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4.1 Sustainability Reporting

Learning Objectives

  1. Discuss the value of sustainability reporting.
  2. Explain the phrase “You can only manage what you measure.”
  3. Identify the core areas that are part of sustainability reporting.
  4. Explain radical transparency and how it pertains to sustainability.

How do an organization and its stakeholders know how “sustainable” it is? This is not an easy question to answer. As all human activity have economic, social, and ecological impact, it is very difficult to determine whether the sum of the total impact of all activities of a company makes it “sustainable” or “unsustainable.” A more useful approach is to consider an organization’s actions on a continuum with a goal of continuous improvementA management philosophy of ongoing effort in improving an organization’s products, services, or processes. Often improvement is based on many incremental changes as opposed to radical overhaul. in decreasing its negative overall societal impact and improving its positive overall societal impact. Any change in any organization can be challenging to implement, and viewing business operations from a triple bottom line perspective—especially in organizations that typically have been only financially focused—can be extremely challenging. Progressive and small changes when approaching sustainability often will be a more effective strategy than implementing more widespread changes.

There is an axiom in business that “you can only manage what you measure.” Measurement is at the core of performance-based managementA systematic approach to improving the effectiveness of an organization through an ongoing process of measurement, collection, review, analysis, action, and communication.. This statement is true whether the business is a small sole proprietorship or a large multinational company. In order for any organization to understand its current status and progress on its business activities, it is essential that it has clearly defined business metricsA set of measurements that quantify results. In a business context, they typically quantify performance toward specific business goals. that can be collected, analyzed, evaluated, and acted upon.

Businesses have traditionally focused on their performance on financial and accounting information. It is only in recent years that the business community has shifted to additional metrics—in terms of environmental and societal impact—to assess their business performance. Over the past decade, sustainability reporting has been increasingly adopted by corporations worldwide. In 2008, nearly 80 percent of the largest 250 companies worldwide issued some form of reporting that incorporated environmental or societal impact; this is up over 50 percent from 2005.KPMG, KPMG International Survey of Corporate Responsibility Reporting 2008, http://www.kpmg.com/EU/en/Documents/KPMG_International_survey_Corporate_responsibility_Survey_Reporting_2008.pdf.

Sidebar

Accountants and Sustainability

Sustainability reporting continues to become more mainstream in the corporate world. In June 2011, global consulting and accounting firm Deloitte expanded its sustainability service offerings by acquiring DOMANI Sustainability Consulting, LLC, and ClearCarbon Consulting, Inc. Large accounting firms are recognizing the business opportunity to shift from single bottom line accounting to triple bottom line accounting.

Chris Park, principal at Deloitte Consulting, LLP, and national leader of Deloitte’s sustainability services group, said Deloitte’s “focus is on working with clients to further embed sustainability into everything they do, helping companies drive growth and innovation, mitigate risk, reduce cost and improve brand—using energy, water, resources and emissions as levers for creating value.”“Acquisitions, Hirings Expand Deloitte’s Sustainability Service Offerings,” Inaudit.com, http://inaudit.com/consulting/acquisitions-hirings-expand-deloittes-sustainability-service-offerings-6705.

Sustainability reporting is for the most part a voluntary activity with two main goals currently:

  1. Documentation and assessment of an organization’s environmental and social impact
  2. Communication of a company’s sustainability efforts and progress to stakeholders

Sustainability reporting typically focuses on comparing performance in the current year to the previous year and comparing it to specific goals and targets. It can also include a longer-term focus and comparisons to other companies in similar industries and in the same geographic areas.

Sustainability reporting is also referred to as “triple bottom line” reporting, meaning that it takes into account not only the financial bottom line of a company but also the environmental and social “bottom lines” for a company. Sustainability reporting reflects the interrelated progress of a company in the three areas—also referred to as people, planet, and profit.

