Chief Executive of the Global Reporting Initiative (GRI) since 2002, Ernst Ligteringen has had a good seat from which to observe and influence recent developments in corporate accountability for sustainability performance. He spoke with Carol Adams about what’s been achieved and what is still left to do.
You had a long career in international development with organisations such as Oxfam and the Red Cross prior to joining GRI. Did that work give you a particular perspective on the relationship between companies, society and the environment?
Engagement by NGOs with companies in those times was not common, but when I worked with Oxfam in the Caribbean in the 1980s, for example, we engaged with coffee growers, banana growers, and cane farmers to help them understand what companies and consumers in Europe were looking for, and how they could sustain their market share – in addition to engaging with companies to help them understand the issues growers faced. It was a bit of a mediating role and an early example of the value of stakeholder engagement.
Working with different development agencies I became familiar with the realities of what was happening on the ground. There was a real need for information on the impacts of companies’ operations and of trade policies on the lives of producers, and I saw at first-hand how information changed views. Companies are not monoliths – champions within them can, and do, help drive change. I gained an understanding of what drives change in an organisation and the effects of big differences in power –not just, for instance, between companies and coffee/sugar suppliers, but also between companies and governments of very small nations that needed to maintain their exports.
How do you think that relationship between organisations, society and the environment has changed over the last decade?
It has changed significantly. Ten years ago there was only a handful of corporate champions that wanted to stand out and show how their companies were different. Today, managing Environmental, Social and Governance (ESG) risk is increasingly the expected norm, and there has been an increasing realisation that it’s nothing to be feared. In fact it can do real good, and the next step is to better inform markets. Information on ESG issues and risks has to be of a higher quality and more readily available, and it’s for that reason that the case for policy today is so compelling.
There is the question of what impacts on financial value. Markets already factor in ESG performance in many ways. The value mix in companies is now made up largely of intangibles such as brand, trust and relationships. Investors have proxies and some have practices to measure this. But they are not just looking for data and numbers to crunch. Many want to understand the management process and due diligence processes. This is vital because future issues are not always known today, in the here and now.
There are recent initiatives to come to more precise measurements of impacts and their value such as integrated reporting and the environmental profit and loss account, and whilst I may be somewhat sceptical of the short-term ambition of some approaches, I do think that exploring new ways of doing things is important. Many of these initiatives are employing quite sophisticated techniques, and that can only be a positive development.
What role do you think sustainability reporting has played in that change?
Companies that start sustainability reporting and embrace the idea of measuring, monitoring and managing not only think differently about their business, but it also leads to them acting differently. Information shapes mind-sets and information creates insights. The IIRC expresses this by identifying integrated thinking as a key objective of integrated reporting. In terms of direct and concrete benefits these can be found in reputational dividend, increased staff motivation, and people starting to see both social and environmental efficiencies. There are a variety of reasons for change and their influence varies between companies. The corporate interest in DJSI demonstrates the concern with regards to reputation benefits.
What of the role of national governments? Do you think they should be playing more of a role in ‘encouraging’ sustainability reporting?
There is an important role for governments – and more so than a few years ago. Sustainability reporting is no longer experimental. The value of it has been proved by uptake and what companies and stakeholders have said about how it has helped them.
There needs to be better quality of information and more generally available information for this information to be systemically useful to markets. The decision to report or not has an impact beyond the company – it has an impact on markets. Imagine if you said you were no longer going to give financial information to markets – there would be an outcry, because markets can’t work without information. If we want markets to take account of environmental and social factors that influence companies’ blended value it is no different. Markets need information to be able to do this. Failing to share this information undermines a well-functioning market.
There is a need for government regulation. The Danish approach requiring companies to report on corporate social responsibility, or explain why not, demonstrated that in that instance the vast majority of companies chose to report. The Danish government favoured a principles-based approach that required references to internationally recognised standards – including the GRI sustainability reporting guidelines.
Where do you see corporate accountability for sustainability performance heading over the next few years?
On the positive side qualitative improvements in GRI’s G4 Guidelines will help companies focus their sustainability reports more on what matters to their business and stakeholders. G4 was designed to support companies taking up Integrated Reporting, which will be an important step as sustainability reporting becomes more integrated into mainstream corporate reporting processes. GRI is working with the IIRC to support this. Sustainability reporting will be more integrated with sustainability performance. It will become the norm for large companies who should also exercise due diligence with respect to sustainability in the supply chain in order that SME’s are also influenced.
We are still learning together what exactly effective reporting will look like in the future, and we welcome the involvement of others, such as CDP, TEEB, SASB, the IIRC and AccountAbility. There is a need for more experimentation. GRI will aim to capture those developments that are for broad adoption – including those in the normative sphere, in particular, the UN Global Compact, OECD Guidelines for Multi-National Enterprises, and the UN Guiding Principles on Business and Human Rights.
What do you think are the key drivers for further change in the company/society/environment relationship?
Unfortunately we will continue to see more and more evidence that the environment is changing; that there are social pressures; that the economy is linked to this, and so companies need to manage these relationships. I also expect that more companies will demonstrate that they find real value in adopting more integrated strategies, and GRI will do everything it can to support them in doing so.
Despite all the challenges we can, however, afford to be positive about the future. Sustainability reporting has come a long way in a very short time. Many businesses have already changed what they do and how they do it. The greatest driver for change will therefore be knowledge. The more companies understand that their performance is intrinsically related to society and the environment in which they operate, the more they will change how they relate with them.
This Interview Is Produced by drcaroladams.net