SR Variants

Sustainability reporting (SR) is a nebulous but frequently used concept. A Google search for “sustainable development” gets nearly 17 million hits; limiting that with the term “business” cuts it to a million and limiting that with the term “metrics” leaves “only” half a million hits. The World Business Council for Sustainable Development (WBCSD) tops the list (apart from Wikipedia); it is also at the top of Globescan’s Survey of Sustainability Experts, as summarized here by WBCSD. So if you are only going to visit one website, make it WBCSD. And if you are only going to read one item there, download Beyond Reporting: Creating business value and accountability.

Going deeper into business metrics for sustainable development is tedious because WBCSD is very selective in suggesting quantitative techniques and the two logical ways to choosing another source—Google and expert opinion—go in different directions. Those near WBCSD in terms of Google hits sell, while those sustainability experts mention give away, their knowledge. Free sounds better but it takes a fair bit of knowledge to use the sources sustainability experts recommend.

These links aim to be a crash course that brings business managers close to that level of knowledge quickly—and helps them look beyond reporting.

Overview

SR are fairly new but many elements have been around for decades. Perhaps the best overview of the current situation is a chart (right; click for enlargement) from CorporateRegister’s Towards transparency: progress on global sustainability reporting 2004. There is significant overlap in types of SDR in content and which, if any, model a particular report adopts. Almost half focus on the environment, About another third cover that and more by including worker health and safety (EHS reports), extending that to consider a broader set of social concerns, or considering a still broader spectrum of economic, environmental, and social issues. Essentially all SDR are available free after registering from CorporateRegister.com, starting with a 1987 EHS report from British Nuclear Fuels.

The 2006 GEMI-BSR Survey suggests SR is not just public relations. Most respondents report their companies integrated environmental considerations into processes associated with product design (61%) and procurement (53%) and did the same for social considerations (46% for product design and 51% for procurement processes). Interestingly, only a minority (45%) considers related reporting an invaluable business tool yet, as shown in the chart on the left (click for enlargement), a solid majority has key performance indicators (KPI) in all important areas.

One reason for is that there are so many kinds of SDR. A good reference guide (Measurement and Standards by BITC and the Corporate Citizenship Company) lists some 40 variants in several categories. What follows is based loosely on that guide. By the way, BITC’s jargon buster is a great reference guide to the often bewildering terms and concepts so many variants spawn.

Reporting frameworks

If you are only going to look at one SR variant, make it the Global Reporting Initiative (GRI). It is generally recognized as the leading form of reporting guidelines and seems to have done the most networking with other SR variants. It is detailed and comprehensive; at least briefly recognizes financial accounts (in terms of “economic value”); it specifies indicator sets across most topics considered by any other variants. Those often go by acronyms associated with the subset of issues they consider: CG (corporate governance) and CSR (corporate social responsibility, or governance plus other social commitments); EHS (environment, health and safety); ESG (environment, society, and governance), human resources (HR), or GHG (energy and greenhouse gases).

Even GRI is more a catalog of possibly relevant issues. No accepted reporting framework offers a conceptual framework or way to decide which issues are material to a particular business. Moreover, each framework is a unique blend of quantitative and qualitative indicators. This makes benchmarking particularly difficult.

One of GRI’s innovations is a Content Index that means it can be satisfied by a “virtual” SDR; say a website with a page helping users filter content according to GRI guidelines. A few examples: 3m, Bristol-Myers Squibb, and Toshiba.

Open benchmarking exercises

There are a number of fee-based services that rate companies on a range of sustainability concerns, using proprietary mixes of qualitative and quantitative indicator. Only two sources rate companies and also freely publish their results.

CR Index

The UK stands as a leader in corporate benchmarking exercises. BITC’s Corporate Responsibility Index is the UK’s leading benchmark of responsible business:

The Index assesses the extent to which corporate strategy is integrated into business practice throughout an organization. It provides a benchmark for companies to evaluate their management practices in four key areas of corporate responsibility and performance in a range of environmental and social impact areas material to the business¹.

