Henderson, Judy --- "Perfect Timing: Australia and the G3" [2005] ALRCRefJl 27; (2005) 87 Australian Law Reform Commission Reform Journal 40

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Reform Issue 87 Summer 2005/06

This article appeared on pages 40 – 43 of the original journal.

Perfect timing: Australia and the G3

By Judy Henderson

Sustainability performance—the social, environmental and economic impact of an entity’s activities—is now an important element in the current discourse on good governance. Whether we call it corporate citizenship, corporate social responsibility, accountability or triple bottom line, it has now become generally accepted that companies have a significant role to play in working towards a solution to the sustainability question and it is in their business interest to do so.

As the call for more corporate disclosure of non-financial information increases, so does the need for a universal framework for reporting on environmental, economic and social issues. The Global Reporting Initiative (GRI) is in the process of developing the third generation of the GRI Sustainability Reporting Guidelines (G3). Upon the G3 release in 2006, corporate Australia can establish itself as a global player in sustainability reporting and rely on the GRI’s G3 Guidelines as its source for a complete and comprehensive reporting framework.

The timing could not be better. The Australian Government has asked the Australian Stock Exchange’s Corporate Governance Council to consider developing a standard for sustainability reporting as part of its wider review of risk management guidelines for Australian companies. This comes as two government inquiries investigate the need to encourage socially responsible behaviour by Australian companies. The Federal Environment Minister, Senator Ian Campbell, has made it clear that he is keen to see reporting take place around an agreed format so there is good comparability between companies and across borders. This is exactly the purpose behind GRI’s Sustainability Reporting Guidelines, which has now become the de facto standard and has already been adopted worldwide. G3, the third generation of the Guidelines, will be released to the public in 2006.

The previous instalment of the GRI Guidelines (G2), released in 2002, is currently used by many Australian companies including BHP Billiton, Insurance Australia Group, Westpac Banking Corporation and National Australia Bank. While use of the G2 has increased in Australia, by comparison there is a need for a greater push towards reporting.

Though many of the leading practitioners in GRI’s global network are from Australia, a recent study by KPMG and the University of Amsterdam revealed that only about 23% of Australian companies publish sustainability reports, compared with 80% in Japan, 71% in Britain and 32% in the United States.

As some of the global best practice examples of sustainability reporting by corporations have emerged from Australian companies, it is timely that Australia as a whole should recognise the way in which G3 will pave the way for positive change in corporate reporting. The Global Reporting Initiative is the most trusted name globally in the field of sustainable development reporting.

What do the GRI and the Guidelines have to offer?

GRI is a global non-profit organisation, governed by an international multi-stakeholder Board and advised by a Stakeholder Council and a Technical Advisory Committee. Its operations are coordinated by a lean secretariat of professional staff based in Amsterdam. GRI has a global network of experts from accountancy, business, civil society, investment, labour and others, who contribute on a voluntary basis to the governance of GRI and to the development and dissemination of GRI’s Sustainability Reporting Guidelines and wider framework.

GRI’s purpose is to make sustainability reporting as common and widespread as financial reporting so that it will be routine for companies and other organisations to account for the contributions they make to—and the impact they have on—natural resources, societies, and economies.

To this end GRI publishes regularly updated Sustainability Reporting Guidelines, which offer reporting organisations and users of reports a globally common set of principles and indicators for sustainability reporting. The Guidelines are equally applicable to for-profit and not-for-profit organisations and are complimented by an expanding collection of sector supplements and other resources. Together with the Guidelines these form the GRI Reporting Framework, which is produced as a global public good. The documents are made freely available.

Sector supplements are designed to be used in conjunction with the Guidelines, and provide sector specific guidance that helps to interpret the core guidelines, and offers new indicators to ensure that reporting meets the focused needs of industry sectors and their stakeholders. Supplements are available for: Automotive, Financial Services, Mining and Metals, Public Agencies, Tour Operators, Telecommunications, and are under development for Apparel and Footwear, Energy Utilities, and Logistics and Transportation.

As of 1 November 2005, 750 organisations in more than 50 countries had declared their use of the GRI Guidelines, which have been translated into 10 languages (see below for a list of known Australian-headquartered reporting organisations).

To assist users of the reporting framework the GRI is developing supporting services in the area of capacity building and training, along with monitoring and communications about the evolving global trends in sustainability reporting. These are scheduled to roll out when the GRI releases the next iteration of the Guidelines in late 2006.

Australian organisations that have used the GRI Guidelines to report

• AMCOR

• Anglo Coal Australia (Anglo American)

• Argyle Diamonds

• Australia Government Department of Family & Community Services (FaCS)

• Australian Ethical Investment

• Australian Gas Light Company (AGL)

• BHP Billiton

• British American Tobacco Australia

• City West Water

• Australian Government Department of the Environment and Heritage (DEH)

• Energex Limited

• Ford Australia—Broadmeadows and Geelong assembly plants, Victoria

• Forests NSW

• Grampians Wimmera Mallee Water

• Insurance Australia Group

• Integral Energy

• Landcare Australia

• Landcom

• Loy Yang Power

• MECU

• MIM Holdings

• National Australia Bank

• Newcrest Mining

• Origin Energy

• Port of Brisbane Corporation

• Ports Corporation of Queensland

• QCL Group

• Singtel Optus

• Sydney Water

• Tarong Energy

• Telstra

• The Water Corporation

• Thiess

• VicSuper Pty Ltd

• Visy Industries

• Western Mining Corporation Resource Ltd (WMC)

• Westpac Banking Corporation

• Yallourn Energy

Business case for good sustainability performance

In a world constrained by issues which all relate to sustainable development—water scarcity, land degradation, biodiversity loss—successful companies need to meet these constraints with innovative solutions not only to increase efficiency but also to give them a competitive edge in the marketplace. It makes good business sense to do so.

