The Global Reporting Initiative - Essay Example

?The Global Reporting Initiative has a mission to develop global sustainability reporting guidelines for voluntary use by organisations Introduction The development of sustainability in organizations worldwide is promoted through a series of initiatives and plans. The Global Reporting Initiative (GRI), which first appeared approximately in 1997 (Reuvid 2006), is the most important scheme of this type. The above initiative has set the following priority: to help organizations to adopt sustainability reporting practices (Global Reporting Initiative 2012). The specific Initiative has been proved particularly valuable leading to the increase of the power of sustainability as related to organizational reporting. At this point, the following issue has appeared: which can be the actual value of the information provided through the reporting rules used in the context of GRI. The specific issue is examined and evaluated in this paper. Emphasis is given on the value of the above information for the firms’ shareholders. Reference is made, as an example, to four firms listed in FTSE 100, aiming to show that GRI can be highly valued by a firm’s shareholders, even if there is no previous involvement of a particular organization in similar initiatives. It is made clear that firms are urged to produce the specific type of information under the pressure to respond to the demands of different parties; the adoption of GRI rules by competitors can also lead firms to participate in the specific scheme. 2. Global Reporting Initiative 2.1 Key points of the Initiative As noted above, the key aim of the Global Reporting Initiative is to urge organizations to use sustainability-reporting rules (Global Reporting Initiative 2012). GRI is ‘a non-profit voluntary organization’ (Global Reporting Initiative 2012) that produces such rules. These rules are voluntary, meaning that organizations are not obliged to adopt them. However, it has been proved that these rules can help organizations to improve their relationship with their shareholders who seem to value the relevant information, as incorporated in each organization’s annual reports. In order to understand the increasing pressure on companies for adopting the reporting guidelines of GRI, it would be necessary to refer to sustainability reporting, as an activity related to the operations of organizations in different industries. According to GRI, sustainability reporting is ‘the practice of measuring, disclosing, and being accountable to internal and external stakeholders for organizational performance towards the goal of sustainable development’ (GRI rules, p.3). The framework of sustainability reporting, as promoting by GRI, is presented below in Figure 1. It is clear that for GRI there are two key parts of sustainability reporting: the rules on which the reporting will be based and the content of the report (GRI rules, p.3). Figure 1 – Sustainability Reporting under GRI (source: GRI rules, p.3) Using the protocols and principles suggested by GRI an organization should incorporate in its annual report, three different types of disclosures, entitled as ‘standard disclosures’ (GRI rules, p.4) in Figure 1 above. These disclosures include: ‘strategy and profile, management approach and performance indicators’ (GRI rules, p.5). These disclosures could be further analysed as follows: a) the strategy and profile disclosures showing the firm’s key strategies and profile, as related to the organizational performance, b) the key managerial decisions for handling various organizational issues can be also used for understanding organizational performance; this idea is promoted through the management approach disclosures; c) the ‘economic, social and environmental performance of each organization’ (GRI rules, p.5) need to be also presented to the stakeholders; the relevant information is provided through the third type of disclosures, the performance indicators disclosures. For responding to the needs of these disclosures, organizations need to produce information of specific type. This activity, although it can be challenging, is currently considered as a key priority for organizations, especially since the information of this type seems to be highly valued by firms’ shareholders, as explained in the sections that follow. 2.2 Why there is increasing pressure for companies to produce this type of information Different views have been developed in the literature in regard to the high expansion of GRI and the increasing pressure on firms to produce information related to the sustainability reporting rules of GRID. According to Reuvid (2006), the above phenomenon should be considered as expected since 1997, when the rules of GRI first introduced, was the first time that such initiative appeared. In other words, the above view explains the rapid expansion of GRI as a result of its uniqueness in markets worldwide. At the same time, the rules of GRI have been the result of cooperation of ‘the world’s leading reporting experts and organizations, such as ACCA’ (Reuvid 2006, p.90). From another point of view, Painter-Morland and Bos (2011) note that the rules of GRI have not tried to introduce radical changes in regard to organizational reporting; rather they have tried to change, gradually, the reporting practices of firms. It is for this reason that the GRI rules have been voluntary, having more chances to be welcomed in organizations worldwide (Painter-Morland and Bos 2011, p.267). On the other hand, Epstein (2008) notes that the development of GRI rules can be easily explained if taking into consideration the increased needs of shareholders in terms of information related to their