Learning from Stiglitz
Joseph Stiglitz is much-quoted, and for good reason. Not only an Economics Nobel Prize winner, he has the knack of expressing compelling economic arguments in simple English. No surprises then that policy makers take note when he says that ‘GDP tells you nothing about sustainability’.
As the head of the Global Reporting Initiative (GRI) – an international organization that promotes a sustainable global economy through the reporting of sustainability information – I am particularly interested in Stiglitz’s call for an open and public discussion about the form of metrics used across the world. And it’s for that reason that the Measure What Matters project is so important.
The last decade has seen a succession of political leaders proclaim that ‘we need to go beyond GDP’ and that it fails to take into account the effects of economic activity on both people and the planet. I couldn’t agree more, and the same applies to redefining how we analyze companies’ performance. Share prices are important, but in the absence of wider information about the sustainability of the company, they do little to provide more than a short-term snapshot of the company’s future. The need for high-quality, universal and comparable sustainable information is increasingly understood by market regulators and legislations alike. 180 different such initiatives in 45 countries are listed in GRI’s Carrot and Sticks publication, and if enacted the proposed Directive announced by the European Commission in April would lead to over 18,000 large companies disclosing non-financial information.
Yet while it should be cause for celebration that national leaders are debating alternatives to GDP, and that more and more business leaders are supporters of making the reporting of sustainability information standard practice, these debates must not happen in isolation. Countries and corporations’ economic impacts are two sides of the same coin. Indeed, what is required is alignment on what is measured across three levels: corporate, national and international.
At the international level there are two clear, and widely recognized, shortcomings of the United Nations Millennium Development Goals (MDGs), set to end in 2015. First, that there was never any formal recognition of the role for business in meeting them. Second, that whilst the Goals proved successful in some regards for social issues, a lack of attention was given to economic and environmental impacts – be they jobs or water pollution. In short, there was a failure of alignment between (1.) the role of business (2.) the challenges faced at a national level, and (3.) the Goals themselves.
It is promising that the post-2015 agenda has been dominated by talk of Sustainable Development Goals (SDGs), indeed I await with interest the outcome of the governmental Open Working Group on SDGs to discuss issues such as sustained and inclusive economic growth. Talk of the S-word is all important because there needs to be not only a shift in mindset, but a shift in measurement. Be it achieving gender equality, securing sustainable energy or managing natural resources sustainably, any future development goals must be measurable or they could amount to mere aspirations. Leading businesses understand this, and this is reflected in the Post-2015 Business Engagement Architecture. This was launched by Ban Ki-Moon in September, and GRI is proud to partner with UNGC and World Business Council for Sustainable Development.
At the corporate level, companies must measure what matters, and GRI is focused on doing just that. Last year GRI launched the fourth generation of GRI’s sustainability reporting guidelines, G4, which put new emphasis on the ‘materiality principle’ – i.e. requiring companies to report on only their most relevant economic, environment and social impacts. GRI was founded on the principle that multi-stakeholder engagement is a powerful driver for change, bringing together business, investors, labor organizations, and civil society. The new guidelines not only reflect this but were specifically designed to provide up-to-date alignment with issue-specific reporting frameworks, for instance the OECD MNE Guidelines, the UN Global Compact Principles, and the UN Guiding Principles on Business and Human Rights.
It is that commitment to a multi-stakeholder approach and alignment that led to GRI joining Measure What Matters. Much remains to be done, but with momentum and action from the right people and organizations, I am confident that this project will identify core indicators and measures that span the corporate, national and international levels.