The Evolution of Sustainablty Reporting

Utilizing the GRI's Latest Guidelines and Looking to Integrated Reporting

Businesses are increasingly motivated to address sustainability issues and related risks. Several factors have driven this heightened awareness, including regulation, pressure from investors and customers, an internal commitment to environmental responsibility, a desire to remain competitive, and the valuable goodwill that these activities generate. Disclosure requirements are transitioning from voluntary to mandatory as sustainability reporting becomes requirednot only by regulators, but also by stakeholders.

Sustainability issues range from economic to environmental to social. Many terms refer to reporting on these dimensions, including "sustainability," "corporate and social responsibility" (CSR), "corporate responsibility" (CR), and "triple bottom line" (TBL). Although these terms all have a similar meaning, no single generally accepted definition of sustainability reporting exists. This discussion utilizes the Global Reporting Initiative's (GRI) definition because the GRI's guidelines for sustainability reporting are the most widely used around the world. This definition covers the key areas of economic, environmental, and social performance, as well as related governance. (See the sidebar, Overview of the Global Reporting Initiative, for more information on the GRI.)

Many companies began providing corporate sustainability reports to document their compliance with environmental regulations and have since broadened thenreporting. In the United States, reporting on sustainability ranges from companies that almost never report to companies that integrate financial and sustainability measures into their financial reporting. Regardless of where a company falls on this spectrum, it will be pressured for more transparency. Sustainability standards will continue to evolve as more companies begin reporting and as companies already reporting broaden their scope.

Companies considering sustainability reporting can use the GRI's latest set of standards (G4) as a starting point. This discussion will provide examples of how to leverage existing sustainability reporting to add related information to annual financial reports. As nonfinancial measures become more critical, additional companies will likely follow suit. Opportunities for consulting and assurance services will expand, and CPAs would do well to familiarize themselves with these topics.

The Case for Sustainability Reporting

Managing and reporting on sustainability issues can impact a company in many areas, including financial performance, eligibility for inclusion in portfolios, stock price performance, audit fees, and investor relations. For example, sustainability reporting can affect financial performance through the notion that "what gets measured gets managed." Effectively assessing and managing sustainability risk can directly impact a company's bottom line through cost reductions and other efficiencies gained by modifying operations. Building goodwill and employee satisfaction can increase profitability by increasing sales and net income.

In the 2011 KPMG "International Survey of Corporate Responsibility Reporting," almost half of the 250 largest companies in the world (G250) reported increased financial value from their CR programs, either through increased revenues or improved cost savings (p. 18). Top business drivers for CR reporting include reputational or brand considerations. Managing and reporting on sustainability can build a company's reputation for transparency; moreover, large companies not engaged in CR reporting risk being viewed as less transparent than their peers.

Sustainability rankings can also influence companies to report on sustainability efforts; position in the rankings can impact whether a company's securities are eligible for inclusion in particular mutual funds. Of the companies surveyed by Ernst & Young in May 2011, 33% considered the Dow Jones Sustainability Index the most important of the rankings ("Six Growing Trends in Corporate Sustainability," pp. 1-29). In addition, 38% believed that equity analysts consider sustainability performance in their company ratings; another 30% believed that they would do so in the near future. Sustainability performance might also impact whether a company's securities can be included in endowment funds. For example, Harvard University recently began searching for a vice president for "sustainable investing." Harvard Management's president, Jane L. Mendillo, said that the position will strengthen the organization's focus on the long term, as well as its concerns with sustainability and stewardship of investees in its $30.7 billion endowment ("HMC Creates New VP Position for Sustainable Investing," by Nikita Kansra and Samuel Y. Weinstock, http://www.thecrimson.com/ article/2013/2/15/sustainable-investing-vicepresident/).

