landscape. Reporting on forward looking indicators lets a company tell its story about how it is going to adapt and innovate to mitigate risk that climate change could cause – such as emerging risks to places where the company has operations, or risks to resources the company is dependant on (e.g., forests or agriculture), and risks associated with rising energy costs. Leading indicators also help the company show how it will capitalize on new market opportunities afforded by climate change – such as introducing new products and services that do not rely on fossil fuels, or engaging in carbon trading.

Search GRI indicators here.

Honesty note:
The Economist and Business Week contacted me this week, but I have to admit that the editor from Harvard Business Review contacted me about three months ago to talk about sustainability reporting and climate change. Since I am on a roll blogging big media interviews this week I couldn't resist adding it to the list. Look for the HBR interview in this October's issue.

Business Week asks why SMEs would report

Its been a big week for media interviews here at GRI. Today I heard from a journalist working on a story for Business Week on small and medium sized enterprises and sustainability. She was wondering why SMEs might start reporting. Here is the just of my response:

There seem to be two very different drivers for reporting based on where the company operates/originates (that we have detected!)

SMEs from USA, Canada, Australia, Western Europe: the driver for embracing sustainability and producing a report is usually a competitive differentiator when it comes to products and services – ie., these are companies that produce “green” or “sustainable” or “natural” products and services, and they use reporting to walk the talk on what they are doing. The value of reporting to these companies is brand enhancement and better communication channels with key stakeholders such as customers, communities, providers of capital, and employees. Of course this is a broad generalization - an exception I know of would be a group of Chilean fruit growers are trying to break into the UK and US organics marketplace, and they are finding that sustainability reporting is helping convince buyers that their product is genuinely “sustainable”.

Emerging markets SMEs (Africa, Asia, South America, Central and Eastern Europe) seem, for the most part, to be driven by efforts to enter – and be competitive – in the global marketplace. Buyers are forcing a plethora of ‘codes of conduct’ and other related initiatives (formal and informal) at them and they must show that they do adhere to sound environmental and labor/human rights practices in order to compete. As we have seen with the recent product safety and quality scandals in China – buyers are held responsible for what happens in their supply chains in the court of public opinion. This does seem ironic in a sense, as buyers have been shifting their contracts over the past decade or so to emerging markets where goods/services can be produced at lower cost – in part because the local governments do not impose stringent regulations when it comes to environment and social performance by the corporate sector. The regulation is still coming down the pipe – but in a different form and from a different authority – the international buyers (whether these be B2B or consumers directly). Companies with their eyes on the future are staying ahead of social audits and the like by getting a better idea of their social and environmental impacts and starting to manage potential risks.

The Economist asks whats ahead in '08 for sustainability reporting

I was quite honored this week when a reporter from The Economist contacted me to ask what I thought might be coming down the line for sustainability reporting in 2008. They are gearing up for their "Year Ahead: 2008" annual issue to be released in the next few weeks and I think its a great sign that they were researching sustainability reporting. Researching it doesn't mean that the topic will actually make it into the issue - but I still took it as a great sign!

Here was how I responded when asked for my perspective on interesting developments for 2008:

• The rise of sustainability reporting through supply chains. GRI is working with four multinationals right now as they roll out reporting among suppliers in ‘high risk’ emerging markets – ie. places where human rights, environment, corruption, or product responsibility issue are prone to arising mainly due to lack of legislation or enforcement in certain countries – reporting is one way for global companies to have more control and confidence in the conduct of their suppliers – which they are being called to account by investors and consumers. We will see a marked increase in B2B reporting and smaller enterprise reporting due to information demands in the supply chain in 2008.

• A marked increase in reports out of Russia and India to combat negative assumptions in the international community about corruption, labor standards, governance practices, and environmental impacts. Early movers, such as Jubilant Organisys in India, have been rewarded for reporting on these issues by being able to attract international capital and by being competitive in international acquisitions. This is helping to set the stage for others to follow.

