Monday, January 29, 2007

Standards: Internationally binding, locally disconnected

Building on last week's discussion on the reinforcing and synergistic relationship between the GRI Guidelines and the major international conventions, I want to turn my eye today towards what this means for the local practitioner trying to make sense of it all.

Some months ago I was in Australia giving a GRI Guidelines orientation session to a group of people in charge of, or involved in, reporting in their companies and public agencies. When we got to the labor section of the Guidelines indicator LA2 stumped them.

LA2: Percentage of employees covered by collective bargaining agreements.

One participant asked "Why is this indicator in the Guidelines when no law exists on collective bargaining?" Another participant was concerned that their company might look bad in the public realm if they answered "zero" but were not able to explain that they were not legally required to offer collective bargaining to their workforce.

Our senior labor visitor last week explained that all ILO member countries vote to accept or decline the convention at the international level, and that Australia had long ago done that for the collective bargaining convention. The country is then required to alert its parliament (or equivilent law making body) to the existence of the convention, but the country is in no way bound to ratifying it and hence making it bindng in their jurisdiction. In the case of collective bargaining the ILO convention is not the basis of law in Australia, a different approach to industrial relations is taken. Thus, when an Australian company looks to the GRI Guidelines on labor issues, there is a disconnect between the international convention and the reality of the laws applicable to the company.

There are two positives associated with this:
-There is enough flexibility in the GRI reporting framework that a company can report on what it is doing to uphold the law where it differs from international conventions
-The presence of the indicator may help inspire best practice towards international standards, and going "beyond compliance."

Have you experienced a disconnect between the major international connections and the local laws in your region? On what issues?

Wednesday, January 24, 2007

Standards: The relationship between binding and non-binding

One of the characteristics that make the GRI Guidelines universally applicable is that they find their roots in the major international conventions and agreements that form the basis for national and international laws on most environmental and social issues.

During the consensus-seeking process that is used to build the Guidelines often the labor community will typically advocate that the Core Conventions of the ILO be taken as the reference point for performance indicators on work-related issues (the 8 conventions are: 029 Forced Labour 1930; 087 Freedom of Association and Protection of the Right to Organize 1948; 098 Right to Organize and Collective Bargaining 1949; 100 Equal remuneration 1951; 105 Abolition of Forced Labour 1957; 111 Discrimination (Employment and Occupation 1958; 138 Minimum Age Convention 1973; 182 Elimination of the Worst Forms of Child Labour 1999.) Similarly, the environmentalists will also advocate for the peformance indicators to take the major conventions such as the Montreal Protocol and the Basel Convention as reference points.

GRI is not the only organization that tries to create non-binding standards based on the major international binding conventions. As examples, look at the ILO Tripartite Agreement on Multi-National Enterprises, and the OECD Guidelines for Multi-National Enterprises. These are different from GRI's Guidelines as they outline expectations for management and behavior, not reporting, but they are similar to GRI in that they try to bring the conventions to life for companies trying to operate with a committment to sustainability.

I had always wondered whether or not the labour community in particular viewed the GRI Reporting Guidelines as something that reinforced or undermined these conventions - and I got my answer yesterday.

We were lucky to have a senior leader from the Netherlands labor movement come and spend a few hours with our staff. He has spent a lifetime at the interface between workers, employers, and internatinal standard negotiations, and is indeed active in GRI processes. He said that since the relevant labor and social indicators contained in the GRI Guidelines do reference the 8 Core Conventions, this helps to reinforce a single, common, globally accepted standard for treatment of workers, and is therefore reinforcing.

Visit me again on Friday to find out how I think a committment to referencing the major international conventions affects companies ability to report on their performance using GRI's Guidelines.

Thursday, January 18, 2007

Materiality: The Porter approach

Those of you engaged heavily in the reporting world will know the term 'materiality' and the continuous global discussion underway to define it vis-a-vis sutainability reporting. When applied in the sustainability context, it differs from the traditional financial reporting definition - that much we can agree on - but what is the right definition, and should we be 'importing' this concept at all? Check the G3 Guidelines for GRI's conclusion:

But there are others. I was reading Michael Porter and Mark Kramer's article in December's edition of the Harvard Business Review and although the authors do not consciously attempt to define materiality, they do present a framework for prioritizing sustainability issues that I thought was quite simple and practical.

They identify three categories, and present the case of HIV/AIDS and carbon emissions as illustrative examples:

1. Generic issue/impacts: Those that have been recognized as important to society but do not affect, or are affected directly, by a company's operations.
-HIV/AIDS could be considered a generic issue by a company like Home Depot
-Carbon emissions could be considered a generic issue by a company like Bank of America

2. Value chain issue/impacts: Those that are significantly affected by the company's operations in the ordinary course of business.
-HIV/AIDS could be considered a value chain impact for a company like GlaxoSmithKline
-Carbon emissions could be considered a value chain impact for a company like UPS

3. Competitive context issue/impacts: Those that significantly affect the underlying drivers of competitiveness in the places the company operates.
-HIV/AIDS could be considered a competitive context issue by a company like Anglo American as it affects the direct health of their workforce in mine sites
-Carbon emissions could be considered a competitive context issue by a company like Toyota due to the long term impacts of their products.

Do companies get bogged down in long lists of issues, or are they getting better at understanding the different types of issues they need to manage and report on? Your thoughts?

Tuesday, January 16, 2007

China: reporting on the rise?

We will publish a short story in our newsletter this week about a new trend in China - sustainability reporting is on the rise. The G3 Guidelines will soon be made available in Mandarin thanks to our partners ACCA-China and CBCSD. This seems to bode well for those of us hoping that a more transparent business culture may help lead to stronger environmental and human rights conditions there.

In a lead story in the Economist magazine this week (Jan 13-19th edition) the authors review the situation in China regarding financial accounting. They state "For years Chinese companies have diligently accounted for transactions in a way that was baffling to outsiders - and quite possibly to their own managers too." This has led to confused price signals and resource allocation. Apparently the country is now mandating the move toward "something approaching" the International Financial Reporting Standards.

The Economist applauds this move because " is a formal endorsement of greater transparency. Transparency should lead not to just better economic management, but also a freer society." Proponents of sustainability reporting couldn't agree more, and are certainly hoping that single-bottom line reporting is not the only type of transparency the country will embrace.

The authors note that any sort of reporting in China is a challenge, namely due to the inevitable unearthing of not-so-nice news, and a culture that does not allow for open dialogue about what the standards should entail in the first place.

So this leaves us all wondering.... With a history of not promoting multi-stakeholder dialogue, nor transparency, can sustainability reporting be meaningful in China? On the surface it seems like true transparency could equate to Mission: Impossible. On the other hand, the Chinese government has slated less than 1 year for financial reporting reform, which is break-neck speed in the accounting community. A committment to participation and leadership in the global economy may necessitate transparency on other material issues as well, including economic, environmental and social.

What do you think?