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The success of the GRI in creating a stakeholder-driven set of guidelines for companies to measure and disclose their sustainability performance, combined with supporting pressure from engaged investors, such as the ICGN, INCR, PRI and Interfaith Center on Corporate Responsibility (ICCR), triggered tens of thousands of consulting jobs and sustainability reports — and a backlash of complaints. Why did the world need all this information?

This question had already been addressed through the groundbreaking work of three successive commissions in South Africa chaired by retired South African Supreme Court justice Mervyn King. Although the first report, issued in 1993, called for South Africa to adopt existing best practices for corporate governance, the next two (released in 2002 and 2009) strengthened the argument that different kinds of information were essential to wise decisions by both companies and investors. Indeed, King’s third review recommended that South African companies issue sustainability reports according to the GRI and that the Johannesburg Stock Exchange require all listed companies to release sustainability information.

Like moves on a checkerboard, each advance opened up strategic next steps. King became chairman of the GRI and began promoting the adoption of sustainability information on an international scale as part of what he called integrated thinking. By 2010 a new question had emerged: If value creation required the successful management of both sustainability and financial performance, couldn’t this integrated thinking be communicated in an integrated report? To explore this question, Britain’s Prince Charles, who had created the Accounting for Sustainability organization in 2004, appointed King to lead a new entity, the International Integrated Reporting Council (IIRC).

King and IIRC CEO Paul Druckman pulled together a global coalition of regulators, investors, companies, standard setters, the accounting profession and nongovernmental organizations to review the question of integrated reporting. As the group described its task, the integrated report would be “a concise communication about how an organization’s strategy, governance, performance and prospects lead to the creation of value over the short, medium and long term.”

The IIRC was governed by a prestigious group of leaders who swiftly handed off the task of writing the framework to a working group of professional accountants and consultants seconded from the GRI and the Big Four accounting firms. I served on that working group, whose regular meetings over three years turned into cauldrons of competing ideas about the future of the corporation as an institution.

The committee sometimes strained like a car whose driver had one foot on the accelerator and the other on the brake — trying to move forward without moving too fast or too far — but the IIRC eventually produced a framework that offered something new. Though wrapped in safe language about the preeminence of the “providers of capital,” the IIRC Framework reaches the surprising conclusion that business — indeed, capitalism — in the 21st century needs to be fundamentally reconceived. Instead of the simplistic “finance in, finance out” model captured by traditional accounting, the document argues, we must recognize that businesses draw from many forms of capital, including natural capital, human capital, intellectual capital, manufactured capital and social capital. Those capitals are spun through company-specific business models, which then produce outputs for every form of capital.

The old system only measured whether a business model generated more financial capital than it took in. This is comparable to judging your health solely by whether air is moving in and out of your lungs. The newer system looks instead at whether the business model enhances or depletes each form of capital. This argues for a radically new and more comprehensive balance sheet — one that might reveal whether financial capital has risen in harmony with, or at the expense of, costs to natural capital and human capital. As a result, we can answer a question that previously was invisible: Are companies extracting financial value by depleting other forms of capital, or are they, as they so often contend, creating joint gains across them all?

What is it that is pushing capitalism toward a more integrated understanding of the role of business and investment in our political economy? It is because the forces favoring disclosure — and the deepening understanding of how value is created — have become unstoppable. In the era of climate change, water scarcity, wealth inequality and resource depletion, we can no longer disregard the interconnectedness of both problems and solutions. The hugely influential networks in the great alphabet soup of sustainable capitalism — GRI, ICCR, ICGN, IIRC, INCR, PRI and CDP (originally the Climate Disclosure Project) — are becoming more powerful with every passing year. They are being joined by formidable new allies, such as the Bank of England, the World Economic Forum, the European Union and the world’s stock exchanges.

