Market devices for social change? XBRL, GRI and more…

June 12, 2009

I have just received from COST US, a Google group dedicated to corporate sustainability, links to articles about technologies that may reshape how investors and consumers politically engage with companies.

The first one, from the corporate blog of Hitachi, discusses the happy marriage between the Global Reporting Initiative and XBRL language. The GRI is a non-profit that advocates a system for environmental and social reporting, and XBRL is a new format for electronic reporting. This natural union could be one of those happy combinations of content and platform, like mp3s and the ipod.

It’s clear that by providing preparers and users of data with the means to integrate financial and so-called nonfinancial data (i.e., that which discloses a company’s environmental and social performance), XBRL offers exciting possibilities. The potential for XBRL to provide the users of corporate sustainability performance data with the leverage to push and pull information that meets their requirements is certainly there. That was the thinking behind the first version of an XBRL taxonomy for GRI’s sustainability reporting guidelines, released in 2006.

The second one, a Wired magazine article, introduces the efforts of tech-savy programmers to appropriate XBRL for their own activism. See Freerisk.org.

The partners’ solution: a volunteer army of finance geeks. Their project, Freerisk.org, provides a platform for investors, academics, and armchair analysts to rate companies by crowdsourcing. The site amasses data from SEC filings (in XBRL format) to which anyone may add unstructured info (like footnotes) often buried in financial documents. Users can then run those numbers through standard algorithms, such as the Altman Z-Score analysis and the Piotroski method, and publish the results on the site. But here’s the really geeky part: The project’s open API lets users design their own risk-crunching models. The founders hope that these new tools will not only assess the health of a company but also identify the market conditions that could mean trouble for it (like the housing crisis that doomed AIG).

These are exciting developments for sociologists of finance. As Callon has argued, it is the tools that market actors use to calculate that end up shaping prices. There are politics in markets, but they are buried under the device. Following the controversy as it develops during the construction of the tools is the key way to unearth, understand and participate in it. This is of course, a favorite topic of this blog, of several books and of an upcoming workshop, “Politics of Markets.”

One open question, as Gilbert admits, is whether the “open source” approach and tool building will take up.

So, how many companies are tagging their sustainability disclosures in this way? The answer is: surprisingly few. Why is this? Perhaps companies are unaware of the ease with which it can be done. As previous contributors to this blog have noted, XBRL is not that hard an idea to get your head round, and implementing the technology involves very little in terms of investments in time or cash.

An alternative model is Bloomberg’s efforts at introducing environmental, governance and social metrics on their terminals (a worthy topic for another post).

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3 Responses to “Market devices for social change? XBRL, GRI and more…”

  1. Peter Says:

    Daniel, I can finally pull a Kieran Healy (who always seems ahead of the curve) and say that I wrote about XBRL a year and a half ago, although I thought at the time that it would be more for investors than for activists…

    And I agree it would make an outstanding dissertation or research project.

  2. danielbeunza Says:

    You did, and I should congratulate you on the speed and the very articulate post. But I think you missed key thing at XBRL. I don’t think it is about commensuration and standardization, but about differentiation and innovation. Tagging is not just categorizing… it is a form of emergent categorizing. What the rise of XBRL activists shows is that the new reporting language leaves room for technologies that change how valuation is done… not simply make the old thing faster and quicker.


  3. Thanks much for citing the post by Sean Gilbert on XBRL and the GRI.

    Readers may also be interested in this recent post by Scott Gaul of MIX on XBRL and microfinance http://tinyurl.com/l9l6f2

    Bob Schneider
    Editor, Data Interactive (the Hitachi XBRL blog)
    hitachidatainteractive.com


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