organization. Indeed, the increase of risks in the global market has led shareholders to demand for ‘reliable and accurate information in regard to the performance of their organization’ (Epstein 2008, p.224). Under these terms, it is normal for the pressure on organizations to adopt reporting rules that can secure the accuracy of organization-related information to be increased. GRI rules have managed to cover this gap; as noted above, reporting experts have developed these rules, a fact that increases their reliability and their value as reporting standards for organizations worldwide. Moreover, Cahill and Kane (2011) claim that the increased pressure on organizations to adopt GRI rules can be explained by these rules’ role: apart from helping organizations to present their current ‘social, economic and environmental performance’ (Cahill and Kane 2011, p.93), these rules can also help to develop accurate forecasts for the organizations’ future performance in regard to these sectors. In other words, the GRI rules provide an effective framework for measuring both current and future organizational performance. The effectiveness of these rules in regard to these tasks, as proved in practice worldwide, has led to the expansion of the rules even if they are not mandatory. 2.3 Evaluation of the usefulness to shareholders of information provided under the three linked elements identified by the GRI As explained above, the GRI rules have been quite popular in organizations worldwide. Through the decades it has been proved that these rules offer a series of benefits to shareholders, leading gradually to the improvement of relationship between each organization and its shareholders. The benefits resulted for shareholders because of the use of GRI rules in their organization can vary. According to Bannon and Collier (2003) shareholders highly support the GRI framework because in the context of this framework ‘taxes of their organization for each country are presented separately’ (Bannon and Collier 2003, p.72). Moreover, it seems that the adoption of GRI framework lead organizations to increase, even gradually, the clarity and the accuracy of information provided to shareholders (Bannon and Collier 2003, p.72). At the same time, the GRI framework help organizations ‘to standardize their reporting practices’ (Hitchcock and Willard 2008, p.14). In this way, the understanding of the information incorporated in annual reports becomes easier (Hitchcock and Willard 2008, p.14). In the past, each organization used to develop its own reporting rules, a fact that has often led to severe misunderstandings in regard to the actual organizational performance. GRI framework has helped to overcome this phenomenon. Shareholders are aware, in advance, of the potential structure of their company’s annual report; in this way, they are able to understand fully the report’s content and develop appropriate investment decisions. Solomon (2011) explains that GRI framework has helped organizations to respond to a particular demand of their shareholders: the demand for providing to them information in regard to their firm’s environmental performance. In the past, the above demand was rather limited, due to the fact that the environmental effects of organizational operations were disregarded (Solomon 2011). However, today the environmental performance of firms is important since it can highly affect the organizational overall performance, for example in the case of environmental damages due to a firm’s operations a high fine can be imposed on the above organization, a fact that will negatively affect the firm’s financial status. Still, it seems that environmental performance, as part of the GRI framework, is not adequately analyzed in annual reports of firms worldwide, even if the other two aspects of organizational performance, especially the firms’ economic performance is likely to be thoroughly analyzed (Solomon 2011). The annual reports of four firms listed in the FTSE index can help to understand fully the value and the role of GRI rules, as part of each organization’s strategic framework. Capita is a leading firm in the ‘business process outsourcing and professional services industry’ (Capita 2012). The firm was first established in 1987 and it currently operates in about 10 markets internationally (Capita About Us 2012). The number of the firm’s employees is currently estimated to 46,500 with a trend for further increase (Capita About Us 2012). In the firm’s latest annual report, that of 2011, emphasis is given on the following issues: the organization’s management practices and rules, its governance and its financial performance. A short overview of the organization and a statement of the firm’s CEO are presented in the first 10 pages of the above annual report. A major part of the annual report, from page 10 up to the page 58, the firm’s strategic decisions, as related to its managers’ initiatives, are presented and justified. An important part of the annual report focuses on the firm’s style of governance, from page 58 up to the page 86. From page 86 up to the end of the firm’s report, reference is made to the firm’s financial performance. In this way, the firm seems to focus on its financial performance, as related to its strategic decisions; the social and the environmental performance of the organization are not presented; just a reference is made, in the firm’s introductory section, to the promotion of the firm’s values, as affecting the community. Capita seems to promote the GRI framework but just in regard to its financial performance; still, the firm seems to emphasize on all three types of disclosures, as suggested in the GRI framework (see the section 2.1 