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What’s the ROI
of your corporate environmental reporting procedures? With the cost
of a Corporate Social Responsibility (CSR) report potentially running
into the hundreds of thousands of dollars for a large company, it’s
worth asking what its return on investment will be. Producing a
good CSR report costs more than the cash investment (in design,
printing and perhaps consultants)—it costs staff time, data
collection and analysis, etc. (which can increase total costs five-fold).
So it makes good business sense to leverage that investment for
multiple benefits.
Most companies’ investments in CSR reporting produce only a
very expensive marketing brochure. Can the same dollars deliver
a powerful business tool as well?
CSR reporting is becoming widespread—some 2,500 companies worldwide,
including half of the Global 250, produce environmental/social reports—but
its potential remains underutilized. Early reporting efforts were
driven by compliance requirements, with little tie to core strategy/business
objectives. With the growth of the environmental and social responsibility
movements, the audience has broadened, but is reporting still externally
focused? Most companies’ reporting practices have a long way
to go; even leading reporters are not leveraging their reporting
process to make better business decisions.
What’s missing? Oftentimes it’s a failure to exploit the
full value of the information gathered. Over the past two years,
we’ve asked dozens of CSR reporters a simple question: “How
do you use your CSR report to help your people make better business
decisions?” The most common (in fact, almost universal) response
is: “Gee, what an interesting idea.” Another increasingly
common response is the one offered by a Fortune 20 CEO: “That’s
exactly what we need to do next.”
Reporting As Feedback
What does it take to make that next step? It takes creating a report
that’s a tool, not just a press release—in other words,
shifting reporting from a cost of doing business to a source of
competitive advantage. How? With a process that supports both the
report’s “rearview mirror” as well as the business
manager’s need for “radar” in order to have a functional
impact on the trajectory of the company.
Reporting becomes a cost of doing business when it relies on a tedious,
time consuming, expensive, manual process; in addition to their
direct costs, by the time analyses are completed, the data is so
old that no one even uses it. Reporting can be a source of competitive
advantage when it is streamlined with economical, “auto-magic”
data collection and analysis, made timely by delivering results
available in close to real-time, and when the metrics selected are
relevant, powerful and easy-to-use since they provide information
in context.
A good CSR report must communicate an intrinsic relationship between
your CSR goals and your business goals and operations. An outstanding
report will leverage the reporting process to create significant
business value—by making timely, relevant, accurate information,
in context, available internally to business managers; by raising
senior management’s awareness of business opportunities; and
by delivering quick and documentable results to demonstrate its
business value.
This requires decisions on commitment, process and tools.
It also requires a systematic process (see “Transparency: Reports
that Add Value” on page 30), but with particular attention
to the selection of metrics and information systems), with seven
key steps: question; map; identify; find; engineer; implement; and
train.
| DOW: FROM THEORY
TO PRACTICE |
At
Dow, integrity has been a core value since Herbert H. Dow started
the company over a century ago. Part of integrity involves asking
the question: Does the way we work, work? One way Dow gets the
answer is through communication with its stakeholders—employees,
communities, customers and shareholders. Through their feedback
and ongoing communications, Dow learns, grows and ultimately
succeeds as a better company and a good neighbor in the communities
where it operates.
An important focus of its dialogue is on sustainable development.
A valuable tool in that dialogue is Dow’s Public Report.
First published in 1999, the Public Report is a voluntary initiative
that details the company’s progress in three areas: economic
prosperity, environmental stewardship and corporate social responsibility.
Dow also organized Community Advisory Panels at 36 of the company’s
sites worldwide to engage stakeholders on local policies. The
company also conducts community surveys, which act as “report
cards” to ensure Dow is upholding its commitment to the
community. Dow’s Corporate Environmental Advisory Council,
the first of its kind in the chemical industry and in its 11th
year, convenes independent experts to help Dow set policy and
procedures on sustainability and environmental issues.
Progress toward sustainability is a journey at Dow. At the heart
of its journey are its values and Dow’s Sustainable Development
Guiding Principles, first published in the 2000 Public Report.
Dow translates sustainable development from theory to practice
through its 12-Point Sustainable Development Operating Plan,
developed in 2001, with
significant implementation in 2002. This plan gives businesses
and functions the tools to incorporate sustainability into their
strategic plans and operations.
The 2001 report, released in early October, contains a wealth
of information about the journey toward sustainability at Dow.
The report includes data on the progress it is making on its
EH&S 2005 goals and overviews of the 12-Point Sustainable
Development Operating Plan and the 12 sustainability tasks added
to Dow’s “to do” list.