Twenty years ago the relationship between good corporate governance and shareholder wealth creation was not clear—now that connection is well recognised. The link between good sustainability performance and long term shareholder value will clearly follow the same path over the next decade.

Whether motivated by a public relations exercise, a search for the competitive edge or a genuine acknowledgment of the need to change, the impetus for business and other organisations to put environmental and social performance high on their own agendas has thus far been driven primarily through risk management. What is at risk is a company’s most precious asset—its reputation.

Risk management is an iceberg. Financial performance is the most visible aspect of a company’s operation. However, often hidden below the surface, a company’s non-financial performance can badly damage corporate reputations. There are many examples where non-attention to environmental performance has had a significant impact. Major corporations also need to negotiate their place in society on a much broader range of social indicators. They now need to enter into a form of social contract with a broad range of stakeholders as customers, consumers and others are demanding to be consulted on those aspects of corporate activity which impact on them directly.

Attention to the non-financial impacts is not all negative. Opportunities for cost reduction can be identified through drivers such as pollution, consumption and waste, which can then lead to introduction of clean technologies with repositioning for the future.

In a world captured by short-termism, the focus in the future will turn to long-term shareholder value rather than on quarterly returns. So what started with risk management is now moving more to long-term value creation.

Just as good sustainability performance is being recognised as good for business, so too is the need for transparency and public disclosure. To many in the NGO world, the concept of corporate social responsibility (CSR) is highly suspicious. Many regard CSR, with some justification, as elaborate greenwash. At the 2003 World Economic Forum the issue of trust was highlighted by a survey indicating that global and large national companies were only just beaten by politicians as the most untrustworthy in society.

Reporting as a process, not an output

A credible and transparent reporting process is important as an external communication mechanism, facilitating dialogue between a company and its stakeholders and establishing a platform of trust. A GRI report must outline stakeholder engagement activities including a report on the process for defining an organisation’s stakeholders and for determining which groups to engage, the type of information generated by the consultations and the use of the information obtained.

Increasingly we are now finding that the reporting process is also important from an internal management perspective.

For example, in a recent report by the organisation Business for Social Responsibility, Reporting as a Process, the importance of sustainability reports as a vehicle for communicating with employees was highlighted. A number of companies said that the stakeholders with the most interest in the social and environmental performance were their own employees. Employees want to work for a company of which they are proud. One company said that the report ‘made a huge difference internally in terms of energy of the employees’. Others said that employees use the report to help with decision making in their jobs and that it helped create ‘an institutional memory’ in the company.

Sustainability reports were also used as a knowledge management tool. Having information systematically gathered together in one place assisted in the flow of performance information to key decision makers internally. The process was valuable in exposing gaps in either data or policies. As the saying goes ‘you can only manage what you measure’ and the reporting process allows managers to track their company’s performance from one year to the next. They can then focus on areas of efficiency gains and opportunities for innovation.

The future of reporting: will it be mandatory?

One of the most frequent questions arising globally for GRI is: ‘When and how will the application of the GRI’s Sustainability Reporting Guidelines and other reporting framework documents become a legitimate policy in a global, national or local legal environment?’

The answer lies in the credibility and legitimacy of GRI. The legitimacy of GRI’s reporting framework is directly derived from three key elements:

• The Guidelines are complementary to, and reinforce, the international legal framework that underpins most national legal frameworks, the UN Declaration of Human Rights, and major environmental treaties to name a few.

• The Guidelines are meeting a felt need by organisations producing reports—as is manifested by the rapidly increasing voluntary use of the Guidelines—and a demand by information seekers, mainly the investment industry.

• The multi-stakeholder and global nature of the GRI processes with the voluntary participation and commitment from thousands of experts worldwide from the spectrum of stakeholder groups, giving their time and resources to the creation and improvement of the GRI reporting framework, and governance of the network and institution.

As a reflection of its basis of legitimacy, the GRI remains neutral on the role of regulation in sustainability reporting. The international multi-stakeholder engagements have revealed a diversity of views on voluntary versus mandatory reporting. In some jurisdictions and cultures, regulation is seen as a positive instrument, while others follow alternative approaches such as economic incentives.

Currently, there is not a global consensus on the issue of regulation, not even within the business community or within civil society.

From the GRI’s perspective, it is the increased quality and quantity of reporting that is more relevant. Different approaches will be needed to achieve this goal in different places, depending on the cultural context, legal and economic frameworks, and the level of understanding between stakeholders.

It is the GRI’s objective, in the meantime, to continue to develop guidelines that offer global and local relevance in a world where, while globalisation is drawing cultures closer to each other, sovereignty is expressed differently when it comes to matters like regulation. The GRI anticipates that the number of organisations producing GRI-based reports is likely to increase further, because they serve all parties irrespective of the regulatory position:

• The Guidelines are applicable to jurisdictions without regulation to demonstrate that best practice paves the way to progress.

• The Guidelines are also appropriate where regulation is followed as they provide an agreed upon set of principles and indicators for use by any organisation.

The 2002 Guidelines were a first step in this direction, and the G3 Guidelines for release in 2006 will take this to the next level. Our stakeholders have given the GRI a strong signal that the G3 Guidelines need to be of a quality that whether used in a voluntary environment, or a strongly regulated political culture, they will encourage more informative, more transparent, and more comparable reporting.

* Dr Judy Henderson AO is Chair of the Global Reporting Initiative Board of Directors. She has an extensive record of involvement in global sustainability issues. She is also currently Chair of the Centre for Australian Ethical Research; Chair of the Northern Rivers Catchment Management Authority in NSW; and a Board Member of the NSW Environment Protection Authority.