Business in the Community reported that paying attention to environmental and social issues can improve stock price performance, and that better management of environmental and social impact is related to lower volatility of stock price returns ("The Value of Corporate Governance: The Positive Return of Responsible Business," Aug. 1, 2008, http://www.bitc.org.uk/ourresources/report/value-corporate-governance-responsible-business). Companies consistently participating in the CR Index had higher total shareholder returns (by between 3.3% and 7.7%) per year, as compared to the FTSE 350 (an index incorporating the largest 350 companies listed on tiie London Stock Exchange).

"Voluntary Nonfinancial Disclosure and tiie Cost of Equity Capital: The Initiation of Corporate Social Responsibility Reporting" found that companies with a high cost of equity capital in a previous year tended to initiate disclosure of CSR activities in the subsequent year, and that such companies with superior social responsibility performance enjoyed a subsequent reduction in the cost of capital (Dan S. Dhaliwal, Oliver Zhen Ii, Albert Tsang, and Yong George Yang, Accounting Review, vol. 86, no. 1, pp. 59-100). These companies, in turn, attracted dedicated institutional investors and analyst coverage. In addition, companies that exploited the benefit of a lower cost of equity capital associated with CSR disclosure were more likely than others to raise capital after their initial CSR disclosure period.

Companies are increasingly pressured through shareholder proposals to manage sustainability risk. (Examples of shareholder proposals related to sustainability issues can be found by searching the SEC's website, http://www.sec.gov.) Ernst & Young estimated that half of 2011 shareholder proposals would focus on environmental and social (E&S) issues. The number of CSRrelated shareholder proposals voted on increased from 150 in 2000 to 191 in 2010, with average voting support rising from 7.5% to 18.4%. Furthermore, according to Institutional Shareholder Services (ISS), the 2011 proxy season marked the first time that the level of support for these types of proposals reached more than 20% ("2011 U.S. Season Review: E&S Proposals," http://www.issgovemance .com/docs/ESProposals). The increase continued into 2012, according to the same report, when more than 335 E&S resolutions were proposed. Every indication is that support and interest will continue to rise.

A Strategic Decision

Sustainability reporting should be considered a strategic decision, not an effort undertaken in addition to financial reporting. Because sustainability practices are pervasive, encompassing, and integrative in nature, they significantly overlap many of the financial reporting elements already measured and managed.

In "Triple Bottom Line Reporting for CPAs: Challenges and Opportunities in Social Accounting," Steven M. Mintz suggested that it is fair to question whether financial statements adequately represent the financial and nonfinancial implications of managements' actions and decisions {The CPA Journal, December 2011, pp. 26-33). Companies responding to the 2011 KPMG survey identified innovation and learning as important drivers in adopting sustainability reporting, with the objectives of improving business processes and products in order to create a competitive advantage in the marketplace. The integration of sustainability reporting with financial reporting can provide both management and stakeholders with file comprehensive and strategic information they desire.

The balanced scorecard (BSC) methodology enables a company to align its sustainability practices and related nonfinancial measures with strategic goals and to fully integrate them with more routine corporate operations and evaluations. "Sustainability and the Balanced Scorecard: Integrating Green Measures into Business Reporting" recommends that integrating sustainability measures throughout the BSC's four perspectives (financial, customer, internal business processes, and learning and growth) is the best way to view sustainability measures as central to a company's financial well-being and more readily as a part of day-to-day operations, customer satisfaction, efficiency, and innovative efforts (Janet B. Butler, Sandra Cherie Henderson, and Cecily Raibom, Management Accounting Quarterly, Winter 2011, pp. 1-10). In addition, the more a company applies its sustainable practices, file more seamlessly they can be integrated into the BSC dimensions. It is important, however, to limit the number of measures that each perspective includes and to keep in mind that those chosen for inclusion should be controllable, quantifiable, and comprehensive in nature when multidimensional measures are used.

Measuring the effects of sustainability practices on shareholder value is challenging, but many organizations' stakeholders are demanding social performance transparency. Sustainability reporting by large corporations in the United States lags behind that in other countries. According to the 2011 KPMG survey, although 95% of the G250 now report on their CR activities, two-thirds of nonreporters are based in the United States (p. 6). It is time for U.S. corporations to make the commitment to TBL reporting as an accountability mandate as well as a business decision to improve both financial and social performance.

