I agree 10 per cent – the principle of minimum consensus

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 “We build too many walls and not enough bridges.”

Isaac Newton

I agree 100%

How many times can we honestly say that we really agree one hundred percent with someone else on an issue? It is certainly not unknown, however it can be quite rare.The Consensual World

Often this is because finding points of disagreement with other people is one of the ways that we establish legitimacy and expertise in addition to our sense of self.

Put simply, whilst we might almost totally agree with someone on an issue, we can also be motivated to find and highlight the nuances of where and how our understanding (unrecognised genius) and clear thinking provides us with a more accurate, pragmatic or relevant analysis.

The private intent of this behaviour is pretty clear – it allows us to feel good about ourselves and superior to others as an aspect of our contribution. However, the net-public-outcome of such activities can arrest the chance of progress. By highlighting and focussing upon minor, inconsequential points of detail, it can undermine the possibility of consensus and action on really important stuff.

Turning to the murky little backwater of the world that is sustainability, the practice of arguing the nuance of everything is rather aggravating and perverse. For instance, you get collections of people who all fundamentally agree that business as currently configured is unsustainable, that capitalism’s systems of value need to change and that humanity needs to respond rapidly, innovatively and creatively in order to build an equitable, resilient and sustainable world. However despite this they will also argue endlessly over why the points they make in the service of these aims are somehow superior, more appropriate, more intelligent or based upon more years in service of a better world than their correspondent’s.

This is of course ridiculous and won’t get any of us anywhere.

As I have noted in another post, the levels of consensus required by people of definable groups can vary. An article in Psychological Science in November 2013 “Liberals aren’t like the rest, or so they think” noted that that progressives (perhaps most likely to be sustainability advocates) tend towards considering themselves distinct or different from others with similar views (they overstate this difference). While conservatives (perhaps more likely to be distrustful of sustainability), tend towards considering themselves as in greater alignment with those holding similar views.

 

What levels of consensus do we need to work together?

A potential approach by which to reduce the time we spend disagreeing over things that are far less important than the things we agree upon is to consider the degree of consensus that is required in a given situation. To ask, ‘What do we really need to agree upon in order to work together?

By working together I mean a variety of things. At its most basic level that we are willing to act with a collaborative and constructive intent in face-to-face and online discussions. At higher levels it means joint enterprise, mutual dependence and partnership for the common good.

The levels of desired consensus for collective action can be explored by asking other questions about working together:

  • Do we want to work together?
  • What is the additive purpose?
  • What are the benefits?
  • What do we need to agree on?
  • (and conversely) What can we disagree upon?

Given that answers to the questions above result in the potential of joint work, the following questions further refine the levels of consensus which might be needed:

  • Do we have shared understanding of our focus and intent?
  • Are there assumptions being made that are not agreed upon?
  • Which elements are good enough?
  • Which parts are not good enough and must be revised?
  • What must I share because the joint enterprise will collapse without it?
  • What should I keep quiet about because to voice it would be letting perfect be the enemy of good?
  • What is a break point beyond which I am unable to constructively contribute?
  • When is the time to stop talking and do something because we agree enough already?

Minimum and maximum consensus

The unspoken default position in many sustainability discussions is “can’t you see how clever I am?” Not a good starting point for shared action.

If we really want to make a positive contribution to a sustainable future we need to get beyond such blatant ego-polishing and figure out just what levels of consensus are required.

There are many definitions of consensus in the world (Wikipedia’s page on the issue lists a large number). They range in practice from it being defined as a need to disagree on almost nothing in order to do anything together, to the practical approaches deployed by institutions such as the International Organization for Standardization (ISO), which defines consensus as:

General agreement, characterized by the absence of sustained opposition to substantial issues by any important part of the concerned interests”.

Put simply (and learned from hard personal experience) the levels of resource and persistence a party can contribute to an ISO process (and many others) has a significant impact upon the chances of that party being considered as ‘important’ and the more likely the final agreement reached is to reflect that party’s views.

The levels of required consensus concept is not a new one. For instance it was explored in the questions and answers proposed by the great moral philosophers John Locke and John Stuart Mill while considering the limits of liberty in relation to the rights and responsibilities of both the individual and the state.

A directly applicable description of the principle to the challenge of sustainable change was articulated by the author, academic and politician Michael Ignatieff. He defined minimalism as an outlook capable of accommodating the fact that “people from different cultures may continue to disagree about what is good, but nevertheless agree about what is insufferably, unarguably wrong.” (Quoted in the Yale Journal of International Law paper “The Minimum Core of Economic and Social Rights: A Concept in Search of Content”).

The role of consensus in change is a complex one. Across human history change has frequently taken place at the behest or whim of those individuals with the opportunity and ability (power) to make decisions regardless of the views of, and consequences for, others. Change via dictatorship or tyranny is not known for prioritising consensus.

For those of us lucky enough to live in democratic countries some form of consensus, or at the least the ability to exercise or indicate our views, is at the heart of our concepts of freedom.

Similarly, the majority of us interested in contributing to a sustainable and equitable world innately believe that consensus is a fundamental component of achieving that change – you cannot have an equitable world where only certain voices are heard.

Seeking minimum consensus

“Truth suffers from too much analysis.”

Frank Herbert

If we are capable of endlessly arguing about essentially irrelevant details on topics we fundamentally agree upon, wouldn’t it be logical to stop seeking total agreement?

If constantly aspiring for total consensus on every aspect of existence is fruitless, we need to move from asking:

Why doesn’t anyone recognise that my analysis of the world is better than yours”, to “How much consensus do we actually need to create something together?

Shouldn’t we therefore tend towards desiring a minimum level of consensus?

 

Minimum consensus in practice

These challenges are discussed, explored and overcome in sustainability as elsewhere. The existence and success of truly participatory multi-stakeholder initiatives (MSIs) are a testament to that (this Oxfam blog by May Miller Dawkins has an interesting discussion on such initiatives from the perspective of stakeholders).

Each successful multi-stakeholder process started with the development of the appropriate level of consensus. Such a level doesn’t preclude disagreement in total, it’s just that everyone agrees to abide by the level of consensus required for achieving a shared goal. This means they might disagree on many things but that the disagreement is not bigger than the wider purpose of their joint endeavour.

An example (there are many other good examples out there) of minimum consensus in practice can be found in MSIs such as the programmes facilitated by IDH, the Dutch Sustainable Trade Initiative.

Focussed around sustainability and supply issues in key global commodity chains, the initiatives bring together organisations involved in (as participants and stakeholders) the production, supply and sales of that commodity. For instance the IDH Cocoa initiative involves a number of companies which actively compete for market share and NGOs that may be critical of business. However they agree that without significant changes to the sustainability and resilience of the supply chain all of their interests will suffer. The levels of consensus sought by such an initiative are significant but essentially low – participants agree upon a relatively few points of fundamental and unarguable fact.

Can’t we all just get along?

Of course, griping about the levels of pointless argument in on-line and real life contexts is hardly a new or earth-shattering thing to do. Many initiatives and websites don’t really exist to be drivers of collective, collaborative knowledge but as portals for self-promotion and intellectual self-aggrandisement (and few of us are truly innocent of at least a little of each).

Nevertheless, the motive behind this post is a positive one. If we are to achieve a sustainable and equitable world we need to work together – there is no discussion to be had on that point.

Finding the fundamental points of shared human experience and aspiration is key. It is clear that at the level of globally shared values, humans show a striking degree of agreement on what they aspire to for themselves and their children. A glance at the World Values Survey provides ample testament to that.

Developing and applying the principle of minimum consensus might be one way to do this that we could all agree on – if only a little!

 

My huge thanks to Alain Ruche for both making me aware of this concept and inspiring me to write it.

Show me the money! Sustainability and financial outperformance

“The Analytical Engine has no pretensions whatever to originate anything. Its province is to assist us in making available what we are already acquainted with.”

Ada Lovelace

At the leading edge of sustainability best practice some leading companies are already developing meaningful pathways towards truly sustainable business models. Financial questionsFor the followers, there is perhaps a perceptible acceptance that sustainability is an important aspect of good corporate management. However, there still remains a need to demonstrate, within the current modes of capitalism, how sustainability impacts upon financial performance.

In our discussions with companies and sustainability practitioners within them, we often find that establishing of a clear business case for sustainability – to show that more sustainable business practice can be measured and valued in the context of financial performance – is still required.