Please visit www.dowpublicreport.com
where you can review and download Dow’s company-wide report
and individual reports for 21 Dow sites around the world. Dow
invites you to tell it: Does the way we work, work? |
Key Steps
* Question
Begin with some basic questions: What do we care about? Why? What
do we measure? Why? Which measures guide us toward our goals?
* Map
Graphically map the key physical flows through your company, business
units and facilities—energy and material flowing in, product
and non-product flowing out. Ensure this represents the full picture,
from all perspectives. Use this map to:
* Identify
Identify the key “aspects” or significant factors that
define your Key Environmental Performance Indicators (KEPIs). The
challenge here is moving away from the huge universe of potential
metrics to the “measures that matter”—and that are
worth tracking.
* Select
Select effective metrics that turn data into actionable insights.
Present trends, ratios and benchmarks that put data in context,
that turn data into information and enable people to use that information
to gain insight. For example: don’t just measure one year’s
energy use, measure it for three years so people can see if the
trend is improving or deteriorating. And don’t stop there:
don’t just measure the energy use trend; rather, measure a
meaningful productivity ratio—like revenue per kiloWatt-hour
or profit per ton of carbon emissions. Next, compare key ratios
across facilities within a company or across companies within an
industry.
Other resource productivity ratios—in effect, measures of Return
on Key Resources—could include conversion efficiency (yield),
material content (percent recycled content in inputs), renewable
energy (percent in the energy portfolio). In general, putting the
ratio of any intended result (product, revenue, profit) in the numerator,
to energy, water, PBTs or other resource inputs or outputs in the
denominator, can provide a meaningful metric that aligns sustainability
measures and business measures in a traditional “up is better”
framework.
The most sobering of these metrics is probably the Throughput Pie™
generated by our Business Metabolics™ indicators/reporting
software. This measure of the proportion of output identified as
“product” (or “intended result”) versus “non-product”
(or “unintended result”) supports the inescapable logic
of zero emissions better than anything we’ve seen. The Throughput
Pie makes a “picture is worth a thousand words” business
case that it makes no sense to blow raw materials out a smokestack
or pour them down a sewer where they add no value to either customer
or shareholder.
These metrics are especially sobering because the ratios can be
shocking and because the opportunities are significant. Only six
percent of the total U.S. material flow is embodied in durable products,
according to Robert U. Ayres. “The other 94 percent is converted
into waste residuals as fast as it is extracted.”1 One client—with
an already strong commitment to recycling—discovered that only
20 percent of its output was product, five percent recycled and
80 percent literally went “down the drain.” The “profit
discovery” analysis sparked by the Throughput Pie found that
the “waste” stream could generate a new—and very
profitable—product line. (See Throughput Pie chart below).
One emerging measure is the carbon footprint, which may become the
“poster child” for measuring environmental performance.
Consider a “carbon productivity” ratio with greenhouse
gas (GHG) emissions (in carbon equivalents) generated from a company’s
activities in the denominator. Consider tracking indirect (e.g.,
from energy use by suppliers or by actual use of products in the
world) as well as direct emissions (e.g., plant, equipment, fleet).
For many products the impacts generated in use is far greater than
in manufacturing; presenting that information in your report will
drive customers to demand—and designers to deliver—more
efficient products. This will also tie to Kyoto Treaty targets,
thus offering potential economic value as carbon trading matures.
Cross-functional teams are essential to determine what metrics are
meaningful for diverse internal and external stakeholders. The CFO,
NGO, investment analyst and plant manager each needs different views
of common information; provide a core set of six to eight at each
level (corporate to facility), with a larger variety down the pyramid.
However, keep them consistent to simplify a company-wide “roll-up.”
* Find
Find the data that supports those KEPIs. Where is it? How often
is it generated? How accurate is it? Who owns it? What will have
to be done—technically and politically—to get it?
Keep in mind that many people are still nervous about reporting
“sensitive” matters to the public; they forget that expectations
of transparency are rising and that in the age of the Internet nothing
sensitive will stay secret for long. It’s far better to be
frank and forthright than secretive and defensive, but you may have
to awaken your data-owners and corporate gatekeepers to that reality.
* Engineer
Engineer efficient information systems (compatible with ISO 14000
and Global Reporting Initiative standards) to streamline data collection,
validation and analysis. (Some companies buy these, some build their
own; all too many try to get by without them.)
Reporting is often limited by poor data quality and access. Broad
geographical scope makes data gathering and analysis complex. Individual
sites track local usage and consumption metrics using vendor bills
and then report to corporate for what is typically a “manual/annual”
consolidation exercise that is both slow and expensive. (We know
of one multi-billion dollar company where a senior vice president
personally consolidates spreadsheets from worldwide sites.)