Getting Started: Using the G4 Guidelines

At one end of the reporting continuum, companies might choose not to provide a sustainability report and neglect to explain in their financial reporting any sustainability measures undertaken. At the opposite end of the reporting continuum, companies might choose to provide a combination of financial and nonfinancial data in one inclusive report that integrates sustainability with operational performance and discusses the strategic importance of the organization's sustainable initiatives. Somewhere in the middle, companies might view sustainability reporting as a complement to financial reporting, either providing two independent reports or, at least, measuring and reporting some aspects of operational performance related to sustainability efforts.

The GRI sustainability reporting guidelines are the most extensively followed worldwide. The 2011 KPMG survey indicated that 80% of the global Fortune 250 and almost 70% of the N100 (largest companies, by revenue, in each of 34 countries surveyed) follow the GRI for CSR reporting (p. 20). The GRI's mission is to make sustainability reporting standard practice by providing guidance and support to organizations. The GRI framework sets forth principles and indicators that companies can use to measure and report on their performance.

The greatly anticipated fourth generation of the GRI's reporting guidelines (G4) was released in May 2013, replacing the thirdgeneration guidelines published in 2006 (G3) and updated in 2011 (G3.1). Under the G4 guidelines, materiality is the overarching principle for determining what to include in sustainability reports-that is, instead of reporting on all areas, organizations may focus on topics material to their business. Materiality is determined by the influence on stakeholder assessments and decisions, as well as the significance to the organization's economic, environmental, and social impacts.

Beyond the materiality threshold, not all indicators have equal weight; thus, the report should reflect this relative empha- sis. Many of the standard disclosures, especially those under the "social: human rights" and "social: society" categories are based upon European culture, rather than U.S. culture. This makes the notion of materiality even more important, because not all disclosures are relevant in all cultures. Factors that should be used to determine materiality include the organization's overall mission and competitive strategy, concerns expressed directly by stakeholders, broader social expectations, and the organization's influence on upstream and downstream entities. The G4 Implementation Manual (provided on the GRI's website) is effectively cross-referenced to relevant standards and offers guidance on the process for identifying, prioritizing, and validating material areas on which to report (pp. 32-39).

The G4 guidelines provide for a twotiered system-"core" and "comprehensive"-for measuring the degree to which an organization adheres to the guidelines. "In Accordance-Core" reports include the standard disclosures for all material issues and at least one relevant indicator for each material aspect. "In AccordanceComprehensive" reports must include all standard disclosures and all indicators for each material aspect. Additional standard disclosures of the organization's strategy and analysis, governance, and ethics and integrity are also required. A third option for organizations not yet ready to report at even the core level is to use the standards, but not report "in accordance" with hem. These organizations may include a reference in the report stating, "Contains Standard Disclosures from the GRI Sustainability Reporting Guidelines." In his way, organizations can self-declare heir level of reporting.

The G4 guidelines require two types of standard disclosures: general standard disclosures and specific standard disclosures. General disclosures include the following:

* Strategy and analysis

* Organizational profile

* Stakeholder engagement

* Report profile

* Governance

* Ehics and integrity.

Sector disclosures are also required if available. The G4 guidelines require new disclosures in the areas of corporate governance and supply-chain management, reflecting he increased interest in hese topics. Exhibit 1 explains general disclosures, their purposes, and the number required for each level of reporting. As shown in the exhibit, additional disclosures for moving from the core option to the comprehensive option fall primarily under governance, where 21 additional disclosures are required.