The world as it is and the world how it might be

Debates within the relatively small world of sustainability tend to have two broad areas of focus: conversations about how to achieve sustainability within the world (and system) that we have, and discussions of how sustainability might be achieved if the world were different.

As with any group of humans talking about stuff, a focus upon one of the categories above often gets derailed by participants asking why the other is being ignored. Participants in discussions about the business case for sustainability in the current economic reality are frequently told that there is simply so much wrong with capitalism as it is that ‘sustainable business’ is not only an impossibility but also an offensive term (random capitalisation OFTEN also GETS used).

Conversely, utopian discussions about how the world might be and how we might get there are similarly beset by people saying that we must recognise the realities of where we are and not depart into sustainable flights of fancy.

Such is the stuff of life on the internets.

Of course there is room and necessity for each type of effort. We won’t achieve a very different, sustainable world, without dreaming big, and we also won’t establish the importance of sustainable business without proving its worth in the system we have now.

While I am happy to rail against capitalism as currently configured I also see the need to try to map a pathway from here to there…which will in part involve using the finance and economics that we have now to create the case for sustainable change. Given this, there remains a consistent need to be able to demonstrate how sustainability makes business and financial sense now.

This post presents a quick overview of some of the available sources of evidence on how the financial performance of companies which are relatively more sustainable (i.e. less bad) compares with that of companies which are either ignorant of or in ‘opposition’ to sustainability.

Sustainability and share price performance

The focus of this information is primarily upon listed companies as indicated by their share performance as this is where the best data are freely available. That is not to say that privately held companies or those with other ownership structures will not have stories to tell, just that they are often more difficult to find.

A few disclaimers

Before supplying what I believe is a pretty decent set of evidence for sustainability aligning with good financial performance, it is important to establish some health warnings:

  • Sustainability is of course not a per se an indicator of business success – there are many ‘sustainability rejecters’ that sail-on doing well in terms of share price and revenue.
  • Disentangling cause and effect relationships is always difficult – therefore it is just as difficult to tell which ‘bit’ of share price performance is due to which policy, decision or happening. While it’s possible to find examples of share price dips in relation to identifiable, time-specific incidents (e.g. Tesco’s recent travails, BP and the Macondo oil spill), in other cases there may be a wide range of aspects influencing share performance (some having nothing to do with sustainability issues).
  • Sustainability can be seen as part of ‘good business’ – the cause-effect issues tend to resolve by seeing CSR/sustainability as a bundle of aspects of what could be called ‘good management’ – and arguing that prudent risk analysis, strategic awareness and responsiveness to stakeholders (investors and others) simply makes good sense!
  • Markets aren’t always very logical – hysteria and sub-second trading can easily swamp other trends (for more on the problems with current markets see here).
  • Statistics are never indicators of absolute truth and can be discussed endlessly – the examples listed below are not exhaustive and there will be other perspectives (and findings) out there!

Nevertheless, the following information presents a range of evidence as to why sustainability makes good financial sense.

Overall evidence

In my previous life at WWF-UK, we produced a range of materials on the business case for sustainability, both by presenting data on the alignments between sustainability and financial performance and by seeking to identify the mainstream investment tools and metrics which were capable of appreciating sustainability as a value driver.

A simple expression of this work can be seen here.

At a larger and more comprehensive scale, a good ‘survey of surveys’ on the evidence for alignment between more sustainable companies and positive financial performance was published a few years ago by the Natural Capital Institute – Sustainability Pays.

Reduced Volatility

Simple outperformance is not the only valuable metric for sustainability in financial terms. Share price volatility is also a critical aspect. While experts with bigger brains than mine might well argue it is simplistic to suggest that higher share price volatility is always a bad thing, it is generally thought that higher volatility is associated with greater risk, and that at a market level, it may also indicate a higher likelihood of a declining market.

There does seem to be a reasonable amount of evidence that good CSR and sustainability has a contribution to make to reduce share price volatility (which is almost as ‘valuable’ as pure outperformance). This research piece from the Network for Business Sustainability explores the relationships and the evidence.

In addition, this 2012 Deutsche Bank document presents an overview of sustainability and its impact upon long term investments.

The 2013 Business in the Community (BITC) and Legal & General report ‘Conscious Capital: Bridging the gap between business and investors’ noted the contribution of sustainability to reduced volatility.

Additionally, this 2011 White Paper from the global asset management company RCM “Sustainability: opportunity or opportunity cost?” focused upon the performance of portfolios with integrated ESG (Environmental, Social and Governance) criteria.

Financial Outperformance

Beyond the evidence for reduced volatility, some research records the pure financial outperformance of the shares of more ‘responsible’ or ‘sustainable companies’ – that such companies (or the indexes they are featured in such as FTSE4Good or DJSI) have better average share performance than those that are not prioritising sustainability.

This report from RobecoSAM focusses upon enhanced Alpha* (a relative measure of performance on a risk-adjusted basis) from more strategic sustainability.

While here is Goldman Sachs saying the same thing (warning – it is long!), and also an academic thesis finding that SRI portfolios outperform the market.

The recent report from Arabesque Partners and the Smith School of Enterprise and the Environment ‘From Stockholder to Stakeholder: How Sustainability can Drive Financial Outperformance’ presents a comprehensive overview of the relationships between different elements of sustainability with financial metrics and also focuses upon share price performance.

Finally, here is a very good overview on links, correlation, strengths and weaknesses.

Further exploration

There are many sources of useful information on this topic but one of the very best places to explore sustainability and financial performance is SRI-Connect. Run by the sustainable investment pioneer Mike Tyrrell, SRI-Connect is free to join and not afraid to ask hard questions about the effectiveness of current sustainable investment while also presenting empirical evidence and expert insight into the progress that it has been made to date.

The UN PRI (Principles for Responsible Investment) initiative presents a wealth of evidence and thinking of sustainability and finance, including this publication which presents approaches for communicating the business value of sustainability. In addition, the 2006 UN PRI document, titled (like this post) ‘Show Me The Money‘, provides a comprehensive overview of the links between ESG issues and company value.

Conclusion

As noted above, this piece is neither comprehensive nor the last word on the subject of sustainability and financial performance.

As is often said, correlation is not causation and it is important not to state that there is always a ‘killer case’ for financial outperformance by more sustainable companies.

Nevertheless, the available evidence is both persuasive and meaningful. Certainly there is more than enough evidence out there to persuade the potentially persuadable that sustainability is good for business right now. Until we have an economy that prioritises sustainability innately, we must use such evidence to take us another step towards a brighter future.

* Alpha is a measure of performance on a risk-adjusted basis. It takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund’s alpha. This definition was sourced from Investopedia.
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This post was also published by 2Degrees on 13/02/15 and by Sustainable Brands on 16/02/2015.
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Sustainability Context – the elephant is the room

“How far you can go without destroying from within what you are trying to defend from without?”

Dwight D. Eisenhower

This piece is a mildly revised version of a blog commissioned by 2degrees as part of a series of future-gazing pieces from sustainability thought leaders on the big issues for the agenda in 2015 and beyond.Jumbo issues

This version has more elephants in it.

There is much more to be said on the issues of context related sustainability, Planetary Boundaries and the multiple capitals approach than is included below. We intend to evolve and publish some further ideas on the challenges and opportunities of measuring and locating absolute sustainability in the context of the planet’s limits in further blogs in 2015 (and perhaps beyond).

Context is everything

Known unknowns and unknown unknowns

Predicting the future is always difficult, as Donald Rumsfeld so famously said (and was perhaps unjustly ridiculed for): there are known knowns (things we know we know), known unknowns (things we know we don’t know) and unknown unknowns (things that we don’t know that we don’t know). In addition, the philosopher Slavoj Žižek also suggests a further category, of unknown knowns (things that we don’t know – or wilfully fail to remember – that we know).what do I know about anything

Sticking to the first two categories, I will try to explore one of the biggest issues companies need to face up to in 2015 – the challenge of context. To locate their strategies for sustainability and impact management within the frame of what is physically sustainable in the long term.

The elephant is the room

In sustainability, many topics are routinely labelled as being the ‘elephant in the room’. These supposedly ‘hot-button’ but routinely ignored issues vary from population concern, capitalism, water scarcity, economic growth, vested interests, regulatory capture, political inertia, consumer disinterest, advertising and pretty much anything you care to mention that drives people to CAPITALISE their writing INDISCRIMINATELY in on-line discussion fora.

