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 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.

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.

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.

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?

A tale of two motor companies

Guest blogger: Debbie Dickinson

I noticed in passing last week that Toyota triumphantly announced sales of their innovative hybrid car – the Toyota Prius – is excess of 1 million. Moreover, they’re aiming for sales of 1000 per year within the next few years.

Largely branded as the world’s first mass-produced eco-friendly car, the Toyota Prius has moved from the marginal into an ever increasing mainstream, both in terms of sales, and also in broad social currency: the idea that a hybrid car is a realistic option has made a significant (perhaps intangible) influence on the market.

In parallel news, today I saw that Ford are expected to make some anticipated “official announcements” on the fate of two British models, Jaguar and Land Rover. Over here in the UK (where I’m based) this has generated a fair bit of media interest. Ideas around factory closures, asset stripping, Britain’s manufacturing industry, and off-shore production are dominating the opinions of those most affected by the expected sell-offs. Employing around 20,000 people in Britain’s midlands, the alleged closure will certainly impact many.

But I also wonder about comparisons between the two motor companies. One is well positioned for the future, whilst the other is at a tipping point of uncertainty. Rewind 5 years or so and both Toyota and Ford were waking up to the urgency of sustainability and corporate responsibility. Ford focused on internal sustainability impacts and went about implementing operational changes – green rating offices and the like – whilst Toyota looked towards their biggest sustainability impact and attempted to improve the impact of their cars.

Take us back to today, and we see the success stories of a company that took the risk and tackled its biggest sustainability issue head on. Toyota are now standing well positioned to future carbon-constrained climates and have the brand reputation of innovative eco-solutions.

I wonder if tales of factory closures, brand sell-off and social disruption through job loss (a-la Land Rover and Jaguar) are the continuing evidence of a changing business climate, and perhaps a tale of what happens by failing to incorporate material sustainability risks into core business. Looking for a business case? Seems Toyota found one.

Assessing futures: where is globalization leading us?

Many people think that globalization in a new phenomena, but I would say it has been simmering under the surface for centuries since the times of early traders and explorers. Technology, for the most part, has lead to an unprecedented acceleration of interconnectivity between people and goods in the last decade or so. Most experts agree that "globalization" is HERE rather than HAPPENING now that 20% of the world's GDP is made up of global trade - and this is only set to grow.

The consultancy SustainAbility has put out an innovative report looking at four different scenarios for how the future might unfold. It's a complex report and the scenarios are all somewhat rattling - even the most optimisitc which results in a world where demography, politics, economics and sustainability all gel - but only after a terrible pandemic nearly paralyzes the world but yet shakes us into accepting a new way of living and working together.

I have found in my career thus far that it is wise to heed SustainAbility's recommendations, as they are usually on target. Here are the seven recommendations for business they come up with after playing out four very different potential scenarios:

-plan for the unexpected
-engage in the South
-Don't expect "nice" companies to come first
-co-evolve Earth's eco systems
-think opportunity and innovation
-reach beyond comfort zones to find new models
-take a stand and exercise vision, leadership and courage

It's long, but it's worth a read!

Everyday Americans waking up to corporate responsibility?

One of the major critiques of the corporate responsibility movement is that the average person on the street just doesn't really care about companies commitment - or lack thereof - to their social and environmental impacts and risks.

However, we (colleagues and I) have been speculating that the mainstreaming of the climate agenda in Western Europe and the USA will (or has?) usher in the broader sustainability agenda - including the role of the corporation - and help bring this to the attention of the everyday person.

The following little survey caught my eye recently which seems to back up this speculation.

Survey: Americans disapprove of companies performance on CSR

A majority of Americans from all sides of the political spectrum have said that they would look towards legislators to correct poor CSR performance by US businesses, according to a recent survey. 96 percent of Democrats, 80 percent of Independents, and 65 percent of Republicans say that it is either very or extremely important for Congress to ensure that companies are addressing social issues.

Over three quarters of the respondents to the survey, which was carried out by Fleishman-Hillard and the National Consumers League, said US companies had poor records on CSR, with a big focus on sectors such as energy, food, chemicals and pharmaceuticals as needing more oversight by authorities.

"The generally lukewarm perception of U.S. corporations on socialresponsibility, along with the prevailing belief that Congress may need to get involved, could lead to increased oversight of the private sector on Capitol Hill" said former U.S. Sen. Jim Talent.

Hungary: gearing up for privitaization

Since visiting Slovakia last week, my curiousity about Central and Eastern Europe has been peaked. It's 17 years now since the 'iron curtain' fell and some countries have been fairing better than others in their journeys to establish democracies and stable economies.

One that is slightly ahead of the pack is Hungary. I was speaking to some Hungarians that traveled over to Slovakia for the G3 Breakfast event we held last Friday and they had an interesting story to tell about how sustainability was playing a role in business suceess there. They warned me that we can expect 5-10 new sustainability reports this year out of Hungary. I asked why.

