On page 17, the authors comment on sustainability and the future:

We believe that the evolution of technology around sustainability measurement, management, and reporting will follow a path of greater integration into mainstream business applications. Our experience shows that many companies’ use of sustainability applications, at present, has moved from a collection of point solutions to a more integrated approach in which sustainability technology is “layered on top” of other enterprise applications. Going forward, we expect that sustainability as a discrete technology investment will gradually disappear, to be replaced by mainstream enterprise applications – finance, HR, supply chain, etc. – that integrate sustainability into their basic functionality as a matter of course. For example, most supply-chain modules today lack the built-in ability to record and track much of the data and metrics used to support sustainability in the supply chain; to gather that data, companies must use work-arounds that add functionality related to sustainability to the basic module. In contrast, we believe that some 10 years from now, the capability to record and track such metrics will come standard with the supply-chain module itself.

I find it hard to believe that SAP for example (see their sustainability map) will wait 10 years to add supply chain sustainability capabilities to their ERP suite given that many of the world’s largest supply chain owners – e.g. Wal-Mart and Marks & Spencer – are already engaged in broad and deep supply chain auditing.

The authors also have this to say about regulation as a driver for sustainability:

With respect to regulation, we expect regulation to be a major driver of sustainability initiatives as well as of new technologies to enable more sustainable business practices. Examples include the proposed American Clean Energy and Security Act, which would establish a cap-and-trade system for greenhouse gases as a response to the climate change debate; the anticipated Kerry-Graham-Lieberman bill, a similar measure that is expected to be proposed in the near future; and the U.S. Environmental Protection Agency’s passage of a mandatory greenhouse gas reporting rule that requires companies emitting greenhouse gases over a certain threshold to report those emissions annually from January 2010 onward. With more governmental regulation likely in the areas of carbon management and reporting, voluntary and financial reporting requirements will be inextricably linked, meaning that reports on performance must be consistent across communications channels – whether disseminated through public financial reports, voluntary reports, press releases, or Web sites.

The implementation of the Carbon Reduction Commitment in the U.K. is evidence that this kind of regulation in the USA is a foregone conclusion. Let’s hope that the S.E.C. pick up on the phrase voluntary and financial reporting requirements will be inextricably linked and go beyond their current position on disclosure of environmental risk data so that a 10-Q/10-K can be properly viewed from both financial and sustainability perspectives.

It’s fair to say that app development will drive the market for i-Pads, but it’s not unreasonable to envisage paid for applications that use programmes like XBRL to generate content and provide real time comparative corporate and annual reports. This evolving information could remove the traditional ‘annual snapshot’ from the equation, replacing it with more and more frequent updates.

Ignoring the minor quibble of  ‘programmes like XBRL to generate content’  - XBRL is not a programme and nor does it generate content, it contextualizes data – the point of more regular updates is well-taken. The big problem with the annual reporting paradigm is it’s focus on rear-view review of stuff that’s already happened. Truly transparent reporting has to be more continuous and that requires regular feeds to handheld devices – like the iPad.

Transparency is not an annual event, it’s a continuous process. Back in 2007, Tomorrow’s Company put it like this:

Adequate communication with stakeholders can no longer be achieved by publishing a single report each year. Investors are already used to receiving information in a variety of different forms throughout the year. Through the use of the Internet companies are now building similar ongoing relationships with other groups of stakeholders. Investors receive quarterly announcements, ad hoc briefings, and the detailed reports required by different stock exchanges.

The iPad article goes on to say…

But before we condemn print to the archives, it’s likely that it will always have a place with some stakeholders, albeit a slightly different role in the future. Personally, I believe report design will be led by the online requirement and print will support overall communications in the form of summary reports that supplement the full online version. I also think digital reports will become more sophisticated, focusing separately on the needs of different audiences – shareholders, investors, employees, customers, suppliers etc.

