Inconsistent Sustainability Rankings Create Reporting Burden for Companies

Last month KPMG released the results of a survey of corporate social responsibility reporting that found that 95 percent of the Fortune 250 is now reporting on CSR activity. Among the largest 100 companies in each country surveyed, CSR reporting increased by 11 percent since 2008. Clearly, sustainability reporting is not just a passing trend. But this increase in global reporting has also created a need for investors, consumers and other stakeholders to be able to analyze and understand the contents of these reports and to compare the sustainability efforts of different companies.

Although many firms use the Global Reporting Initiative’s popular reporting framework, the GRI guidelines are completely voluntary. Companies don't always choose to go through the process of having their reports audited. Further, while the guidelines suggest that firms focus on materiality (issues of primary importance to the industry), there are no controls in place to require that they do so.

In order to address the need to more easily compare companies on sustainability, business publications, sustainability consultancies, and non-profit organizations have been popping up by the dozens to release rankings of the most sustainable companies. An article in Newsweek’s special section of sustainability coverage points out that the number of sustainability raters has climbed from 21 in 2000 to 108 in 2010. Newsweek produces one of the most popular sustainability rankings, the Newsweek Green Rankings, which were released in October. The demand for rankings is so strong that one organization, CSRHub, has made a business out of analyzing CSR performance between companies.

Although it’s certainly helpful to have analysts working to help make comparing sustainability performance easier, it creates a different problem. Each rating is based on its own unique methodology. Only a third rely solely on a company’s CSR report for their data. The other ranking organizations ask each company to fill out a survey with different guidelines and metrics that conform to the unique needs of that particular methodology.

The large global players get so many requests to fill out these questionnaires that it can literally be a full time job for some internal CSR folks just to respond. If companies don’t take the time to tailor their data and information to a particular survey, they could end up with a lower ranking. Supplier sustainability surveys like Wal-Mart’s supplier sustainability assessment constitute yet another reporting burden that is bound to continue as more companies start requiring it of their vendors. The increasing popularity of impact investing is starting to complicate matters further as investors try to understand how sustainability efforts impact financial performance.

So, what’s the solution? Well, in order to level the playing field and alleviate the reporting burden, a more standardized global reporting framework needs to be developed. Given how long its taken for CSR reporting to come into the mainstream, it’s not surprising that both reporting and analysis efforts are fragmented, inconsistent, and confusing. But the industry has come a long way, and reporting organizations like the GRI and the International Organization for Standardization (ISO) must be aware that a more standardized framework is in demand.

There is one new initiative that, if designed properly, could hold the answer. The International Integrated Reporting Committee (IIRC) – which was formed by the Prince of Wales’ Accounting for Sustainability Project and the GRI – recently released a report, which proposes a new framework for integrated reporting. According to Environmental Leader, this new integrated approach combines the most material information currently being reported separately in financial reports, sustainability reports and other sources. A move toward integrated reporting would help solve some of the challenges described above; but in order to ease the burden of responding to dozens of survey requests, this new framework will also need to address the need for more standardized and consistent reporting metrics.

[Image credit: Kevin Harber, Flickr]

Kara Scharwath is a corporate social responsibility professional, marketing consultant and Sustainable Management MBA Candidate. She is currently working as a Graduate Associate in Corporate Citizenship at the Walt Disney Company while pursuing her degree at Presidio Graduate School. Follow her on Twitter @karameredith.