GRI

INTEGRATED REPORTING: A SOLUTION FOR ANNUAL REPORTING?

Interview – Every year, most of the organisations released their annual reports, in which their financial situation is presented. Is that what stakeholders are expected? Yes, but not only. Can anyone understand annual reports? Not really… Transparency is key in nowadays communication, but that must imply accessibility of information: communication of information must be made in such manner that anyone can reach it and understand it. Today, stakeholders are expected to see organisations they follow to be committed into not only economic issues but also initiatives related to environmental and social initiatives; that is to say, see that corporate responsibility is actually taken into account by these organisations. Sustainability reports are a mean for organisations to communicate on such issues. However, cumulating many reports may discourage them… Integrated report might be a solution! Mervyn E. King – former Chairman of Global Reporting Initiative (GRI) and currently Chairman of International Integrated Reporting Committee – is explaining www.sustinable.com what benefits Integrated Reporting can bring to organisations.

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Tina Ly: Why organisations should release reports related to sustainability issues?
Mervyn E. King: Sustainability reports are critical because every company uses natural assets and the company is itself part of society and not apart from society. Further, one is dealing with stakeholders and a company needs to know its key stakeholders’ legitimate needs, interests and expectations in order to strategize on an informed basis. Sustainability issues relevant to the business of a company as water is to the beverage manufacturer, is critical in developing strategy. It is also critical so that the reader of a report knows that the board has applied its collective mind to the sustainability issues, such as water, to ensure that the company will continue to sustain value creation.

Tina Ly: Could you explain briefly, what is Integrated Reporting and what are the aims?
Mervyn E. King: The integrated report is to make a report in concise, clear and understandable language. To be accountable the report must be understandable. It must also be understandable to the person in the street because it is no longer merely the wealthy family who provides capital to companies. A large provider of capital today is in fact the pension fund which is the money of the average individual who is also the consumer. The trustees of pension funds need to make an informed assessment that the equity of the company in which they are investing, the ultimate beneficiaries’ money, is carrying on a sustainable business.

Tina Ly: The Integrated Reporting standards are being released in April 2013 and GRI 4 in May 2013. What are the differences between the Integrated Reporting standards and GRI?
Mervyn E. King: The GRI sets standards for sustainability reporting whilst integrating reporting does not have standards. It is merely a framework which sets out the content elements and how you should word an integrated report containing the material financial and non-financial issues, showing how the one impacts on the other and how you have embedded sustainability into your long term strategy. It is a framework in which the company tells its stakeholders “the state of play” in a company.

Tina Ly: You are participating to many seminars and conferences in Turkey since 2006, so regarding sustainability issues how the business environment has evolved since then?
Mervyn E. King: Teodorina and I have been at many seminars and conferences in Turkey since 2006. There is, without question, an important improvement where businesses more and more are seeing sustainability issues in the light of performance as a business initiative, not a “do good” factor.

Tina Ly: What would be your top 5 advice for an organisation to get ready to report based on the Integrated Reporting framework?
Mervyn E. King: The most important issue is for the collective mind of the board to be informed of the needs, interests and expectations of key stakeholders, what are the value drivers of the business, what are the sustainability issues material to the business, how are these embedded into long term strategy and how is the company meeting the needs, interests and expectations of stakeholders?

Tina Ly: According to your opinion, what should be the role “sustainability” within companies’ and organisations’ communication strategies?
Mervyn E. King: Communication is a critical issue today with companies. Strategic communication with stakeholders is absolutely important so that management can be informed about stakeholders’ expectations. This drives management to manage on a more informed basis and develop strategy on a more informed basis for the board. The board at each board meeting has reports on stakeholder relationships with the company and is consequently more informed on deciding on strategy.

Tina Ly: How can be companies/brands/organisations act as role models towards general public regarding sustainability issues?
Mervyn E. King: Companies today have to be, and be seen to be, good corporate citizens, otherwise stakeholders, particularly civil society, will reject the company. Civil society no longer accepts that companies can profit at the expense of human rights, or by adverse impacts on society or the environment. Google Nestle and the KitKat campaign by Greenpeace as an example.

Tina Ly: Is there any other issue that you would like to underline?
Mervyn E. King: The only issue I would like to underline is that integrated reporting is the future and management can no longer think in silos. One has to think across the six resources used by every company: financial, manufactured, human, natural, intellectual and social capitals, and the relationship with key stakeholders. Integrated thinking is thinking across those resources and the relationships in managing and developing strategy. The resources and relationships are interrelated, interconnected and interdependent in the functions and operations of a company.

WHAT BENEFIT DOES SUSTAINABILITY REPORTING BRINGS TO COMPANIES?

For decades, we know our deadline:  2050… Since then, the human population and actions towards climate change started to increase all over the world, at different pace though. Our main challenge is “[to meet] the needs of the present without compromising the ability of future generations to meet their own needs” (The Brundtland Report, 1987) and thus, harmonise human activities with the essentials of coming generations. Since the introduction of sustainable development concept, sustainability has become a goal for the United Nations, World Bank, NGO’s and more and more corporations. Since 2000, more and more organisations in the world are committing themselves to the United Nations Global Compact (UNGC); today, they count for more than 8,000 participants. The UNGC initiative urges organisations to implement sustainable policies and communicate them: in other words, the UNGC promotes transparency and disclosure.