Specific standard disclosures-under the disclosures on management approach (DMA)-are organized into the following three categories (with the number of aspects for each in parentheses): economic (4), environmental (12), and social (30). The social category is further divided into labor practices and decent work (8), human rights (10), society (7), and product responsibility (5). Exhibit 2 illustrates these categories and aspects, and it provides one example of an indicator for each aspect. As previously mentioned, organizations declaring the core option need only identify one indicator for each material aspect, whereas those declaring the comprehensive option must include all indicators for each material aspect.

Companies that bear increasing risks with respect to economic, environmental, and societal exposures should become familiar with the GRI framework and consider reporting in accordance at the core level. Companies must begin acknowledging sustainability risks they face, even if they do not report in accordance right away. Those with little experience in managing with a focus on sustainability and social responsibility might find it daunting to initiate the process, but some basic guidelines can help organizations establish processes that will enable success in the long run.

First, as with any major initiative, top leadership must demonstrate commitment. Placing a high-level officer, such as the CFO, in charge of reporting provides a signal to stakeholders that the company is serious about evaluating its sustainability risks and potential costs. Second, companies should focus on materiality and address only those concerns that are likely to have a major impact. Third, they should identify file goals, audiences, and value of the reporting. Reporting to comply with SEC guidelines regarding climate change might look very different from reporting to comply with requirements imposed on suppliers by their customers. Next, companies must select a reporting system appropriate for the size of company and the industry in which it operates, to facilitate benchmarking against peers. Finally, organizations should consider seeking independent verification, which may be optional or required, depending upon common practice in the industry. The GRI website provides a reporting starter kit to assist companies with commencing the process.

The economic dimension of sustainability reporting is, to some extent, already measured and reported via the traditional financial reporting system. The standards do not simply represent the entity's financial performance; they verify that the economic dimension of sustainability concerns the organization's impact on the economic conditions of its stakeholders and on economic systems at local, national, and global levels. Information easily provided from the financial system includes direct economic value generated; impact on the community, such as through local hiring and local suppliers; and indirect impact, such as infrastructure investment for public benefit. In addition, these economic indicators could assist companies in taking the first steps in sustainability reporting by measuring and reporting consistent with the GRI standards in the Form 10-K, when appropriate. Exhibit 3 shows the economic indicators and their related disclosures.

Some companies already utilize information from their financial systems to address the GRI's economic performance indicators in their sustainability reports. The authors examined sustainability information available in annual reports in 2009 and found 29 U.S. companies with sustainability reports rated "B" or higher, according to the GRI's G3 standards. These companies replicated information across their sustainability reports and 10-K reports. Most were large companies; more than 75% belonged to the Standard & Poor's (S&P) 500 Index. More than 60% were classified in the manufacturing sector, followed by finance, insurance, and real estate. Median annual sales for all 29 companies were $12.7 billion. Exhibit 4 summarizes the results of the authors' review of the companies' 2009 10-K and sustainability reports; the exhibit provides a description of tabulated replications in both reporting outlets and notes the reporting locations within the annual report for the most common GRI economic performance indicators (EC).

The results of this research illustrate how companies can leverage their sustainability reporting by using the information in their 10-K or annual reports, thereby reducing the cost of sustainability reporting. As shown in Exhibit 4, only three of the GRI's nine economic indicators (EC2, EC3, EC7) were replicated in the annual report information for 26 of the 29 companies reviewed. The most common replication was not, as might be expected, related to the risks of climate change, but rather to the coverage of the organization's defined-benefit plan obligations (EC3). Defined-benefit plans were mentioned by 24 companies, most often in the notes to financial statements. These dis- closures certainly reflect a potential material financial risk that must be mentioned in the annual report. Climate change risk (EC2) was disclosed in the annual report by 15 of the companies reviewed (some companies disclosed this information in more than one place in the annual report), and it was primarily reported in section 1 of the 10-K, usually labeled as "business risks." Of the three, EC7 (development and impact of infrastructure investments) was the economic indicator reported least often; only three companies reported on it, most commonly in the letter to the shareholders or in the summaiy after the shareholder letter.