What we have to accept in the age of the Internet is that printed annual reports have value only as aesthetic artefacts. Literally the book of the year for the subject company.  The future is near real-time, interactive reports, online and accessible directly or via an API, that leverage an agreed cross-industry data standard like XBRL. The role of today’s annual report is as tomorrow’s collector’s item – a relic of the past.

comply-control-communicate

We regard the XBRL journey as having three stages: Comply, Control, and Communicate. If you accept the premise that corporate reporting is essentially about communication, then after more than a decade since XBRL was ‘invented’ we are still at stage one. The few (but growing number) of organizations subject to mandated reporting in XBRL are communicating a relatively limited set of information, mostly financial in nature, that is of interest to a limited number of people.

Stage 2 – Control – refers to the use of XBRL internally within an organization or within closely co-operating industry peer groups, to get better control over the reliability and comparability of data by using XBRL as the basis for a collaborative data standard. Few, if any organizations, are even dabbling with this now. Stage 2 essentially  says ‘If you are spending the time and money to tag your data for regulatory reporting why not get some benefit from this effort within your organization?’.

Stage 3 – Communicate – refers to the pervasive use of multiple XBRL taxonomies to communicate a wide range of financial and non-financial data to produce the kind of holistic reports that communicate organization performance and behaviour to the widest range of stakeholders. It depends on a wide range of XBRL taxomonies being available, for all kinds of data, and global organizations making use of many of them at once. Yikes!

Let’s face it. The value add at stage 1 is minimal. Currently regulators benefit more than the organizations doing the reporting. But as long as regulators make the data available to the cloud-crowd, as the U.S. S.E.C. does for example, we are bound to see the value add rise as innovation delivers new kinds of analytic apps that can the leverage the growing online availability of XBRL data.

Stage 2 is going to be hard. Most organizations are wedded to spreadsheet anarchy and heavily invested in non-taxonomy-aware reporting software, neither of which are suitable for reporting based on a data standard like XBRL. Turning that tanker around is going to be hard and it may hit an iceberg first if ERP vendors don’t adopt XBRL tagging at the transaction level. Take up of XBRL-GL for example has proved a hard sell.

Stage 3 is some way off. The majority of XBRL taxonomies are financially-focused and there’s a lot more to report about an organization than just financial data. There are a few fledgling non-financial XBRL taxonomies (like the GRI’s for example) but not enough to make this stage even viable let alone value-adding.

So we have a long way to go.

But if you believe in the destination, maximum communication of organizational information to the widest range of stakeholders, then the journey has to be worth the effort.

That means reports used to communicate organizational transparency. But don’t expect these reports to be ‘pushed’ out of organizations. Instead they are more likely to be ‘pulled’ together in an automated way by web apps that leverage the combination of XBRL, ontologies and various online data streams. In fact many holistic reports may be compiled without any human intervention at all whilst allowing information consumers to navigate endless pathways through the data.

For example, anyone can use the S.E.C.’s XBRL filing feed to garner a wealth of mainly financial information about a business. But much of the day-to-day operational data about businesses – available externally that is – is contained in other data streams: Press releases and magazine articles, Twitter tweets and blog posts, podcasts and video clips. These streams represent a set of rich content that can be combined, using the right tools, to create holistic views of an organization from different perspectives – assuming of course you have the ‘magic glue’ to tie it all together.

Some think that magic glue will be semantic web ontologies developed in languages such as OWL that will provide the way to pull all this stuff together. Me, I’m not so sure. Ontologies add yet another layer (e.g. data-XBRL-ontology) to the content/context space and I wonder if this isn’t just a layer too far?

PricewaterhouseCoopers in partnership with the Chartered Institute of Management Accountants and Tomorrow’s Company is pleased to announce the commencement of a programme looking at what changes are needed to make corporate reporting fit for purpose for the future. This programme is being kicked off with a “Call for Evidence” which was reported on in The Financial Times.

The post continues…

“In the article Rachel Sanderson states:

“By asking what are the weaknesses and strengths of the system, the barriers obstructing the evolution of corporate reporting, and possible solutions, the group wants to identify the limitations of the existing corporate reporting model and focus on the barriers to changing it.”

We are calling for evidence from all those who have an interest in making corporate reporting work better and are inviting you to give us your views to help shape our thinking.

The Call for Evidence is attached and we look forward to hearing from you.”