• The US responsible investment community has mounted a campaign to increase the quantity and quality of sustainability information available for data analysis and decision making. Their goal is to have all 100 of the S&P 100 reporting based on the GRI Guidelines by 2008, if they achieve this they will move on to the S&P 500 by 2011. As per early 2007 they had noted a 20% increase in S&P company GRI reporting – accounting for about 50% of the S&P 100. At this rate they will achieve their ambitious goal of all 100 S&P companies issuing GRI reports by end of next year.

• XBRL on the rise? The financial reporting community has been toying with XBRL as a way to exchange data for the past few years, interest at the SEC is helping to fuel this – the GRI Guidelines are now available in this format. Will this have an impact on the volume, accessibility, comparability, and demand for information in the marketplace in 2008?

• Climate change and human rights emerging as main stream agenda issues that companies are expected to be doing something positive about. Accountability, transparency and reporting on these issues will become expected and will drive increased numbers of reports issued in 2008.

Korea: Trends in transparency

A research institute affiliated with Korea's main independant daily The Hankyoreh released the results of their look at sustainability reporting in that country.

The large South Korean multi-nationals, known as "Chaebol" have really made their name on the global stage as big consumer brands - Samsung, LG, Hyundai, and Korean Air as examples. Stockbrokers are surely pleased with the level of transparency about financial performance, but how do these companies stack up in terms of transparency on economic, environmental, and social performance?

The Hankyoreh researchers found that Korean companies are strongest when it comes to reporting on environmental performance and product responsibility. Their analysis reveals that the level of transparency on human rights.

On a scale of 100, the highest score went to Yuhan-Kimberly with 57. Korea South-East Power came second with 55, followed by POSCO and Daewoo Securities with 52 each, finally Samsung and Korea Electric Power rounded out the top cluster with 48 points. A total of 22 companies were ranked overall. Of the top scorers, all use the GRI Guidelines as the basis for reporting except Daewoo Securities.

The lead author Lee Won-jae thought the results were positive and although past benchmarks are not available, he commented that the shift to greater transparency and the fact that most Chaebol embrace the global norm for reporting is a good sign. This group will continue to monitor trends in reporting in Korea into the future.

Has an Aussie found the business case for sustainability reporting?

Thanks to Phil Hughes, the Director of the Centre for Public Agency Sustainability Reporting in Melbourne Australia for bringing an interesting tidbit to my attention.
He spotted a new report that reveals strong economic case for sustainability risk reporting to be adopted by Australian businesses.

On August 1st 2007, the Financial Services Institute of Australia (Finsia) released the first economic analysis to examine the costs/benefits to business and the economy of sustainability risk reporting in Australia.

The report, Tip of the Iceberg, found that benefits arise because companies with sustainability risk reporting benefit from lower corporate borrowing costs as a result of reduced risk, and higher labour productivity and sales from the boost to their reputation with employees and customers.

“In short, there is a strong economic case – to the tune of $1.2 billion GDP per annum and a significant profit gain of 2-3 per cent for medium and large companies that voluntarily report on sustainability risks”.

“Overall, the voluntary adoption of SRR [sustainability risk reporting] by more Australian businesses appears to be a worthwhile investment for them, as well as having wider economic benefits, and so should be encouraged by Australian Governments”.

The report also found that the proportion of Australian top 100 companies reporting of sustainability risks was likely to increase from 23 per cent to 60 per cent within three to five years.

Finsia commissioned the independent study conducted by Econtech, to determine the costs/benefits of environmental, social and corporate governance for sustainability reporting to business and the overall economy. They refer to this style of reporting as sustainability risk reporting (SRR).

The report is part of Finsia’s Tip of the Icebreg – investing for the long-haul campaign on sustainability risk reporting. The report was released at a sustainability summit in Sydney and is now available to download (large 7M paper).