above). Aberdeen Asset Management Plc is a major competitor in the global financial services industry; the firm provides investment management services worldwide (Aberdeen Asset Management Plc 2012). Currently, the firm is expanding in about 23 countries and employs 1,900 individuals (Aberdeen Asset Management 2012). The annual report of Aberdeen Asset Management Plc has the same characteristics with that of Capita, as presented above. Again, emphasis is given on the firm’s strategic framework/ managerial decisions and its financial performance (Aberdeen, Annual Report 2011). Financial indicators are extensively used for highlighting the progress in regard to the firm’s performance through the years. Still, no reference is made to the firm’s environmental performance; the reference to the firm’s social performance is rather short, again in the introductory section of the annual report, from pages 3 to pages 16 of the above report. Thus, a similar issue, as appeared in Capita, exists in regard to the incorporation of GRI framework by Aberdeen Asset Management plc. In Imperial Tobacco plc a different strategy, in regard to the incorporation of GRI framework, seems to exist. Emphasis is given in regard to all aspects of the firm’s financial performance, i.e. its economic, social and environmental performance. This is achieved by referring to all factors that influence the firm’s operations, such as ‘Strategy, Risk, Performance, Responsibility, and Governance’ (Imperial Tobacco Plc Annual Report, p.2). Financial indicators are also used for explaining the firm’s financial performance and growth. From this point of view it can be noted that Imperial Tobacco Plc has managed to implement GRI framework quite successfully and more effectively than the other two firms mentioned above. Experian is a leading firm focusing on the provision of information globally; currently, the firm operates ‘in about 44 countries and employs 17,000 people’ (Experian About Us 2012). The firm seems to perform well in regard to the promotion of GRI rules through its annual report, apart perhaps the presentation of the firm’s environmental performance. The three disclosures as suggested by GRI have been used in developing the firm’s report: management decisions are presented and explained, the firm’s profile is analytically presented while financial indicators are effectively used for explaining the firm’s performance (Experian Annual Report 2012). The firm’s social and environmental performance are analysed rather briefly, from pages 47 to pages 51 of the firm’s annual report (Experian Annual Report 2012); in regard to this issue, a problem similar to that of Capita and Aberdeen Asset Management, as explained above, seems to exist. 3. Conclusion The use of GRI framework in organizations worldwide can increase the accuracy and the reliability of annual reports, promoting the use of specific reporting standards. Moreover, it has been proved that the particular framework can help towards the improvement of relationship between the organization and its shareholders, at the level that the information provided to shareholders is aligned with the framework’s rules and standards. Indeed, the literature published in this subject emphasized on the various benefits of GRI rules for shareholders of modern organizations. Still, the following issue seems to exist: the level at which organizations apply GRI rules is not standardized. Even firms, which are listed in FTSE index, follow the above practice. The examples presented in this paper, in regard to the annual reports of four firms listed in FTSE, verify the above problem. In fact, all organizations have used GRI framework for developing their annual report but the extension at which each part of organizational performance is analysed is not equal among the particular organizations. This phenomenon leads to following assumption: the methodology used for introducing and promoting GRI rules in modern organizations should be alternated; certain of these rules should become mandatory so that a minimum reference to each firm’s economic, social and environment performance is made. References Aberdeen Asset Management PLC (2012) Corporate website. Available at http://www.aberdeen-asset.com/ [Accessed at 18 June 2012] Bannon, I., and Collier, P. (2003) Natural Resources and Violent Conflict: Options and Actions. Washington: World Bank Publications. Cahill, L., and Kane, R. (2011) Environmental Health and Safety Audits. Maryland: Government Institutes. Capita Plc (2012) Corporate website. Available at http://www.capita.co.uk/Pages/default.aspx [Accessed at 18 June 2012] Epstein, M. (2008) Making Sustainability Work: Best Practices in Managing and Measuring Corporate Social, Environmental and Economic Impacts. San Francisco: Berrett-Koehler Publishers. Experian Plc (2012) Corporate website. Available at http://www.experianplc.com/ [Accessed at 18 June 2012] Hitchcock, D., and Willard, M. (2008) The Step-By-Step Guide to Sustainability Planning: How to Create and Implement Sustainability Plans in Any Business Or Organization. London: Earthscan. Imperial Tobacco Group plc (2012) Corporate website. Available at http://www.imperial-tobacco.com/ [Accessed at 18 June 2012] Painter-Morland, M., and Bos, R. (2011) Business Ethics and Continental Philosophy. Cambridge: Cambridge University Press. Reuvid, J. (2006) The Sustainable Enterprise: Profiting from Best Practice. London: Kogan Page Publishers. Solomon, J. (2011) Corporate Governance and Accountability. Hoboken: John Wiley & Sons. The Global Reporting Initiative (2012) Organizational website. Available at https://www.globalreporting.org/Pages/default.aspx [Accessed at 18 June 2012] Read More