They answered that many Hungarian companies are gearing up for privitization after decades of public ownership and governmental control. Some of the country's most important utilities, service providers, and national brands are opening up for private investors - from within Hungary and from abroad. Many are producing a sustainability report as a part of the package they are preparing to attract the most competitive offers. Showing that they adhere to high standards of environment, health, safety, product responsibility, labour practices, anti-corruption, and governance seems to help improve the value of the company.

That's a concrete business case if I've ever heard one.

Slovakia: Just getting started

After two days here in Bratislava as the guest of Pontis Foundation and the Business Leaders Forum I can say that I think we have successfully infected the local business community with the sustainability bug!

The economy is booming - nearly 10% growth per year - yet all business people I met felt that even this rate was too slow and the country had much to do to catch up. With such rapid growth of Slovak companies, the introduction of multi-nationals (I met representatives from Orange, Daimler, HP, Tesco, etc) and urbanization on the rise, everyone is trying to ensure that all this growth doesnt happen at a cost to the future economic vitality of the country.

Yesterday's full day conference attracted over 120 participants who were engaged in sessions on everything from the business case for sustainability, the GRI, the Global Compact, community investment, cause related marketing, employee and gender issues, and philanthropy. This morning we gathered about 40 people where I walked them through a more in-depth look at the GRI Guidelines. Guests from Czech Coal and Denso Hungary who have used the Guidelines for a few years now were able to present their company's business case for reporting, along with the challenges and benefits that reporting has brought them.

The prognosis? I think we will start to see some country level reports here in Slovakia - many country units already contribute to the parent company report so putting something out for the national audience won't be a difficult first step. Important will be to engage and build capacity for smaller enterprises to start with reporting. This will happen as Slovakia is held to the same standards for environmental and social performance as its other counterparts in the European Community, and pressure will be on for greater disclosure.

All in all a great trip and a facinating first look at one of Europe's newest members and how sustainability is taking shape here.

Supply chain: the next reporting frontier

Many multinationals are struggling with sustainability issues in their supply chains. How can they be sure that the environmental and social standards that they adhere to are also being met in emerging markets where the local laws or common business practice do not have such protections built in?

Transparency about such issues in the supply chain is turning out to be a big trend lately. GRI is now working with 4 major European multinationals who have each identified 3-4 key suppliers in their chains located in emerging markets - and together we are all going through the reporing process based on the GRI Guidelines. The suppliers are learning how to identify the issues they need to report on for their own local stakeholder needs, but also to remain competitive in the international marketplace.

This photo was taken last week in China by my colleague Leontien from the GRI secretariat. She was there visiting supplier factories that are participating in this project. She said that before she left on her trip she was worried that the suppliers were feeling pressure from the top - but upon her return she had a different perspective. It seems the suppliers are finding their own voices and are seeing the value in communicating in a proactive way about their sustainability issues.

Find out more on this exciting project by clicking the title above.

Evolving agendas: business and sustainable development

Guest blogger: Debbie Dickinson.

Hi all, I'm Debbie and I’m babysitting Alyson’s blog whilst she’s away this week.

As a bit of a complement to the specific themes Alyson’s been tracing of late (water, investors, China), I thought I’d start with some reflections of where the whole “business and sustainable development” debates are currently at.

I attended a “Corporate Responsibility” conference at Chatham House in London yesterday and Monday. The following struck me:
* overwhelming consensus that the private sector – with its willingness for risk taking and capacity for innovation – is where many solutions to sustainable development are, and will continue to, emerge. Although a running theme over the 2 days, Professor Daniel Esty most compellingly argued this
* the climate change debate has, for the first time in many years, imposed tangible understanding of natural limits to growth. Business, governments, and civil society are already experiencing real consequences
* that “CSR” is already, and should be, dying away as an organizing principle. This is not to say that those who have not yet engaged have gotten away with it! Rather, business and other organizations are faced with the urgency to position sustainable development as core business.
* following the above, there was a strong prediction that sustainability reporting would also shift from “stand alone” reports into more strategic integrations within financial reports – a trend we are already witnessing, and keen to see continue.
* Alan Knight’s concept of “choice editing”: removing the unsustainable options from the market. E.g. via product labelling that makes “low ranking / uncertified” items undesirable, thereby shifting ethical consumerism away from reliance on the “green consumer” and to a broader market change.
* what exactly is the role of governments? If we are at the stage where governments have less a “command and control” or regulation role in sustainable development, but that governments still have a role to play in this environment of innovation and entrepreneurial solutions, then how can they (the public sector) best leverage change? An answered theme was around the types of institutional governance structures that are required in this time of rapid change?

My overwhelming conclusion is how fast the agenda is changing. Whilst it’s still so important to see the challenges that lie ahead, I also useful to stop and reflect on how far we’ve come and remind myself that change is possible.

What are your thoughts? What do you think are the defining points that the business and sustainable development agenda is changing?

China: CSR and stock exchanges

The CSR Asia weekly newsletter is a handy resource if you are in Asia or if you are interested in following developments there. I was power-scanning yesterday's issue and suddenly hit upon a a passing reference to the Shenzhen Stock Exchange (SZSE) and CSR. This got my attention and I dug a little deeper.

