The Coalition for Environmentally
Responsible Economies (CERES) has been answering these questions
for a long time. The CERES coalition—made up of many of
the largest environmental groups and institutional investors
in the United States—came together 12 years ago to encourage
companies to articulate their environmental values and goals,
measure their performance and report their results. As the original
pioneer of corporate environmental reporting, CERES has had
years of experience with companies such as Bank of America,
Baxter International, Bethlehem Steel, Coca-Cola, Ford Motor
Co., General Motors, Interface Inc., Sunoco and many others.
CERES is also the lead convener, along with the United Nations
Environment Programme, of a huge international consortium of
organizations that have come together to set common corporate
sustainability reporting standards through the Global Reporting
Initiative (GRI).
Over the years of working with all sorts of reporting firms—from
newcomers to experienced global pace-setters—we have learned
a good deal about why companies choose to report. Here’s
a list of the top 10 benefits for companies.
1. SUSTAINABILITY REPORTING GIVES YOU
THE TOOLS TO MANAGE IN A GLOBAL ECOMONY.
In the past, many executives could get by with a fairly narrow
focus on particular products, suppliers and customers. Today,
every piece of business has become more complex. Markets, customers,
technologies and employees are becoming more diverse and requiring
much more sophisticated and far-reaching strategies. Whereas
before, business decisions and deeds might be covered only in
the specialized business press, today information about virtually
every major company in the world—whether accurate or not—is
spread instantly and globally on the Internet. Sustainability
reporting can give you the tools not just to operate, but to
succeed in such a complex, highly exposed environment.
2. SUSTAINABILIITY REPORTING
HELPS YOU TO INTEGRATE YOUR INITIATTIVES.
A constant theme in all business literature is that good executives
must learn to create and manage change throughout the firm.
Some have tried to do so by creating an endless cascade of initiatives,
touching on everything from marketing, production and the environment
to safety, human relations and corporate citizenship. Mid-level
managers can find these new ideas, incentives and procedures
to be disconcerting, even counter-productive. Confusion over
the “priority du jour” can cause resentment and create
the dangerous perception that top management does not really
know what it wants. Sustainability reporting helps top executives
to clarify the interrelationships of initiatives, thus generating
greater understanding and ownership of these ideas throughout
the firm.
3. SUSTAINABILITY REPORTING
CREATES NEW COMMUNICATION PATHWAYS WITHIN YOUR FIRM.
Business gurus have correlated the financial success of companies
with the ability to share information and ideas easily among
different parts of the firm. This runs against the natural human
instinct to create cooperation by sorting the world into networks
of insiders with whom they will cooperate versus outsiders who
may pose a threat. By drawing information systematically from
many divisions, locations and cultures within the company, sustainability
reporting fosters communication among key groups on key topics.
4. SUSTAINABILITY REPORTING CAN OPEN
UP POWERFUL NEW CONVERSTATIONS WITH STAKEHOLDERS.
In the 21st century, the lines that have traditionally marked
the “inside” and “outside” boundaries of
the firm are rapidly fading. Many external groups—including
institutional investors, environmental activists, government
authorities and human rights leaders—now consider themselves
stakeholders in the decision-making of the firm. Sustainability
reporting gives management a clear, straightforward way to open
conversations with key stakeholders and to find out their interests
and perspectives.
5. SUSTAINABILITY REPORTING BUILDS LONG-TERM
RELATIONSHIPS AND CREDIBILITY.
In today’s CNN world, accidents and crises can destroy
a company’s reputation in a matter of hours. To insure
against this, companies must build credibility with key observers
and critics—but this only works if you act to demonstrate
your trustworthiness before a crisis hits. Too many companies
try to cut corners by following the old-fashioned, tight-lipped,
insider-outsider model. When a crisis hits, they spend huge
amounts of money hiring crisis management and public relations
firms to try to rehabilitate their image. Sometimes the taint
of such problems endures for years. Sustainability reporting—and
the conversations with stakeholders that it creates—is
thus a form of risk management: it allows you to practice transparency
under less stressful circumstances, build up a bank account
of trust with outside groups and hear criticism that may avert
a crisis. Even if such a crisis occurs, a commitment to reporting
and engagement will mean that you have a web of well-established
relationships and a “positive trust balance” with
those who might be inclined to attack.