For companies to really get sustainability and be on a meaningful pathway to true sustainability (rather than relative unsustainability) the elephant they need to deal with is not just in the room but it is the room.

The animal which is metaphorically in question is sustainability context – the idea of positioning the scope for company activities, intent and performance within the planet’s capacity to support and sustain that activity without undermining the planet’s core functions

The best expression of what is physically possible, the best scientific ‘guess’ at the limits of sustainability, is described by the concept of Planetary Boundaries. A clear offspring of the Club of Rome’s 1972 Limits To Growth, the Nine Planetary Boundaries were developed by Johan Rockström et al in a 2011 paper in Nature and are at the heart of the popular Doughnut model developed by Kate Raworth while at Oxfam.

Put simply, it’s a concept seeking to identify and quantify aspects of the Earth’s natural systems which present close-to-absolute thresholds we should not cross.

Expressing limits is a notoriously difficult activity (see here for more on this issue) and predicting exactly where such thresholds lie has long been fraught. From Malthus to the Club of Rome to Peak Oil, each attracted criticism over the predictions they made. However it is possible to be right in principle but wrong on a point of detail. When it comes to limits the fact that we live on a single planet substantially closed to matter though open to energy means that we are born into an existence with observable (though large) inherent limits (unless or until we make it out of the gravity well and into space).

To put it simply, Jumbo may be big, but there is no such thing as an infinite elephant.

Relating company performance and intent to the big picture

Recently we have been having conversations about the growing trend of relating big picture global sustainability issues to individual organisations. This is happening in a number of areas. It is well underway in terms of climate and GHG emissions reporting and is growing for natural capital through the development of the ‘multiple capitals’ approach. In addition, people are starting to explore how they might understand company performance and scope for impact with reference to the concept of Planetary Boundaries.

For a company, relating their activities to specific Planetary Boundaries calls for an understanding of cause and effect that does not exist yet. However, there are some possibly useful ways of relating Planetary Boundaries and Multiple Capitals to individual organisations. A key approach might be to adapt the GHG Protocol’s Scopes approach, which assigns differential responsibilities to various aspects of overall impact.

A Scopes approach to Planetary Boundaries?

Scopes have been used by organisations utilising the GHG Protocol as a means to define boundary issues and help condense and navigate complexity. Under this scheme, organisations analyse their impacts in the following three categories:

  • Scope 1 – direct impacts arising from organisational activities.
  • Scope 2 – indirect impacts arising from purchased energy.
  • Scope 3 – indirect impacts arising from a variety of sources in the total value chain (to the company and from the company).

I believe that 2015 will see some interesting developments along this line, either cross-applying the Scopes to Planetary Boundaries or by developing and implementing the multiple capitals framework articulated by the International Integrated Reporting Council’s (IIRC) Capitals Framework.

Work is already being conducted along these lines, the Sustainability Context Group is focussed upon just this challenge, and the MultiCapital Scorecard initiative has produced tools to seek to measure and report performance across the varied dimensions of the capitals.

However, the answer is always the same – be kind to the elephant

Of course the challenge with all this analysis is that it doesn’t change the necessity for change or the direction of that change, both of which are generally clear before analysis takes place.

Perhaps the only thing a company should do, when considering their relationship to Planetary Boundaries, is to define and develop products and services which innately strengthen or reinforce the Boundaries. Of course, implicitly, this will require curtailing and then ceasing activities and processes that undermine the boundaries.

Therefore, while it can be critical to understand the impact of company activities upon Planetary Boundaries and Multiple Capitals, activities measuring relative unsustainability should be no more than a step on the path to developing innately sustainable strategic intent and action.

Resolving the tension between the way we do business and the way our planet works, so that growth in economic activity does not undermine the potential for future growth is a significant challenge.

The steps taken in 2015 on this journey will hopefully make a key contribution to overcoming this challenge. We must first recognise that context is everything, and then turn our human creativity and capacity for great endeavours towards making the planet a fit and fertile place for elephants, humans and all life alike.

 

The original version of this piece was published by 2degrees on 5/01/2015. This version was also republished by Sustainable Brands on 02/03/2015.

Sustainability Reporting 2014 – the State of the Art

“The future has already arrived. It’s just not evenly distributed yet.”

William Gibson

Rewarding the best of the best – the CRRA Awards

For the last three years my firm (Terrafiniti) has had the distinct pleasure of supporting CorporateRegister.com’s annual CR Reporting Awards (CRRA 15), the unique global, non-financial reporting accolades.
Our role has been to support shortlisting; reading and scoring all awards entries, which gives a fantastic snapshot of current practice in reporting across the world. This year Getting-the-message-out(2014, for the 2015 Awards), the CRRA had a record number of entries, with around 100 organisations submitting reports.

As ever, the reports vary hugely. Coming from all corners of the world, some follow recognised best practice, others explore new approaches while some plough the same furrow they have done for years. Reports ranged from a svelte 30 to 40 pages to a dense 400!

Based upon the scoring, CorporateRegister.com shortlists the best reports in 9 different categories and opens voting to registered users of CorporateRegister.com (43,000 and rising at the time of writing). It is free to register on the site and the more people that get involved the better the Awards will be.

This post presents a high level overview of what we learned about the state of reporting from this somewhat exhausting exercise. It is a meander around the issues we feel are of wider interest rather than a scientific discourse. It does not seek to comprehensively cover every issue related to sustainability reporting at present.

It is also not seeking to represent the views of CorporateRegister.com or present a sober or statistical analysis of reporting in 2014.
We will not tell you which report we thought was best, worst, most serious or most fun. For that you need to take part in the CRRA voting process and decide for yourself!

A note on terms: In this piece, I tend to use the term ‘sustainability reporting’ to refer to any non-financial reporting (the communication of organisational social and environmental performance). Reports use a range of terms: ‘Integrated’, ‘Corporate Responsibility’, ‘Corporate Social Responsibility’, ‘Shared Value’, ‘Corporate Responsibility & Sustainability’, ‘Corporate Citizenship’ etc.

The Headlines

The following broad aspects, in our opinion, sum up the state of sustainability reporting at present:
The overall standard of reporting seems to be rising – mostly because the poorest reports have closed the gap on the average; the improvement is typically seen at the bottom end. At the top end, already exceptional reporters have maintained quality.
Tending towards the middle – there are probably fewer ‘awful’ reports but also fewer ‘utterly stand-out’ reports.
Size isn’t everything – there are some very impressive short reports, though the giants can also be good.
Increased global uniformity – there is a higher degree of consistency across territories, sectors and company sizes.
GRI’s G4 is definitely making an impact – for the good.
Context is still often largely absent – most reports ignore the fundamental sustainability context of business operations.
The jury is still out on Integrated Reporting – both in terms of uptake (it’s not clear from our work whether the numbers are increasing) and in utility (an integrated report isn’t necessarily a better report).
Assurance is not really moving forward – there is little apparent increase in the use of assurance or in the depth of engagements.

The Details…

Materiality – GRI’s G4 takes the concept into the mainstream

Materiality has been a concept experiencing a long and slow emergence into the mainstream of sustainability management practice. As far back as 2001, whilst I was at WWF-UK, we put materiality (although not using the term) in the form of ‘issues of strategic business concern’ at the heart of our publication providing guidance on aligning sustainability and business value, ‘To Whose Profit: Building a Business Case for Sustainability’. In 2003 Accountability published ‘Redefining Materiality’, the progenitor of today’s current approaches and we embedded it within WWF’s 2004 publication ‘To Whose Profit (ii): Evolution – Building Sustainable Corporate Strategy’.
Many leading companies have, over the intervening decade, used and adopted materiality within their sustainability management and reporting, but it seems that the emergence of the Global Reporting Initiative’s G4 Sustainability Reporting Guidelines (G4), with iGRI G4ts (very welcome) materiality orientation has had a significant impact on the adoption of this concept.
The launch of G4 has meant that reports increasingly include references to materiality, disclose their approach to identifying material issues and list those issues – mostly through a materiality matrix. We believe that this has had a significant impact in terms of raising the quality of reporting.
However – a report which follows G4 is not always a better one! There are still organisations which use G4 but tend towards opaqueness regarding the processes they use to identify and prioritise issues.
In addition, a report can have a materiality identification approach and matrix but then dive straight into a series of content sections without maintaining a materiality narrative or cross-referencing issues. There are some honourable exceptions to these phenomena; some organisations not only explore the relationships between their material issues, but also consistently cross-reference them throughout the content of their reports.
With GRI cross referencing, the devil is in the detail. Just as with G3.1, some reports will report full compliance to a section when that is not justified in the content, or display an incomplete understanding (or interpretation) of what GRI is asking for.

