Integrated reporting was one of the key topics discussed at last month’s Rio +20 conference. Paragraph 47 of the Rio +20 Outcomes Document strongly encourages companies to report corporate sustainability information:
“We acknowledge the importance of corporate sustainability reporting and encourage companies, where appropriate, especially publicly listed and large companies, to consider integrating sustainability information into their reporting cycle. We encourage industry, interested governments as well as relevant stakeholders with the support of the UN system, as appropriate, to develop models for best practice and facilitate action for the integration of sustainability reporting, taking into account the experiences of already existing frameworks, and paying particular attention to the needs of developing countries, including for capacity building.”1
While critics assail negotiators’ failure to deliver a stronger stance or mandate for reporting environmental, social and governance (ESG) data, its inclusion in the outcomes document underscores the robust trend for ESG reporting as a necessary way to meet stakeholder demands for disclosure and transparency.
Indeed, sustainability reporting is already business-as-usual among the world’s largest companies: a 2011 KPMG study reported that 95 percent of the largest 250 companies worldwide issued sustainability reports, up from around 80 percent in 2008 and 50 percent in 20052. And the field is evolving quickly: just last week, the International Integrated Reporting Council (IIRC) released its draft framework outline for the creation of global integrated reporting standards and announced its prototype, which will be an important step in the development of a global reporting framework, will be available by the end of 2012. Still, despite this significant progress, the majority of global business does not report sustainability data. According to the United Nations Global Compact, only about 4,500 organizations are included in sustainability reporting databases, a fraction of the more than 45,000 publicly traded companies that are required to disclose their annual accounts and the estimated 82,000 corporations that do business across national borders in the world today3.
So, why the movement towards increased disclosure and integration? A variety of factors – both external pushes and internal motivators – influence firms’ reporting practices. Externally, a growing number of regulatory drivers encourage or mandate reporting. The earliest mover to mandate environmental, social and governmental disclosures was South Africa, whose King Report on Corporate Governance has required it for Johannesburg Stock Exchange participants and other large companies since 1994. Several other stock exchanges have since followed suit. In China, the Shanghai and Shenzhen Stock Exchanges encourage listed companies to disclose social and environmental data, and as of January 2012, The Brazilian Securities, Commodities and Futures Exchange has adopted a “report or explain” position, encouraging listed companies to either provide their annual sustainability report or explain why they do not publish one. Stock exchanges in Malaysia, Singapore, Pakistan are also playing a pivotal role in requiring or recommending listed companies to report ESG information4.
On the policy side, reporting is driven by various disparate legislative requirements. At the federal level, Denmark has required large businesses to include CSR information in their annual reports since 20095. Earlier this year, France enacted the Grenelle II legislation which mandates that all public and private companies with more than 500 employees must report on the social and environmental consequences of their activities. The US Security and Exchange Commission’s Management Discussion and Analysis disclosure rules; UK Enhanced Business Review requirements; EU Modernization Directive 2003 guidance; Australia’s National Greenhouse and Energy Reporting requirements2, China’s Commission of the State Council (SASAC) CSR reporting requirements for state-owned enterprises and policy initiatives in India, Germany, Norway, Spain and Sweden promote various reporting and disclosure frameworks4. Even legislators at the state level are getting involved: the 2010 California Transparency in Supply Chains Act (SB657) requires companies to disclose information about their actions to address human trafficking in their supply chains.
In addition to regulatory drivers, the market itself has driven movement through an influx of reporting tools, frameworks and management systems. One of the earliest organizations to gain traction was the Global Reporting Initiative (GRI), whose reporting standards were first implemented in 1997. In 2010, the International Integrated Reporting Committee was formed to promote the integration of different corporate reporting segments (financial, governance, sustainability) into a coherent and interdependent whole. Other standards and codes include AccountAbility’s AA1000 principles for managing and reporting sustainability performance and the International Standards Organization ISO26000 for sustainability management. To drill down even further, standards and tools proliferate that are tailored to one particular aspect of reporting or a specific impact area within the sustainability umbrella. The Greenhouse Gas Protocol (GGP) and Carbon Disclosure Project (CDP) provide frameworks for greenhouse gas emissions reporting, and an ever-growing number of eco-labels and certifications target reporting and compliance for a specific product category or impact – including Energy Star for consumer electronics and the Forestry Stewardship Council for wood products. The United States General Services Administration is using a compendium of such labels to inform federal procurement standards.
Given the private and regulatory pushes and pulls from all angles, and the multitude of options for organizing and reporting data, it’s no wonder that even leaders in the corporate responsibility reporting space are continuing to evolve their measurement and reporting systems. As ESG reporting requirements continue to evolve, a strong technology backbone is necessary to enable firms to respond to pressure for disclosure, reduce risk and improve profitability throughout the value chain. In defining the actions needed to facilitate the adoption of integrated reporting, the International Integrated Reporting Council (IIRC) states that “organizations will need to establish or strengthen information systems for capturing and aggregating information6.” Such systems will include several distinct capabilities: the ability to integrate inputs from a network of stakeholders and processes, mobile-and cloud-based solutions to provide speed, security and flexibility, and the ability to handle big data in an efficient and scalable way. At SAP, we’ve used our strengths in these areas to develop our own corporate reporting strategies and help our customers advance theirs. Internally, our 2011 Annual Report includes financial and non-financial performance in our strategy narrative and puts a thematic focus on the impact of sustainability megatrends. We are also working closely in partnership with several of the most reputable reporting groups – including IIRC, CDP, GGP and the GRI – to influence future direction and alignment in the reporting sphere. Among our customers, the technology foundations we provide accelerate efficiency and collaboration throughout the value chain. Danone, for example, has implemented product footprinting which has in turn spurred collaboration with farmer partners to ensure sustained access to raw material staples in the future. Our work with Givaudan, a leading flavor and fragrance manufacturer, has focused on streamlining compliance requirements. Due to Hana’s superior database searching capability, Givaudan can now increase the speed of product development across 500,000 formulas while also decreasing the risk of an unsafe product. While the triggers for ESG reporting remain varied, we’re excited to leverage our strengths to help our customers manage multiple requirements more efficiently and use them to unlock new opportunities for innovation and value creation.
1 Rio +20 Outcomes Document, http://daccess-dds-ny.un.org/doc/UNDOC/GEN/N12/381/64/PDF/N1238164.pdf?OpenElement, June 19 2012.
2 KPMG, International Survey of Corporate Responsibility Reporting 2011 http://www.kpmg.com/PT/pt/IssuesAndInsights/Documents/corporate-responsibility2011.pdf