The Status Quo on Sustainability Reporting

Corporate sustainability reporting was another area in which several new market developments and a fresh batch of research converged over the last quarter of 2004. This allowed us not only to see how this phenomenon is evolving but also to question the limitations of its reach and value. In addition, it highlighted the still-raging debate about the most appropriate format for corporate sustainability reporting, with some arguing for standalone published sustainability reports, others favouring integration within annual financial reports, and still others claiming that information on corporate websites is sufficient and preferable.

Reflecting the first approach, in November, SustainAbility, the United Nations Environment Programme (UNEP) and Standard and Poor's launched their joint global benchmarking report Risk & Opportunity: Best Practice in Non-Financial Reporting, in which 50 of the world's best standalone sustainability reports were analysed. Positive findings included that the average score of the reporters (50%) represented a 70% increase on scores in 2002, and that 52% of the top 50 reporters were new entrants, many from the developing countries such as South Africa and Brazil. Also noteworthy was that 94% were using the Global Reporting Initiative (GRI) Guidelines and 78% included a discussion of external assurance, although their approaches to independent verification still varied greatly. The biggest challenge, it seems, remains how to link sustainability and financial issues, with only 6% of the sample able to recognise the social and environmental risks posed to company balance sheets.182 Report co-author John Elkington said "Is the glass of non-financial reporting (and wider sustainability reporting) currently half full, as enthusiasts might argue, or half empty, as some critics allege? The evidence suggests a positive assessment, though there are still major gaps to be closed in the linked fields of disclosure, reporting and communication.183

This research complemented the findings of another global survey launched earlier in the year in which the Association of Chartered Certified Accountants (ACCA) and CorporateRegister.com analysed nearly 5,000 non-financial reports issued since 1990.184 According to this research, the number of sustainability/non-financial reports have increased from fewer than 100 in 1993 to more than 1,500 in 2003, with external assurance rising from 17% in 1993 to 40% in 2003. Most reports are environmental in focus (42% in the period 2001 to 2003) and are published by European companies (58% in the period 1990 to 2003). The reporting boom appears to be levelling off globally. Growth in Europe is slowing, North America is static, Japan and Australasia remain dynamic, and only South Africa shows significant activity in Africa and the Middle East.

The 2004 KPMG Survey on Integrated Sustainability Reporting in South Africa was launched in December, and analysed the disclosure practices of the 154 companies listed on the Johannesburg Stock Exchange's All Share Index. Overall, 64% of the companies were found to have been providing some level of sustainability data within their public reports. 22 companies (14%), of which the majority reside in the Resources and Financial Services sectors (9 and 6, respectively), produce independent 'Stand Alone' reports, while a further 77 companies (50%) produce 'Combined' reports, whereby the companies provide some level of sustainability reporting within their annual financial reports.185 Meanwhile, in December, Deloitte and Touche also announced Dreher Breweries as the winner of its Green Frog Award 2004 for environmental reporting in Central and Eastern Europe.186

The second approach to sustainability reporting was given a boost in the UK by the government's use of Clause 13 of the Companies (Audit, Investigations and Community Enterprises) Act to make the first reporting standards for a mandatory Operating Financial Review (OFR). Under the Government proposals, announced in November, quoted companies will be required to prepare a statutory OFR for the first time for financial years beginning on or after 1 April 2005. Crucially for the sustainability reporting agenda, the new proposals specify that the review: "shall include information about the employees of the company and its subsidiary undertakings, environmental matters and social and community matters"; and "shall include analysis using financial and other key performance indicators, including information relating to environmental matters and employee matters."187

CTN Communications' 2004 CSR Online Survey launched in October put the third approach to sustainability reporting formats under the spotlight, examining the internet disclosure practices of FTSE companies. Their findings show that 98 of the FTSE 100 and 131 of the FTSE 250 companies include CSR information on their website and 81 and 59 respectively include a full report. On the other hand, 121 companies (2 FTSE 100 and 119 FTSE 250) make no mention of CSR at all on their websites.188

In terms of developments in the sustainability reporting framework itself, the GRI remains the leading facilitative organisation, with over 600 companies having registering their use of the Sustainability Reporting Guidelines with the GRI secretariat by November. October 2004 saw the beginning of a new round of multi-stakeholder consultation to innovate the Guidelines and aspects of the overall reporting framework. Innovations in the next generation of the Guidelines ("G3") will aim at broadening the uptake of the GRI Framework, both in geographic terms and total numbers, and deepening the level of consistency among existing GRI-based reports.

Meanwhile, work continues in parallel on various GRI sector supplements and other guidance documents. Specifically over the last quarter, the consultation period on the draft Boundaries Protocol ended and two new GRI publications were launched - the High 5! Handbook, which is GRI's publication for SMEs (small and medium sized enterprises) on sustainability reporting, and a new linkage document to help businesses assess and report how their activities are contributing to the achievement of the Millennium Development Goals (MDGs). The latter claims to build on the UNDP and IBLF resource document, mentioned earlier, by suggesting indicators from the GRI Guidelines that can help businesses to measure and communicate their contributions.189.