Back in May, as we at Volans raced to complete a new report, Harvard Business Review published a cover story called “Leadership in the Age of Transparency”. The introductory text was designed to worry many among the board members and senior executives of major corporations: “Consumers know everything about your company,” it ran, “not just its carbon emissions but its countless other ‘invisible’ effects on the globe. That has changed the rules of business forever.”
The title of our report was The Transparent Economy. Launched late in May at the Global Reporting Initiative (GRI) summit in Amsterdam, it aimed to give business leaders a sense of where the transparency, accountability and sustainability agendas are likely to take us over the next decade.
The first thing to say is that sustainability is on the business agenda as never before. More than 50% of executives consider sustainability – the management of environmental, social and governance issues – to be “very” or “extremely” important in a wide range of areas, including development of new products, reputation building and overall corporate strategy, according to a survey conducted by management consultancy McKinsey earlier this year.
Yet the uncomfortable, inconvenient truth is that most companies are not taking a proactive approach to managing sustainability. Only around 30% of executives told McKinsey that their companies actively seek opportunities to invest in sustainability or embed it in their business practices.
Properly understood, sustainability is not the same as corporate social responsibility (CSR), nor can it be reduced to achieving an acceptable balance across economic, social and environmental bottom lines. Instead, it is about the fundamental, intergenerational task of winding down the dysfunctional economic and business models of the nineteenth and twentieth centuries, and the evolution of new ones fit for a human population headed towards nine billion people, living on a small planet already in “ecological overshoot”.
The original intent was not to provide work for report-writing consultants and designers. It was not to boost the number of entries to sustainability reporting award schemes. And it was not to provide a justification for CSR and sustainability departments. Instead, it was designed to open up business thinking 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, better inform the global push towards more sustainable forms of development.
Why is this important? In headline terms, sustainability will not be achieved without broader and deeper forms of accountability (across companies, sectors, economies and generations) and these new forms of accountability cannot be achieved without new forms of transparency and stakeholder engagement.
It may seem strange to link the concept of sustainability with transformational change, when many business leaders who have signed up for what is often dubbed “the sustainability journey” see the main goal as protecting and conserving things – be they ecosystems, natural systems like energy, water or fisheries or indigenous cultures. But the uncomfortable fact is that the current economic order is not only socially inequitable but also environmentally unsustainable. Whatever many business leaders thought they were signing up for, sustainability, increasingly, is likely to be an agenda of transformative – and often disruptive – change.
If you are in any doubt, take a look at the Vision 2050 report produced by the World Business Council for Sustainable Development (WBCSD), and signed off by the chief executives of many leading corporations. Vision 2050 spells out the “must haves” – things that must happen over the next decade to make a sustainable global society possible. “These include incorporating the costs of externalities, starting with carbon, ecosystem services and water, into the structure of the marketplace; doubling agricultural output without increasing the amount of land or water used; halting deforestation and increasing yields from planted forests; halving carbon emissions worldwide (based on 2005 levels) by 2050 through a shift to low-carbon energy systems and improved demand-side energy efficiency, and providing universal access to low-carbon mobility.”
In what for the Chinese is the “Year of the Tiger”, it sometimes seems that every major news story coming out of the Middle Kingdom has a transparency angle. So will the country commit to more open markets and greater levels of transparency over time, or not? My sense is that, as China gains a growing influence in countries around the world, with its growing pursuit of minerals in Africa or its acquisition of iconic global brands like Volvo, the chances are that Chinese business will have to deliver much greater levels of transparency.
If we push forward solutions to the six great challenges – what we call the TIGERS agenda – identified in our report, our chances of achieving desirable outcomes grow by many orders of magnitude. The six are: “Traceability”, through complex global supply chains; “Integrated Reporting”, across the triple bottom line; “Government Leadership”, in terms of reporting rules and incentives; “Environmental Boundaries”, the links to planetary limits associated with climate, biodiversity or nutrient cycles; “Rating and Ranking”, which help spur and inform competition between companies and countries; and “Shadow Economies”, the dark sides of our economies, involving corruption or trafficking in drugs, toxic waste, weapons or human beings.
The GRI community, according to our survey, wants to see environmental, social and economic disclosures, in that order. Most interestingly, respondents want to know where a reporting company thinks it needs to collaborate and partner. Environmental issues (68%) still slightly eclipse social issues (65%), with economic issues (51%) significantly behind. Happily, a spectacularly low result (3%) was recorded for the suggestion that only areas that can be related to financial results should be included.
After two decades of sustainability reporting, the foundations have been laid for a continued expansion of GRI-based reporting. If the best elements of current practice were to spread – for example Denmark’s “report or explain” principle, which requires large companies to disclose their corporate responsibility policy in annual reports or explain why they do not have one – things could move both fast and far. It is time to push for a truly transparent economy.