Context (the big picture)

Context is at the heart of truly strategic sustainability management and reporting. Over the years context has been conspicuous by its absence in the majority of reporting in practice. Set against this non-trend, there has been growing clarity on the global mega-trends that will increasingly shape the operating context for the business – providing new and evolving sources of threat, opportunity, limits and possibilities. Sustainability management and reporting which ignores this context is neither strategic nor very sustainable.Location location location
Despite this, most reports ignore context. Some include information on big picture megatrends but do very little with them, the majority focus instead upon incremental reductions in impact (concentrating on being ‘less bad’ rather than understanding and communicating whether their activities and plans are, in any categorical way, actually sustainable).
Some of the bigger (mostly mature) reporters however do seem to ‘get’ context. Those with a clear and direct dependency upon the productivity of natural systems are starting to locate their performance within the context of the planet’s limits, though there remains a huge distance to travel on this journey.
Organisations with water hungry processes and products tend to be advanced in the use of strategic tools which contextualise their practice in terms of absolute availability. However, all too often, companies are still limiting their ambition to ‘do less damage than last time’.
At the top level there is a generally poor coverage of big picture global drivers and how they will shape strategy and business opportunities in the coming years. At a more specific level, few companies are doing more than paying lip service to a statement (if at all) of the main trends – resource and energy squeezes, the water/food nexus and demographic changes.

Integration

Each year we see a number of integrated reports. Long touted as the ultimate destiny of non-financial reporting and predicted to join financial information in a consolidated format, it is still unclear if their use is on the increase.
A number of such reports use the International Integrated Reporting Council (IIRC) Warp speed integration?Framework or are part of the IIRC pilot – and many use a multi-capitals approach (categorising ambition and performance in the context of different capitals: financial, manufactured, human, intellectual, natural and social). However, there seems to be a poor understanding of what a capitals approach means and some companies treat it incredibly shallowly. For example, a number of companies reporting against natural capital did so only in terms of efforts to minimise direct operational impacts – entirely ignoring the impacts of core business on natural capital. It is especially problematic when extractives or finance companies take this approach.

The continued emergence of geographical regions

Recent years have seen an increase in the quantity and quality of reporting from around the world. Particularly notable are reports coming from South Korea, Brazil and Canada in terms of quality, ambition and approach.Global emergence
Of these three areas, South Korean reports in particular are improving in quality and scope. Their approaches are more consistent than you tend to find from a single geography and they often use ISO 26000. This is very likely driven by clear signals from the Korean government and is also supported by the work of the Korean Standards Association (KSA) – which has developed an assurance-like assessment procedure using ISO26000.

Reporting strategy, targets and performance – could do better!

Many reports still fail to report or explain strategy well and/or to link it convincingly to wider report content. Even worse perhaps, some companies will refer to their strategies a number of times but without actually describing what it is! For eOn target?xample, “Our sustainability strategy empowers us to create a positive impact etc. etc.” but not “Our strategy is XXX”.
There are still far too many unjustifiable examples of non-contextualised data (e.g. “we trained 170 people last year”) and too much activity based ambition: “Next year we will engage more”, or: “We will expand on site generation of renewable energy, since 2008 we have generated 20 GWh”. The continuing existence of such disclosure serves to reinforce the idea that sustainability performance is not serious, not meaningful and raises the dreaded spectre of greenwash.
In performance reporting there is a perceptible, though probably not statistically supportable, growth of a ‘We said, We have, We will’ format for performance disclosure. We like that!

Assurance – saying less and less every year

The quality of assurance seems to have declined in recent years, it is less informative and more about risk mitigation/avoidance than adding value. This is a challenge, especially as it is only a minority of reports which include assurance in the first place. This decline seems to be due to the ambition of companies commissioning assurance engagements, perhaps indicating risk aversion on the part of reporters.Empty words
Assurance statements are frequently ‘limited’, and often based on ISAE3000 or equivalent, do not include (or publish) recommendations and are generally confined to a double-negative bound conclusion e.g. “We didn’t find anything that lead us to believe that the contents of the report that we were asked to assure weren’t accurate within the context of how they were stated”.
There is the odd brighter spot where a company has engaged ‘reasonable’ assurance to ISAE 3000 or even used AA1000AS as the methodology for the assurance engagement. These assurance engagements tend to produce statements with meaningful findings, observations and recommendations for the further development of sustainability management and reporting. Such statements are a breath of fresh air in the context of the stale pseudo accountancy-speak of most report assurance.
While there is some debate about the theoretical and realised utility of obtaining independent, third party assurance for sustainability reports, assurance should perhaps be seen as a required part of any good report. For much more discussion on assurance, whether it is required and what to look for, see our brief piece on the issue.

Conclusions?

As noted in the headlines at the start, there are some clear trends emerging from the reports we reviewed as entries to the CRRA 15. This sample is of course not necessarily representative of sustainability reporting as a whole, but it is representative of those reports considered by someone (probably the organisation reporting) as being good examples with at least a chance of winning an award. In addition, it undoubtedly contains some of the world’s best reports.
In my opinion the sample tells us the following, that:
• Reporting is getting more uniform, more consistent and uses more common elements – in short it is becoming more standardised.
• In a small number of cases, reporting is locating itself in the context of the global challenges facing the planet and its inhabitants and starting to indicate how performance rates on a scale of absolute sustainability rather than relative responsibility.
• Reporting is developing fast in some parts of the world and more consistently and impressively than in others.
• Integrated Reporting still has much to prove in theory and in practice.
• Performance disclosure is patchy but improvements by some organisations do tell us something meaningful about work to reduce environmental and social impacts.
• Assurance seems to be losing its way – before it ever really found it.

Reporting has traveled far over the past two decades. It is increasingly about core business, strategic context and strategic integration. Yet it still has further to go and requires many changes in the outside world in order for sustainability disclosure to be understood as equivalent or even greater in importance than financial information. The entries for the CRRA 15 represent a snapshot of the progress so far in this journey, we look forward with interest to where reporting will take us in the coming years.

 

This post was also published in two parts by 2Degrees on 2/12/14, by Sustainable Brands on 11/12/2014 and TSSS (Toronto Sustainability Speaker Series) on 31/01/15.

Entropic Valuation – energy economics as if thermodynamics mattered

The constitution of the universe

“Everything you are, and have, you owe to the radiations from your sun.”

Chocky (John Wyndam)

 

The Laws of Thermodynamics provably frame and shape our scopeeverything we have...

for existence, yet they are effectively ignored by economic policy and process.

The first and second laws of thermodynamics are sometimes called the “constitution of the universe”. They describe the fundamental physical principles of the behaviour of energy. The 1st Law refers to change in energy states, the 2nd Law to energy dispersal, which can be expressed as follows: “energy of all kinds in our material world disperses or spreads out if it is not hindered from doing so.

To use a metaphor, energy is like water, it only moves in one direction: towards dispersal (energy) or downhill (water). However, not all water moves downhill at the same speed, just as not all energy flows from concentrated to dispersed forms at the same rate.

The measure of the dispersal predicted by the 2nd law is entropy. As entropy applies without exception to all energetic processes, it can provide a common metric to measure the lifetime performance of different energy sources.

Why isn’t overall thermodynamic performance part of energy economics?

Despite recent advances in renewable production, fossil fuels still make up more than 80% of our planet’s energy use. There are some good, practical reasons why coal, oil and natural gas (CONG) dominate supply in the global economy. Most significantly, CONG provide concentrated, transportable sources of utilisable energy.

However, this ease of use distracts us from their lifetime energetic (entropic) performance: that is, how efficiently they capture, store and render the sun’s energy over their lifetime.

We tend to think of CONG as energy itself, but this is not accurate. They are storage media for concentrated solar energy which was aggregated by photosynthesis in prehistoric vegetation and then subjected to nearly 100 million years of geological process. In conceptual and literal terms they are natural batteries, comparable to a lithium ion battery storing energy derived from solar PV.

The Sun is the original source of almost all energy, arguably excepting nuclear, geothermal and tidal. This common origin provides the opportunity to derive like-for-like comparisons of energy sources.