The Next Phase: Integrated Reporting

Hie G4 guidelines foreshadow the next phase in sustainability reporting: integrated reporting. Rather than providing separate financial and sustainability reports, companies will begin integrating the information from two reports into one. As stated on the GRI website, "Understanding the links between financial results and sustainability impacts is critical for business managers, and increasingly connected to longand short-term business success" (https://www.globalreporting.org/ information/current-priorities/integratedreportmg/Pages/defaultaspx).

An integrated report should be the result of an integrated reporting process. During the development of the G4 guidelines, preparers were asked about the most relevant reporting formats, both in the present and in the future. Responses indicated that the sustainability report is the most relevant format today, but its relevance will diminish as the integrated report becomes more important over the next three years.

One objective of the G4 guidelines was to "offer guidance on 'how to link the sustainability reporting process to the preparation of an integrated report aligned with the guidance to be developed by the International Integrated Reporting Council (IIRC)"' ("IRC Publishes Draft Outline of Future Integrated Reporting Framework," Global Reporting Initiative, Aug. 1, 2012). The IIRC published the International Integrated Reporting Framework in December 2013 through a formal due process that included a consultation draft period and further development of the organization's governance structure.

With respect to governance structure, an eight-member board directs the IIRC's affairs and oversees the coordination and interaction between the council, the working group, and the secretariat, as well as external stakeholders. The board members hail from eight countries, including the United States. Although the GRI is still committed to providing this type of guidance, it was not incorporated into the G4 guidelines because of the timeline for development of the IIRC's framework. The framework will be used to accelerate the adoption of integrated reporting around the world; it is currently being trialed by companies in more than 25 countries, 16 of which are members of the G20 (a group of nations focused on strengthening the global economy). Those companies and countries can be viewed at http://www .theiirc.org/companies-and-investors/pilotprogramme-business-network/.

The IASB recently announced an agreement with the IIRC to deepen its cooperation on the IIRC's work to develop an integrated corporate reporting framework. According to the IASB's February 2013 press release, "the Memorandum of Understanding ... demonstrates the common interest of both organizations in improving the quality and consistency of global corporate reporting to deliver value to investors and the wider economy" (http://www.ifrs.org/Alerts/ PressRelease/Pages/IASB-and-IIRC-signMoU.aspx).

In "Integrated Reporting: Navigating Your Way to a Truly Integrated Report," Deloitte suggested that those companies that become engaged in sustainability reporting now may see the benefits, not just in preparedness, but also in influencing the outcome of the IIRC's work (http://www.itweb.co.za/sections/ pictures/Deloitte_Integrated_Reporting_ Aug_2012.pdf). Another Deloitte publication, "Integrated Reporting: The New Big Picture," provided further insight into the IIRC's work, what an integrated report might look like, and which safe harbor provisions might be needed to allow for future-oriented disclosures (http://www. deloitte.com/view/en_US/us/Insights).

Integrated reporting has gained momentum in recent years. Denmark and South Africa, for example, have made it mandatory for companies to issue one joint report on financial and sustainability initiatives. The push to integrate environmental sustainability performance along with financial information is found all over the globe, including in the United States.

Smithfield Foods, for example, has produced an integrated report; it has published a CSR report in some form since 2001, and those reports have evolved over the years. Taking a big step forward, the company recently issued its first integrated report, which combines its 2012 annual financial and sustainability reports. According to the company's website, combining the reports enables it to better explain how sustainability efforts relate to financial success. Progress toward achieving strategic goals is highlighted by the financial and nonfinancial data provided.

For the most part, Smithfield Foods' integrated report is an abbreviated version of its sustainability report, with a small amount of financial data from the annual report included. The report represents a duplication of information, rather than hue integration, but it does contain some unique information about sustainability achievements for each of Smithfield Foods' companies. Even though the integrated report duplicates other reports, stakeholders might find it easier to refer to a more succinct report than seek information from two larger reports. Smithfield Foods acknowledged that integrated reporting is evolving, and that its reporting will progress and improve over time; however, a definitive merger agreement in 2013 between Smithfield Foods and Shuanghui International, China's largest meat producer, creates uncertainty about whether the company will continue its commitment to sustainability practices and reporting. Although Shuanghui International has pledged to continue Smithfield Foods' investments in sustainability, only time will tell whether the company continues to report under the GRI guidelines.