For businesses to understand and improve corporate sustainability performance, organizations need accurate carbonMeasurement of the greenhouse gas (GHG) emissions from an organization’s business activities. Quite often linked to its energy usage., energy, toxics, waste, and other sustainability dataQuantitative information derived from the business activity of an organization that is used to create social or environmental metrics. Examples include annual water usage, records of worker harassment complaints, sales revenue, and employee wages and benefits.. While traditional business financial statements—such as balance sheets and net income statements—may help a business determine if it is financially sustainableA company is generating positive cash flow or is profitable, meaning that its revenues are expected to exceed its costs. This allows the company to sustain business operations with the same or greater assets and resources. (an important part of business sustainability), they are alone inadequate in measuring a company’s environmental and social progress.

Just as there are accounting standards, such as generally acceptable accounting principles (GAAP)A standard framework of guidelines for financial accounting., to provide organizations with a common “language” of reporting financial information, there are also standards and processes that have been developed for organizations to measure and communicate their position and progress on sustainability.

One of the most important aspects of sustainability reporting is the communication of the information so that it can be evaluated by stakeholders. For most businesses, the most visible form of sustainability information communication is in their annual corporate sustainability report. This has become an increasingly common document released by major companies and is typically featured on their websites. Many companies will have a section of their website specifically dedicated to highlighting their initiatives and outcomes relating to sustainability. Sustainability information can be included on consumer packaging or other marketing pieces to help brand the sustainability efforts of the company and assist consumer choice.

Sidebar

Coca-Cola’s Sustainability Efforts

Coca-Cola Enterprises’ 2009/2010 Sustainability Review report provides an example of an annual sustainability report. It discusses goals and performance for areas including beverage benefits, active healthy living, community, energy efficiency and climate protection, sustainable packaging, water stewardship, and workplace. These areas encompass economic, ecological, and social performance in a way that fits and is meaningful to Coca-Cola’s business and strategy. The report is available online at http://www.thecoca-colacompany.com/citizenship.

While metrics are important, quantitative information is only one aspect of sustainability reporting; what is also important is qualitative information that provides context for a company’s sustainability efforts and discussion of how sustainability integrates into an organization’s short-term and long-term mission and business activities.

Sustainability reporting can be challenging. Sustainability efforts can be difficult for organizations for reasons including

  • lack of internal expertise and understanding of sustainability,
  • dispersed and difficult to access or incomplete data,
  • the need to coordinate across various functional units within an organization, and
  • lack of a clear vision and management strategy in regards to sustainability.

Information systems, labor, and other organizational resources must be devoted to measuring and analyzing sustainability information. In addition, sustainability is a complex topic and reporting on specific economic, ecological, and social metrics that are quantifiable may not be sufficient to give a full picture of a company’s “true” societal impact.

One of the greatest challenges for businesses is the actual collection, compilation, and validation of data necessary for sustainability reporting. Businesses need to collect information in an accurate and timely manner and business processes must be in place to compile and analyze collected sustainability data.

But even if an organization has the best data collection systems in place and a robust and accurate sustainability reporting process, organizations must also act on that information—that is, use the information to inform and influence subsequent actions. This leads to the next major challenge, which is integrating the information collected and analyzed into the management decision-making process. It is not beneficial to produce a great sustainability report and then stick it on a shelf or a website. A business must be able to “sense” its external environment through effective data acquisition and reports, and it must be able to learn from what it perceives from that information to improve its practices using that information.

Radical Transparency

Radical transparencyEnsuring everything a company does is completely transparent and visible to the consumer and stakeholders. is an emerging concept that complements sustainability and represents a departure from the current business environment that—while slowly becoming increasingly more transparent—still relies heavily on closed decision making and limited disclosure of business activities and the consequences of those activities.

Radical transparency is a voluntary transparency that exceeds what is required by law or regulation and involves providing a clear picture to the public of “the good, the bad, and the ugly” about the company. Sustainability reporting is one component of radical transparency as it allows a more public and honest view of the company. Radical transparency is based on the concept that the truth is far easier to sustain than hidden information or a lie. The belief is that customers and other stakeholders will want to engage and support organizations that are built on full disclosure.

Radical transparency has been supported by the rise of social media, including Facebook, Twitter, blogs, and other forms of Internet-based communication that expose the truth and that can provide a low-cost way to reach a global audience with information.

