Bob Massie has played a key role in the development of corporate sustain ability reporting, first as Director Ceres and then as founding-father of the Global Reporting Initiative (GRI). As a valued member of the Volans Advisory Board, we asked him to critique a late draft of The Transparent Economy. We took on board most of his suggestions – and highlight here a few of the wider comments he made at the time:

  • How sustainability reporting fits into a drive for a more sustainable economy: Here I think you hit it right on the head when you say that “it was designed to open business thinking up to a wider societal agenda, to spur the introduction of the necessary management systems, to create information-rich connections across global supply chains, to transform cultures and paradigms, and ultimately, to better inform the global push towards more sustainable forms of development.” To this I would add that it was meant to make visible certain previously invisible effects or costs and thus to enhance the power of market forces to distinguish between superior and inferior performers in multiple domains.   One of the key insights of the attempt to price carbon has been as long as basic aspects of performance could not be “seen” or measured – or there was a lack of agreement on what the critical elements were – then it would be impossible to drive changes in behavior.
  • Walking Our Own Talk on Interdependence:  With regard to the failure to anticipate the financial crisis: we need to cite some of the sustainability advocacy groups’ failures to heed their own lessons.   The sustainability “field” still remains far too divided among issue advocates – groups that follow human rights or climate change or labor practices or poverty – and they have yet, in my judgment, to ask truly insightful questions about the interrelationship between these different forms of performance.  When we started imagining the use of indicators in GRI we thought that there would be (as an arbitrary number) something like 15 environmental measurements, 15 social, 15 economic (or governance), and then 5 hybrid or cross-over measurements that would could be used as quick correlations. The simplest analogy was the power of something like earnings per share, which, though it is really simply normative measure, links income flows and capital stock.
  • Re: “The Next Upwave” – Bravo for your distinction between CSR and sustainability.  I love the definition of “the fundamental intergenerational task of winding down the dysfunctional economic and business models, and the evolution of new ones…”  This led me to reflect on how the current debate over sustainability is really a modern iteration of the old conundrum of the correct balance between capital and democracy, which in turn is a question of power: who gets to decide the future? One of the breakdowns that you don’t mention, but that I think is operative, is that business is to some degree being forced to make a choice: are firms players in a game in which other people (democratically elected leaders) should properly make the rules (in which case executives should not be held responsible for meeting a plethora of social goals), or else they are trying to be players, owners, and umpires all at once, in which case society has every right to expect them to take more than their personal – or corporate – wellbeing into account?   Executives usually want to have it both ways: we get to make the rules, and we don’t need to worry about the social consequences of profit maximization because the market will take care of that.   The crisis of capitalism is more than one of trust of individuals or institutions, but more fundamentally about the degree to which unfettered markets can be trusted to achieve societal goals without compensatory government rule making and recalibration. Specifically I think it is worth framing the debate as part of the larger question, being played out in different ways in different countries, about the optimal blend between economic and political structures and decisions.
  • On the question of innovation: The complaint that GRI is backward looking instead of forward looking is old and stale, and arises from sloppy thinking on the part of critics, since at no point did GRI ever intend through its metrics to anticipate the future.   GRI was designed to measure past performance (just as financial accounting does), which makes it very hard for it to be a tool for describing innovation.   Besides, not all innovation is a good thing: indeed, Paul Krugman, after the meltdown, said that from now on and until the ends of our lives the two most frightening words in the English language should be “financial innovation.”  GRI has tried to accommodate the important strategic component of innovation by asking companies to comment on their future plans and goals in other sections of the report.   It has consistently run in to the problem that many of the companies that talk about how important innovation is to them also thrive on secrecy – for example, Apple, Google, Amazon, etc.   They often actively resist talking about the future to anyone for competitive reasons.   To fault GRI for failing to get companies to do something that those corporations firmly and institutionally believe would be harmful to their business model seems illogical.  I would name the problem that some of the “coolest” and most admired innovators in the world are actually among the worst supporters or disclosure.  They seem to believe that their ability – and need – to create new technologies exempts them from the need to discuss what those technologies are, and, more seriously, what the implications of those technologies might be.  You might point out that the guidelines for GAAP reporting in the US are about 1,200 pages long.  GRI reporting is somewhere between 5-10% of that.  Yet conceptually everyone agrees that sustainability reporting is actually the larger concept, with financial reporting being a subset of one particular form of behavior relevant to a more narrow sector of stakeholders.   People who have reservations about time and length need to do a reality check of their own attitudes about the relative burdens of transparency.
  • Materiality: I have not followed the work of the materiality working group or discussion group, but I have often wondered whether it is isn’t a tactical error to put so much emphasis on the concept in talking about disclosure.   Most definitions of materiality focus on whether actions have significant impacts as defined by present conditions, whereas the forward pointing, interdependent side of sustainability is precisely about identifying areas that may not meet a simple definition of materiality today but could have significant future impact.  Also, there is also the question of relative scale – in the South African debate, US firms were among the largest employers in that relatively small economy, but the South Africa divisions often represented small proportions of their total global business, which allowed them to argue that the question was not “material”  More research needs to be done into definitions of anticipated materiality, so that companies are asked to reflect and comment on matters that have the potential to become influential within a medium-time horizon.   Also, it is a mistake to take materiality as an isolated, issue-by-issue concept, since interdependent effects can amplify and aggregate to a larger set of consequences in interaction with other matters.
  • The question of “Pull” – I find this a stimulating idea, but I am afraid that I would quickly write too much about this to be useful.   For one thing, to create appropriate “pull” demand means that people need to have some sort of mental model about the direction (in philosophy, the telos) we should – as individuals and institutions – be headed in. This choice of telos is, in turn, a question as much on values as on facts.   Similarly, the most useful form of pull is often to see corporate behavior and performance in context – how a corporation is performing relative to its peers or relative to an articulated future goal.   I am not sure that I understand or am convinced by David Siegel’s argument – I need to read the book.   In the same manner that financial reporting is not supposed to support any particular strategy for wealth creation, sustainability reporting is supposed to be a tool that can be adapted to a wide variety of sustainability objectives (and philosophies).   This is something that groups that have a particular strong performance agenda always have terrible trouble understanding.  So my recommendation is that we proceed into the area of substantive definition very carefully, insuring that we do not put at the risk the primary goal of improving the quality and availability of information that can then be used to set and examine performance goals.
  • Traceability and Brands: This is a very interesting discussion, and highlights a component of the purpose of branding that I had not really considered before, i.e. that strong brands allow consumers to cut down on the amount of new information they have to absorb, thus creating a pathway for the “rational apathy” that is a well-known by-product (one might argue necessity) in the era of information overload.   When firms can establish brands that provide consistent and reliable information about the price, quality, and origin of their products they obviously benefit; the spread of Internet and Web 2.0 technology does, indeed, raise the question of how much more challenging it is going to be for companies to maintain their brand reputation when relevant information can be shared globally and instantaneously, without cost.   Just yesterday there was a story in the New York Times about the rise in “food fraud”. i.e. products being deliberately mislabeled and sold for higher prices as something else (the example given was cow’s milk that had been falsely labeled as artisan sheep cheese, or cheap Vietnamese catfish sold as grouper in expensive American supermarkets.   GRI needs to continue to emphasize that the quality of the GRI process – multistakeholder, global, cross-sectoral – is a vital step in the preservation and development of a firm’s brand.    We have seen in the US that although not very many people know what LEED building standards really are, they believe them to be important, both for reputation and for obtaining financing.   I don’t know what the comparable state of play would be for GRI and finance, but it certainly would be an important advance if more and more financial institutions (not just investors but also banks and investment companies) let it be known that a GRI report was a necessary (though not sufficient) component in a company’s attempt to show that it has a serious commitment to sustainability.
  • Aggregation: I agree that aggregation is a particularly important role for governments.   I would just like to remind you of the conversation we have had more than once of the relative value of “place-based aggregation” (use of energy in France) versus “institution based aggregation” (use of energy in automobile sector).   A fully contextualized understanding of the sustainability requires that a reader by able to locate the relative importance of a firm’s performance along both axes of this matrix.

