Creation Of The Global Sustainability Index Announced At Davos

The increasing demand from stakeholders for greater transparency on the way in which sustainability issues are managed has led to the resurgence of, what I have termed  sustainability reporting tools (SRTs). In one my published research papers titled 'A review of corporate SRTs' I have clustered these tools into: frameworks which serve to provide guidance on what companies should report on such as the Global Reporting Initiative; standards such as the ISO 14001 which focuses on environmental systems and ISO 18001 on health and safety systems; as well as ratings and indexes which serve to measure and benchmark performance of corporations such as the Dow Jones Sustainability Index (DJSI), FTSE4Good Index among many others.

At the recent World Economic Forum in Davos, it was announced that the Global Sustainability Index (GSI) will be introduced. While much is still unknown about the GSI at this stage, what is sure is that this index is aimed at answering questions on how entities will be engaging in environment-friendly practices and support social justice/create value for the community.

There are many aspects which would need to be considered in the design of GSI including the need to find the right balance of criteria across economic,environmental and social dimensions. Some scholars have long argued for the need to introduce intensity measurements as opposed to absolute measurements, for example, tonnes of carbon emissions over revenue as this would more accurately reflect on the efficiency of the entity and allow for better comparability. Will these criteria focus on sustainability disclosures or sustainability performance?  How will the right balance be determined? What about the weightings allocated for each criterion, taking into account geographical and political context? Who decides on such weighting allocations?

Since sustainability is about securing the future for our next generation, presumably there would need to be some consideration on forward looking criteria. This is currently lacking in existing SRTs. The approach taken in measuring sustainability will need to be carefully thought of. The deterministic approach is perhaps the most common way of measuring, where a single criterion is given a score and these scores are added up to provide a total index score. But, I have challenged this approach. While it may seem to be the most intuitive,it is not necessarily the most precise way of measuring sustainability. As mentioned, some 'forward looking'  criteria will need to be considered and unfortunately they are not always deterministic. Some degree of uncertainty in the measurement of such criteria should be acknowledged. Uncertainty can arise as a result of differences in assessors' opinions or the lack of data.

In short, much thought needs to be given to the design of the GSI to ensure its effectiveness. Failure of which, it will just be seen as a redundant tool not only causing more 'reporting fatigue'  but also add to the confusion of stakeholders who have to deal with the hundreds of such tools in the market.

Dr Renard Siew is a researcher based at the Centre for Energy and Environmental Markets (CEEM). His research interest lies in sustainability/ integrated reporting, ESG research, socially responsible investment (across different asset classes: equities, infrastructure and property/real estate), climate change, sustainability strategy and green construction for the building/infrastructure sector. Renard did his PhD at UNSW with the support of the Australian Postgraduate Award (APA) Scholarship. He has published in international refereed journals on various sustainability issues in Asia.