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green@work : Magazine : Back Issues : Mar/Apr 2002 : Commentary

Commentary
Trust But Verify

The Creation of the Permanent Global Reporting Initiative Marks the Beginning of a New Era in Disclosure.

by Robert Kinloch Massie


The fall of Enron, the collapse of several more high-flying corporate giants, and the wrestling match between the White House and the General Accounting Office are the latest convulsions in a broad revolution that has caused a crisis in both confidence and legitimacy. Institutions of all kinds are being asked to disclose information about their economic, social or environmental performance—and not just any information, but extensive, credible information.

The revolution follows from the most basic requirements about democratic politics and free markets. Human beings— whether acting as citizens, investors or consumers—need good information to make good decisions. During the 20th century, governments around the world took steps to increase the freedom and reliability of information on everything from hot dogs to political campaigns. When failures to disclose good investment information triggered an economic meltdown in the 1930s, the U.S. responded by creating Generally Accepted Accounting Principles (GAAP) and the Securities and Exchange Commission (SEC).

The most recent disclosure revolution has its roots in the quiet, but steady, demand from social investment funds over the last three decades for corporate information on environmental and social performance. For those who see the current process of globalization as a march toward human and environmental destruction, the call for more openness in both the making of decisions and the disclosure of impacts has become a vital remedy. Small wonder, then, that one of the core topics at every international meeting—such as the World Trade Organization, the World Economic Forum, the World Social Forum, the OECD, the World Bank and the planning meetings for next fall’s World Summit on Sustainable Development—has been how to create accountability and confidence in the process of globalization.

Fortunately, there is one very bright spot on the horizon. On April 4, 2002, representatives from at least 200 organizations will gather at United Nations headquarters in New York, NY, to celebrate the establishment of the Global Reporting Initiative (GRI) as a new and permanent international body. Conceived nearly five years ago as a partnership between the U.S.-based Coalition for Environmentally Responsible Economies (CERES) and the UN Environment Programme (UNEP), the GRI has created a successful international multi-stakeholder process—with activists, business leaders, accountancy societies, labor and government all at the table—to develop disclosure guidelines for the social and environmental performance of large organizations.

The GRI has already released two sets of Sustainability Reporting Guidelines—a “beta test” in March 1999 and a “Version 1.0” in June 2000. The June 2000 guidelines have been used by more than 100 companies to shape and inform their reports.

Over the past 18 months, the GRI Secretariat has been gathering thousands of comments from business leaders, accountancy experts, human rights activists, environmentalists, financial analysts, civil society leaders and government officials, and has coordinated the work of 10 international working groups to recommend improvements in the guidelines. The result of this intense and unparalleled intellectual investment will be captured in the release of new guidelines in July 2002. This version will be widely distributed and discussed at the World Summit in Johannesburg. Analogous to software development and financial standard setting, the steady, logical improvement of the metrics and the guidelines will continue.

Up until this point, the GRI has existed primarily as a vast virtual network, guided by a diverse steering committee and an interim secretariat. On April 4, a new, deeply experienced board of directors, balanced among representatives of labor, civil society and business, will take over. By the end of the year, the GRI will have selected a chief executive and will have moved its headquarters to Europe. In the next 12 months, a plethora of experimental GRI supplements adapted to different industry sectors will appear—such as mining, financial services, tourism and automotive. And, of course, the core process of identifying what information is most useful to evaluating corporate performance and how that information can be measured and released will continue.

Looking ahead, pressure for GRI-based information will rise on all fronts—from government, from external stakeholders and particularly from investors, who are looking for more and better ways to have confidence in the real value and success of a firm. For example, in the United States, the Enron scandal has put the spotlight on the need for better accounting and increased corporate disclosure and transparency. In the United Kingdom, pension funds are now required to report on their consideration of social and environmental criteria in their investment decisions. In France, publicly-traded companies now have to disclose in their annual reports “the way in which they take into account the social and environmental consequences of their activity.”

In some cases, the calls for disclosure have focused on a particularly pressing issue, such as climate change. A group of British pension funds is now asking firms to evaluate the financial and business risk they face from a changing climate. Earlier this year, U.S.-based Domini Social Investments pressed the SEC to require companies to disclose their plans to avert climate change in the same manner that they discussed their Y2K precautions. Shareholder resolutions have been filed against major U.S. utilities, automakers and other industrial manufacturers requiring the measurement and disclosure of greenhouse gas emissions.

Through all this activity we are witnessing the emerging tendrils of what will soon be a large, interconnected system of information measurement and distribution. This system will allow everyone—managers, investors, activists, consumers and government officials—to make better decisions. The system will have many players performing many functions—information gathering, ranking and assurance. The GRI, as an institution, will occupy only a small, though vital, piece of this terrain.

For example, the GRI is not a code of conduct; it is a set of disclosure protocols that can be used by the proponents of various codes of conduct to evaluate corporate compliance. The GRI is not a database; the collection of GRI data will be gathered by investment companies, governments, rating agencies, activist groups and other interested parties. The GRI will not itself verify reports, though it will offer intellectual guidance to those parties that may wish to provide assurance and credibility services. The GRI, like the Financial Accounting Standards Board in the U.S. and standard-setting bodies elsewhere in the financial world, has one single but vital mission: to create “general acceptance” among many parties on what should be measured and how.

As the United States was trying to define a new set of relationships with the Soviet Union in the 1980s, President Ronald Reagan often quoted a Russian proverb—Doveryai, no proveryai—“trust, but verify.” The core intuition of the proverb is that a relaxation of tensions and the building of collaboration between parties depend on establishing trust; but trust, in turn, depends on openness.

Events around the world—from the street battles over globalization to the U.S. congressional hearings over Enron—all point to a damaging lack of trust and confidence. Too many people feel that the interests of commerce are overwhelming all other human concerns and that globalization will not lead to a more prosperous, more just and more sustainable world. Their trust cannot be earned through artifice: it will be built only by creating a system of international disclosure in which people have intellectual, political and moral confidence. With a little luck and a lot more hard work, the launching of the Global Reporting Initiative on April 4th will be remembered as one of most important steps along that path.



Robert Kinloch Massie is the executive director of CERES and a member of the board of directors of the Global Reporting Initiative. He can be contacted at massie@globalre porting.org. All relevant information about the GRI, including records of meetings, comments on the guidelines and descriptions of future events, can be found at www.globalreporting.org. For information or materials, contact Mark Brownlie at brownlie@global reporting.org.

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