Conclusions

All in all, this is a very stimulating report, which raises many questions.   If you want to present a truly visionary statement of the tasks and opportunities that lie ahead of groups like the GRI, I think you need to address some of the gaps I identified, at least briefly.   But if the purpose of the exercise was to raise questions that would provoke people to add ideas and reactions from their own context, then clearly you have succeeded, at least in my case!

There is, despite the identified importance of sustainability through the survey, no discussion of the relationship of these questions to the governance of the firm.   If the trends we are witnessing are paradigmatic in nature, then we are not simply finding new ways for existing forms of corporate power to find a new and more appealing language or set of tools through which to manage their work.   What you have claimed at the beginning of the piece is that the shift towards sustainability is a much more fundamental shift in understanding the role of the firm in society, or the relationship (as I put it) between democratic and corporate decision-making.

One way to look at this is to ask – “will it be enough for people to believe that they have more information about the way a firm has operated in the past or is proposing to operate in the future, or will they also want a say in how these decisions are made?”   I don’t think that you can or should write a long segment on the implications for power relations inside and outside the firm, but once again drawing a page from the biological analogies of sustainability, we know that firms are organisms that require many different kinds of resources to flourish.  The task of mobilizing those resources is the primary purpose of management.

Is management going to do this through a continued “command-and-control” model (which they say they hate in government) or are they going to pursue a more collaborative, interdependent frame?    Who is responsible for what kinds of decisions, and who shares the benefits – or the blame – when the results of those decisions become clear.  You begin to touch on this when you mention the responsibility of global capital (I am assuming pension systems, sovereign wealth funds, etc) to the “great global reconstruction.”