Mattel: Hindsight 20-20

I covered the case of Mattel on August 2nd - an article appeared in the New York Times a few days earlier that praised Mattel for avoiding major social and environmenal crises by having more control over suppliers since they were actully owned by Mattel outright.

But in the days and weeks that have followed the press has been overrun with stories about product safety scandals and guess who is right in the middle of the scrum? Mattel! The company has been hard hit with recalls of some of its highest profile products due to quality issues arising out of factories in China.

A blog reader pointed out the strange 'coincidence' that the positive article ran only days before the product safety expose. This inspired me to take a closer look at the situation. Sure enough, Mattel owns many of its suppliers in China and Indonesia. Its hard to tell if the factories that issued Barbie dolls with lead paint (presumably not part of the original specs!) are owned or not.

Here is a letter to the editor that my colleague Katherine submitted to the Financial Times today (not sure if it will get published):

Rather than avoiding purchasing products from China, consumers should push for greater transparency and accountability by companies sourcing from Chinese suppliers and from Chinese companies themselves. Sustainability reporting is integral to improving transparency and a valuable tool for companies who want to manage their economic, environmental, and social impacts.

If companies working in China want to differentiate themselves from those caught up in these scandals, they should be promoting their sustainable credentials through sustainability reports. As well as bringing many other internal and external benefits sustainability reporting using a globally recognized framework, such as the Global Reporting Initiative’s G3 Guidelines, can build customer confidence in a company’s brand, products and services and be used to mend the damaged “Made in China” brand.

I will let you know if it gets published!

We've entered a new archaeological period (apparently)

I mentioned yesterday that I was a fly on the wall recently at a gathering of very unique and creative thinkers - members of the Association of Management for Innovation.

I had the pleasure of introducing the concept of sustainability to this group. I used illustrative examples to show how the increasing interconnectivity of a fast growing human population is creating a whole new set of conditions within which businesses need to learn how to operate. In this new era there are risks - such as diminishing resources and variable human rights standards - and there are opportunities - such as greater mobility and access to new markets at the 'bottom of the pyramid'.

The group pondered and discussed this new set of conditions and concluded that they did agree - business has never before done business under these circumstances. A re-writing of the rule book is underway.

It was during this discussion that one of the participants shared that he was recently on an archaeological tour of Greece and his guide pointed out that it is generally accepted that we have indeed crossed into a new and distinctly defined archaeological period. 10,000 years from now scientists examining their ice & soil cores and digging up ruins from human settlements will notice a distinct delineation around the time of the 20-21st centuries. This will mark the start of an era where humans significantly impacted their environment.

Will they find evidence of large scale urbanization? Open pit mines? Deforestation? Elevated carbon levels? Ruins from manufacturing sites? Will they find differing clues on different continents? What will they conclude about the civilization that dominated the globe during the period 1900-2500?

Diversity: are we looking deep enough?

I had the pleasure of spending a few days with members of the Association for Management Innovation when they met here in Amsterdam late last week (explains my absence from the blog!). This is group of people spanning nearly every industry and consultancy-type you can think of, and have absolutely nothing in common except that they are in charge of innovation and/or change in their organizations. (Sidebar: They also knew nothing of sustainability or corporate responsibility but decided that this would be the theme of their August meeting so they invited me to come along.)

In one of the sessions a member of the group presented her thoughts around diversity in organizations. She argued that although there will always be room to improve, most companies DO have solid diversity policies and procedures in place - ensuring a good blend of people from different genders, age groups, races, religions, nationalities, sexual orientation, languages, and other measures. In this globalized world most companies see diversity as a competitive advantage.

Although some companies performance on diversity may fall short of the mark, the presenter identified what could be a potentially bigger problem when it comes to diversity: character.

