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11.2 Business Value of Sustainability Reporting

Learning Objectives

  1. Understand the key benefits of sustainability reporting.
  2. Explain the difficulty of quantifying the benefits of sustainability reporting.
  3. Discuss the key challenges in sustainability reporting and how they might be overcome.
  4. Describe the different dimensions or perspectives of sustainability materiality and why they are important.
  5. Explain the importance of materiality in determining what to report on in sustainability efforts.

Benefits

Timberland has a goal of being the reference brand for sustainability and sustainability reporting, and they do not limit that to within their own industry. The company wants to be a leader, the brand that’s pushing the edge on transparency and reporting.

There is evidence that the efforts on sustainability and branding around sustainability reporting are affecting Timberland profitability, market share, and customer loyalty. Timberland’s highest-margin products—contributing the most on a dollar of sales basis to profitability—are the company’s Earthkeepers products and this is suggestive that consumers are willing to pay a premium for a low environmental impact product.

There is also anecdotal evidence of sustainability reporting contributing to Timberland’s market performance; however, the company has struggled to put a hard dollar value on this. Timberland’s marketing managers and public relations professional report that sustainability efforts and the various sustainability reports Timberland have released over the last several years has resulted in an increased number of positive media impressions. Timberland receives other kinds of anecdotal evidence in market research and focus groups with consumers that sustainability initiatives generate brand heatPositive feelings when exposed to a brand name.. Brand heat is a marketing term to describe the positive feelings when exposed to a brand name. There is even less evidence that brand heat actually leads to a purchase. A challenge for Timberland is quantifying and linking sustainability to the financial bottom line.

Challenges

One of the hardest challenges for Timberland was determining the right metrics to report on. Timberland, in part, used the indicators from the Global Reporting Initiative (GRI) as a starting point. However, the GRI has many performance indicators and many were not relevant to Timberland’s stakeholders or material to Timberland.

For Timberland the most important areas to report on, measure, and act on are those that are material to the company. Timberland’s areas of focus for materiality are the environment, consumers, and other stakeholders, including government. Timberland prioritizes measurement and action on the areas that are at the intersection of these three dimensions of materiality.

Dimensions of materiality at Timberland.

For example, Leather and rubber use is highly material to Timberland’s business operations. These two inputs have significantly more impact on the environment than any other inputs because of the volume of leather and rubber used in the manufacturing process and by the very nature of the materials. These manufacturing inputs are material to the environment, to customers, and to stakeholders and as a result are areas of focus and reporting for Timberland.

This strategy helps the company focus on the areas that have the greatest impact. For example, customers might think Timberland should focus on packaging, such as footwear boxes, because it is one of the aspects of the product that they most interact with. The environmental impact of their use of leather and rubber is much more materialHaving a connection or knowledge of which would affect a business decision or course of action. (significant) to the company’s ecological and social impact than its use of cardboard for shoeboxes, as the boxes come from recycled sources and also can be easily recycled.

Another major challenge for Timberland is the constant tension between measuring more metrics due to demands from different stakeholder groups and the resources required by Timberland to provide those metrics. This was a lesson learned by Timberland as the company started its sustainability reporting efforts. At the beginning, Timberland struggled with trying to provide more and more sustainable performance indicators due to stakeholder requests. The company expended significant resources to collect and report on the different disclosure requests that they received, which distracted the company from undertaking the activities necessary to lead to substantive improvements in its environmental and social impact.

Efforts at Standardization and Integration

Initiating sustainability reporting and developing the appropriate communication methods has been a significant undertaking for the company over the past decade. Sustainability reporting had to be done largely outside of Timberland’s regular business units and systems. A separate reporting software system was developed for storing sustainability performance indicators (SPIs), but, at the time, it was too complex for the corporate social responsibility (CSR) reporting system to be integrated with the company’s accounting and finance system tools or product design systems. They were all developed on different software platforms and did not communicate.

The other reporting and management systems were not designed to include sustainability measures, as it was not part of standard business practice. For example, in designing a new product, there was limited product design reporting system ability to take into consideration the sustainability impacts of different designs, as they were not developed for environmental reporting.

Just recently (2011), business decision software systems companies, such as SAP, and the designers of product life cycle management systems are developing systems software that have environmental modules. This means that what were two or three separate systems before can now become more of one integrated system to include environmental and, eventually, social impact along with product design and financial analysis.

Timberland is moving toward being able to upload CSR metrics into their financial information and product design systems. Their environmental and financial information systems are starting to “talk” to one another. Timberland can take into consideration reductions in energy or material usage reductions from both an environmental and financial perspective.

The benefits include not only being able to better tie environmental efforts with bottom line considerations but also enabling the CSR team to reach and impact key decision makers in finance and product design who were outside the Timberland CSR reporting system. The sharing of information and reporting systems integration allows different business units and functional areas to begin to speak a more common language and take a more systems and full-cost and benefit perspective in their decision making about financial, product design, and sustainability actions.

Timberland is focusing its sustainability reporting efforts increasingly on this integrated systems perspective, using a core set of metrics to help identify problems and then identifying root causesThe initiating cause of a causal chain of events, which leads to an outcome or effect of interest. and finding the best solutions. The company can then link the problem and solution to the financial performance of the firm.

As Betsy Blaisdell describes it,

The environment will be embedded in the financial statement. I think we are experiencing the merging of the two right now. I think 20 years from now, the business value will have been demonstrated and that environmental metrics will become a part of the financial statement, the links will have been created, in that CSR will be a part of everybody’s role, versus a distinct stand-alone department.

My hope is that in 20 years, this is just a part of the business—the normal business school program. It’s a part of the normal business acumen. And that folks are educated and have a carve-out, or have distinct responsibilities within their regular business job to make sure that the commerce and the justice piece go hand in hand, versus living in different parts.

Key Takeaways

  • What is most important to track and report out in sustainability reporting are activities with material impact on the environment, consumers, communities at large, and business profits.
  • What is not tracked and reported on will be difficult for business managers to act on.
  • It is difficult to quantify the benefits of sustainability in general and sustainability reporting in particular.
  • Sustainability reporting can enhance business reputation and branding.

Exercises

  1. Discuss some of the challenges faced by Timberland in relation to its sustainability reporting. What are some of the benefits they have experienced?
  2. Do you think sustainability can generate “brand heat”? Why or why not? Go on Facebook and look for an example of a “green” product that is generating positive discussion. Do you see any ways that the company is commercially capturing the value of that discussion (such as a link or app that would lead to a sale of the product)?