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September 22, 2004
EHS Auditors Slow to Take Up GRI
    by Graham Sinclair

Part two of this two-part article addresses changes Environmental, Health & Safety auditors are making in response to the Global Reporting Initiative.


Environmental, Health & Safety (EHS) auditors are experiencing increasing workloads, responsibility, and accountability due to changes mandated by Sarbanes-Oxley, as described in part one of this two-part article. Part two focuses on EHS auditors' responses to the Global Reporting Initiative (GRI) and other voluntary guidelines and standards for sustainability reporting, which are adding more demands to EHS auditors' already-full plates.

This distinction between mandatory and elective changes may help explain EHS professionals' cool reception for GRI at the annual Auditing Roundtable conference held earlier this month in Philadelphia. Their reluctance to embrace GRI may also be structural, reflecting their sensitivity to the Chinese walls necessarily erected to maintain auditing integrity.

"The GRI reporting and verification function and the EHS auditing function are intentionally maintained separate in many organizations," said Barbara Jo Ruble, the newly-elected president of the Auditing Roundtable.

EHS delegates at the conference expressed the opinion that reporting without GRI may be due to the fact that not all parts of the firm are up to compiling the content for the GRI framework. David Chatfield, CEO of his self-named EHS consulting firm, believes that the slow development of inter-departmental communication has led to slow adoption of the GRI framework by the broader auditing community.

"For the first time, audit personnel are having externally focused business units like investor relations or PR ask how the EHS team would like to present knowledge to external clients," Mr. Chatfield said. "Few firms have the leadership at senior level to integrate the information across the business into a corporate-wide sustainability initiative framework like the GRI."

Ron Lund, long-time Auditing Roundtable contributor and former corporate audit officer at Dow Chemical (ticker: DOW), explains the reticence to adopt GRI as a market phenomenon, out of the hands of the EHS professional.

"No US company wants to be first, and none wants to be last," said Mr. Lund. "They want to be in the 'happy follower' category."

"True, integrated reporting is still years away," said Bryan Jacob, responsible for environmental assurance at Coca-Cola (KO). “However, this doesn’t imply reporting will--or won’t--involve GRI”. Coca-Cola has endorsesd the Coalition for Environmentally Responsible Economies (CERES) principles for its company-owned US operations, but the GRI framework is not adopted in Coca-Cola’s environmental disclosures.

SRI analysts and researchers, who are generally enthusiastic about GRI, also acknowledge its challenges.

"The GRI is great--we support it," said Frank Dixon, managing director of the research firm Innovest Strategic Value Advisors. "But I am not sure that it will ever become ubiquitous amongst US firms without some level of compulsion."

"Currently, leading firms are using the GRI," Mr. Dixon added. "But my perception is that firms with doubts will be held back by their legal counsel," not wanting to put information into the public domain.

Social investors are clamoring for an end to reams of unaligned data, something the GRI helps by aligning information in ways that can add value to investor decisions. Currently, analysts may be led to feel like they are conducting oranges versus apples comparisons due to uneven data availability, presentation and verification.

“An information gap persists between what analysts are getting, and what they need to make [an] assessment,” said Geoff Lane of the consulting firm PriceWaterhouseCoopers (PwC) in the UK.

"If 80 percent of the information that socially responsible analysts want can be gathered through some sort of common means, that's great," said Don Reed of the Australian sustainability consultancy Ecos Corporation. "[But] investors do not lead the creation of value; they follow it."

"Right now, with so many different questionnaires asking slightly different questions, there is starting to be pushback on it," Mr. Reed added.

There is also push in the other direction, as some in the corporate community recognize the value created by sustainability reporting via GRI and other voluntary protocols.

PPL (PPL), which uses CERES guidelines because their environmental metrics are more industry-specific than GRI's, has hired Innovest to conduct surveys of its "eco-efficiency" for the last five years. This move has given the firm's EHS personnel a more sophisticated view of the needs of external research analysts, according to PPL Environmental Manager Robert Barkanic, and has also given Innovest a better understanding of PPL's approach to sustainability.

"As a result PPL’s ranking [in Innovest eco-efficiency ratings] has improved," said Mr. Barkanic.

The shift toward greater transparency by stakeholders including the investment community may help overcome the barriers to the adoption of voluntarily sustainability reporting mechanisms such as GRI.

In 2002, the SRI mutual fund company Calvert Group filed a shareowner resolution at TriQuint Semiconductor (TQNT), which had no policy, management system, certification, or voluntary initiatives concerning EHS available to shareowners. The resolution garnered 31 percent support from voting shareowners, prompting the company to unveil a new section on its website devoted to EHS issues in December 2003.

 

 
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