Tomorrow’s Value

SustainAbility, in partnership with Standards & Poor’s and UNEP, provides a structured qualitative scoring of Corporate Sustainability Reports. It reports scores for the top 50 and lists the next tier of 50 companies. It concludes: ²

In 2006, we have seen companies hitting new heights in sustainability reporting. However, while this leadership group pushes ahead, three issues remain outstanding. First, the huge number of non-reporting companies worldwide, although the entry of companies like Wal-Mart … may well help here. Second, the continuing challenge of engaging capital markets in general, and financial analysts in particular. And, third, the fact that many sustainability reports fail to provide analysis in the sustainable development area with the information necessary to assess whether they are on a sustainable track, or not.

General guidelines for businesses

These are meant to influence company behavior. Among the dozen or so around the first to look at is OECD Guidelines for Multinational Enterprises. As explained in its opening paragraph on principles and objectives:

The Guidelines are recommendations jointly addressed by governments to multinational enterprises. They provide principles and standards of good practice consistent with applicable laws. Observance of the Guidelines by enterprises is voluntary and not legally enforceable.

Paragraph 10 of Preface states:

The common aim of the governments adhering to the Guidelines is to encourage the positive contributions that multinational enterprises can make to economic, environmental and social progress and to minimise the difficulties to which their various operations may give rise.

Investor standards & guidelines

More institutional investors are applying sustainability filters to their portfolios. The latest survey by the Social Investment Forum concludes that socially responsible investment (SRI) now accounts for 11% of assets under management in the US; SRI rose by 18% between 2005 and 2007 compared to just 3% for total assets under management over the same period.

There are several commercially available systems for SRI filters. Of these the best known is The Dow Jones Sustainability Indexes (DJSI) and DJSI World, which capture

… the top 10% based on long-term economic, environmental and social criteria out of the biggest 2500 companies worldwide. Components are selected according to a systematic corporate sustainability assessment that identifies the sustainability leaders in each of 58 industry groups. The underlying research methodology accounts for general as well as industry-specific sustainability trends and evaluates corporations based on a variety of criteria including climate change strategies, energy consumption, human resources development, knowledge management, stakeholder relations and corporate governance.³

DJSI are based on a detailed and numeric scoring system managed by the investment SAM-Group. Ultimately, however, the evaluation is subjective. Together with PricewaterhouseCoopers, Group SAM publishes a Sustainability Yearbook that provides industry level results and explains how (page 8) “SAM applies a best-in-class approach targeted at identifying the leading companies of a sector that are expected to create more shareholder value⁴.”

A few other well known SRI filters:

• FTSE4Good

• KLD's Global Sustainability Index

Standards

Standards refer to systems and guidelines an organization may adopt, regardless of what it reports. Most entail some form of compliance audit, which may be internal or external. External reporting tends to focus on completion of an audit rather than details of the findings. Companies that rely on such systems, however, ought to have an easier time reporting.

International Standards Organization (ISO)

Over 100,000 business facilities use the ISO 14000 guidelines on environmental management systems. Based on this popularity, business managers will want to pay attention as ISO develops its system on social responsibility (ISO 26000). This new guideline is scheduled for release in 2010. In the meantime, useful, detailed working draft documents are available on the ISO 26000 website.

OSHAS 18001

“The (OHSAS) specification gives requirements for an occupational health and safety (OH&S) management system, to enable an organisation to control its OH&S risks and improve its performance. It does not state specific OH&S performance criteria, nor does it give detailed specifications for the design of a management system.”

Principles

Businesses are expected to report agreement with general codes of conduct and behavior, from not using child labor to consumer protection and beyond. The place to start is the UN Global Compact, “a purely voluntary initiative with two objectives: Mainstream the ten principles in business activities around the world; catalyse actions in support of broader UN goals, such as the Millennium Development Goals (MDGs).” At this writing, some 4000 businesses have reported acceptance of these principles.

1http://www.bitc.org.uk/document.rm?id=5310, page 2