She claimed that companies consciencely or sub-consciencely carved out a "keyhole" in terms of the type of person that they would like to promote and succeed and lead the organization. This results in a very homogenous top tier of executives - typically a set of clones of the CEO. She said it takes great courage for a CEO (and the organization at large) to break out of this tendency and hire or promote people of very different character. She argued that although the day to day interactions may be more difficult due to the natural tensions that would exist due to the diveristy of perspectives, in the long run players would build up trust and respect for one another, and the organization as a whole would be strengthened by this diversity of character.

Although the GRI indicators do cover diversity in its various forms, there isnt one to measure the range of character diversity!

The two "i"'s of business: innovate and integrity

A nifty little report landed on my desk today from Arthur D Little, the consultancy. It has a complex mathematical equation as its title:

Integrity + Innovation = Sustainable Performance.

It caught my eye at first because the opening paragraph of the report states that the growth of the number of companies that have produced a report based on the GRI Guidelines has grown from 20 to 1000 in a 7 year period. It was presented as being an indicator of the growing corporate committement to sustianability. So I read on to discover that "...while this activity is taking off, the familiar competitive pressures of business are not going away. Instead they continue to mount, compelling companies to keep finding new and better ways to deliver the goods and services that socity wants more efficiently and profitably."

ADL's solution for companies is a twofold committment to integrity and innovation. The equation is simple:

INTEGRITY: consistently fulfull stated business principles as an integral part of decision making, rather than managing "CSR" as an additional business activity.

INNOVATION: find successful new ways of value creation in response to the changing needs of markets, societies, and the environment.

The result: sustainable prosperity. They only have anacdotal evidence compiled at this point to try and illustrate the success of this equation, but they outline evidence from successful companies such as Novo Nordisk, BT, and GE - and present these in sharp contrast to those companies that have lost their integrity such as WorldCom, Enron, etc.

For better results, own your supply chain

Buried so deep in this weeks New York Times was a story on toy giant Mattel (maker of Barbie, Hot Wheels, among others). Unlike most retail manufacterers based in the US and Europe, Mattel actually owns the factories in China and elsewhere in Asia where most of its core products are produced. They do outsource non-core products and components to other suppliers, but only amounting to about 35% of total production.

This practice runs in sharp contrast to most other retailers who contract with factories in Asia for the low cost production. The article cited quality control, a committment to decent workplace conditions, and toy safety as the key reasons Mattel has opened its own factories in China - as opposed to outsourcing. I do recall the Dateline episode about 10 years ago when secret camera's entered one of Mattel's contract factories in Indonesia and revealed horrendous workplace conditions - in the lead up to the busy Christmas toy season this was disasterous for Mattel.

Prakash Sethi, an internationally renowned supply chain, ethics, and work place condition expert was hired to help Mattel get back on track after that expose. To this day he still has open access to any Mattel owned factory for surprise visits and is allowed to post his findings publicly. Now that is a true test of how confident the company is in its factory conditions!

From the perspective of sustainability reporting this bodes well for the company. Most companies struggle with their report boundary. The boundary for financial reporting is clear - it includes all entities that a company owns. But for sustainability the boundary is not as clear. The classic example is supply chain issues. A big brand retailer typically does not own the factories that produces its goods - and therefore it does not directly control the performance of that factory. It does exert some level of influence over that factory however - and it is via this influence that it can insist on improved conditions. This can be reported as policy or procedures - but performance results are often difficult to track. Mattel has the benefit of being able to control their factories directly - and therefore know the performance results.

What do CEO's say about sustainability? (Part 3)

Globalization is not only here to stay, but is maturing to a next phase - earlier phases being typified by outsourcing and supply chain shifts from "Western" economies to emerging markets. But this next phase will show a marked increase in global integration with China and India in particular being new drivers of demand - not only supply.

The McKinsey study concluded that expectation around adherence to sustainability by companies will become even higher as a result of our entering this next phase. Why? Greater service integration across national boundaries would make intangibles more valuable, and Chinese and Indian companies will need to find ways to demonstrate their "local" loyalties in parallel with their efforts to build globally integrated value systems.

