Cities are getting a lot of attention for taking action on climate change. This action is born out of necessity. Cities have over 50 percent of the planet’s population. It is not surprising that they create 75 percent of greenhouse gas emissions.
By 2050, cities are estimated to have 70 percent of the planet’s population. With this expectation, cities are compelled to respond to increases in waste, effluents, water demand, traffic congestion, and air pollution, just to name a few challenges. One of the ways they are responding is by sharing lessons learned with other cities. Many are joining networks such as C40, ICLEI, and ANSI Network on Smart and Sustainable Cities.
Cities are taking the current and coming challenges seriously. Many cities are preparing sustainability plans, which state goals and targets for carbon emissions, economic initiatives, and waste management. Over time, the plans are assessed using periodic progress reports comparing actual results to targets. In most instances, cities use whatever reporting format they want. These reports are great for presenting what is working and what is not. But is a non-standardized reporting approach optimal for better management, transparency, and communication?
Last week in Washington DC, I participated in a World Bank Conference on Subnational Reporting: Strengthening Governance Systems through Nonfinancial Reporting. This event, which was organized by Monika Kumar and Lydia Habhab, provided information about the importance of nonfinancial reporting for subnational governments units (e.g., cities).
My role involved writing a framing paper for the conference. In the paper, I discussed many of the relevant issues for nonfinancial reporting at the subnational government level. I want to share some of issues in this blog.
What is nonfinancial reporting and why is it important?
Nonfinancial reporting covers a wide range of areas such as performance measurement and sustainability reporting. Nonfinancial metrics are important because they complement financial reporting by providing a systems view of an organization. Financial reporting is essential but insufficient to assessing and addressing economic, environmental, and social risks. Reporting on social and environment impacts are keys to understanding progress toward sustainable development. Nonfinancial metrics such as a city’s greenhouse gas emissions or workforce composition can provide information that is relevant to assessing an organization’s opportunities and risks associated with its operating activities. Poor air quality is only one of the risks that cities face. The curbing of greenhouse gas emissions can go a long way in reducing health consequences for citizens in a city. Measuring and managing these emissions should be part of the governing process. These nonfinancial metrics provide information that has major consequences for financial resources. Prevention costs are usually much less expensive than cleanup ones.
Why are subnational governments relevant to this discussion?
Cities are becoming the focal point of addressing the effects of climate change, inequality, poverty, hunger, and problems for humanity. In 2014, slightly over half of the world’s population was living in urban areas with the expectation that it would be 66 percent by 2050. Because of the resources they use and services they provide, city governments have the opportunity to have positive impacts on sustainable development. Problems that affect local areas may vary substantially within one country because of vastly different environmental and social influences in the different regions. City governments deal with local issues and can often identify needed services. The issues and problems need to be examined at the local level to be addressed most effectively. To assess the issues, there is a need for nonfinancial reporting at the subnational level.
What are some of the important factors that might be reported?
City governments depend on a variety of resources or inputs such as environmental capital (e.g., water, biodiversity), social capital (e.g., common values, reputation), human capital (e.g., people’s competencies, experience), intellectual capital (e.g., patents, software), and manufactured capital (e.g., buildings, infrastructure). Metrics that provide information about these factors can be useful in addressing global problems of climate change, human rights violations, poverty, and human development.
There are numerous useful reporting frameworks that are available for nonfinancial reporting. The CDP is an example of a nonprofit organization that collects environmental and social information from companies and city and national governments on single topics such as emissions, water risk, supply chains, and forests. Other organizations that provide city-specific sustainability reporting tools include the Compact of Mayors and ICLEI. In addition, voluntary guidelines and standards such as the Global Reporting Initiative (GRI) Sustainability Reporting Standards and Integrated Reporting <IR> Framework are continually updating their frameworks to keep pace with the demand for sustainability-related information. Both are adaptable to cities’ needs. The International Organization for Standardization (ISO) has published ISO 37120, Sustainable development of communities — Indicators for city services and quality of life. It is intended as a means “…to help city managers, politicians, researchers, business leaders, planners, designers and other professionals to focus on key issues, and put in place policies for more livable, tolerant, sustainable, resilient, economically attractive and prosperous cities.”
These issues were discussed at the World Bank Conference chaired by Samia Msadek, Director, Governance Global Practice World Bank.
