Companies have at last been given guidance on the extent to which their
sustainability reports should cover the outer reaches of their
operations.
A set of boundary protocols produced by the Global Reporting Initiative
lays out for the first time how firms should decide whether to cover
the social impacts of non-core parts of their business such as
subsidiaries, suppliers, partners and joint ventures.
Apart from ‘materiality’ – the question of what subjects should be
covered – the issue of ‘boundaries’ has become what the GRI cites as
‘one of the toughest questions associated with sustainability
reporting’.
The GRI says that, while many companies have taken a default position
of reporting only on those parts of their business under their legal
ownership and direct control, others ‘have begun to experiment with
expanding their reporting boundaries to better reflect the unique
sustainability footprint of their organization and its activities’.
Work on the protocol, funded by the Dutch government, began in 2003. It has been drawn up
by a working group including representatives from ABB, Telefonica, Ford, Canon, the Dreyfus Corporation and General Motors.
It is now available for public use after a long consultation period but
is likely to be modified in light of comment from companies using it.
The protocol says reporting boundaries encompass those operations where
a company has ‘control’ or ‘significant influence’. It defines control
as being ‘the power to govern the financial and operating policies of
an enterprise so as to obtain benefits from its activities’, and says
this could include, for example, a subsidiary or joint venture where
the reporting body has voting rights.
It defines significant influence as ‘the power to participate in the
financial and operating policy decisions of the entity even if there is
no control over those policies’, for example in joint ventures where
the company lacks majority voting rights but has operational control.
Once a company has decided the entities over which it has significant
influence or control, it should then look at whether they have
significant impacts.
If a company has control over an entity that has significant impacts,
then the report should include operational data – such as key
performance indicators – on the entity.
If it has significant influence over an entity that has significant
impacts, it doesn’t need to produce operational data but should publish
information on systems the entity has in place for managing its social
and environmental performance.
If there is no control and no significant influence but the entity has
significant impacts, the company should produce a narrative on the
strategy it is adopting in relation to that entity and the dilemmas it
faces in that area.
If there is no control, no significant influence and no significant impacts, then reporting is not needed.
