Sustainability reporting – from exception to expectation
‘What gets measured gets managed’ is a management wisdom (or platitude) typically accredited to management guru Peter Drucker. Interestingly, what Drucker actually said was ‘What gets measured gets managed – even when it’s pointless to measure and manage it, and even if it harms the purpose of the organization to do so.’ Based on an extensive study of Dutch sustainability reporting, recently published in Organization & Environment, we examine the tensions that exist around measurement.
‘What gets measured gets managed – even when it’s pointless to measure and manage it, and even if it harms the purpose of the organization to do so.’ (Peter Drucker)
Sustainability reporting, a type of corporate disclosure in which organizations communicate about their economic, social and environmental impacts, emerged over 30 years ago. We show in our study how reporting by now is an expectation rather than an exception as it transformed from a morally inspired values-based practice into a financialized value-based one that has Board level attention. We highlight how commensuration played an important role in this development. That is, as reporting professionalized and standardized, previously disparate (qualitative) elements increasingly became quantitatively measured into a standard or unit. We explain how this process helped to propel reporting to normality, but also highlight the pitfalls that accompany introducing measurement in domains (such as sustainability) that are typically less familiar with this.
Based on over 100 interviews with stakeholders and extensive document analysis, we map the history of sustainability reporting. At first, reporting was mostly focused on the environment and driven by NGOs and political pressure as transparency was considered a sign of good corporate citizenship. Around the turn of the century, and under impetus of consultants and standard setters, the ‘moral case for sustainability’ transformed into the ‘business case for sustainability’. Firms started to consider the potential value of sustainability and soon reporting standards, indicators, and benchmarks started to appear. Over the last decade, the investment community and accountants have become interested and the demarcation between financial and non-financial reporting started to blur as integrated reporting was introduced. Sustainability was no longer a nice story peripheral to strategy and value creation, but an integral part of this, highlighted by a focus on determining financial firm value through a limited selection of (quantified) strategic indicators.
What numbers cannot tell …
On the one hand, this development has simplified reporting and made it more concrete, manageable and focused on strategic matters. As such, the focus on measurability and quantification could be an explanation for reporting’s growth and regarded a success for transparency. After all, ‘what gets measured gets managed’. However, both managers and policy makers do well to consider whether the opposite may ring true as well: ‘what gets not measured gets not managed’? We highlight two main risks of commensuration, namely its tendency to narrow what is considered valuable and its potential to erode or crowd out moral questions.
We highlight two main risks of commensuration, namely its tendency to narrow what is considered valuable and its potential to erode or crowd out moral questions.
As for the former, consider commensuration’s consequence of facilitating the integration of non-financial (or ESG) data in investor information systems. On the one hand, this is positive for the inclusion of (sustainability) issues previously not considered by investors. However, as what we measure determines our vision and reality, it runs the risk of rendering invisible issues irrelevant. For instance, we know from US law schools that the introduction of rankings and ratings (a good example of commensuration) has affected the focus of these schools in terms of what is considered important and valuable to be managed. As for the latter argument of crowding out of moral questions, this was pointedly explained by one informant in our study:
“if you restrict yourself to reporting the standardized information, and I think that is cause for concern, at least for me, then you risk that you stop the thinking”
There is a risk here of conveniently ignoring dilemmas that litter the road towards sustainability and paying insufficient attention to what sustainability actually means for an organization. Belgian ethicist Luc Bouckaert argues in this respect that when a practice such as sustainability reporting becomes part of ‘business-as-usual’, the risk of the resulting crowding out of morality is that this can in fact lead to more opportunistic behavior in business.
To be sure, such tensions will not be universal and most likely arise when claims about incommensurables are strong. Still, reflecting on commensuration is important not only because commensuration is a prevalent phenomenon but also because it spreads into different spheres of life. In our case, the commensuration of reporting has created effects that are increasingly relevant in other societal domains. NGOs, for instance, are asked to attach specific (often financial) indicators to measuring their work in order to meet standards of evidence-based funding. Similarly, commensuration enters the legal sphere as sustainability reporting is increasingly influenced by regulation (e.g. the upcoming CSRD EU directive on non-financial reporting) and actors such as the Dutch State face litigation over taking insufficient action against climate change.
In sum, managers do well to continue to ask questions about what it actually means to be a sustainable organization and address the resulting dilemmas that they find on their sustainability journey. Peter Drucker would therefore probably have agreed with the famous words of another guru of sorts (Albert Einstein), who proclaimed that ‘not everything that counts can be counted, and not everything that can be counted counts.’ Managers and policy makers do well to remember.
‘Not everything that counts can be counted, and not everything that can be counted counts.’ (Albert Einstein)
 See for instance Espeland, W.N. and Sauder, M., (2016) Engines of Anxiety: Academic Ranking, Reputation, and Accountability, Russell Sage Foundation, New York.
 Bouckaert, L. (2006), “The ethics management paradox”, in Zsolnai, L. (Ed.), Interdisciplinary Yearbook of Business Ethics, Peter Lang Publishers, Oxford, pp. 199-202