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Companies start to detail what on earth is going on

FINANCIAL TIMES, 23 August 2002 - It began as a trickle after the Rio summit. But in the past few years, a stream of companies has started to report on environmental and social issues in an effort to demonstrate accountability and a commitment to sustainable business.

A recent survey by KPMG found that 45 per cent of the world's largest 250 companies now produce such reports, up from 35 per cent in 1999.

In general the reports focus on the environment and health and safety. But social and ethical issues are increasingly being covered, too.

Large companies are under considerable pressure from governments, investors and campaigners to come clean about their non-financial performance.

But those responding to this pressure face a bewildering choice of methods and standards.

The Global Reporting Initiative (GRI), formally inaugurated in April, is designed to overcome this problem by offering a comprehensive reporting format applicable to any organisation that will enable comparison both within and between sectors. It aims to complement codes of conduct and sustainable management systems. The GRI has been developing draft guidelines over the past five years.

After extensive consultation, the latest version is due to be launched in time for the Johannesburg summit.

The guidelines contain sections on economic, environmental and social performance, with 110 indicators against which companies are invited to measure themselves.

These cover everything from greenhouse gas emissions and waste management to labour rights, staff diversity and customer data protection.

Realising that one size does not fit all, the GRI is also working on detailed supplements to the guidelines for specific sectors, including mining and financial services.

While it remains one initiative among many, the United Nations-backed model is gaining credibility fast. In July, the European Commission, setting out how it plans to encourage responsible behaviour from companies, singled out the guidelines as an example on which consensus could be built about the format, contents and measurement of reporting. The French government consulted the GRI about its recent legislation requiring listed companies to produce social and environmental reports. Government departments in the UK, Australia, Japan and the US have started following the guidelines for their own reports. Such official backing suggests the GRI could be the base of any future regulation on reporting.

More than 120 mainly large companies have adopted the guidelines, the most recent including Atlas Copco of Sweden, British American Tobacco and ICI of the UK, Isuzu Motors of Japan and Telecom Italia.

The great strength of the GRI is its international "multi-stakeholder" composition, founded on consensus between governments, business, labour unions, campaign organisations, academics and accountancy bodies. Many other reporting initiatives have less broadly-based appeal because they are business-or government-led, or activist-driven. Eager to underline its international remit, the US-based GRI is moving to permanent headquarters in Amsterdam in September.

The potential drawback is that this is a voluntary code, allowing companies to continue to use reporting as an opportunity for public relations spin rather than a serious effort at measuring and improving performance. Some companies use the guidelines loosely, while others are more rigorous about telling their story "warts and all".

The GRI board is trying to address this. The guidelines can be adopted incrementally, but if companies claim to follow them they must address all 57 core indicators and cross-refer to the relevant parts of the guidelines, making their reports more transparent.

However, without independent verification, companies are asking readers to take what they say on trust. As yet, only a quarter of the reports produced by Global Fortune 250 companies are independently verified.

"The increase in reporting is good news," says Peter Knight, director of Context, a CSR consultancy. "But there's still too much fluff about." .

Visit the Financial Times for more articles