My search led me to CSR Asia Weekly Vol.2 Week 24 (2006) where author Brian Ho described a document issued by SZSE - the smaller of China's two exchanges with 540 companies listed - entitled "Instructions for Listed Companies on Social Responsibility (Draft for Comments)". Wow.

Further searches were hindered by my lack of language skills so I am not sure if this document has moved from Draft to Final, and if it has been implemented by SZSE, but Ho summarized its major parts. The Instructions broadly cover rights of shareholders and creditors, rights of employees, rights of suppliers, clients, and customers, protection of environment and community, and finally in part 6 - "transparency of information and establishment of a mechanism."

Part 6 apparently instructs companies to report on their CSR performance periodically and online, and that the CSR report should describe the company's actual CSR performance versus the benchmark in the Instructions, the reasons targets might have been missed, and a timetable for implementation.

Are these the foundations for GRI reporting in China?

Accountability: why it’s never crystal clear

One of the best definitions of “corporate responsibility” I have come across is as follows:

“Corporate responsibility is the basis on which business renegotiates and aligns the boundaries of its accountability.” (Source).

Business’ negotiating partners are governments and civil society at large. Accountability for who is responsible for positive and negative outcomes is not crystal clear because this dialogue evolves as our world and societies do.

Take for example externalities associated with the use of the car: congestion, road accidents, environmental pollution, and infrastructure damage.

In 1933 there were 26 million motor vehicles registered in the USA. By 2005 there were 26 million Sports Utility Vehicles (SUV’s) alone, and a total of 136 million vehicles registered. In 1933 we had not even heard of things like acid rain and climate change, nor could we imagine the terrible impacts road accidents would come to have on our families and communities.

The dialogue about accountability for externalities among auto makers, civil society, and governments continues to evolve as externalities are revealed over time. Does tackling climate change mean cleaner fuels and engine technology (borne by the automaker) or regulation and carbon capture (borne by the government)? Do cutting road accidents mean improved vehicle safety (borne by the automaker) or better road rules and enforcement (borne by the government?). Civil society has stated their position: the current situation for both of these issues is unacceptable. But who is to blame?

In the end it all leads back to Achim Steiner’s discussion (see blog on 2 March) about who is at the table when standards are being set. The standards, whether on disclosure or behavior, must reflect the current state of the ongoing negotiations between company, governments and civil society about expectations for responsibility.

Climate change: Impacting the bottom line?

Not so long ago it was largely assumed that climate change was an emissions oriented issue. Extractive companies and major manufacturers bore the brunt of the world’s concerned citizens and were forced to reduce the amount of CO2 and other greenhouses gasses they emitted into the atmosphere during the creation or lifetime use of their products.

Over the past year or two previously unsuspecting service oriented companies have also joined the emissions reductions game – we now have banks, advertising agencies, and government ministries that are operating as ‘carbon neutral’. All doing their part to reduce the pollutants that may cause the global climate to warm.

But a new aspect to climate change management has landed squarely on the agenda, and has come as a surprise to most. Climate change is already having an impact on company’s bottom lines.

A study released this week in Canada found that recent mild winters and dry summers has caused the mountain pine beetle population to increase to epidemic levels in some areas, devastating forests of lodgepole pine. If the warming persists, the beetle infestations could spread north to the Jack pine in the boreal forest across Northern Canada. This is an enormous current and future risk to the financial stability of one of Canada’s most important industries.
(Click the title of this blog entry to be redirected to the study).

The benefit of relying on a multi-stakeholder consensus seeking process to create the GRI Guidelines means that we are able to capture the cutting edge of sustainability trends. As a result of stakeholder interest in this new aspect of risk associated with climate change a new indicator was introduced in the G3 version of the Guidelines released in October last year:

EC2: Financial implications and other risks and opportunities for the organizations activities due to climate change.

As we start to see companies report on the new G3 Guidelines, this indicator will not only serve as a useful warning signal that climate change may be more material than companies previously thought, but will also elicit some interesting information that can help bolster the precautionary approach.

Sustainability: What's in a word?

GRI uses the term "sustainability reporting" to describe the topics its Guidelines cover. These topics range from environmental, economic, and social impacts. The term sustainability is derived from the original term "Sustainable Development" as coined by the former Prime Minister of Norway, Gro Harlem Brundtland just over 20 years ago - she used the phrase to describe the aspiration that we use today's resources in such a way that we do not negatively affect the ability of future generations.

But wherever you go around the world you hear different terms being used interchangeably for this same concept. Triple Bottom Line. Corporate (Social) Responsibility, Corporate Citizenship, Extra Financial Reporting, and others. We do hear from some companies that the term 'sustainability' doesnt really resonate in their businesses since its not a term that is normally associated with environmental and social impacts in the business context - but is usually used with reference to single bottom line - financial results.

Since the other terms (CSR, TBL) differ so broadly in meaning and use globally, and do not always tie directly to the sustainable development imperative, GRI decided to continue to use the term Sustainability Reporting when it updated its Guidelines recently. Its a reflection of a committment to the overall sustainable development agenda and is the most accurate terminology.

Which is the best term in your opinion?