Limitations and barriers eh? Well how about lack of availability of standardized data that can be easily consumed by web services to make communication faster, cheaper and better i.e. how about more XBRL (m’lud)?

Signatories agree to report on the progress as regards this code through their existing procedures, for instance through their annual CSR or other reports.

It all sounds great but without some kind of agreed definition of what is being reported I can’t see how that really helps. So you know where this is going…

What the RESC needs is a XBRL taxonomy or at the least they need to cherry pick some stuff out of the GRI indicator set for the retail sector and agree on that. Then at least we have data agreement and some level of data comparability so we can make an informed judgement about who’s really making progress on the other 5 commitments.

So perhaps all this talk of sustainability ‘reporting’ is misplaced, outdated and irrelevant if the portal to the future is really the mashboard.

Impact reporting is something that does not get enough attention in the whole sustainability reporting debate with its current focus on ‘integrated’ reporting that merely strives to combine financial and non-financial data in the same reporting context. Impact reporting is about transparency of corporate ‘entity’ impacts so that actual and potential impacts can be better understood. Impact reporting would have made as big a difference in the recent Goldman Sachs debacle as in the current BP situation. An impact entity could just as well be an investment in sub-prime mortgages as an oil rig.

So what is an impact report? Well it’s not a row and column balance sheet or income statement that’s for sure. It’s something that helps you to understand both impact context and impact scenarios by visualizing them. It’s actually about compliance, control and communication but in the service of risk management and mitigation. Let’s work through an example using BP.

BP’s (exploration or upstream) impact report would look like a Google map of the world with pointers for each rig or mining/drilling site. When you click on the pointer, an information panel would popup to surface salient facts such as inputs, outputs, the partners involved and their role. Data to help make the impact context obvious. Drilling down would lead you to deeper information about the data or perhaps to a webcam of the site itself to put it in its real-life environmental context.

At every impact entity (e.g. rig) there would be an option to view risk information that drives specific specific scenarios. Here’s just two example scenarios: disaster and shutdown. In the BP rig example, the disaster scenario could have simply simulated what would happen to the coastline if the rig’s output parameter worth of oil spewed into the ocean. And crucially, links to what plans are in place if the disaster scenario occurs.  The shutdown scenario is equally interesting. This is concerned with what happens if the rig shuts down: less oil in circulation, X number of employees laid off, X less state and federal tax income etc. etc.

What’s also interesting about this kind of transparency is that it actually spreads the responsibility for the risk since the open availability of the data means that presumably others have accepted their part in that risk. Or have ignored it. Transparency also opens up the debate to the cloud crowd who just might come up with some sensible suggestions of their own to help mitigate impact risk.

Clearly impact reporting demands a whole new way to approach reporting that recognizes that reporting transparently is not just about financial data, financial statement formats and accounting and auditing.  It’s about inputs and outputs, it’s about contexts and scenarios, it demands visual and interactive communication that leverages the visual and interactive capabilities of the Internet – not paper or PDFs –  as a delivery platform.

I sincerely hope that when Congress inquires into the whole BP affair and what can be done to avoid or mitigate these situations in future, it remembers to think about how impact reporting could have helped to:

• reduce the ’shock and awe’ from the initial lack of data and risk transparency
• reassure people that some plans/any plans were in place to mitigate risk
• ensure the executives who are ultimately responsible for corporate behavior, better appreciate their responsibilities

If BP had signed off their annual global impact report in much the same way as a SOX report then perhaps this ‘accident’ would have been less likely to happen, BP would not have been faced with a $20 billion cleanup bill and UK pensioners would not face the prospect of a dip in their dividend payments. But first it has to have a global impact report. Maybe there is one. I stand to be corrected.

A Sustainability Reporting Manifesto…

We acknowledge that:

1. Sustainability is “being with others”
2. Opacity is the enemy of sustainability reporting
3. Our financial performance and sustainable behaviour are connected
4. Our left hand knows what our right hand is doing
5. Our products/services are made/delivered by many people
6. We leave a footprint wherever we tread
7. Our environmental and social impact is in our gift
8. We have a responsibility to be responsible
9. Our stakeholders have a share in what’s at stake
10. Nothing is sustainable unless it can develop or dream