Comparing the entropic performance of energy sources provides us with a way of assessing and therefore pricing the total efficiency of a wide range of energy sources. This could be called ‘entropic valuation’.

Why entropic valuation matters

Entropic valuation is a means to compare the total energetic efficiency of solar derived energy sources, it considers: “How many solar kilojoules (kJ) have gone into this storage media in order to obtain 1 kJ of usable energy from it?” This ratio can then be used to assign a nominal price to the results.

If common solar origin is considered for a range of energy types then a very different picture of value and efficiency emerges. For example, if we consider the conversion of solar kilojoules into usable kilojoules, then solar PV is circa 100,000 times more efficient than oil.

This may be technically correct, but what difference does it actually make? After all, while CONG includes many million years of investment, we don’t pay for that time and can simply reap the benefits of its existence. However, there are compelling reasons to explore the real total energetic (entropic) performance of different energy sources.

Benjamin Franklin wrote that “the great part of the miseries of mankind are brought upon them by false estimates they have made of the value of things”.

The false estimates that we make of the value of fossil fuels blinds us to the challenges which arise from their use. Beyond the pollution impacts of burning irreplaceable stored energy, the belief that fossil fuel energetically outcompetes other sources of energy has lead to distorted markets and incentives to pursue resources that are ever harder to exploit.

Projects such as Carbon Tracker have begun to highlight the extent of the problem, calculating that only 20-40% of carbon assets held by listed companies could be burnt without exceeding global warming of 2°C. Yet the worth currently assigned to these assets can only be realised if they are used. In our current industrial model this would be a onetime use: valuable in the short term, but catastrophic in both planetary and financial terms in the future.

Applying entropic valuation to differing solar derived energy sources reveals that fossil fuels carry sunshine at a much lower rate, in terms of original energy received, than the real-time production of solar PV and storage.

overpowering fossil fuels

The above table compares the energy conversion (of solar input) efficiencies of a number of energy sources. Put simply, coal, oil and natural gas capture only 2.4% of solar input received, while solar PV captures vastly more, varying between 15 and 40%.

This ‘capture gap’ is compounded through the geological translation of ancient vegetation into concentrated fossil fuel, meaning that while every KJ of sun energy received by solar PV produces around 0.1kJ of usable energy, oil produces only 0.00000094 kJ – more than 100,000 times less!

This analysis highlights an interesting relationship between the energetic efficiency of ‘real-time’ or ‘live’ energy generation and that of fossil fuel energy generation.

These differences can be translated into money. Using the relative efficiency figures from the table above, energy sources can be priced on an equal basis. If each input kJ of Sun energy cost $1, the product energy price required to break-even per kJ produced are shown here:

The fossil fuel price problem

The whole picture – don’t forget the externalities

While comparisons of total energetic performance are dramatic, we should also remember that significant external costs arise from the use of CONG.

These costs, rarely integrated into the actual price paid for energy, exist across a range of “balance sheets” and consist of the following dimensions:

  • Climate impacts the contribution of CO2 and other emissions driving climate disruption.
  • Pollution direct impacts from extraction, production and refining in addition to combustion emissions for energy and other uses.
  • Opportunity costs one time use of such complex, time-rich compounds precludes a huge range of other uses, for: plastics, agriculture, pharmaceuticals and possible future technologies.

Use of oil - entropy

There appears to be a correlation (but not necessarily a causal link) between energetic performance and the scale of these externalities. While climate and pollution costs are well documented, the huge differences in energetic performance perhaps highlight the scale of opportunity costs incurred by our predominantly “one-time” use of fossil fuels.

Towards real-time energy

Francois de La Rochefoucauld noted that “The principal point of cleverness is to know how to value things just as they deserve.”

It is just such intelligence that humanity must apply to the environmental and energy challenges of the coming decades.

Clear and unarguable environmental and resource trends indicate an overwhelming need to connect energy pricing with the fundamental realities of physics in terms of:

  • overall energetic performance
  • longevity & replenish-ability
  • cleanliness/pollution
  • significant/irreversible opportunity costs

Entropic valuation provides a means to connect these aspects, founded in immutable physical law.

Entropic valuation reveals the orders of magnitude difference between the life time efficiency of “live” solar generation and the ‘stored sunshine’ of fossil fuels.

It suggests that truly sustainable solutions lie in growing ‘real-time’ energy and moving rapidly away from our dependence on upon finite, and borrowed, prehistoric time.

It’s time we paid rather more mind, and money, to entropy.

 

Entropic Valuation is idea developed by Joss Tantram in conjunction with Sean Grunnet Cuthbert and first tested in public at the Energy Storage World Forum, Berlin, April 2013. Our motivation in developing the idea was to explore new ways of looking at old problems and to connect energy perspectives with the energy reality defined by the laws of thermodynamics.

A slightly shorter version of this article was first published by Green Futures Magazine on 3/02/14.

Entropic Overhead – measuring the circular economy

Errors using inadequate data are much less than those using no data at all.

Charles Babbage

The broken hourglass

Do you break the timer when your boiled egg is cooked?

Our economy does, it is like a broken hourglass. We collect together valuable materials, apply energy and labour, put them into products that have yet more added design and brand value and spew them out into the world before starting again (mostly), from scratch.

This of course would all be fine if scarcity was not a problem: if the materials, energy and inputs we rely upon for industrial production were either eternally abundant or safe to distribute and use. However in our current industrial models this is simply not the case.

To pursue the disposable hourglass metaphor, instead of merely turning it over when the sand has run through (a cradle-to-cradle, or circular industrial model), we smash it, buy another hourglass (a cradle-to-grave industrial model) – and maybe pop the old one in the recycling if we’re feeling virtuous.

This is all fine until the raw materials, energy and skills to make more hourglasses start to get scarce or expensive. Then we would have to start to pick over the remains of the broken one to collect these now valuable raw materials for remanufacture and reuse.

How much easier is it to retain the investment that has gone in to making an hourglass than to smash it and start again every time we want to boil an egg?

Measuring the performance of different models

The performance difference between a broken and unbroken hourglass economy is easy to sum up simply – “a lot”. However, in practice more marginal differences can be crucial. A metric would allow us to measure the difference between potential courses of action and help determine the processes and activities most effective in achieving a circular, sustainable economy. But given the complexity of modern industrial processes and the fact that a well-functioning circular economy would add further convolutions, how do we develop a suitable measure?

The common denominator for all industrial activities is energy, therefore a metric which refers to the energetic characteristics of systems and processes is required. We believe this is entropy.

Entropy applies without exception to all activities and processes. Given that universality, it might be used to measure the overall efficiency of our economy and the transition to a circular economy.

Entropy applies primarily to energy and not to matter – something we are fundamentally concerned with in the circular economy. However, matter is of little use until we organise, process, manufacture and distribute it in products and services – all these activities require energy.

We therefore propose the metric of Entropic Overhead.

 

What is Entropic Overhead?

Entropic Overhead is a relative lifecycle measure of the energetic efficiency of maintaining the utility of a product or service, or reusing its constituent materials.

It can be used to assess the energetic efficiency differences between alternative pathways: for example the energy required to either make a new product or retrieve its resources to original utility, versus the energy that would be spent on retaining the original products’ use. It can also be used to assess the efficiency of alternative uses of constituent resources, beyond the original utility, in different products and processes within a circular economy.

 In terms of the hourglass metaphor, it is the energetic performance difference between:

  • obtaining a new timer with virgin materials;
  • obtaining a new timer and making some further use of the constituent materials of the old one for other purposes;
  • remaking the broken timer by retrieving and reprocessing all the constituent materials (and supplementing with new materials where needed), and;
  • avoiding breakage and simply turning the hourglass over.

Entropic Overhead is therefore a measure of the differential energy costs we would bear because we failed to make full use of the initial investment we have made in creating a functioning object with long term utility.

Why we need a metric for the circular economy

Humans seek simplicity, and we value simple measures to tell us whether we are moving in the “right” direction and to help assess marginal choices.

However, this desire does cause us problems, such as an over reliance upon metrics that are so abstracted as to be meaningless or even dangerous. GNP was famously condemned by Senator Robert Kennedy as a metric which “measures everything in short except that which is worthwhile”.

The dictum “If you can’t measure it, you can’t manage it” might be trite and one dimensional (and often wrong), but in this case it is useful. How do we measure progress towards a circular economy and, is there one measure, rather than a million, that we can use?