6. SUSTAINABILITY REPORTING HELPS YOU
TO MANAGE YOUR INTANGIBLE ASSETS.
Although most people think of accounting as a dry profession
that applies fixed rules, those who follow the field more closely
know that there is a revolution unfolding in its normally quiet
ranks. The heart of 20th-century accounting has its emphasis
on tangible assets, physical objects whose ownership could be
defined and whose value could be determined by the market. There
is already a huge movement afoot—being pushed by regulators,
investors and leaders in the accounting field—to consider
new ways to capture and record intangible assets such as patents,
brands, reputations, relationships and imbedded knowledge. Even
though mismanagement of such intangible assets can cause a drastic
collapse in the valuation of the firm, existing accounting rules
find it difficult to measure them. Yet, under pressure from
accounting professionals, securities regulators and company
managers, change is coming rapidly. An executive who ignores
these shifts will be as unprepared for modern business as a
World War I flying ace who saw no benefit in radar for modern
flight. Sustainability reporting allows a company to analyze
intangible assets, to integrate them with traditional financial
reporting and to anticipate the changes in rules that are already
unfolding around the world.
7. SUSTAINABILITY REPORTING ALLOWS YOU
TO EVALUATE THE COSTS AND BENEFITS OF DIFFERENT FORMS OF CAPITAL.
Modern practice management is also outpacing accounting in the
assessment of capital. For decades, the only capital that managers
knew how to measure, and thus bothered to manage, was financial;
executives now realize that to be successful (i.e., sustainable
over the long run), a business must assess the costs and benefits
to a variety of forms on which it depends, including natural
capital, human capital and social capital. The tools for doing
so are still primitive, but they are developing rapidly.
Consider the following example: virtually every chief executive
insists that education and training are of the highest importance
to the success of the company—but if an executive were
asked to assess and communicate the value of this elementary
form of human capital to anyone, particularly in comparison
to other firms in the same industry, he or she could not do
so. As managers come to understand the value of these different
forms of capital, they will be more easily translated into each
other’s terms: an investment in social capital (employee
education) will have a clear effect on financial capital (the
cost of borrowing), or an investment in natural capital (preservation
of open space) will pay off in terms of social capital (creation
of an attractive location for skilled workers), which will,
in turn, pay off handsomely in long-term growth and revenues
(financial capital). Sustainability reporting gives executives
the opportunity to understand and balance these trade-offs today.
8. SUSTAINABILITY REPORTING CLARIFIES
THE LINK BETWEEN MEASUREMENT AND MANAGEMENT.
Most sophisticated companies do not write their sustainability
reports in isolation and release them without warning. Instead,
they prepare drafts and submit those drafts to organizations
for comment in advance. For example, CERES reviews virtually
all of its large company reports with a specially designated
team of coalition members who are experienced in analyzing
such reports. When facing this review for the first time,
most companies are nervous, thinking they would face a barrage
of unjustified criticism. In every case, they have commented
afterward on how valuable and constructive they found the
feedback to be. CERES teams point out areas that lack clarity,
suggest changes in language that might trigger misunderstandings
and raise questions about inconsistencies or omissions. Other
companies, outside the CERES network, engage in a similar
process of dialogue and due diligence. A failure to take this
important step can be doubly dangerous for a firm. Not only
can it prompt outside stakeholders to tag the company as one
solely interested in public relations, it can also expose
the firm to unexpected reactions from the outside world—reactions
that are part of deeper consumer or cultural resistance to
corporate practices.
9. SUSTAINABILITY REPORTING CLARIFIES THE LINK BETWEEN MEASUREMENT
AND MANAGEMENT.
