Global Reporting Initiative 3rd Iteration Launches
This Fall

Sudan Divestment Update

Pushback on Corporations

Global Reporting Initiative 3rd Iteration
Launches This Fall
By: Andrew Brengle, Senior Research Analyst

         The task of encoding standardized guidelines for corporate sustainability reporting takes another step forward this year as the Global Reporting Initiative (GRI) prepares to release its third guidance document in six years. Following versions published in 2000 and 2002, the G3 Guidance will become official this October with updated indicators for corporate reporting on: human rights, labor practices, environment, corporate governance, and product responsibility.

         KLD joined 140 organizations, including eight other social investment firms, in commenting on the latest draft. In conference call discussions and email correspondence, the SRI community noted that, while the guidance attempted genuine improvements on human rights and labor practices disclosure, the draft G3 left too many opportunities for underreporting on vital issues. For instance, human rights indicators for reporting on supplier and contractor practices do not capture the fact that the supplier screening systems often have become check-box exercises that tell little about actual labor conditions in the factories.

         Shareholder activists with the Interfaith Center on Corporate Responsibility listed a number of issue areas they considered omitted from the new guidance, including: the right to social and economic development, freedom of expression, product impacts on human rights (Internet and surveillance technology; weapons; water), and minority rights. The environment sections were more complete, although indicators treating toxics in industrial processes remained noticeably absent. Stakeholders consider information on industry use of toxic or hazardous materials a key to identifying opportunities for pollution prevention.

         Human rights and certain aspects of labor practices such as HIV/AIDS prevention have proven the most challenging areas for improvement as they are the most underdeveloped and have experienced the most change over the history of the GRI. The SRI community offered these further observations on the latest GRI guidance.

• Reporting levels: the draft G3 guidelines do not differentiate between levels of reporting on scales of thoroughness and sophistication, as previous ones did. The GRI will offer three to five tiered reporting levels standards in G4. SRI commenters urged GRI to retain the existing two tiers: “with reference to” being the lower and “in accordance” being the higher level.

• Policy and management systems: a new “disclosure of management approach” section treating policies, procedures, implementation and monitoring has been separated out from performance indicators. SRI commenters voiced concern that the new framework allows reporting organizations to leave out relevant data.

• Quantitative versus qualitative data: stakeholders commented that the G3 moves too far towards quantifying data, which while helpful, may not be effective in some areas such as child labor or corporate governance. Commenters asked whether the G3 strikes an appropriate balance here.

• The G3 has improved discussion of “boundary issues,” or what is within reporting organizations’ sphere of influence and thus material for disclosure.

         Perhaps the only challenge equal to producing a sustainability report is crafting guidance on a reporting gold standard agreeable to multiple stakeholders. On March 31, 2006, the Netherlands-based GRI secretariat closed the public comment period on a draft G3 that was four years in the making. The purpose is to better serve the more than 750 reporting organizations (mostly corporate) now using the GRI guidelines and the thousands of stakeholders with an interest in sustainability.

Sudan Divestment Update

Response from States, Universities, Pension Funds and Asset Managers
to the growing Sudan divestment movement

         Students at the University of California and Brandeis University recently published a report on where the Sudan divestment campaign stands nationally. The April 2006 report provides details on the progress of numerous states, universities, and private pension plans that have active divestment campaigns, as well as the status of ex-Sudan investment offerings by asset managers and private pension plans.

         The report is a good indicator of the growth of the divestment movement and how it's making an impact. In June 2005, the state of Illinois was the first state to pass Sudan divestment legislation. In less than 12 months, the states of New Jersey and Oregon have followed suit. Additionally, non-binding divestment resolutions have passed in Ohio and Vermont, and there is pending legislation in several other states including Massachusetts, New York, California and Texas.

         Universities have also joined the divestment efforts. Harvard, Stanford, Yale, Brown, Amherst, Dartmouth, Stanford, and the University of California system have all enacted restrictions on Sudan investments. Emerging or active Sudan divestment campaigns are in place at several universities including Brandeis, MIT, Columbia, University of Pennsylvania, California State University system and the University of Virginia.

         At the private pension plan level, there is an active Sudan divestment campaign for TIAA-CREF, the nation’s largest private pension fund. Finally, asset managers such as Northern Trust, Barclays Global International, and State Street Global Advisors have responded to the divestment movement by developing ex-Sudan investment tools.

         For more details on the divestment campaigns listed above, contact Randy O’Neil to request a copy of the report.

Pushback On Corporations

By: Liz Umlas, Senior Research Analyst, Human Rights

         March was a month that should have left corporations on their toes - the observant ones, anyhow. There were several instances of pushback against companies, some through legal or diplomatic channels, others through violent protest. Here are a few that stood out:

         To put these events in perspective, nothing immediate may come of them. For example, regarding the complaint against Yahoo, an editor in China whose newspaper had reported on police corruption died in February as a result of being beaten by dozens of policemen several months earlier. Clearly, defenders of freedom of expression have a long way to go in that country. Regarding Exxon, so far no oil companies have been found guilty in court of abetting or being silent accomplices to brutal militaries (though a number of similar cases are pending in US courts). Finally, talk of reversing water privatization may be premature, given the power of private water companies and the growing market for bottled water.

         One might say, however, that the sum of these developments is greater than its parts. Together, they are a reminder that companies' so-called "license to operate" — whether that means extracting resources in developing countries, or moving into areas where the public sector has traditionally supplied services, or selling Internet services in a society lacking in freedom of expression — shouldn’t be taken for granted.

         The incidents in March do not seem to be isolated events. Smart companies will sit up and take notice of the bigger picture.