 

“all models are wrong, but some are useful”

George E. P. Box

Finding a metric that applies everywhere is difficult. In order to do so, we must look to universal principles which apply to all, without exception. The laws of thermodynamics are a good candidate as they represent a fundamental framework for physical existence.

 

What about zero impact energy and materials?

Entropic Overhead is an ideal measure to indicate the difference between varying production approaches because, in our current unsustainable economy, energy is a useful proxy for environmental efficiency.

However, it would theoretically be possible to have an economy that used only zero impact energy sources and materials. In this utopian situation, Entropic Overhead would be less suited to indicate the sustainability or otherwise of processes.

Therefore the metric is a transitionary one – useful until we achieve a circular economy which uses zero impact energy. Before this occurs, we can rate the Entropic Overhead of different processes using carbon intensity factors to allow for different means of production.

What scale can Entropic Overhead be applied to?

Any scale we like: from a product level, comparing the performance of a leased product to a “disposable” one; to the level of a value chain; for comparing business models, or comparing national & international economies.

Who else has explored this?

“It is not once nor twice but times without number that the same ideas make their appearance in the world.”

Aristotle

Various people have explored the concept of entropy in different fields from economics to social dynamics, including Frederick Soddy in the 1930s and more recently Nicholas Georgescu-Roegen. Many have caught the imagination and many have foundered, possibly because the concept of entropy has been misunderstood or misappropriated – often stretched to apply to social organisation or economics.

However, this doesn’t mean the concept is without value, particularly if we don’t over extend our interpretation of the underlying science. Entropic Overhead is seeking to avoid the pitfalls that misappropriation of the concept can create by focusing upon the fundamental energetics of different industrial and economic processes and not over extending the application of the second law.

 

Measures that matter

Truly useful measures are required if we are to assess and drive towards a sustainable world. At the physical level, sustainability requires us to find ways to exist and thrive in a system which is closed to matter – though open to energy.

This existential context should define our ways of measuring and managing performance yet we have effectively ignored the reality of life on this planet for too long.

As we start to recognise and push against the hard limits of existence we need measures which tell us, meaningfully, how we are performing and the value of doing so.

Entropic Overhead allows us to measure our progress to a sustainable future, we are keen to join with others to explore its use in practice.

 

This post was also published by Sustainable Brands on 9/09/13 and by 2degrees on 19/09/13.

Sustainable futures and the status quo bias

“All is for the best in the best of all possible worlds.”

Dr Pangloss, “Candide”, Voltaire

Winning the battle but losing the war?

Sustainability has become a concept that, by certain measures, has gone mainstream. It has become an expectation, rather than an exception, that companies of global (and smaller) significance have staff and effort expended towards some form of sustainable, responsible or citizenship related endeavour.

However, this does not mean that the “war” for the protection and enhancement of the global environment has been won. To the contrary, all the scientific evidence tells us that the overwhelming global trends in environmental quality are downwards (with the odd little piece of less-bad news).

The reasons for this are many, varied and complex. It is perhaps easiest just to say that sustainability was never a design consideration of economics, and therefore, by extension, of capitalism.

However, from a psychological and neurological perspective, there are also some other, very interesting, factors at work.

The forces of reaction and the forces of protection

Beyond the forces of reaction – those who believe that environmentalists are wrong, are wrongheaded, or who have wilfully or naively misinterpreted data; and beyond the forces of protectionism – those who may privately agree that environmentalists have a point but are having far too good a time to want to change, there is a further challenge we face in building a sustainable world – status quo bias.

 

Status quo bias – the best of all possible worlds?

It is not reason which is the guide of life, but custom.

David Hume

Status quo bias is the phenomenon (backed up by some significant evidence) that humans have an objectively non-rational preference for the status quo. A 2009 paper published by the US National Academy of Sciences found that, when faced with difficult choices, people are more likely to choose the status quo. In addition the study also noted that these choices were frequently not the “best ones” but that the difficulty of making the decision was a factor in driving people to stick with the familiar.

A common example is that presented by an over-abundance of choice, for instance when faced with too many varieties of cereal in the supermarket, we often find ourselves buying either what we always buy, or refusing to make any choice at all.

Status quo bias implies that, than rather than setting us free, choice may actually imprison us.

This phenomena presents a huge challenge for building a sustainable world, even though that world might be demonstrably more likely to benefit us all. It also calls in to question the idea that a sustainable world can or should be achieved through presenting people with a greater variety of sustainable choices when perhaps such a change would make little or no difference.

Change and the fear of change

Change alone is unchanging.

Heraclitus

To an extent, status quo bias can also be attributed to a natural fear of change. As a man, this is something I am of course familiar with; move the contents of kitchen cupboards around and I become lost, listless and existentially challenged until my brain eventually gets used to opening the correct door.

In contrast however, humans actively embrace certain types of change, notably those we label as progress. In the last 20 years technologies have transformed our access to knowledge and learning – a change we have embraced as undoubted progress, and our ability to travel and explore has expanded also.

Fundamental, radical, change happens all the time and humans are quite capable of adapting. My grandmother, for instance, was born into a world which was in many ways indistinguishable from that of two or even three hundred years before. Yet when she died the world had convulsed, tens of millions had been killed deliberately and died preventably. Technology had boomed and mass material production and consumption had become a core mode of good citizenship, as had universal healthcare and the chance for many of not dying from dirty water and many communicable diseases.

Yet, while we are living it, change appears not to be something called change, just life, which may or may not have new features from one day to the next. Our lives are defined by change, however small – so why does real sustainable change seem like such a challenge to achieve?

It is perhaps not change which presents the problem for building a sustainable world, but the fear of change. It is also the fact that, whether we like it or not, we tend to assume that the status quo, the now, is somehow right and natural; an instinct which prompts us to instinctively reject visions of the future as containing more design and value judgements than our present reality.

The argument goes like this – “You may consider that the environment is important, and want it to be protected or valued differently, but doesn’t the valuation or protection you propose require value judgements as to what is important? Who are you (or anyone) to make judgements which may not be shared by all?

This is of course a fair point – any environmentalist seeking to assign or champion value or behaviour without some logical and empirical framework underpinning their thinking should be ashamed of themselves.

Value judgements are a fact of life so let’s get on with it

Any vision for change from the status quo will involve value judgements, but aren’t we already wrestling with a set of value judgements that tell us that economic activity (i.e. a developed wetland) is more valuable than none (an undeveloped wetland), regardless of the consequences for the system as a whole?

We live in a world of value judgements; therefore to suggest that some value judgements may produce better outcomes for common-self interest than the current set of value judgements doesn’t really seem to me to be imposing anything.

Towards common value (judgements)

Visions of a sustainable future are by their nature based upon judgements as to what is valuable. At a species level, I would suggest that most of us would probably agree on what is valuable: water, food, air, shelter, warmth, security, equitable income, education, communication and representation.

Equally, in terms of what is valuable in nature, it is fairly clearly understood that qualities of diversity, resilience and productive capacity are critical for thriving ecosystems and we also have a pretty good idea of how to support and encourage these characteristics.

Given the possibility of consensus we mustn’t confuse the way we happen to do things now with the “right way to do things”.

We must not let our comfortable attachment to the norms of today prevent us from embracing the change that a sustainable human future demands. Yet we must also understand that there are good reasons why we tend to associate what is familiar with what is “best”.

 

This post was originally published in a marginally more sober form by Guardian Sustainable Business on 15/02/2013

Looking forward and facing back – can standards deliver a sustainable world?

A few strong instincts and a few plain rules suffice us.

Ralph Waldo Emerson

My firm (Terrafiniti) has recently had the pleasure of supporting Corporate Register’s CRRA 13 Awards, a unique, user generated sustainability and corporate responsibility reporting awards scheme.

This has given us a concentrated snap-shot of sustainability and corporate responsibility reports from companies of all sizes and sectors from around the world. It also provided us with an insight into the systems, standards and best practice approaches these companies are using to guide their activities or demonstrate their responsibility.

In addition to judging sustainability reports, I have also had the vast and eternal pleasure over the years to be involved in a number of best practice approaches and more formal management and guidance systems. These have included the SIGMA project – still one of the best sustainability management approaches in existence, the little known UK Standards BS8900 (Guidance for Managing Sustainable Development) and BS8901 (Sustainable Events Management) and the battle-scarred and possibly flawed ISO26000 Social Responsibility Guidance Standard.

