GRI Rings The Closing Bell at NASDAQ-And Opens A New Movement for ESG Reporting

On May 14, 2010, The Global Reporting Initiative (GRI) rang the closing bell at NASDAQ. Unless you were at NASDAQ's headquarters--or in Times Square where the ceremony was broadcast live--that day, most likely you were unaware of the event, which coincided with a roundtable devoted to sustainable investing. The news may have stayed under the radar, but for those vested in sustainability reporting, that late New York afternoon was one of enormous significance.

For GRI, that afternoon was a coming-of-age moment for an organization that, for over a dozen years, has worked to persuade corporations and businesses that disclosure on environmental, social and governance (ESG) performance should become as transparent and proactive as financial reporting. Since the early 1990s, corporations have published sustainability reports (in the USA, corporate social responsibility reports, or "CSR"), the number of which have increased annually. With the advent of the Internet, many companies maintain a portal focused on sustainability. But like the glossy annual reports to shareholders printed on expensive paper stock, sustainability reports are often a marketing tool—one reports that offers little insight on the environmental and human impacts corporations have far beyond the doors of their headquarters.

Some firms, maintaining a conservative outlook, believe that sustainability is only a temporary trend, not an entrenched movement. Other organizations feel that CSRs reports or any sustainability disclosures are not worth the bother, summed up by the typical chief financial officer who sniffs that "no one reads my report." Believe me: people are reading such reports, if they can find them, and with a critical eye. Furthermore, if companies are not more transparent in how their operations affect the planet, activist shareholders, reporters, and now, more investors, will scratch and claw to find that information.

More institutional investors and pension funds are closely vetting companies: CALPERS, the behemoth fund that manages pensions for over 1.6 million Californians, has adopted a strategy that demands greater environmental strategy, and to that end has already signed on to the Carbon Disclosure Project and the UN's Principles for Responsible Investment.. But if more organizations are going to disclose their impact on the planet, from their carbon footprints to greenhouse gas emissions to labor practices throughout their supply chain, standardization is absolutely necessary.

And this is where GRI steps in. Just as the United States Securities Exchange Commission (SEC) requires 14 different sections for a public company's annual report (10-K), GRI has created a process suggesting that companies break down their sustainability reporting into three standard disclosures with 11 distinct categories. By providing companies a framework in which companies openly discuss their strategy, environmental impacts, labor practices, and product responsibility—and these are just the beginning—GRI lays a clear path for organizations who strive for a balanced ESG report to their shareholders and potential investors. The GRI standards also help organizations avoid what their critics often call "greenwashing"--a criticism that whether it is fair or undeserved, is a label most companies seek to avoid. Now that the SEC has established interpretive guidance on how companies can articulate disclosures related to climate change that provide "clarity and enhance consistency for public companies and their investors," GRI's guidelines now have a level of gravitas.

Before the SEC's February announcement on climate change disclosure, cynics could dismiss GRI's work as simply a "nice-to-have." Now sustainability disclosure is emerging as a MUST HAVE. As GRI's Vice Charirman Sean Harrigan noted after NASDAQ's May 14 Sustainable Event Roundtable,

GRI has come a long ways in the last several years . . . a few years ago if we attended a round table discussion we've have a half a dozen people . . . today we had over 125!

Now that the SEC is advising companies and their attorneys how to disclose environmental issues of material risk (both good and bad), GRI's goals of having sustainability reporting becoming as routine as financial disclosure is coming closer to reality. As David Wicks, Vice President of NASDAQ, noted at the event, a dual approach to reporting "is the wave of the future where both financial and sustainability metrics are integrated into one report by businesses globally."

So why does this matter? Companies may still resist any transparent reporting related to climate change and sustainability—either to avoid public embarrassment or perhaps of the cautious nature of a firm's business culture. But in the aftermath of the Gulf of Mexico oil spill, a lack of openness will only invite a more discerning lens and harsher criticism. In the long run, it will be advantageous for a firm to be upfront about a its effects on the planet and discuss how it is approaching such problems. The alternative for companies is to paint themselves into a corner, which could lead to increased government regulations, public scorn, and even place them at a competitive disadvantage. So at this week's GRI Amsterdam Conference, business, and government and civil society leaders will discuss opportunities and challenges that companies of all sectors and sizes will face as their financial and sustainability reports morph into one.