CEO's seemed to agree. When asked which trends would be most important in influencing society's expectations on business "increasing environmental concern" scored highest - a whopping 61%. This was followed by a cluster of three responses scoring in the 30's - Greater demand for and limited supply of natural resources (38%), Emergence of China and India in the global marketplace (37%), and increasing technological connectivity (33%).

There were 7 other responses to this question, all scoring between 6-18%, and included decreasing trust in business, pressure from NGOs, globalization backlash, and overburdened public sectors.

The green business case in Europe

Sometimes a committment to sustainability at the heart of your business pays off - big time. The headlines of the Financial Times in Europe this past weekend read "France an UK push for green tax cuts". Seems that the new leaders in charge of France (Sarkozy) and the UK (Brown) have wasted no time putting the environment first and foremost.

Their main plan is to implement lower Value Added Tax (VAT) on emergy saving goods and services.

Sarkozy was quoted "It is unfair that a polluting car costs less than a car that does not pollute."

The business case cannot get any clearer. Now let's see how long it takes, and how many hoops have to be jumped through for this scheme to actually be implemented!

What do CEO's say about sustainability? (Part 2)

Building on yesterday's discussion about perceptions of CEO's about the expectations of society regarding the public responsibilities of companies, today I move on to who CEO's think are having influence on their companies.

The 400 CEOs surveyed by McKinsey & Co cited that not fulfilling sustainability obligations would lead to declining market shares and loss of talent. It is not surprising to find that employees ranked highest (48%) when asked which stakeholder group will have the greatest impact on the way companies manage societal expectations. I was happy to see that customers was the second most important group following closely behind with 44%. Customers need to start voting with their dollar!

Local communities, regulators, media and NGOs came next, all scoring in the mid-20% range. Also interesting from GRI's perspective at the moment as we are going to focus the next year on engaging with report readers, such as the stakeholders listed above, to find out if they are indeed using report information to advance their relationships with companies.

Interestingly investors scored fairly low, only 16%. This doesn't bode well for the hope that many of have about the mainstream investor world waking up to the value of sustainability information. At the moment CEOs seem to think that environmental and social risks and opportunities are not on the minds of investors. A harsh wake up call that we have a long way to go still.

What do CEO's say about sustainability? (Part 1)

My boss (Ernst Ligteringen, GRI Chief Executive) handed me a publication by the consultancy McKinsey & Co today - he picked it up at the recent Global Compact Leaders Summit in Geneva. Its an interesting look at how tides are definitely changing in the mainstream business community. I will feature a few of the most interesting findings over the next few days.

400 Cheif Executive Officers of leading companies worldwide were surveyed about the emerging new rules of competition.

Question: Percent of CEO's that believe society has higher expectations for business to take on public responsibilities (environmental and social) than five years ago: 97% of CEO's from public companies, and 91% of CEO's from private companies agree.

When asked to motivate this, the CEO's cited the rapid erosion of public trust in companies as one indicator that expectations have and will continue to change. Another factor was the shifting emphasis on the creation of long-term shareholder value - and the need to maintain or boost their legitimacy in socitey as one key way to ensure this.

Goldman Sachs links corporate responsibility to market leaders

The study came out late last week at the UN Global Compact Summit in Geneva - those of us not used to seeing the GS name associated with corporate responsibility took note! Mainstream investors have always been wary of sustainability and sustainability reporting - could it be that we are witnessing the winds of change?

The study's main finding is that companies that are considered leaders in environmental, social and governance (ESG) policies are also leading the pack in stock performance—by an average of 25 percent.

More specifically, in an analysis of more than 120 ESG leaders from five different industries—energy, metals and mining, food and beverage, pharmaceuticals and European media—Goldman found that companies in four of the sectors for which it had published reports (energy, mining and steel, food and beverages, and media) outperformed the MSCI world Index by an average of 25 percent since August 2005. 72 percent of the companies on the list outperformed industry peers.