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Trend in Turkey is encouraging

For the last 10 years in Turkey we can see an increasing trend in sustainability report publication. Most of the organisations that issue such reports are major groups that are listed in İMKB; for example, Koç Holding, Akçansa, Eczacıbaşı, OPET, TSKB, Turkcell etc. Besides, more and more organisations are signing the UNGC. Now the number of Turkish organisations is 223, which is a quite positive point, but still a low number compare to EU: 4002 and the USA: 470. Regarding the 7 other largest emerging economies, China: 298, Brazil: 472, Russia: 57, India: 283, Mexico 324, South Korea 221 and Indonesia 99, Turkey is the 5th most participative country. Source: unglobalcompact.org

Like any report, standards exist to guide organisation in the data and information to gather and disclose. However, those standards are not mandatory; they aim to help an organisation to make sure that the content of their report is in line with what their stakeholders are expecting, and being transparent enough. Most of the sustainability reports published by Turkish organisations are following the Global Reporting Initiative (GRI) guidelines, the most used worldwide. Standards can also be considered as a reference to compare performance from one report to another and thus observe progress.

The Evolution of corporate sustainability practices study (2010), has shown that the top 3 drivers that encourage companies in their sustainability efforts are compliance with laws and regulations, managing reputation risk, and competitive advantage in the long-term. Once initiatives are implemented, organisations are expected to report them. (Source: cica.ca) Based on Reporting Change study, a survey commissioned by GRI in 2010, readers of those reports are considering them as a tool for organisations to: account for their sustainability performance and activities (73%), improve internal processes to enhance performance (78%), engage with stakeholders about sustainability performance (40%). Source: futerra.co.uk

Indeed, organisations are expected to show that what they commit themselves into has been implemented. Like an annual or a financial report, organisations should consider sustainability reports as a real tool to communicate and present all their efforts regarding sustainable aspects to their stakeholders. Beyond financial expectations, their commitments to Environment, Social and corporate Governance (ESG) need to be accounted for.

Upcoming of the ISESI

With the release of the “Istanbul Stock Exchange Sustainability Index (ISESI)” in the coming months, Turkish companies will be more and more obliged to take action in their commitment to sustainable policies. Indeed, ISESI will enable Turkish and international investors “to compare their sustainability performance on a local and global level.” Therefore, companies will be competing not only on financial facts but also based on sustainability indicators. Investors may also use ISESI as a tool for responsible investments, “to select and invest in companies that adopt principles of sustainability and corporate governance”. Source: ise.org, 05.08.2012.

Importance of communication

Communication is the best tool for any organisation and individual to show what they have created, produced and implemented. Besides, as a participant to the UNGC, transparency and disclosure are the watchwords of their commitment. To not disclose or communicate on the initiatives, will cause the delisting of the organisation from the UNGC participants. Until today, more than 3700 organisations have been delisted. Since 2006, 117 Turkish organisations have been expelled from UNGC list. (Source: unglobalcompact.org, 05.08.2012).

Furthermore, responsible investments are now more important. For example, Delta Lloyd Asset Management has excluded about 40 companies if it violates the 10 principles of the UNGC repeatedly or seriously. The list has been published and the excluded companies are including major corporations known to society.

Scandals related to sustainability issues are more present in the news and fast unprepared communication is a risk for organisations. Trust is the key word of our century. Past has showed us events like oil leaks or asbestos that taught us lessons. Besides in these time of economic crisis, consumers, investors, that is to say all stakeholders are more willing to trust organisations if they are able to prove them they can do so. Data, and self-performance comparison from year to year shows organisations’ capability to see how they are capable of objectively assess themselves; and how they are able to recognise their weaknesses, their risks but at the same time taking actions to mitigate and reduce their impacts. Communication through sustainability reports can then be consider as an instrument to build trust and/or rebuild trust for organisations.

According to SustainAbility in the Reporting Change study, “many companies realise that the internal benefits are at least as great as the external impact. Internal benefits include: raising awareness (from the Executive Board or the factory floor) on issues and processes not traditionally captured by conventional financial management; providing tools for internal accountability and performance improvement; helping the company to focus its efforts and management on the issues that really matter to its business”. Source: futerra.co.uk

Based on the same study, reading an organisation’s sustainability report affected readers’ attitudes and actions in the long term in these ways: increase awareness about sustainability issues within a certain sector (65%), increase commitment and connection to that organisation (60%), change views about the importance of sustainability issues (53%), change behaviour as a consumer, increasing/decreasing sustainable behaviour (40%), change idea of corporate performance (38%). Source: futerra.co.uk

Following these facts, we can say that regulations are not the only way that will bring people to change habits, but organisations are playing a crucial role. To have an impact and influence people, awareness needs to be increased. Since the 1960’s people became massive consumers and believe in brands; most of us even relate to some of them. Through the survey we can see that sustainability reports affects the readers in a positive way: they help them to change behaviour; organisations are like prescriber of change. Turkey, as a major emerging economy should continue on the path of publishing sustainability reports, especially for the following reasons: continuous population growth, young population that is inclined to change easily, economic boom, increase of urbanisation, and above all, as a model for the region. Communication is essential, but be careful to not deceive your stakeholders by “greenwashing”.

Communication benefits?

There are many ways to prove a company that communication on sustainability issues brings benefits. Accountability. Transparency. Trust. The most tangible ways are awards you may receive, through different bodies. There are awards for the initiatives taken and good communication campaign such as: Environment and Energy Award Winners, International Green Awards, Financial Times Sustainability Finance Awards etc.