Money or Happiness – Made to Measure?

I spent some time at Arup’s attractive 8 Fitzroy Street offices with the UK group looking at global sustainability reporting standards in the construction and real estate industries this week. It is easy to be cynical about these exercises particularly when the tables are laden with paper copies of the bible like standards. The people there were generally thoughtful and committed and some are at the cutting edge of sustainability action in the sector.

The Global Reporting Initiative (GRI) is spreading its tentacles into the construction and real estate sectors with a specific supplement to the Global Reporting Standards on Sustainability for the sector to be launched in the summer of 2011 (http://tiny.cc/cqbgm) .

This is something of a double edged sword. By definition, global standards require averaging and compromise across a number of different social, cultural, economic and environmental contexts and therefore emerge as a blunt instrument rather than a rapier.

So organisations could perform well against these standards but still fail to achieve much of the positive impact that their activities could generate.

However, a senior management decision to undertake GRI standard reporting is likely to bring a stronger focus on positive actions that may have been ignored previously.

The key to achieving a positive impact from the introduction of standards reporting usually depends on embedding consonant processes within the business (I recently gave a talk on this in Melbourne which is available here http://tiny.cc/dv6k9).

This is a often a huge culture change task with immense strategic implications and it goes against the grain of the current UK real estate industry culture. So it is doubly difficult although the industry is throwing up some leaders like Rupert Clarke at Hermes who look to be stealing a competitive march on their competitors. The UK Green Buildings Council are about to run the first ever leadership in real estate sustainability course (http://tiny.cc/n1ast)  at Cambridge University so it will be interesting to see the industry state of play at those events. More from me on that in the future.

Some UK real estate companies consign their sustainability reporting teams to darkened rooms down dusty corridors watching electricity meters (http://tiny.cc/qpot1) or counting volunteer hours and charity contributions (http://tiny.cc/tclue)  rather than embedding company wide sustainability processes and governance structures. Others will seek to align their reporting to support their competitive advantage.

And there is the key problem. Competitive advantage by definition is unique to a company. If they are lucky a company’s USP will appear as best performance on one or more indicators and therefore be visible to their customers and investors and thus reinforce their competitive advantage.

However markets move much faster than global standards and many companieswill not be so lucky and will need to find other ways to communicate their USP to their customers and investors. Even Governments move faster than standards with Happiness and Wellbeing measurement starting in the UK (http://bit.ly/bwyAki) in April this year and soon to be incorporated in Treasury Green Book assessments of Government policy according to today’s Sunday Times. Even China announced a policy focus on happiness last week.

Many investors are not sophisticated enough, or put insufficient analytical resource in, to understand this. They will follow league tables based on global standards and miss market leading firms particularly in niche markets.

At the moment GRI reporting is voluntary but has been growing rapidly as the more sophisticated sustainable investors seek to drive their investee companies into higher return, lower risk, more competitive positions. However, while it remains voluntary it is an extra cost to those businesses pursuing sustainability that need to hope these costs are outweighed by the potential benefits over their non reporting competitors.

Smaller companies may also be put at disadvantage by these reporting frameworks which are something of an expensive consultancy bunfight. There was loads of thrusting of business cards going on at the beginning of the event. This initiative is creating an entire industry of a scale potentially similar to the financial accounting profession. It must be hoped that this new sustainability reporting profession will deliver more benefits to mankind than their financial colleagues.