ESG Reporting: A Virtuous Cycle

“Investor interest in aligning capital is really a means to an end, and that end is sustainable development.” – Tim Mohin

I recently sat down with long-time acquaintance, Tim Mohin, CEO of the Global Reporting Initiative (GRI) and author of the book, Changing Business from the Inside Out, to discuss the state of environmental, social and governance (ESG) reporting. The GRI Standards is the most widely adopted non-financial reporting framework in the world.

This interview has been edited for length and clarity.

Axelrod: Tim, what were some of your main takeaways from the most recent GRI Reporters Summit North America?

Mohin: I think we’re continuing to see new entrants into GRI reporting, and it’s being driven primarily by that megatrend of financial interests that are suddenly and rapidly becoming interested in sustainability. GRI started off as kind of an activist organization driving companies to be more transparent. As time went on, this has become more of a reputational movement where companies are interested in communicating about their responsibility. Now it’s become an integral and critical factor in the discussion between companies and their investors, as well as intermediaries like analysts and information brokers. It’s spawned an entire industry and become an essential component of doing business and this is bringing a lot more companies into sustainability reporting.

Is it a good thing that companies are really taking notice of all this investor attention, or does it run the risk of cultivating tunnel vision in their reporting?

I think that goes to the heart of the issue. GRI started with the goal of protecting people and the environment. We certainly don’t want to lose that. Therefore, the definition of materiality at the heart of the GRI Standards, looks at impacts a company has on the world rather than impacts the world has on a company. Investor interest is a good thing; it brings gravitas to the subject that hasn’t been there before. But the cautionary statement in your question is exactly right. Because, if we start to lose sight of the fact that our ultimate goal is to improve conditions, then we’ve lost everything. That’s a pretty big caveat, right?

Initiatives like the Sustainability Accounting Standards Board (SASB) use a definition of materiality that’s inward-looking and focused on the finances of a company – in other words, they ask the question “how is the world affecting my company’s finances?” That is a very, very different way of looking at it. The SASB standards aren’t created by a multi-stakeholder process – meaning it’s industry talking to industry rather than having others in the room. So, we would differentiate ourselves from that, and proudly so. And I think that it’s led to our massive adoption rate, running at 75 percent of the largest companies. We cannot lose sight of the fact that investor interest in aligning capital is really a means to an end, and that end is sustainable development.

What’s the most important role GRI reporting plays in helping companies improve their ESG strategies and performance?

When we changed from a guidelines organization to a standards setter back in 2014, we were trying to create a common global language for disclosure around ESG topics. The GRI Standards were issued in 2016, and since then we’ve had more than 200,000 downloads. Also, we have updated Water and Occupational Health and Safety Standards and have Waste, Human Rights and Tax Payments all in the pipeline. In addition, we just launched two new sector standards – Oil and Gas and Agriculture. So, there’s a lot going on with the Standards themselves. But the overarching goal is to create consistent, comparable, replicable disclosures so that when companies report on those matters there will be a consistent basis for each disclosure that can be evaluated by an analyst, an investor, a stakeholder or anybody else.

On that last point, Tim, we look at a lot of GRI reports. And a consistent theme that we see is a high degree of inconsistency in the way companies respond. How useful are all those disparate responses? What can or should we do about reconciling this?

You touched on a very important point. The paradigm that we’re in at this point is primarily one of voluntary disclosure. Because of that, quality is all over the map. We’re starting to see some changes here. And they’re coming on a couple of fronts. One is driven by investors, who are demanding better quality. The second is on the policy front. France and Italy, for example, have adopted the EU Directive on nonfinancial reporting and added requirements that reports are also assured by a third party. Assurance is not just to verify that what the company is disclosing is in fact valid, but also to identify any omission from the company’s disclosure. Companies have been held accountable for some high-profile disasters that may have been averted if only a good assurer had identified a risk-disclosure gap and asked how the company was addressing that risk.

You mentioned new GRI Standards. Can you talk a bit about the Tax Standard and what’s driving the need for it?

I think Rutger Bregman, who was invited to speak at Davos and remarked about all the private jets, summed it up pretty well. His message was “taxes, taxes, taxes” – his thesis is that income inequality is at the core of a lot of the problems the World Economic Forum is trying to solve.

Mass migration, displacement and many other issues can be traced to income inequality, which in his view is because we aren’t taxing appropriately. So, it’s a very live issue. Companies have to pay their fair share into the governments that support the people who buy their products and work at their firms. And that information, frankly, is not disclosed anywhere else. We think we’ve broken new ground on a catalyst issue in the overall sustainability debate. I will say it is controversial, and I think it might expose some things that will make people uncomfortable.

Traditionally, ESG reporting has been done by the world’s largest companies. But in the last couple of years, we’ve seen an influx of middle-market companies coming to the table. Many of them have grown through a series of acquisitions and, as such, they’re often decentralized. And that makes it a real challenge to collect data for a lot of GRI indicators. Do you have any advice for these companies?

My advice would be to look to the most challenging of companies, which are the conglomerates. There’s a series of them – primarily based in Hong Kong – that use GRI for reporting. They could be a company that includes shopping malls and airlines and everything in between. Typically, and I write about this in my book, they set up a corporate responsibility committee made up of the top executives from each business line. Then they define the common areas, the specifics of each business line, and conduct an overall materiality exercise. So, my point is it’s definitely done and there are plenty of benchmarks out there. In addition, there are a lot of GRI-approved tools, training and consultants that can help.

Thanks, Tim. Any parting thoughts you’d like to share?

Yes. The power of corporations to do good has never been stronger because they keep getting bigger and more global. And so, the decisions made in a corporate meeting room can affect millions of people across the supply chain. It’s really a wonderful thing that’s starting to happen – a virtuous cycle, if you will.

But the problem is that very few companies know how to approach all this. What are the KPIs? How do I set goals and then track my progress against those goals? How will my company extract value?

Long before I got this job, I was of the belief that if you really want to know what corporate responsibility is, start with GRI because it tells you how to set materiality, what are the issues in that material set, and how do you go off and assess the data that you need to monitor. I’m honored to now lead this organization, helping sustainability go mainstream.

If you’re interested in more learnings from this year’s GRI Reporters Summit North America, check out this piece from my colleague Jill Magruder here.