The panel of experts included the following people:
Bill Baue is co-founder of several organizations including: ThriveAbility Foundation, Reporting 3.0, Sustainability Context Group.Bill has also authored several publications, including A Leader’s Guide to ThriveAbility; Hairshirts, Rattlesnakes, and Shoelaces: Toward A Net Positive Movement; and Raising the Bar – Advancing Environmental Disclosure in Sustainability Reporting. He teaches in the Marlboro Sustainability MBA, and serves on the Technical Advisory Group of the WWF / WRI / CDP /UNGC Science Based Targets initiative. He blogs for Huffington Post, Sustainable Business and Sustainable Brands, where he also co-curates the #NewMetrics Channel.
John Morrill is the energy manager for Arlington County, Virginia. Arlington County is a signatory of the Compact of Mayors and has established sustainability goals. John leads a broad portfolio of work in energy management and policy, including climate mitigation and resilience. In 2008 he won a Climate Protection Award from the U.S. EPA for his work on the Arlington Initiative to Rethink Energy (AIRE), the county’s climate action program that now implements Arlington’s Community Energy Plan. John serves on the Board of Directors of the Virginia Energy Efficiency Council (VAEEC), and also the Virginia Energy Purchasing Governmental Association (VEPGA). Prior to joining the County, John held a variety of research and management positions during 17 years with the American Council for an Energy-Efficient Economy (ACEEE) in Washington DC.
Punji Leagnavar is the Manager of Sustainable Development Policy and Government Affairs at GRI where she leads GRI’s program on the UN Sustainable Development Goals and oversees GRI’s engagement with governments. She has over a decade of experience in sustainable development and mitigation, working for organizations such as the Global Environment Facility and the United Nations Environment Program.
Monali Ranade is Senior Operations Officer, World Bank Climate Change. Ms. Ranade focuses on Knowledge Engagement and Innovations to scale-up low carbon development and green growth and to strengthen participation of private-sector.Prior to this, Ms. Ranade worked with the Carbon Finance Unit of the World Bank developing methodologies and programmatic approaches to reduce greenhouse gas emissions in the Energy and Urban sectors. Prior to joining the World Bank, Ms. Ranade worked with United Nations Development Program (UNDP) and as a Consultant to the Ministry of Environment & Forest, Government of India. Ms. Ranade started her career as a small business owner, moving on to a social marketing company focused on rural consumers, followed by several years with the International Institute for Energy Conservation (IIEC) providing consulting services to government agencies. Ms. Ranade’s educational background is in Mathematics and Economics.
During the World Bank session, we covered the benefits of using the <IR> Framework and how in particular the framework works for public agencies. <IR> allows an organization to explain how it creates value over the short, medium, and long terms. It does not replace other reporting frameworks but is the next step for organizations to move beyond providing separate sustainability (i.e., economic, environmental, and social) and financial (i.e., assets, liabilities, revenues, and expenses) metrics. It helps organizations tie together these metrics to see the big picture of their opportunities and risks; this involves reporting about its strategy, governance, performance and prospects in the context of its environment. To prepare this report, an organization must take an in-depth look at the inputs (e.g., raw materials, equipment, human resources) and outputs (e.g., finished products, waste, emissions) of its business model as it relates to risks and opportunities. For example, an organization’s decision to invest in an energy efficient production facility affects its profits by reducing costs and the environment by reducing emissions. In an integrated report, the organization can explain how the interrelated effects of reducing its annual operating costs and greenhouse gas emissions reduce its risks. To illustrate, the risks associated with increases in future energy costs are lessened. Reducing these risks could increase an organization’s opportunities to obtain future financing for other capital projects.
During the IR training, I shared my knowledge and experience with university, city, and airport sustainability reports in the <IR> context. In one of my examples, I discussed a city that invested in a more fuel-efficient transportation system that reduced costs, fuel usage, and carbon emissions. This investment has long-term consequences for reducing operating costs, carbon emissions, and human healthcare costs. It has the potential to affect how the city is perceived in terms of managing its financial and environmental impacts. This could in turn have consequences for the city’s bond ratings. An <IR> report would discuss these issues as they relate to the city’s costs, revenues, opportunities, and risks in the short, medium, and long terms.
Monika Kumar, Environmental Specialist with the Corporate Responsibility Program at the World Bank, and I were co-trainers at the GRI G4 sustainability reporting session at the National Geographic Headquarters March 16 and 17. Monika is an excellent trainer with a wealth of experience from her work preparing the World Bank’s sustainability reports. We had a stimulating two days with a group of enthusiastic participants. These trainings provided participants with the opportunity to learn in detail about the GRI G4 framework with current examples of reporting companies. In addition to learning about the GRI principles and their application, we focused on the entire reporting process from planning to publishing the finished report. In this training, we also learned a great deal about our participants’ sustainability reporting experiences. They shared their successes and challenges, which was quite useful to all. Interactive trainings such as this one make our training interesting and memorable.