As a result, most current reporting processes are slow, error-prone
and expensive, and simply don’t support proactive resource
management and productivity improvement.
* Implement
Instead, implement interactive, enterprise-wide, Web-based environmental
information management system (EIMS) decision support systems that
can streamline data collection, validation and analysis, and provide
ready access to up-to-date information.
Ease the pain of data management by replacing ad hoc, manual data
collection with automated data collection and re-fresh using Web
based performance evaluation software.
Design it to be secure (so people can access what they should and
not be able to access what they shouldn’t); simple (so they’ll
use it); and flexible (so they’ll get value by tailoring their
use to their needs—which no amount of planning will completely
anticipate).
Don’t, however, try to standardize data collection processes
and systems across the company. Let people keep what works for them,
and design the EIMS to effectively gather and parse the data from
wherever it may be. Make the system adapt to the people, rather
than the other way around.
Many companies are publishing their CSR reports on the Web, but
few are taking full advantage of the interactive potential of the
medium. Downloadable PDFs are fine for saving trees. User-driven,
live charting (see for example, Novo Nordisk, at http://tbl2001.novonordisk.com/view.asp?ID=202)
enables an interactive process that can build both your brand and
the intelligence of your stakeholders. None have yet taken CSR reporting
to the level of GE’s “real-time” management systems,
where GE senior managers have a “digital dashboard” that
“compares how certain measurements, such as response times
or sales or margins, perform against goals, and alerts managers
if the deviation becomes large enough for them to have to take action.”2
* Train
You can put the best systems in place, but they’re useless
if people don’t use them. Train employees, managers and key
external stakeholders to understand—and own—the goals,
to use the system to find insight and business value in the metrics
and to share what they learn with others. The simpler the system,
of course, the easier the training task will be. Flexibility enables
insight; ease of use inspires active use.
Catalyze Change
The opportunity here is significant. A CSR report designed as a
tool, not just a press release—and as a radar system, not just
a rearview mirror—can provide direct business benefits and
catalyze further change.
The direct benefits include reduced costs of producing the report,
greater immediacy in reporting, and the tools to support a “profit
discovery” process to identify and exploit internal best practices
and turn apparent “waste” into competitive advantage.
This can deliver powerfully by: improving financial performance
(leaner cost structure, gains in market share and penetration, improved
customer loyalty and employee morale); increasing shareholder value
(gaining brand momentum as a CSR leader); improving tools and capabilities
(innovation in product and business development); better feedback
for better operating efficiency (improved strategic thinking and
managerial confidence); while simultaneously improving environmental
performance (reduced footprint, regulatory “insulation”).
The resulting opportunities for what we call “profit discovery”
are huge, since modern industrial society pours energy and materials
“down the drain” at a prodigious rate—$64 billion
on fuels and electric energy and $1.9 trillion on materials for
U.S. manufacturing alone. Since even within single companies we
find variances of 20 to 50 percent in energy efficiency across different
regions and facilities, close tracking of performance and internal
best practice initiatives—a “side effect” of this
approach to reporting—can yield significant financial returns.
But, “today, businesses are mostly shooting in the dark,”
says Michael Maoz, a research director at Gartner, an IT consultancy,
and one of the pioneers of the ‘real-time’ concept. Real-time
technology, he predicts, “will give firms a window into their
business they never had before.”3
So ask yourself, “Do we have a world-class CSR report?”
Then ask, “Do we use our CSR reporting process to help our
people make better business decisions?” If you discover that
you are not leveraging CSR information management to discover new
business opportunities, then the next question should be: “When
can we start?”
Gil Friend is president and CEO of Natural Logic, Inc. (www.nat
logic.com), a strategy and design consultancy “helping companies
and communities prosper by embedding the laws of nature at the heart
of enterprise.” Natural Logic’s offerings include workshops
and software to support the processes described in this article.
Its most recent CSR reporting client is Hewlett-Packard, whose report
can be found at www.hp.com/engage.
Eric Olson and David Jaber also contributed to this article.
1 Ayres, R.U., Kneese, A.V., 1989. “Externalities, Economics
& Thermodynamics,” in Archibugi & Nijikamp, eds., Economy
& Ecology: Toward Sustainable Development,” pp. 109-117.
Kluweracademie Pubs, The Netherlands
2 “How about now?”, The Economist, January 31. 2002,
http://www.economist.
com/displayStory.cfm?Story_id=949071
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