Most people are familiar with the business adage that “what
gets measured, gets managed.” And most people are also
familiar with the computer expression of “garbage in,
garbage out.” So if management requires measurement,
and improper measurement can sometimes yield garbage, how
does one know how to measure properly? The answer is clear
to everyone in the field: there must be generally accepted
standards for measurement and disclosure of non-financial
performance. Of course, it took the creation of organizations
such as the Financial Accounting Standards Board (and several
decades of hard work) to develop Generally Accepted Accounting
Principles (GAAP). The need to establish a similar consensus
building mechanism for non-financial reporting is what led
to the creation of the GRI, which will become a permanent
international institution with its own independent board of
directors in early 2002.
10. SUSTAINABILITY REPORTING
ALLOWS YOU TO PARTICIPATE IN NEW FORMS OF GLOBAL GOVERANCE.
When people talked about trade in the 20th century, discussions
were mostly about how governments could preserve environmental,
social and human rights while allowing the benefits of free
trade to be extended to more and more countries. Although
the elaborate inter-governmental process that was established
to balance these concerns functioned with some success in
the post-war period, it has of late been less and less successful
in designing globally-accepted solutions. Even though important
treaties are negotiated, they are often not ratified and even
more rarely implemented. The world’s attempts to rationalize
trade through the World Trade Organization or to slow greenhouse
gas build-up through the Kyoto Treaty have to date been unsuccessful.
The reasons for these failures are complex—but they are
leading to dynamic experimentation in new forms of partnership
and governance. Many of these “global public policy networks”
are based on multi-stakeholder forums made up of business,
advocacy and governmental representatives working together
on the integrated problems of sustainability. Companies that
have gained experience in understanding sustainability through
their own reporting are more likely to be able to present
their views and participate in such influential global processes.
If these—or other reasons—have prompted you to consider
sustainability reporting for your firm, you undoubtedly have
many questions. Is sustainability reporting a good idea—or
even possible—for the smaller firm? (Yes.) Is research
under way to develop somewhat more specialized reporting for
different industry sectors? (Yes.) Is sustainability reporting
mandatory? (No, although developments through various supply
chains and in the European Union may alter this within a relatively
short time.)
More than anything, you may be asking where you can learn
more and find help getting started. Fortunately, many venues
are ready to provide assistance of various kinds (see sidebar).
Whether you just want general background information or detailed
consulting advice on the internal process of gathering the
information and producing your first report, organizations
exist that have the expertise and resources to help you.
Sustainability reporting may seem new and difficult, but it
is worth the effort. There are few people alive who remember
the widespread confusion and speculative fever that used to
disrupt the business world before the creation of common accounting
standards—now we take such standards for granted. Similarly,
many in the work force can still remember the time when business
was conducted without desktop or personal computers, and how
difficult it was to make the switch. Yet, again, we now take
the benefits of such technology for granted. With the advent
of sustainability reporting, we once again are facing a change
that today seems difficult, but will soon be so routine—and
so obviously beneficial—that people will wonder that
anyone ever hesitated.
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GETTING
STARTED
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Here’s
a list of organizations that provide information or assistance
for companies interested in sustainability reporting:
Association of Certified Chartered Accountants (UK)........................
www.acca.co.uk
Canadian Institute of Chartered
Accountants (Canada)........................... www.icca.ca/cicawebsite.nsf/public/homepage
CERES.................................................................................................
www.ceres.org
Deloitte Touche Tohmatsu...............................................................
www.deloitte.com
Global Reporting Initiative....................................................
www.globalreporting.org
KPMG...........................................................................................
www.us.kpmg.com
Pricewaterhouse Coopers.............................................................www.pwcglobal.com
SustainAbility.......................................................................
www.sustainability.co.uk
The Natural Step.......................................................................................www.tns.org
The Tellus Institute...............................................................................
www.tellus.org
United Nations Environment Programme..............................................
www.unep.org
World Resources Institute.......................................................................
www.wri.org |
Bob Massie is the executive director of CERES (www.ceres.org)
and chair of the Global Reporting Initiative (www.globalreporting.org).
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