This is a significant result for those of us trying to convince companies that a commitment to sustainability is indeed rewarding!

Interstingly, the main complaint Goldman researchers had was that disclosure remains an issue, the data is hard to get and is not consistent. Sarah Forrest, head of the research project said "We call on companies, industry groups and regulators to address this challenge."

Look no further, GRI Guidelines are here!

Anniversaries: Halfway to 2015

I read today that July 7th 2007 was the official halfway point in our long journey towards achieving the Millennium Development Goals - or MDG's as they are affectionately known. Back in 2000 the UN convened governments of the world and managed to reach agreement that we would commit ourselves to an agressive agenda to rid the world of its worst development problems by 2015.

The goals include:
- Halve the number of people living on less than a dollar per day
- Ensure ALL children complete primary school, and educate boys and girls equally
- Significantly reduce child mortality rates, and maternal mortality rates
- Halt the spread of deadly diseases like HIV
- Havlve the number of people who do not have access to water and sanitation
- Increase aid and improve governance

By most accounts these goals won't be met by 2015 - at least if we continue along the rate we are going today. Enormous strides have been made on some of these issues in specific countries, but on the whole it is an uphill struggle. One school of thought that has been surfacing lately is that governments cannot possibly do all of this alone. The private sector has a role to play - but what?

Economic value-added is the main contribution a company can make - provide jobs directly or via the supply chain, pay taxes, and invest in infrastructure. Many companies that operate in emerging markets are actively playing a role here and are conscious of the MDGs and their role as a key partner. But what about maternal mortality and childhood education? Most companies do not see themselves as having a responsibility to provide social services or infrastructure that typically falls into the domain of governments.

Will we remain in this stalemate, or is there a future where the public and private agendas could be more closely linked?

Anniversaries: The Universal Declaration of Human Rights is 60

... well, it's still only 59. But we got an email from Mary Robinson (former Prime Minister of Ireland, and currently the head of the Ethical Globalization Initiative)and Chris Avery (Director, Business & Human Rights Resource Centre) asking for our ideas about how the 60th anniversary of the Universal Declaration of Human Rights in 2008 might be marked.

We couldn't resist but to suggest that the 60th Anniversary should be the year of transparency. How can things start to change if we don't even have a good understanding of what is happening, the cause and effects, and the roles and responsibilities?

Worldwide, the human rights agenda has reached a cross-roads. Stakeholders agree that human rights are a core necessity – but the roles and responsibilities of governments, business, and civil society towards achieving these goals remain less defined.

At the global level, Professor John G. Ruggie was appointed Special Representative of the UN Secretary-General on Business & Human Rights in 2005. Under this mandate, extending until 2008, Professor Ruggie is convening a multi-stakeholder process for the UN-High Commissioner for Human Rights to draw out the current “state of play” on stakeholder responsibilities on human rights. This process will result in a set of recommendations on the roles different groups play towards achieving human rights.

The GRI’s own multi-stakeholder approach is part of the current global dialogue on human rights and will make a contribution to the greater understanding by business, civil society and governments about expectations, roles, and responsibilities.

Human rights disclosures in the G3 Guidelines will need to evolve in step with these changing expectations. We are just starting with the process to evolve the indicators, so if you want to get involved, please do!

Anniversaries: The Brundtland Report is 20

The year was 1987 and Gro Harlem Brundtland was the Prime Minister of Norway - and busy chairing the UN's Commission on Environment and Development. The findings of this Commission were captured in a handy little booklet called "Our Common Future" where the term "sustainable development" was first coined.

I read an article by Bill Baue recently and he reminded readers that "Sustainability is an ancient concept, best articulated in the Gayaneshakgowa, or the Great Law of Peace of the Six Nations Iroquois Confederacy: "In our every deliberation we must consider the impact of our decisions on the next seven generations."

