So often in sustainability circles, we hear people say there needs to be a business case involving dollar values to justify focusing on a specific environmental or social impact or opportunity. However, according to one of the world’s foremost accounting academics, Dr Carol Adams, financial indicators are not always the best yardstick for measuring what matters for a business.
As mandatory sustainability reporting gathers momentum across the developed world economies, Dr Carol Adams is one of the experts involved in helping nations translate global standards into local frameworks.
Currently, chair of the Global Reporting Initiative’s Global Sustainability Standards Board, Adams was also the technical expert who helped develop the United Nations Development Program’s SDG Impact Standards and has involved with high-level sustainability and accounting organisations in the UK, EU and Australia including the Australian Accounting Standards Board’s Advisory Panel on Sustainability Reporting.
Adams tells The Fifth Estate that the benefit of reporting is that it works to protect reporting organisations and their investors from risk. It can also work to build a reputation.
Why the GRI translates well across geographies and sectors
Just recently, she engaged with the Sustainability Standards Board of Japan (SSBJ) to discuss collaboration on guidance to help reporters use their GRI reporting on their most significant impacts to identify risks and opportunities to the company.
A lot of Japanese companies are using the GRI standards, she says, because they are thinking about multi-stakeholder approaches. The culture has a “we mentality”, and the standards help companies report on their most significant and material risks, impacts and opportunities in relation to a broad range of stakeholders.
Adams explains that the GRI framework does not assume what is material. Instead, it involves engaging with stakeholders to identify the most significant impacts from their perspective. She says the definition of stakeholder is also broader than just investors.
It may also include communities in which the business operates, employees, families of employees, regulators, customers and value chain entities such as suppliers and service providers.
The GRI is developing sector-specific standards that help guide organisations in understanding their impacts across social, financial and environmental dimensions, and also help streamline reporting processes.
The initial sectors were chosen based on the scale of their impacts across the three dimensions, with the agriculture and mining sector standards two of the first to be developed and released.
Draft GRI Standards for the financial sector are out for comment
In March, draft Sector Standards for Financial Services were released with individual standards for banking, capital markets and insurance. Feedback is being sought until May 31.
Financial services are a priority because of the central role they play in “promoting business models fit for the future and underpinning a well-functioning global economy,” the GRI stated.
“As intermediaries with significant leverage over their customers and investees, they are uniquely positioned to influence high-risk sectors and businesses to manage their impacts on the economy, environment and people.”
Adams says the sector standards released to date have gained significant traction, with a high download rate.
Who uses GRI data?
Data disclosed by entities reporting to the GRI is used by investors and other stakeholders. Among those using the data – along with sources other than the GRI – are meta-reporting bodies such as the World Benchmarking Alliance, which now publishes an index, ranking companies based on the data they have published.
The WBA is a collaboration of organisations across government, civil society, academia and finance. It also has a cohort of “allies” that includes business organisations, industry groups and companies such as Accenture, DLA Piper, Grant Thornton, Mitsubishi UFJ Research and Consulting, South Pole and PwC UK.
Benchmarks generated by the WBA are aligned to core aspects of the SDGs, and the Urban Benchmark had its first release in late 2024.
It analysed the sustainability performance of 300 influential companies “shaping urban environments worldwide” across sectors including construction, energy, real estate, transport, waste and water management.
“The benchmark assesses how effectively the private sector is addressing essential urban needs while respecting planetary boundaries. It evaluates companies on several dimensions, such as decent work and human rights practices, environmental and climate impacts, social inclusion and overall sustainability leadership,” the WBA stated.
Poor performance called out
The results showed that most companies are “failing to take adequate responsibility for their role in ensuring affordable, safe and inclusive urban environments for all, with the best-performing company scoring just 47.8% of the total score.”
Candidate companies tended to perform more strongly on internal matters such as developing policies, while few are demonstrating progress on measurable external results around reducing negative impacts. For example, only three per cent of companies assessed on pollution were disclosing progress in reducing key air pollutants.
On the affordability front, in the midst of a global cost of living crisis, 75 per cent of companies assessed by WBA scored zero: “failing to report, plan ahead or take action” in relation to affordability of housing, energy, transport and water.
In property development, real estate and construction, social impacts are largely being ignored, with only five per cent of companies considering residents or tenants as stakeholders, and less than half recognising local communities as key stakeholders.
From an environmental perspective, WBA noted failures on two fronts: curbing emissions and preparing for disasters that could follow.
“To safeguard net-zero goals, local authorities should integrate decarbonisation into public procurement, licensing, and building permits. This would push companies to boost transparency and reduce their carbon footprint in line with climate targets. Governments, regulators, and investors should enforce stricter reporting and sustainability standards to ensure corporate accountability,” Tony Widjarnarso, World Benchmarking Alliance’s Urban Transformation lead, said.
It’s not just about dollar values (really)
A common theme across all the frameworks and systems is that reporting is not just about putting a dollar value on everything. Impacts on nature, for example, have often been treated as non-financial externalities. Recent moves both in Australia and internationally to try and price nature through processes such as natural capital valuation and national environmental accounts are an attempt to make nature matter on the balance sheet.
Adams, however, is hesitant.
“I am of the view we have to be very careful of attempting to (put dollar values on nature),” she says.
The risk is that such systems are “playing to” the tendency to only notice things that can be valued in dollar terms, so if they have no dollar value, they don’t matter.
“How do we put a dollar value on biodiversity? And if we are costing some things but not others, what is most visible may not be the most important things in terms of the future of the planet.”
The GRI biodiversity standard, for example, quantifies biodiversity but not in dollar terms, she says.
Adams says in Aotearoa (New Zealand), for example, the NZXRB (New Zealand External Reporting Board) have been “making an effort” to engage with M?ori values, including multistakeholder intergenerational equity. In Japan, nature and intergenerational thinking are fundamental.
“When you think only in dollar terms for investors, it doesn’t work for those cultures.”