In the Guardian, the case is made that current reporting practices on sustainability are a great waste of time. According to researchers, nobody actually reads sustainability reports. One of the main reasons being, that reports are impenetrable: they’re just too thick to get through. The authors identified a number of issues with current sustainability reporting practices which could be the cause for this.
The main culprit: most companies do not have a good process in place to determine materiality. The outcomes of a materiality assessment determine which aspects are to be included in your sustainability report.
One thing researchers missed, which could address both their worry that ‘sustainability reporting has stalled’ and help further discussions on the materiality issue, is the use of science-based metrics in sustainability reporting. I see a number of frameworks arising that all seem to stem from Johan Rockströms’ famous article in Nature, called ‘A safe operating space for humanity’. The premise is beautifully simple:
To meet the challenge of maintaining the Holocene state, we propose a framework based on ‘planetary boundaries’. These boundaries define the safe operating space for humanity with respect to the Earth system and are associated with the planet’s biophysical subsystems or processes. (…) Many subsystems of Earth react in a nonlinear, often abrupt, way, and are particularly sensitive around threshold levels of certain key variables. If these thresholds are crossed, then important subsystems (…) could shift into a new state, often with deleterious or potentially even disastrous consequences for humans.
In short: we need boundaries – sufficiently underpinned by science – for Earth’s relevant subsystems and processes to continue using the Earth for our resource needs. Boundaries do have to be properly translated for use in existing models (such as the Global Reporting Initiative’s G4 Guidelines). Also, the boundaries must correspond with a firm’s size – as yardsticks against which to measure a companies’ sustainability effort. This gives us the ability to benchmark a company’s progress against the reality in which it operates. A number of science-based frameworks are already adopted by some of the world’s leading companies on sustainability, e.g. Science Based Targets (Coca-Cola, Dell and Carrefour among many others), One Planet Thinking (Eneco) and Context Based Sustainability (Ben & Jerry’s).
I give you three reasons why your business should include science-based measures and boundaries in its non-financial or sustainability report.
1. Make your report more relevant by showing your relative impact
The Guardian argues that most sustainability reports do not really invite us to continue reading. I tend to agree. Just pick-up a random sustainability report and you’ll be sure to get lost in tables, charts, figures, and the ubiquitous pictures of smiling, happy people. You immediately wonder how you should put together all these stats and figures to reach a conclusion on the companies’ sustainability efforts. Or, what I often ask myself: why do the things this company does towards sustainability matter at all? What is their impact if you would compare this to the size and scale of their value chain? By including science-based measures and boundaries, you show what your firm is achieving against objective yardsticks. In turn, it’ll make your sustainability report more relevant and credible to your stakeholders and investors.
2. Show that your business is not ‘greenwashing’
Sustainability reporting is still often seen as a greenwashing operation. Although a claim of greenwashing is actually almost always too severe an accusation considering the definition of that word – ‘misleading information disseminated by an organization so as to present an environmentally responsible public image’ – I hear the term a lot when talking about the sustainability efforts of organizations.
I believe that the term greenwashing is used by the general public, because it is difficult for companies to understand which elements to focus on in their sustainability reporting. This leaves space for stakeholders to wonder about all of the sustainability elements companies chose not to include.
In the article ‘Raising the Bar on Corporate Sustainability Reporting to Meet Ecological Challenges Globally’, the United Nations Environmental Program raises similar doubts about the effectiveness of sustainability reports:
(…) the quality of these reports is insufficient to represent the full impacts of a company’s use of resources and materials on the environment and on communities.
“Corporate sustainability reporting needs to be rapidly elevated from focusing on incremental, isolated improvements to corporate environmental impacts,” said Arab Hoballah, Chief of UNEP’s Sustainable Cities and Lifestyles Branch. “It should instead serve to catalyze business operations along value chains to achieve the kind of transformative change necessary to accomplish the Sustainable Development Goals and objectives by 2030. This is precisely what is needed to encourage countries and companies to act effectively at their respective levels.”
Moving towards more contextual-based reporting – i.e. taking into consideration both boundaries and the impact that is expected from your organization in respect to its size and span of your value chain – will surely make your organization less susceptible to charges of greenwashing and will make your positive impacts (or the steps you take to mitigate negative impacts) clearer to your stakeholders.
3. Safeguard your business against the Slippery Slope argument
Activist NGOs surely serve a purpose in raising important topics. However, their solutions might go a bit far at times. The way activist NGOs attack businesses often reminds me of something Theodore Dalrymple wrote (on an entirely different topic but the words resonate):
I was still of the callow – and fundamentally lazy – youthful opinion that nothing in the world could change until everything changed.
Hardin, in his magnificent Filters Against Folly, called this the Slippery Slope argument:
The punch line goes by many names, among which are the [The Camel’s Nose,] Thin Edge of the Wedge, and the Slippery Slope. The idea is always the same: we cannot budge a millimeter from our present position without sliding all the way to Hell. (…), the fear of the Nose/Wedge/Slope is rooted in thinking that is wholly literate and adamantly antinumerate.
Hardin goes on to call this the demand for absolute (or extreme) purity:
The greed of some enterprisers in seeking profits through pollution is matched by a different sort of greed of some environmentalists in demanding absolute purity regardless of cost.
When costs are paid out of a common pot, extreme purity in one dimension can be achieved only by impoverishment or contamination of others. Trying for too much we achieve less. Rational limits must be set to every ideal of purity.
Thus, Hardin states that everything that we do will lead to some unwanted consequences. Our actions need to be analyzed with the right terminology (‘literacy’), but, on top of that, we will also need the right measures (called ‘numeracy’; for more on these very useful terms, also see my blog The Business Case for Non-Financial Reporting).
Numeracy doesn’t just mean quantifying things; it means making the numbers relative to certain boundaries that give the numbers meaning. Using science-based measures to show the performance of your business towards certain boundaries or limits makes for a compelling argument to counter any Slippery Slope argument. In a way, what you are doing is making both ‘purity’ and ‘pollution’ more relative. Now, it can be measured and actions can be discussed and taken more objectively.
By way of conclusion: moving closer to a world we want
I have given you three reasons why you should consider moving towards science-based measures and boundaries in your non-financial reporting. As I already argued in a previous blog post, see Beyond Shareholder vs. Stakeholder Value, a firm’s main purpose is to provide maximal value to the economic system, but it should do so by adjusting to changing stakeholder demands. I believe moving to science-based measures and boundaries is the next step in these stakeholder demands and could take non-financial reporting to the next level, benefiting both companies (through the three reasons I gave you) and society as a whole (by introducing planetary boundaries).
Including science-based metrics will not solve everything, but let us see it as the next step and acknowledge that we cannot solve all issues at once. To paraphrase Theodore Dalrymple, moving forward, let us be:
realistic without being cynical, and let us be idealists without sounding like utopians.