Opportunity for Consulting and Assurance Services

Reporting according to the GRI standards does not require external assurance; however, in the interest of enhancing credibility and transparency, some companies engage auditors to validate their sustainability reports. In 2011, only 46% of the G250 surveyed by KPMG used assurance to verify their data. Of those, 70% employed major accounting organizations to do so. As more companies adopt integrated reporting, KPMG expects that assurance services will see a parallel increase.

Ernst & Young's 2011 survey of large company executives (with company revenues greater than $1 billion) revealed that 25% of the 272 respondents certified their sustainability reports, whereas another 42% planned to do so in the next five years. Overwhelmingly, the top reason companies (85% of which represented U.S. companies) gave for assuring the reports was to "add credibility to information presented to external stakeholders" (p. 11). Half of those employing third-party assurers utilized accounting firms, whereas 22% engaged sustainability consulting firms.

A review of the growth in and improved quality of sustainability reporting suggests growing assurance opportunities for public accounting firms. According to "The Future of Corporate Sustainability Reporting," the majority of the information on which assurance is provided consists of nonfinancial, quantitative performance measures that can be objectively reviewed by a third party (Brian Ballou, Dan L. Heitger, and Charles E. Landes, Journal of Accountancy, vol. 202, no. 6, December 2006, pp. 65-67, 70-74). As companies expand and enhance their corporate sustainability reporting and the information on the CSR and the 10-K or annual report overlap to a greater extent, public accounting firms can capitalize on the growing demand for the assurance of sustainability-related information.

In addition to assurance services, sustainability reporting has provided tremendous opportunities for consulting services. For example, Deloitte offers a variety of services on its website under "Additional Services-Sustainability," such as reporting, compliance and assurance, sustainability strategy, resource management, and sustainable supply chain. Major accounting firms provide assurance of sustainability reports for the G250, but as small and medium-sized entities increase their sustainability reporting, the opportunity for providing assurance services extends beyond the Big Four. Not only can assurance mechanisms enhance the credibility of information; they also can serve to identify opportunities for process and performance improvements across the organization.

Best Practices: The Example of UPS

United Parcel Service (UPS) provides an excellent example of how sustainability reporting can evolve when it is made a strategic priority. Since 2003, UPS has been providing corporate sustainability reports (see http://www.responsibility.ups .com/Sustainability). In that span of time, the company has continuously improved its reporting of the strategic significance of its economic, social, and environmental initiatives. Exhibit 5 illustrates the progress that UPS has made over time.

When UPS began sustainability reporting in 2003, it did not adhere to GRI reporting standards and kept reporting simple-three categories of economic, social, and environmental objectives, with a few key performance indicators (KPI) in each category. In 2004, a similar report was provided, but management addressed "the future" of its sustainable strategies. The 2005 report did not change significantly from the previous year.

In 2006, UPS adopted the GRI standards, which significantly expanded its reporting. Self-assessment (as compared to external assurance) achieved a "C" rating (under the G3 standards). The report grew to more than 100 pages, with many more graphics and photographs, and even a frequently asked questions (FAQ) section. Although UPS continued to report on the three general categories of economic, social, and environmental measures, it expanded the subcategories within each area, in terms of dimensions and KPIs.

In 2007, UPS produced a special edition of the sustainability report for the company's centennial celebration, wherein it highlighted a new chairman/CEO. The appendix provided the GRI-G3 index and reported KPIs during 2002-2007 for trend analysis; in addition, it identified and discussed future KPIs. UPS provided a grid to map the location of the information in the report to the GRI guidelines. It selfreported a "B" rating, in accordance with the GRI's G3 standards.

