What are Cost Drivers of Sustainability Reporting for First Timers?

While some may still be wondering how long they can get away without reporting, others see this as an opportunity to leverage sunk costs, impress investors and drive performance improvement. All first time reporters who have discovered their own business case in reporting will be wondering about one thing: what are cost drivers of inaugural sustainability reporting? - Shortlink: http://wp.me/p27qSt-4v

Those who have discovered the business case of sustainability reporting have probably realized that they are half way there before they even started the reporting process. They see that, due to listing requirements, they have good governance and accountability structures in place. They also have accounting and human resources departments, policies and practices in place. ‘Tick off’ a bunch of GRI disclosure requirements and indicators. Many companies also have environmental, health & safety policies and management systems in place to support regulatory reporting and compliance, and support efforts aimed at continuous improvement. ‘Tick off’ a dozen or two additional GRI indicators. Add industry-wide stakeholder engagement initiatives, and company/project specific stakeholder engagement (well-developed in the extractive sector) and you have most – if not all - of the ingredients for a good inaugural sustainability report in place. However, this information and related context and stories are perhaps confined within departmental silos and disbursed throughout the reporting organization. Pulling this data together is typically not a major problem. This is perhaps why the IFC took out the vuvuzela in support of GRI reporting by its investees.

Major costs associated with sustainability reporting - especially in the extractive/mining sector - is already sunk cost. Most – if not all - the policies, activities, monitoring and stakeholder engagement, which provide an important platform for sustainability reporting, are already in place. The reporting part is thus largely a marginal cost item.

Perhaps this analogy is useful: sustainability reporting is like the top part of a floating iceberg: the visible part above the water line represents the smallest portion of the mass (in an iceberg it is about 1/8th and for reporting, this would be a much smaller proportion). Sadly, most organizations have generated the mass of data and activities needed - now floating largely invisible below the water line  - but have failed to leverage that investment to also generate their first sustainability report.

So what drives the costs of inaugural sustainability reporting? Below, I will touch on capacity building, GRI Application Level, credibility and assurance , and desk-top publishing and disclosure.

Some investment in training and capacity building is often a useful start for first time reporters. Options include attendance of “generic” GRI-certified courses which were conceived for report coordinators (see also here). These courses do not cover GRI’s technical protocols or sector supplements in any great detail. This is one of the reasons first time reporters often prefer to use experienced external consultants to coach them through their inaugural reporting process. Or they go through a couple of internal “mock reports” before finally getting up their courage to disclose their reports. The really worried types do both and - if in the mining sector - still pray to Saint Barbara, the saint of miners, when disclosing their first report.

Another cost driver is the selection of the so-called GRI Application Level. GRI requires that reporters should declare an Application Level (although about a quarter of GRI reporters chose not to do so). These are designated A, B or C with a “+” if part/all the report/data was externally assured (a hotly debated topic which I will not address in this blog entry). The Application Levels reflect coverage of the GRI reporting framework, such as approach to management discussion and analysis, and number of Performance Indicators reported on.

The Application Level declaration appears to be creating psychological barriers to reporting. For many, the use of A, B and C conjures up images of school grades. Imagine the challenge of approaching your CEO and requesting resources to generate a sustainability report which targets ‘only’ a ‘C,’ an entry-level advocated by GRI for first-time reporters (requiring only reporting of 10 Performance Indicators).

The approach to boost the credibility of inaugural reports can also become a cost driver. This is especially true if that approach is - in my view - mistakenly equated to applying external assurance. External assurance, typically provided by the "Big Four" accounting firms and a few other niche providers, can become a major cost driver. First time reporters, often not assurance ready, would be well advised to take a look at Teck, a mining and metals major, or other long-time reporters in their sectors. Teck is an early adopter of GRI’s sustainability reporting framework and has produced annual sustainability report since 2001. However, Teck only used an “External Review” (a limited form of assurance) in 2007. There are many better – and typically more cost-effective – ways to boost the credibility of inaugural sustainability reports. Acknowledging critical stakeholder voices and discussing challenges/failures in addition to including the obligatory picture of smiling school kids are among the most effective ones. And they are free of charge!

Other cost drivers include approach to report production, desk-top publishing and disclosure choices. Reporters will need to choose between “free” in-house drafting/editing and desk-top-publishing (and associated opportunity costs, urgency), and outsourcing. They will also need to consider if they want to invest in printing their reports or creating web-posted PDF report using recycled electrons.

Do these cost drivers resonate with you? Or have you come across more significant cost drivers for inaugural sustainability reporting which should be mentioned here?

About the author: Mehrdad Nazari is a Senior CSR, GRI & ESIA Advisor at PRIZMA. He has developed and delivered over a dozen GRI-certified training courses and boot camps on corporate responsibility and sustainability reporting (in addition to providing training on IFC Performance Standards and Equator Principles). Examples of Prizma's inaugural sustainability reporting assignments include Lucara Diamond, a new diamond producer with producing asset in Botswana, ScottsMiracle-Gro, the world’s leading provider of lawn products and services, Lundin Mining Corp, a mining company with operations across Europe and DR Congo, Red Back Mining, with operations in Mauritania and Ghana (acquired for some $7 billion by Kinross), and Gold Reserve Inc, an advanced development stage mining company involved in an international arbitration case with Venezuela. Prizma's is currently supporting Centerra Gold with its corporate responsibility reporting process.