Fast forward to 1992 to find this blogger up to her eyeballs in an undergraduate degree where every single course related to sustainable development assigned an essay asking us to define, debate, justify, or reject the term "sustainable development" - I remember thinking how ironic it was that we were expending all our brain cells trying to define and re-define this new term (or prove it to be an oxymoron) when all I really wanted to know was how I could put it into practice.

And here we are in 2007 and this blogger is still trying to find ways to put sustainability into action. Looking back over the past 20 years we seem to have concluded that the term "Sustainable Development" is not infact an oxymoron, which is a good start, and we have indeed found some great ways to put the concept into action - but that it still remains on the fringes of our economy, society, and environment - the very things the concept was meant to lie at the heart of.

What do you think?

Are we talking sustainability reporting or sustainability performance?

A reader recently inquired about whether or not I had seen any ranking or indexing scheme that rates companies on their actual sustainability performance - not just the quality of their reporting. My answer: surprisingly hard to come by!

The professional indicies such as the Dow Jones Sustainability Index and the FTSE4GOOD use sustainability reports and other data provided by companies on the list (or competing to get on the list) to make a valuation of their performance from a risk exposure and future value perspective. Often times the methodology is not made public because these of course are proprietary products. (Note: I am not sure if the two above-mentioned products make their methodologies public or not).

The only other performance evaluations I can think of are award schemes. There are publications like the former Business Ethics Magazine (now the CRO)that rank the 100 Best Corporate Citizens. Many industry associations also award their members or companies in the industry for performance. In the UK, the membership association Business in the Community (BiTC) runs a very high profile and competitive Corporate Responsibility Index annually.

Quality of reports often act as a proxy for performance. Take for example the bi-annual Global Reporter's survey done by SustainAbility, UNEP, and Standard & Poor's which ranks report quality. Check also the Roberts-McKenna Pacific Sustainability Index which ranks companies reports on a system that awards companies for the breadth and depth of issues they cover.

Why is it easier to find rankings of report quality than it is to find rankings of performance quality?

GRI Book Club: The Wal-Mart Effect

The Financial Times ran a news story yesterday with the headline "Wal-Mart postpones its green report." Seems that a draft circulated to its main stakeholders "was rejected as inadequate" according to the journalist. The world's largest company had originally promised a sustainability report by mid-2007 - a promise made back in 2005 when shareholders and advocacy groups put Wal-Mart under fire on their sustainability practices.

I see a real opportunity for Wal-Mart here - they have the chance to revolutionize the practice of reporting and make real strides towards understanding their sustainability footprint and reinforcing the global movement toward a common language for reporting. Fingers crossed they also see it that way.

No one really knows how Wal-Mart sees such things claims Charles Fishman - author of "The Wal-Mart Effect". Its an easy-to-read book which I am about 3/4ths of the way through. Mainly it's about the economic impact that Wal-Mart has on communities and its suppliers, but just last evening I came across a case study on the Chilean Salmon industry which highlights the power Wal-Mart could weild on workplace and environmental conditions if it so desired.

Fishman outlines the boggling growth in aquaculture in Chile, and the fact that about 1/3rd of that country's total output is bought by Wal-Mart. The problem is that this intensive fish farming is causing coastline damage and is polluting the sea beds underlying hundreds of pens jammed with millions of Atlantic Salmon (incidentially - the species is not native to Chile). Processing factories have sprung up and replaced subsistence agriculture as the main form of employement for people in the region. For the price to remain as low as $4.85 per pound of Salmon at Wal-Mart you can imagine that rehabilitating the environment or providing up-to-code working conditions for factory laborers are not on the priority list for these suppliers.

All I know is less than $5 a pound for Salmon sounds a bit fishy :-)

But imagine if Wal-Mart demanded low priced fish but produced via adherence to basic environmenal and labor rights codes? Fishman points out that "the result could be a completely new kind of Wal-Mart effect - Wal-Mart using its enormous purchasing power not just to raise the standard of living for its customers, but also for its suppliers."