In 2008, a senior vice president was appointed to be responsible for the sustainability program. Two additional financial factors were added to the economic KPIs-capital expenditures and cash and investments. The following developments within UPS were reported:

* Purchasing and deploying enterprise software to manage sustainability performance more robustly

* Capturing global carbon inventory for 2007 and 2008 through the use of that software

* Updating and expanding KPIs and setting new goals

* Setting a long-term, industry-leading, verifiable goal for airline emission reductions

* Initiating third-party validation of sustainability reporting

* Becoming the first shipping company to join the U.S. Environmental Protection Agency's (EPA) Climate Leaders program.

In addition, the 2008 report identified three sustainability principles: strengthen the enterprise (economic), improve the human condition (social), and protect the environment (environmental stewardship). In the 2008 report, UPS projected KPI goals for 2011 and, where feasible, 2020.

UPS began seeking third-party assurance by Deloitte of its sustainability report in 2009, and it achieved a "B+" rating (the "+" indicated external assurance, according to G3 standards). In accordance with attestation standards established by the AICPA, Deloitte provided an accountant's review report based upon the sustainability report. The report was reorganized to highlight achievements in 2009 and featured the addition of a human rights statement in the UPS code of business conduct. Other noteworthy items included greater risk assessment addressed in the profile, a statement of encouragement to contact the board of directors' corporate secretary with questions and concerns, and 11 sustainability recognitions and awards from 11 different organizations.

In 2010, a "UPS-at-a-Glance" section was added to provide quick facts and figures about the organization. For the first time, Deloitte provided an unqualified opinion on greenhouse gas emissions and, again, provided an attestation review of the sustainability report. The GRI application level remained a "B+." For the first time, the report also addressed climate-related physical risk and other climate-related risks.

In 2011, UPS undertook a "materiality analysis process" supported by the Business for Social Responsibility, and it developed a materiality matrix (included on p. 26 of the 2011 annual report) in the company profile section. Importance to stakeholders and influence on business success dimensions were mapped on a grid. Issues that appeared in the upper right quadrant were those identified as most material, including transparency, accountability, and reporting, along with nine other dimensions.

According to Lynnette Mclntire, editor of the UPS sustainability report, the most material issues helped develop the 2011 sustainability report; the report states, "Sustainability relates more closely to sound and globally accepted accounting principles than most people realize" (p. 58). Sustainability reporting by companies like UPS can serve as a model for those companies considering or just beginning their sustainability-reporting journey.

OVERVIEW OF THE GLOBAL REPORTING INITIATIVE (GRI)

The GRI is an independent, global nonprofit organization that was launched by the U.S.-based organization Ceres in 1997. An exposure draft of sustainability reporting guidelines was released in 1999, followed by several full versions. The GRI guidelines have become the de facto international standard for reporting environmental, social, and economic performance. The GRI is a collaborating centre of the United Nations Environment Programme, and is governed by its board of directors, which is the final decision-making authority.

Funding for the GRI comes from several sources, including its organizational stakeholders (90 in the United States), project grants from governments and foundations, corporate and governmental sponsorships for projects and events, and revenues from products and services.

Large and increasing numbers of U.S. organizations are producing sustainability reports using the GRI's guidelines; some began in 1999. The GRI Focal Point USA works to increase the number of U.S. companies that report on sustainability and to improve the quality of reporting. It is supported by founding sponsors Deloitte, Emst & Young, KPMG, and PricewaterhouseCoopers.

Measuring the effects of sustainability practices on shareholder value is challenging, but many stakeholders are demanding social performance transparency.

The G4 guidelines foreshadow the next phase in sustainability reporting: integrated reporting. Rather than providing separate financial and sustainability reports, companies will begin integrating the information from two reports into one.

Denise M. English, PhD, is a professor of accountancy, and Diane K. Schooley, PhD, is associate dean and a professor of finance, both at Boise State University, Boise, Idaho.