Among the many activities and initiatives gaining steam in the run up to the Rio+20 summit in June 2012, the Corporate Sustainability Reporting Coalition is ramping up efforts to get UN member countries “to commit to develop a policy framework on corporate sustainability reporting.”
Convened by Aviva investors, the coalition represents financial institutions, professional bodies, NGOs and investors collectively managing assets amounting to $2 trillion, who have joined hands to ask countries to agree on a binding international commitment to formulate national policies to mandate disclosure on sustainability issues.
The need to create impactful policies is reflected in the growing urgency shown by the investors. While call for action is reflective of the growing understanding among diverse stakeholders of the market and business case for sustainability reporting, it can be safely assumed that the impact that it would have on the policy landscape is directly dependent on individual nations’ preparedness to act upon policies.
Thus, a key consideration for international policy makers would be the ground reality which impacts the implementation of policies; whether or not the effort required for implementing and monitoring a policy is in line with the desired results.
In this background, it thus becomes imperative to examine how the current policy framework pans out internationally in terms of intent, reach and effectiveness; in short impact.
cKinetics, in collaboration with the Rockefeller Foundation, is conducting a study to determine the interest of India focused investors for standardized disclosure on Environmental and Social (E&S) issues. The study analyzed the existing landscape for E&S disclosure, with particular reference to policies, both Indian and Global, driving the same and their evolution. (Find the full document at www.ckinetics.com/crackingtheconundrum)
A set of 33 state and quasi-state (stock exchanges, regulators, and other stakeholders) driven global initiatives were examined to understand how different countries come under the purview of different policies, which are in turn, aimed to create a broad or a niche impact.
To analyze the impact of policies, 20 initiatives were mapped on 2 dimensions:
• GDP Impacted
Revenues of the companies impacted as a percentage of GDP
• Businesses Impacted
The percentage of total businesses / enterprises (out of the total operational businesses) that fall within the policy’s purview
The initiatives were further classified as mandatory and voluntary, although some initiatives like the Indian National Voluntary Guidelines on Social Economic and Environmental Responsibilities of Businesses operate on both ends of the spectrum. Segregation was also made between the policies of developed and developing nations.
The policy map
A closer examination of the global E&S disclosure and reporting initiatives reveals a pattern:
• As expected, most mandatory policies target a small group of companies, and look to maximize their impact through steering efforts towards large companies. These policies are easy to enforce due to the size and nature of businesses they impact; and hence are found to lie in the ‘Safe’ mandatory policy region.
• Voluntary initiatives for a small group of businesses would, on the other hand, be deemed over-precautionary as voluntary initiatives can be rolled out to a larger group with relative ease of monitoring
• , It was found that a mandatory policy impacting a significant percentage of the GDP is ‘Progressive’.
• A ‘Progressive voluntary policy zone’, as reflected by the upper right quadrant of the map, consists of policies which are applicable to a majority of the businesses, and as expected impacts a large percentage of GDP.
What the policy map implies
It is evident that the time is opportune for policy makers to progress in the direction of sustainability reporting as investors are not satisfied with qualitative information and need quantitative data on business sustainability.
A noteworthy aspect to emerge is that, existing progressive nations have set, in the short run, a glass ceiling for policy evolution; i.e. it can be assumed that the immediate future would not reveal any policies which can be mandated for all businesses.
Currently, many UN Member States do not have any regulations for sustainability reporting. These nations should look to target policies, which can be mapped to the Safe Mandatory Policy Zone or the Safe Voluntary Policy Zone, in order to be deemed satisfactory, while advanced nations would look to move toward the progressive zone.
This raises interesting questions: Can the policy makers, assembling at Rio+20, agree to form a baseline for sustainability reporting; a threshold in a safe policy zones which all members much plan to achieve? Can investors endorse this threshold in one common voice, and thus drive the acceptance of it? Can a roadmap be arrived at, where a universal “policy framework on corporate sustainability reporting” is on the horizon?
While the investor coalition members have put forth their demands in black in white for businesses and government to understand; it remains to be seen if policy makers can rise up to the challenge.
The author Shradha Kapur is a sustainability consultant at cKinetics.