A question which often arises, when discussing these and other best practice approaches such as the UN Global Compact and the Global Reporting Initiative (GRI), is whether they give rise to more sustainable practice and, if not, why not?

Leading and following standards – how do standards arise?

Standards are developed for two main reasons:

1.            Because something is already happening and it is considered mainstream enough to be codified into standard practice, and;

2.            Because something is not happening that people think ought to happen and therefore a standard is developed to encourage it.

These two circumstances give rise to two types of standards; following standards and leading standards.

In sustainability terms an example of a following standard is ISO 14001, which codifies generally accepted practice, whilst a leading standard would be ISO 26000. Other leading standards would be the AA1000 series – which seeks to stimulate leading practice in areas of activity that are new to many organisations.

It can be argued that such leading standards arise not from established practice, but a recognition of the gap between what is currently happening and what is required to happen in order to avoid undesired outcomes (e.g. rising social inequity, systemic economic instability or the total destruction of ecosystems and societies as we know and love them – little things like that).

For many sustainability practitioners, who believe that transformative change is required in relation to the scale of the sustainability challenges we face, leading standards are those we are most interested in, whilst following standards are those most widely employed in the marketplace.

Procedures for a sustainable world?

Immaturity is the incapacity to use one’s intelligence without the guidance of another.

Immanuel Kant

A common challenge in organisations is the substitution of procedures for devolved trust and decision making. When they get to a certain size, or have a bureaucratically minded leadership or culture, it is often supposed that strict procedures, permissions or systems will guarantee correct decision making.

This may be so where every aspect of a process is well established and known and there can be no possible utility in innovation or change. However, such organisations and processes are rare; most organisations can stand to improve their approach by encouraging and supporting creativity of thought and innovation in process but such behaviours cannot be mandated by top-down dictats.

An apposite example comes from was a project I was involved in a decade ago considering what a sustainable bank would be like. We heard from a small, ethical bank alongside a global financial institution. They both had approaches for assessing environmental and social risk in lending decisions. The small organisation’s process was shockingly simple – the happiness or otherwise of its staff – they discussed the potential decision and decided whether they were happy to accept or decline the lending. The big organisation had an extensive checklist approach designed to provide an entirely procedural solution.

Since that time one has quietly gone on to grow slowly with no fuss or scandals, the other has had more spectacular growth and become globally recognised as somewhat ethically challenged.

Principles based standards

If procedures encourage rote behaviour a solution can be to develop standards which do not prescribe specific activities but which articulate sets of principles to guide and shape actions. Conversely, with a very detailed approach such as that of the GRI, it is theoretically possible to look at the GRI index in an organisation’s report and to judge the level and quality of embedding.

For principles based approaches such a judgement can be much harder, it can be difficult to tell whether something has happened (or not happened) because of a set of principles because it is much harder to tell how individuals make decisions.

Proliferation – guidance for all?

In my previous life in the NGO world we often found that organisations were keen to respond positively to sustainability but just wanted to be told where to look to find out what to do. This is a seductive but problematic thing to achieve and has given rise to both a proliferation in the number of tailored approaches to support every possible combination of organisational sector and size and the exponential growth of more generic approaches.

For example, the GRI has expanded in both directions. Their core indicators for all companies have expanded through the lifetime of the initiative as has the production of sector specific supplements (now numbering 10 and counting).

Finding our way in the dark

Here is where we encounter a deep and fundamental challenge with sustainability – it is substantially unmapped territory, therefore it is difficult to say exactly what it will look like, and indeed how to get there. This is especially the case when the specific expertise and knowledge required in many areas to develop sustainable solutions lies with those currently involved in unsustainable ones. A standard cannot mandate such innovation and perhaps should not try to. 

Stakeholder standards – do successful solutions really need consensus?

Consensus is very big in sustainability right now, and there are some good reasons for this. The AA1000 series, the GRI and ISO26000 all developed through huge, multi-stakeholder approaches which were based in consensus and which required that consensus for legitimacy.

Yet in the fast moving world of commercial products, consensus and stakeholder based development is not a success criterion. It could be argued that the same should go for sustainability standards.

Truly disruptive and commercially successful products are not the outcome of extensive stakeholder processes and consensual development. They are the products of creative activity, often from single individuals or flexible, capable small teams. Dyson’s cleaners and Apple’s iPods were just such products – successful because they redefined a market effectively, cleverly and elegantly.

Why should standards really be any different? Why is it not possible to develop sustainability approaches which are able to drive sustainable change, deliver viable long term decisions and are communicable to the wider world but which do not need the best part of a decade and the involvement of thousands to do so?

Massively detailed stakeholder derived consensus based standards and guidance, unimpeachable though they may be in giving everyone involved their voice, are really, really unlikely to stimulate the innovation, creativity and swiftness of action required to tackle fast moving environmental and social problems.

The innovation we depend upon for a sustainable future may be rooted in established practice but may be as different from that practice as night is from day. While standards clearly have a role in such a transition, they are unlikely to be our salvation.

This post was originally published on Green Conduct on 14/12/2012.

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Stakeholder engagement – building resilience

It’s when we start working together that the real healing takes place…when we start spilling our sweat, and not our blood.

David Hume

Companies which ignore the views of stakeholders from within and outside their organisation may overlook issues that could come back to bite them.Resilience in diversity

An essential part of a meaningful approach to sustainability and CSR management for more than a decade, stakeholder engagement is not just a way of keeping external parties happy, or a PR campaign. Used properly it can be a powerful way of building strategic awareness and resilience.

This post is aimed at practitioners in companies, providing guidance, hints and tips for designing and conducting stakeholder engagement which is meaningful and relevant for all parties involved.

Engagement builds resilient business

Just as any species unable to notice or adapt to changing conditions is likely to die out, companies which are unable to pay attention, interpret and respond to a changing operating environment are unlikely to last for long.

Any good company pays active attention to its operating environment and stakeholder engagement is one vital method for doing this – actively seeking input and insight from people who see your business differently. A great recent example of this is from one of our clients, Elopak, which kicked off a recent long term sustainability vision process with input from external parties and NGOs .

The difference between engagement and PR

We often hear companies, when faced with opposition to their plans, emphasise their failure to communicate rather than find fault with the plans themselves. This has come especially into focus with the recent “Shareholder Spring” votes against proposed executive rewards.

This stance highlights the difference between engagement and PR. With engagement there should generally be an openness and expectation that the engagement may result in a different outcome to the one that the company first envisaged.

PR, on the other hand, is about the transmission rather than the exchange of information – which lies at the heart of stakeholder engagement.

Who are your stakeholders?

Stakeholders can be broadly divided into two categories: internal and external. Everyone who works for the company is an internal stakeholder. However, identifying external stakeholders can be more complex.

A standard list of external stakeholders could include the following:

> Existing consumers > Communities living near your operations/offices
> Potential consumers > Business partners/allies
> Suppliers > NGOs and pressure groups
> Regulators/government > Competitors
> Investors > The media

There is no one-size-fits-all approach, you need to understand how you might affect stakeholders, their interest (or otherwise) in your business and, if they are, what they want from you. This must also be assessed together with their potential to influence or have an impact on your activities.

Can you get stakeholder views without talking to stakeholders?

This may seem like a silly question but the answer is, yes, you can! It is possible, given the increasing amount of information and opinion freely available on the internet to conduct what we call “Stakeholder Engagement by Proxy”. This involves using existing sources of information pertaining to organisations in your sector or your company in order to gain a picture of the issues which are deemed to be relevant and therefore might become priorities for management. Such sources include the views of progressive investors such as the SAM yearbook , Eurosif’s sector reports , guidance on key indicators and issues for focus from the GRI Sector supplements and other sectoral and universal guidance on sustainable business issues.

But is this a substitute for talking to stakeholders?

No. Proxy sources of stakeholder information can never replace active engagement. Nevertheless, it can be a useful pre-cursor to active dialogue and engagement with stakeholders as it will arm you with a feeling for the sorts of issues which may come up.

Fundamental principles for stakeholder engagement

There are a number of very good sources of information and guidance on how to conduct stakeholder engagement and this article is not long enough to go into these in detail. If you want the “gold standard” for stakeholder engagement, start by looking at Accountability’s AA1000SES (Stakeholder Engagement Standard)

At its heart though, there are some simple fundamental principles which can guide your approach.

Here are my top three tips to bear in mind when planning and designing your approach.

