Making corporations report their environmental impact

Sunday, January 1, 2006

"The crisis we've created With our self-indulgent ways Living like there's no tomorrow Well that might just be the case"

When singer Dan Fogelberg wrote "Blind to the Truth" in 1990, it seemed that environmentalists and business interests were locked in hostile mutual incomprehension.

On one side was the long-term survival of the planet: On the other, jobs and productivity.

While politicians and lawyers argued about the science ("Is the sky really falling, Dr. Chicken Little?"), traditional economists comforted the public that in some mysterious way, the marketplace would inevitably solve the problem. They were right, though perhaps not as they expected. A growing scientific consensus has put the very basis of global business at risk.

To wit, last April the United Nations convened an Investor Summit on Climate Risk. This was a remarkable gathering of the world's largest pension funds and financial institutions, with a total stake in the global economy of more than $10 trillion.

These folks were not about to let the global economy collapse because of shortsighted management of companies in which they were the largest shareholders.

One of the most practical demands of these shareholders has been for full disclosure of corporate impact on the environment and society. Traditional financial reporting is well established, but 15 years ago, there was no corporate environmental reporting.

Now, almost every company issues an annual environmental report, many or them in a standardized format developed by a U.S.-based coalition of investors and environmentalists (www.ceres.org) and GRI, The Global Reporting Initiative (www.globalreporting.org).

These reports chart corporate progress. These data are available to financial analysts, public interest groups, government agencies, and, increasingly, to the insurers who are perhaps the most directly at risk for increasing natural disasters. This fall, Denise Nappier, Connecticut state treasurer, convened a meeting in Hartford of U.S. insurance companies to consider climate-related steps that could reduce the threats to corporate solvency.

Those with a stake in the future include not only large institutional investors and insurers, but also employees and communities threatened by plant closings and loss of tax revenue. The message of the marketplace is that in the long run, corporate impact is everybody's business.

To that point, three weeks ago I was in Amsterdam where the Global Reporting Initiative held its annual Stakeholder Council.

Along with 30 others representing companies as large as GM and Unilever, the international labor movement, financial institutions and public interest groups attended. We were united in struggling with the seemingly endless steps towards achieving a sustainable world economy.

In these meetings, we recognized that many of the behavioral changes that reporting will inspire are years, perhaps decades away. Will future generations bless us for acting now, or curse us for taking so long? GRI may be the gold standard for environmental reporting, but there remains a lot of brass circulating.

The 700 companies presently reporting do so on a voluntary basis. The buy-in is expensive, sometimes grudging, and a long way from complete: Some companies embrace the reports as a management tool, with the results indicating progress from year to year. For others, they are just the dues they pay for keeping critics off their back. Still others reject the GRI format, and issue platitudes and greenwashed public relations documents.

Meeting in the Netherlands has its own poignancy. Like New Orleans, much of it is below sea level, and even with its technically sophisticated system of dikes and pumps, Amsterdam would be a likely casualty of a melting polar ice cap. Will the towers of this wonderful city someday rise above the drowned townhouses, with the famous canals only eddies in an Aquarian seascape?

There are no guarantees that our efforts will be good enough, but as Dan Fogelberg suggested in his song, we don't have much of a choice, "The future is upon us And there's so much we must do You know I can't ignore it And my friend, neither can you."

Paul Freundlich is president of the Fair Trade Foundation. He serves on the board of the CERES Coalition and on the Stakeholder Council of the GRI.