Sidebar

Kashi Controversy

In April 2012, Kashi, a brand of cereal owned by Kellogg’s, learned the importance of transparency with its customer base. The cereal markets its products as natural and healthy. But customers felt betrayed when they learned that genetically modified soy was being used in the product but was not disclosed by Kashi. Social media, including Facebook and Twitter, allowed customers to immediately and with great impact express their outrage as many of Kashi’s customers believe genetically modified food products are not healthy. Kashi’s callous initial response did little to appease customers as David Desouza, Kashi’s general manager, stated they had done nothing wrong as “the FDA has chosen not to regulate the term ‘natural.’”“The Kashi GMO Controversy: Will You Stop Buying the Crunchy Cereals?,” Well & Good NYC, May 1, 2012, http://www.wellandgoodnyc.com/2012/05/01/the-kashi-gmo-controversy-will-you-stop-buying-the-crunchy-cereals/. The rise of social media has allowed anyone to gain the attention of the world and highlights the companies to be aware of potential “firestorms” that can arise from customers posts; however, had Kashi been transparent about their use of this product and engaged their customers on their products—through social media and open dialog—they could have not only avoided alienating their customers but also built better relationships and trust with their customers.

Sidebar

Seventh Generation’s List

In contrast to Kashi’s failure to be transparent, Seventh Generation provides an example of how being transparent can build customer relationships. Jeffrey Hollender, cofounder of Seventh Generation, posted a list on the company’s website several years ago of all the things that were wrong with their products and how they fell short of what the company’s mission, which is to “restore the environment, inspire conscious consumption and create a just and equitable world.” The list included packaging that compromised their values and use of certain less-desirable ingredients because they were unable to use preferable alternatives.

Jeff’s sales manager was concerned that this level of transparency would be exploited by their competitors leading to a loss in market share and revenue. In fact, competitors did provide their customers with the list of Seventh Generation’s shortcomings. However, competitors’ customers did not use this information against Seventh Generation, but instead they asked Seventh Generation’s competitors to now share their own list. Most competitors were not willing to do this. This level of radical transparency resulted in Seventh Generation’s customer loyalty becoming even stronger. The bottom line, according to Hollender, is that “you can’t judge your own level of sustainability or responsibility, you can only be judged by others.”R. P. Siegel, “Radical Transparency: Seventh Gen’s Hollender Puts His Money on the Truth,” Triple Pundit (blog), July 2010, http://www.triplepundit.com/2010/07/radical-transparency-seventh-generation%E2%80%99s-jeffrey-hollender-puts-his -money-on-the-truth.

Video 2

Can “Radical Transparency” Encourage Responsible Businesses?

(click to see video)

View the video of Jeffrey Hollender explaining this story on YouTube.

Businesses have become increasingly more sophisticated in their aspirations and approaches to sustainability—including an embrace of greater transparency—which has translated into tools and sustainability evaluation methods that continue to improve and expand over time. The remainder of this chapter will provide examples of and insights on various metrics, frameworks, and processes of sustainability reporting.

Key Takeaways

  • Sustainability reporting is increasing at businesses throughout the world.
  • Sustainability reports on the triple bottom line of people, planet, and profit.
  • Global climate change, stakeholder requirements, corporate values, economic risks, and government regulations are all factors driving the increase in sustainability reporting.
  • Traditional financial metrics are insufficient in addressing sustainability challenges and opportunities; ecological and social metrics are also necessary.
  • Radical transparency is an emerging trend in which organizations publicly display the positives and negatives of their companies.

Exercises

  1. Visit the website of a company that you like to purchase products from. Look for a section of the website that documents their sustainability efforts. Create a list and record actions that the company is taking to improve environmental performance or social impact. Look for specific measures that document the impact of their environmental or social impacts.
  2. Watch Jeff Hollender’s video on radical transparency at http://www.youtube.com/watch?v=annLX3uRVjQ. What are the benefits of radical transparency? What might be some of the drawbacks? How does it relate to the concept of continuous improvement and sustainability?