According to a database maintained by GRI, there are now 31,534 corporations and other organizations producing sustainability reports, of which 22,431 follow GRI guidelines. “GRI has moved from a framework to a standard, which is going to allow companies to generate better and more useful information,” says GRI chief executive Michael Meehan. “But that doesn’t mean the only use will be to generate a report. Though reports are important for communicating performance to the outside, GRI is also becoming a platform that mobilizes information integral to running a company. In the decade to come, the analysis of detailed GRI data will become a routine part of management and investor analysis, which will change the kinds of investments that are made.”

In the U.S. an additional approach to sustainability reporting has emerged with the creation of the Sustainability Accounting Standards Board, formed in part through the work of Harvard Business School professor Robert Eccles, who, along with Michael Krzus, authored One Report: Integrated Reporting for a Sustainable Strategy back in 2010. Because SASB standards organize sustainability indicators according to their materiality within different industry sectors in the economy, proponents assert that those indicators should be required under existing Securities and Exchange Commission disclosure rules on materiality. “The greatest flaw in modern markets,” explains SASB founder and CEO Jean Rogers, “is that companies are not being transparent about the impact of the serious risks to which both they and the rest of society are being exposed.”

SASB has considerable firepower on its board, including former New York City mayor Michael Bloomberg and former SEC chairs Mary Schapiro and Elisse Walter, all of whom believe that the changing global economy has expanded the concept of what information is material to investor decisions. “Materiality is not a static concept,” Rogers says. “It changes with the evolving needs of the reasonable investor and how investors need to understand how a company is positioned.”

A striking example is Peabody Energy Corp., the largest publicly traded coal producer in the world. Though the SEC introduced new interpretive guidance in 2010 (originally proposed by Ceres) that companies should disclose their climate risk, Peabody Energy management said it was simply not possible to predict whether climate change would have any impact on its operations. Such a response willfully disregarded the growing systemic threats created by new government regulations, diminishing demand, competition from natural gas and the growing rejection of coal as a fuel source because of its high greenhouse-gas emissions. After a two-year investigation by the New York State Attorney General’s Office, the company agreed in November 2015 that it would provide more such information in the future. The damage, however, had already been done: Peabody stock dropped from more than $1,000 a share in 2011 to about $2 late last month.

The demand for more information is being fueled in part by the diffusion of several fresh approaches to investment as new players reject the damaging short-termism of most investor behavior. In a recent study market research firm MSCI distinguished three growing new categories of investors: value-based, who want their portfolios to align with their principles; impact-based, who want to see measurable social returns; and long-horizon, who want to limit their exposure to systemic problems like water scarcity and carbon regulations.

MSCI pointed to the huge market segment made up of pension funds that remain passively indexed across the entire market. Because they can’t jump around looking for alpha (above-market returns) through trading, such investors are probing more deeply into beta returns by examining companies’ long-term capital investment projects, governance structure and treatment of ESG issues. And as they do so, they want to know more.

To serve these growing market segments, Wall Street firms like BlackRock, Goldman Sachs Group and Morgan Stanley have firmly moved into the field of ESG investing, offering not only fossil-fuel-free funds to respond to the carbon divestment movement that has swept the U.S. but also other ESG-driven instruments. These developments — combined with a shift in the cultural values of Millennial investors — means that using ESG information increasingly will be an unremarkable part of the investment process, just as such data now sits comfortably alongside traditional metrics on the world’s Bloomberg terminals.

For many of those driving change in the marketplace, the value of ESG information is that it offers more forward-looking and comprehensive information about a company than traditional fundamental data provides. “ESG factors typically warn of risks,” says Jess Gaspar, head of quantitative research at Commonfund, a $25 billion, Wilton, Connecticut–based asset management firm popular among endowments, foundations and other nonprofits. “These may not be realized in a consistent manner. Poor governance or high carbon emissions may not hurt you every day, but they may hurt you a lot infrequently.” SASB’s Rogers agrees: “Some used to say that ESG data was soft, but it is increasingly hard and quantitative. When combined with a management point of view, it is a leading indicator of potential financial impact.”

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