Sustainability reporting: niche or mainstream?

The Global Reporting Initiative was founded on a simple premise: That greater transparency on the part of organizations about their economic, environmental, and social performance would result in a shift towards better performance in these areas over time. It is still too early to tell whether or not this premise which seems strong in theory is actually panning out in practice.

Since we don't yet have proof, this reporting-changing-behaviour question is the topic of much conversation and speculation in GRI circles. Just yesterday we had some guests in from ACCA (accounting association) and KPMG (accounting services) and sure enough, the conversation creeped in this direction.

It started when someone at the table said that there were an estimated 80,000 multinational enterprises in the world (UNCTAD estimates) and that only about 2000 at most had started with reporting. Hence, even if reporting did change behaviour we were looking at a drop in the bucket.

But someone else countered with a very different perspective. He claimed that the 500 largest companies on earth were responsible for generating 70% of the volume of the global economy. 75% produce some sort of sustainability report, and nearly all of the largest 100 do extensive reporting. If reporting is resulting in changed behaviour at these organiztions it can be said that reporting has already had an impact on sustainability due to the high volume of economic power they pack.

What is your perspective?

UN World Refugee Day

Today the United Nations brought the plight of the world's 40 million estimated refugees. I tuned into the UN High Commissioner for Refugees, Mr. António Guterres,web video statement to see what he had to say.

As a person that lives away from my home country I found one of his statements particularily poignent in explaining the difference between people like me and refugees: "In an age of increasing globalization, when more and more people are on the move, refugees are not unique because they are away from home. What sets them apart is that they cannot return there."

Today people do not just flee persecution and war but also injustice, exclusion, environmental pressures, competition for scarce resources and all the miserable human consequences of dysfunctional states.

The task facing the international community in this new environment is to find ways to unlock the potential of refugees who have so much to offer if they are given the opportunity to regain control over their lives.

So many companies are scrambling today to innovate 'base of the pyrimid' strategies - that is to figure out how to engage with the worlds fastest growing markets - those in developing countries. I have yet to hear of any company that has devised strategies for engaging with refugee communities. Any out there?

Sustainability of Olympic proportions

Guest blogger: Debbie Dickinson

George Monbiot, environmentalist, journalist and one of my fave- gurus, wrote a damming piece in a major UK (quality) newspaper on the legacy left by Olympics in the cities that host them.

He says:

“The Games are supposed to encourage us to play sport; they are meant to produce resounding economic benefits and to help the poor and needy. It’s all untrue. As the evictions in London begin, a new report shows that the only certain Olympic legacy is a transfer of wealth from the poor to the rich.”

He then cites a record of environmental and social disruption failures in city after city that hosts the games. As a big fan of the Olympics, I am also not naïve to their negative implications. Sadly, I couldn’t help but nod in agreement at almost each of Monbiot’s claims. So there’s room for improvement – and who will act?

It’s thus with optimism and eager anticipation that we at the GRI learnt this week that the Vancouver Winter Olympics (2010) released their first sustainability report. It’s the first sustainability report ever issued by an Olympic Organizing Committee, so it’s pretty significant news. Their website says:

"VANOC is the first Games Organising Committee to integrate not only environmental but also social and economic responsibility. The report outlines VANOC’s six areas of direct decision-making and actionable authority, including accountability; environmental stewardship and impact reduction; social inclusion and responsibility; Aboriginal participation and collaboration; economic benefits from sustainable practices; and sport for sustainable living. VANOC is using Global Reporting Initiative (GRI) guidelines, a credible international standard in corporate sustainability reporting."

Whilst other Organizing Committees have considered environmental implications, Vancouver (and London 2012) are the first to have a broader sustainability lens that covers environmental, social and economic implications.

Congratulations to Vancouver 2010 and London 2012 in this high-profile step in planning for a more sustainable Olympics.

Let’s hope Monbiot’s future discussions on the Games reminisce a more positive legacy…