The efficacy of voluntary disclosure: a study of water disclosures by mining companies using the Global Reporting Initiative Framework.

Author:Dennis, Philip


The Global Reporting Initiative is a multi-stakeholder network facilitating the development and application of sustainability reporting. Conceived as a vehicle to advance the standardization of non-financial corporate reporting in 1997 (GRI a, 2007), the GRI has been working to develop guidelines for sustainability reporting since the late 1990s and as of the time of this study, was on its "third generation of Guidelines (G3)" (GRI, 2006 b). The G3 Guidelines, the foundation of the GRI Sustainability Reporting Framework, set out basic principles and standard disclosures for companies using the Sustainability Reporting Framework to follow in order to ensure completeness of reporting.

Corporate issuance of sustainability reports is a wholly voluntary endeavor. Since 2003, the year-over-year growth rate of sustainability reports based on the GRI framework has consistently increased annually by 20%. Despite the growing interest in participating in sustainability reporting, there are questions of the quality and comprehensiveness of the information that is reported. Adams and Evans (2004) identified completeness and credibility as two limitations relevant to all forms of social performance reporting due to its nature as voluntary and self-monitored.

In order to establish a baseline from which the substantive content of sustainability report disclosures using the GRI framework can be discussed, the authors have identified water as the subject of analysis in this study of sustainability reporting. The GRI identifies both water specific and water-referencing indicators which allow a comprehensive examination of how this specific resource is captured in sustainability reports. Company reports from the mining industry were chosen in order to examine reporting within a water- intensive industry (the mining industry both utilizes and impacts water resources in a significant way).

This study was confined to a single year's (2010) reports in order to provide a "snapshot" of the comprehensiveness of the reporting.

Corporate Disclosure Requirements

Corporate disclosure requirements and corporate reporting are based on the general premise that information about a firm must be made available in order for informed decision-making. The traditional approach to corporate reporting has focused primarily on financial performance. Notwithstanding Securities and Exchange Commission (SEC) and Financial Accounting Standards Board (FASB) standards requiring "material events or uncertainties known to management that would cause reported financial information not to be necessarily indicative of future operating results or future financial condition" (17 CFR 229.303), environmental disclosures have gone under-reported (Chan-Fishel, 2006; Repetto, 2005). Further, according to Levinson et al. (2008, p.3), "corporate disclosure of water-related risks is seriously inadequate and is typically included in environmental statements prepared for public relations purposes rather than in the regulatory filings on which most investors rely."

Morikawa et al. (2007) performed a study of corporate sustainability and social responsibility reporting on water in 11 water-intensive industries and found the majority of companies in those industries do report water information in their non- financial reports, but there was a general lack of understandability and usefulness of the data, and inconsistency with regard to measurement hindered comparability of the data. The mining industry was one of the water-intensive industries covered by this study. Among the mining companies reviewed, water use measurement, stakeholder engagement, commitment to continuous improvement, strategic partnerships, and water policy or management approach statements were commonly reported, while water risk assessment was not commonly reported (Morikawa et al., 2007).

Corporate Social Responsibility and Sustainability

In addition to the practical aspect of disclosing water related risks in response to regulatory requirements, business is now faced with new expectations for corporate disclosure. The understanding that business has a larger role to play in the overall well-being of the world, including both its inhabitants and natural systems, is captured in the concept of corporate social responsibility (CSR). While the concept of CSR can hardly be considered new, with literature on the subject extending back to the 1950s (Carroll, 1999) and corporate disclosure of CSR into the 1970s (Abbott and Monsen, 1979), the formalization of CSR as a corporate standard, and the GRI's attempts to standardize reporting of CSR, are relatively recent developments (GRI b, 2007).

