Sustainability - Why Report?

In my last article on sustainability, I discussed how material topics unveiled through stakeholder engagement can be used as a basis for setting specific, measurable environmental, social and economic goals, following The Global Reporting Initiative (GRI) framework. The GRI not only offers standardized metrics to track progress toward goals over time, but it also can translate into best-practice management techniques within your company — why and how to report on your sustainability initiatives and progress.

In today's market, a growing number of stakeholders, such as customers, investors, employees, advocacy groups, the media and competitors, are demanding greater disclosure and transparency. For example, if you are one of the 100,000 suppliers in Wal-Mart's supply chain, you will be required to disclose sustainability information as part of Wal-Mart's recently announced worldwide sustainable product index. The index, designed to establish a single source of data for evaluating the sustainability of products, will be rolled out in three phases.

The first phase includes a survey regarding suppliers' sustainability efforts in four key areas — energy and climate, material efficiency, natural resources, as well as people and community. The second phase involves developing a global database of information on product lifecycles, from raw materials to disposal. And, the final phase entails translating the product information into a simple rating for consumers about the sustainability of products — a transparent look into the quality and history of products they don't have today.

The Social Investment Forum (an association of socially and environmentally responsible investment institutions and professionals) is another entity advocating for companies to be more transparent and disclose information about their sustainability efforts. In January, SRI requested then President-elect Barack Obama to move quickly in advancing corporate responsibility, including mandatory environmental, social and governance (ESG) — or "sustainability" — reporting. As a result, the Securities and Exchange Commission (SEC) requested the Forum define the context of ESG reporting, the framework of which was endorsed by more than 50 global businesses and organizations. Such movement by the SEC signals the potential for mandatory sustainability reporting in the future.

There are many other organizations, including the United Nations' Principles for Responsible Investment (PRI) comprising more than 560 global investment institutions with more than $18 trillion in assets, which recognize social and environmental issues can be material to a company's financial performance and impact shareholder value. For this reason, PRI members pledge to integrate and consider ESG issues into ownership practices and when making investment decisions.

Other Reasons to Report

According to the "Count Me In — The Readers' Take on Sustainability Reporting" released by the GRI in 2008, 90 percent of sustainability report readers (business, investment and non-profit professionals) indicated their opinions of a company changed after viewing the report. And, of this group, 85 percent said they had a more positive perception of a company after reading it.

Companies, large or small, that embrace candor and openly disclose non-financial information will reap competitive advantages. By communicating internally and externally about sustainability initiatives, progress and plans for the future, companies can:

• 1. Demonstrate their commitment to the health and well-being of their employees, the environment and communities they serve;
• 2. Strengthen efforts to build and maintain relationships key internal and external stakeholders;
• 3. Enhance shareholder and brand value;
• 4. Better manage risk;
• 5. Increase market share; and
• 6. Improve relationships with suppliers.

Entities choosing not to share information about their sustainability initiatives should carefully consider the potential backlash. Absent of information, your stakeholders can and will fill the void with inaccurate data, claims and statements related to your lack of transparency — none of which bodes well for your company.

How and What to Report?

There are several different ways, electronic and in print, to communicate with key stakeholders about your sustainability initiatives. But, it's important to remember which stakeholders come first. Before communicating to external audiences, it's critical your employees and Board fully understand your sustainability goals and plans for the future. By actively communicating with and involving them in your sustainability initiatives, you gain their buy-in and ongoing support — key to the success of your efforts.

GRI's "Count Me In" report indicated readers resoundingly agreed on the elements that should be included in a report. Of particular importance was a company's ability to establish a link between its sustainability strategy and its overall business strategy. Another important feature was balance — how well a company reports on the good and not-so-good news. Readers viewed this as vital to a company building trust and credibility.

"Openness in disclosing economic, environmental and social impacts can give companies a competitive edge, but people aren't fools," GRI's Chief Executive Ernst Ligteringen says. "They read these reports with a purpose and want the truth, and particularly the whole truth — not just selective reporting where their performance is good."

When communicating externally with stakeholders, in the form of a formal report or highlights summary, how does a company prioritize content? Whether adhering to the GRI Indicators or not, companies should consider the following four factors as it sorts through the information about which it may choose to report:

1. Is the information relevant to the business and your readers?

2. Are the issues and impacts highlighted material (important) to your stakeholders?

3. Is the data you're gathering available in a timely manner? And,

4. Can you ensure the reliability of the data you are reporting?

Remember that quality and balanced information is more important than volume. In fact, companies that produce extremely long reports may be questioned about its intentions to hide information within numerous pages of rhetoric. Companies should use their best judgment in balancing the reporting needs of one stakeholder group versus another. For this reason, reports should not be too technical and easy to read. And, companies should use charts and graphs when they can tell a clearer story than text.

Finally, there is a balance between adhering to strict reporting guidelines and demonstrating creativity and innovation; therefore, companies will benefit by involving a balanced team of technical and creative professionals in the design of their report or annual sustainability summary piece.

Relative to report quality, there is a growing trend in using outside views to validate a company's account of its sustainability performance. Third parties, such as stakeholder panels, internal auditors, independent reviewers, and professional assurance providers are playing an increased role in holding companies accountable for all aspects of their performance — not just financial — and to act responsibly by reporting on it.

The GRI encourages the independent assurance of sustainability reports and the development of standards and guidelines for providing such assurance. In developing your assurance policies and practices, you should demonstrate a progressive approach, each stage of which adds to the level of transparency and credibility of your reporting.

Whether you're still considering producing a formal sustainability report or looking to further improve your reporting content and quality, be assured the pressures to be more transparent will continue to mount. Are you prepared to respond?

About the Author

Margie P. Flynn is principal and co-owner of BrownFlynn, a corporate responsibility and sustainability consulting firm based in Highland Heights, Ohio. BrownFlynn advises clients on how to integrate strategic agendas with responsible practices and targeted communications to yield positive results for its clients. Flynn speaks the language of bottom-line impact and has been instrumental in shaping a variety of responsible practices for regional, national and global corporations and organizations. She is skilled in finding efficient and effective ways to establish, improve and solidify relationships with key stakeholders. For more information, visit www.brownflynn.com.