1.                   Honesty – don’t expect to agree on everything

Stakeholder engagement is not about agreement but about honest and open interaction and this should work both ways. There will always be some things that you are able to change following engagement and things that you cannot or would rather not change. Just as you should be able to explain such issues to stakeholders and the wider world, you should recognise that some stakeholders will wish to do likewise with their points of focus and disagreement.

2.                   Relevance – don’t get diverted by immaterial issues

It is important that engagement focuses upon the issues that matter – to your business, stakeholders and the wider environment. If you go into stakeholder engagement seeking to focus upon what stakeholders might consider a peripheral or irrelevant issue then you haven’t understood the purpose and point of engagement and, crucially, you won’t gain strategic benefit from external input and insight.

3.                   Expectations – be clear on the scope for change

Be clear about what you are engaging about and also ensure that there are shared expectations on what scope there is to effect change. As noted above, engagement without change is difficult to differentiate from PR.

Conclusion

Companies which are capable of evolving in response to the signals that society and the environment send them will be those equipped to survive and capitalise upon the challenges of the future.

Ultimately, the businesses likely to become truly sustainable will only do so if they can successfully anticipate and react to changes in their marketplace, social context and resource base. Proper and full engagement with their stakeholders is an essential tool for achieving this and building businesses fit for the future.

A true reflection…getting satisfaction from independent Assurance

It does not require many words to speak the truth

Chief Joseph

If your organisation either already reports or intends to produce a sustainability report, you will need to be thinking about independent assurance – formal or informal input designed to provide an independent view of the effectiveness, thoroughness and relevance of your sustainability approach.

This post follows on from our insights into the fundmentals of sustainability reporting.

What is assurance?

Assurance is the process by which readers of sustainability or CSR reports and information (commonly referred to as “non-financial information”) can have confidence that what they are reading is “true”.A true reflection?

This post contains advice and guidance for organisations new to the world of independent assurance or for those already commissioning such activities who wish to gain more, in terms of both sustainability and business value, from the process.

When I refer to “assurance” I am referring to “independent assurance” rather than assurance conducted by internal audit or other in-company parties.

Why assure?

The aim of any sustainability assurance process is to reassure internal and external stakeholders that the sustainability information provided by organisations is credible. A high quality assurance process should also act as a driver for performance improvement. There has been much debate on whether assurance processes are successful in achieving these aims.

As a judge for sustainability reporting awards, I have tended to believe that a report without an independent assurance statement is not worth the paper that it is printed on. However, it is also possible to have an independent statement which tells the reader so little that it is almost equally worthless!

It is difficult to draw black and white distinctions. Nevertheless a well specified, in-depth, independent assurance process and statement can be a fantastically meaningful, useful and essential part of delivering transparency and accountability and sustainable performance improvement.

What constitutes an assurance statement?

In CSR and sustainability reporting, an “assurance statement” is a blanket term that is used to refer to a number of review, perspective or audit pieces that are commissioned by a reporting company in order to gain insight and to demonstrate the veracity or truth of sustainability management or reporting disclosures.

There are three broad categories for such statements:

  1. Formal Assurance Statements (e.g. those based upon a specific Assurance methodology – AA 1000AS, ISAE 3000, and the Dutch Standard 3410N.
  2. Verification statements from accredited bodies which verify against a specific standard (e.g. ISO14001, EMAS).
  3. Perspective and commentary pieces – a wider category of statements which do neither of the above but which are intended to lend some credibility, weight or reliability to the contents of a report. These might be produced by recognised authorities (or personalities) in sustainability and CSR, NGOs, stakeholder panels or other parties intended to lend weight, gravitas or critical perspective on the work of the reporting organisation.

For a reader of a report – the purpose of any sort of statement is to allow them to have confidence that the contents of the report bear some resemblance to the “truth” of actual company commitment, practice and performance.

Given this, it is most likely that those assurance statements which either follow a clear third party methodology or disclose the methods by which the statement was derived are those likely to be able to create the most trust.

For a reporting organisation, the purpose of an assurance statement is twofold: to allow readers to trust the report contents but also (and this aspect is often overlooked or avoided) to gain insight and understanding from a third party of the strengths and weaknesses of their reporting approach.

Scope and depth

Assurance statements can vary in depth and extent of scrutiny, depending upon the Standard that is being used to conduct the assurance process. For assurance engagements conducted according to Accountability’s AA1000 AS, there is a requirement to “cover the full range of organisational performance”. For those conducted following ISAE 3000 it is possible for assurance to be conducted at either “limited” or “reasonable” levels. These levels refer both to the depth of and scope of activities undertaken to produce the statement, but also determine the type of conclusions made by the assurer.

For “limited” engagements, this conclusion is likely to be a fairly impenetrable, double negative based statement such as “there was nothing which came to our attention which indicated that the statements in this report are not a true and fair picture of…”.

For “reasonable” engagements, the conclusion is a little more meaningful, and will be of the form that “the statements in this report present a true and fair view”.

Using assurance to drive continuous improvement

However, if the purpose of obtaining assurance goes beyond a pretty bland statement from a third party that the contents of a report are not outright untruths then a reporting company should seek to drive value through the process and perhaps engage in a more developmental process.

Such a process can be delivered through specifying the use of AA 1000AS guided statements. These are more detailed, deep and, to a reader such as me, meaningful. They often contain specific recommendations for the development of the reporting company’s approach to managing and disclosing sustainability performance. The best statements may also contain year-on-year commentary which can be a useful way of assessing and disclosing progress in the maturity and embedding of sustainability management.

Type of assurance provider, qualifications and independence

There is a wide range of companies that have moved into the market of providing assurance statements, especially as assurance has moved from being the provision of formal verification statements. Such assurance providers include professional services firms, sustainability and CSR consultancies, specialist auditors and verifiers and specialist non-financial assurance firms.

Because there is such a wide range of companies earning income from providing such statements, it can be difficult for a reader to tell whether any of them is suitably skilled and equipped to provide such statements, therefore it is difficult to know whether the reader should trust all such statements or none of them.

There is, however, guidance on the levels and types of expertise required for the provision of assurance statements, for ISAE3000 and COS 3410N, this is provided by IFAC, for AA1000AS, Accountability has a Certified Sustainability Assurance Practitioner qualification.

Must an assurance provider always be “independent”?

In some cases, the provider of an assurance statement to a company is also the provider of advice and support to that company. Under such circumstances the relationship between the statement provider and the reporting company should be clearly and publicly disclosed.

Judging and specifying a good quality assurance statement – 5 key questions

The following guidance questions are drawn from my experience as a reporting judge and as an active participant in reporting consultancy and a number of best practice initiatives.

  • Does the assurance statement cover the whole of the report?
  • Does the statement refer to any standard methodology e.g. AA1000 AS, ISAE 3000 or Standard 3410N used to develop the third party statement (in my opinion AA1000 AS is perhaps the most meaningful standard)?
  • How deeply did the third party organisation investigate (e.g. did they check the methodology, the figures, conduct interviews within and outside the organisation, did they use secondary data or go back to the original sources)?
  • Does the statement note areas for improvement of company performance?
  • Does the statement comment on previous performance and indicate key future issues for consideration?

Of course, these questions can also be used as the basis of a checklist to specify future assurance engagements.

Reporting without assurance

Though a large part of the non-financial reporting industry, external assurance remains a minority actvity within most non-financial reporting. At the recent Corporate Register Reporting Awards CRRA13 it was highlighted by Wayne Fletcher of ERMCVS that only 20-25% of reports have assurance.

In addition, and beyond the “Assurance Statement” industry, we are starting to see some company reports without a formal statement but have started to take us towards a “comply or explain” approach – for instance the recent CRRA13 overall report winner Nike – see page 83 of Nike’s Sustainable Business Report.

Without a clear perspective and intention for assurance to provide developmental insights to the company and trust to the stakeholder, assurance can too easily become all about (minimal) process and not about utility or outcomes.

Creativity and innovation is undoubtedly required but it will be essential to maintain a focus upon the ultimate purpose of assurance – it is a mechanism for trust and truth. If it becomes a mechanism for box ticking than we will have lost something vital!

Want to find out more?

In addition to the advice and guidance you can receive from experts such as us, there are a number of recent publications providing an overview of sustainability assurance and its use in practice, see especially, this overview from ICAEW, ACCA’s briefing paper and Corporate Register’s AssureView.

 

This post was updated in June 2013.