An evolutionary step in the development of the concept of CSR occurred in the publishing of the United Nation's Brundtland Report (1987), when the concept of sustainable development enveloped CSR (van Marrewijk, 2003). The Brundtland Report defined sustainable development as "development that meets the needs of the present without compromising the ability of future generations to meet their own needs." (Brundtland, 1987). Within this definition, Elkington (1997) redefined corporate sustainability as the "triple bottom line," which held business responsible for not just financial performance of the firm, but also social and environmental performance as well. The triple bottom line's three dimensions, economic, social, and environmental, have since become the pillars of modem sustainability reporting and its most prevalent sustainability reporting framework, the GRI G3.

Toward a Sustainability Reporting Framework

The GRI envisions a global economy where the tenets of sustainability are not just operational, differentiation, or public relations strategies, but institutionalized norms that underpin the global economy. The vision is a global economy where information about sustainability performance is as transparent and ubiquitous as financial information is today (, 2011); where information about impacts on biodiversity, local indigenous groups, or economic development is as readily available and understandable as information like earnings per share. This is unquestionably a lofty goal, but the GRI has set about to push this vision toward reality through the development, dissemination, and ongoing support of the GRI Reporting Framework (

In the extant academic literature, the Global Reporting Initiative (GRI) is widely regarded as the best-known, voluntary framework for business reporting of environmental and social performance worldwide (Overell et. al., 2008). The GRI consists of 35 indicators used in assessments predominately by large global companies (and less frequently by the public sector) (Brown, de Jong and Levy, 2009).

Recent research has focused on using GRI data to develop indices for cross-comparisons of organizations in terms of sustainability (Krajnc and Glavic, 2005), levels of sustainability practice (Veleva et al., 2003) and stakeholder management (Reynolds and Yuthas, 2008). Such studies are directed specifically at looking beyond performance and efficiency to measuring and assessing levels of environmental impact, to include eco-efficiency, environmental effects, supply-chain and product life-cycle effects and carrying capacity issues (Veleva et al., 2003). While most reporting has focused on performance and efficiency measures, at least one recent comprehensive study has shown a positive relationship between "environmental performance and the level of discretionary environmental disclosures" (Clarkson and Richardson, 2008).

Scholars have identified additional relevant indicators not specifically covered by the G3 such as eco-efficiency, the presence of an environmental management system, the amount of environmental expenditures, and the use of sustainable energy (Van Gerven et al., 2007). Arguments were made for sector-level analysis in order to reflect unique characteristics of a given industry, such as mining (Azapagic, 2004), pharmaceutical (Veleva et al., 2003) and food production (Gerbens-Leenes and Moll, 2003), for which there are now GRI Sector Supplements for both mining and metals and food production. Strong institutional support is identified as a key factor in mitigating biases in information reporting (Moneva et al., 2006). Regardless of its detractors, GRI is regarded as the international standard for best practices in voluntary disclosure (Overell et al., 2008), and considered to be a reputable source of business practice in sustainability despite various unique sectoral needs and "geographic discrepancies" (Richards and Dickson, 2007).

GRI's Reporting Framework expands well beyond the realm of traditional financial disclosure to capture a broader array of organizational performance in a sustainability report. The foundation the GRI Reporting Framework is the Sustainability Reporting Guidelines. Currently, these guidelines are referred to as the G3 as they represent the third version of the guidelines produced since the GRI's inception in 2006. The G3 is composed of three parts: Reporting Guidelines, Application Levels, and Indicator Protocol Sets; each of which are discussed in the paragraphs below. A newer version of the guidelines, called G3.1, was released in early 2011 and added content to the social performance indicators.

Reporting Guidelines

The Reporting Guidelines introduce the major content areas that sustainability reports should cover. The Introduction and Part 1 sections of the Guidelines provide an introductory overview of sustainability reporting and describe how to approach content, quality, and setting a reporting boundary, respectively. On the topic of how to approach report content the G3 describes the following four principles: Materiality, Stakeholder Inclusiveness, Sustainability Context, and Completeness. As related to water, Materiality of water to the mining industry has already been established and some...

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