The Evolving Practice of Sustainability Reporting

by Jim Sloan

Sustainability reporting has come a long way since its origins in the social reporting requirements enacted by the Netherlands and France in the 1960s and ’70s1. The practice has continually evolved — becoming more robust, more demanding, and more credible as a means for a company to convey the full range of its social, environmental and economic commitments.

The Emergence of Sustainability as a Concept

Until 1999, the dominant form of corporate social responsibility reporting was environmental reporting. Its development was largely spurred by the U.S.-based Coalition for Environmentally Responsible Economies, which — following the 1989 Exxon Valdez disaster — developed the Ceres/Valdez Principles on behalf of the Social Investment Forum, an association dedicated to advancing the practice of socially responsible investing.2 These principles were supplanted by the Global Reporting Initiative (GRI), an entity launched in 1997 by Ceres and the United Nations Environment Programme (UNEP).

In 2000, GRI released its first Sustainability Reporting Guidelines, which built on the concept of “the triple bottom line: economic, environmental and social performance.”3 Sustainability, which had initially emerged as an environmental concept, was now being applied to a broader social and economic framework as well.

By 2005, the use of sustainability reporting had skyrocketed among the largest multinationals, with 68 percent of the Fortune Global 250 companies issuing such a report.4 By 2007, the practice had expanded to 67 percent of the Global FT500.5 And a study issued in November 2007 found that while just 44 percent of the DJ STOXX Global 1,800 index issued sustainability reports, 82 percent of the largest 10 percent of companies did so.6

Companies in the industries that are most frequently held up to public scrutiny often display the most proactive approach to sustainability reporting. In 2005, KMPG noted that among the top 100 corporations in 19 countries, approximately half of those in the utility, oil and gas, chemicals, mining and forestry-products sectors produced corporate responsibility reports, compared with only 22 percent of companies in other sectors, such as trade and retail.7 For its part, GRI has attempted to support increased data collection in such as industries as food processing by working to provide meaningful sector-specific performance indicators.8

The trend toward sustainability reporting does have its detractors. In 2005, when GE issued its first-ever Citizenship Report, the assistant managing editor of The Wall Street Journal viewed the move as “appeasement” of NGOs, and characterized the goal of GRI as “subsuming the primary mission of the corporation — making profits — within a host of other goals, ranging from the promotion of biodiversity to the protection of indigenous rights.”9

Nonetheless, the continued viability of Socially Responsible Investment funds indicates that a company’s commitment to sustainability is indeed meaningful to many investors — as well as to customers and increasingly, potential employees. In 2006, one study found that 75 percent of the Fortune Global 250 companies who produced sustainability reports cited economic reasons for doing so.10

Increasingly Meaningful Content

Confirming the reports’ increasing importance is the fact that they are frequently relied upon to confirm companies’ adherence to sustainable practices. Some commentators in fact complain that corporations’ increased effectiveness at self-reporting has outstripped outsiders’ ability to verify companies’ actual responsible behavior. Citing stock indices’ use of sustainability reports as an evaluative tool, one blogger notes wryly that “Quality of reports often act[s] as a proxy for performance.”11

Verifying reports’ accuracy has thus become a greater concern with increasing emphasis on third-party verification by one or more independent groups like Calvert Social Research, the Carbon Disclosure Project, the Dow Jones Sustainability Index/SAM, and a number of others. Again, the largest multinationals are leading the way in this area: Of the 335 companies in the Global FT500 who issued a CSR report in 2007, 44 percent included an external, third-party verification of the reports� statements and data. By comparison, of the 2,500 companies within CorporateRegister.com�s broader database of companies who issued a CSR report in 2007, only 27 percent included an independent third-party assurance statement. 12

There’s also a demand for greater transparency by the reporting companies themselves, including a willingness to acknowledge areas in which the company has come up short, and for larger amounts of concrete data, presented in the context of long-term goals. Nike, for example, gained kudos for providing a detailed accounting of its practices in the area of contract work, which had previously been a lightning rod for the company’s critics.13

The reports’ increasing meatiness takes many forms. Some companies, such as McDonald’s, have determinedly shucked off layers of appealing imagery in order to delve down into actual content from the front cover onward.14 Others, like Novo Nordisk, are combining their sustainability reports with their financial annual reports.15 More and more companies are adhering to GRI standards, now in their third (G3) iteration.16 Some companies — such as Gap and Nike — have even included the GRI Index itself in their reports, as a guide to their content.

How Can Reports Be Kept Relevant and Impactful?

At the same time as the reports are becoming more commonplace and more detailed, there is concern that they are losing the ability to generate an actual positive impact with the stakeholders who read them. As PR News notes, “The good news is that more and more companies are releasing annual sustainability reports; the bad news is that this makes differentiating yourself from the competition more difficult.”17

For many reports, too, an increasingly global frame of reference poses challenges to comprehensibility. The chief data collector for the sustainability report issued by BHP Billiton, the Australia-based natural resources company, notes ruefully that “we must report greenhouse gas emissions using the different calculation requirements imposed by various government agencies. This means that we report more than one result, which can be confusing for some of our stakeholders.”18 Because of the breadth of information — social, environmental and economic — contained in many reports today, some believe it may be necessary to create multiple versions of reports that are geared to the needs of specific stakeholder groups.

The Internet offers an opportunity to address this issue without inadvertently contributing to deforestation. Web versions of sustainability reports — which in earlier days might have consisted of PDFs of the print version — have now become much more flexible and adaptable, lending themselves to the multilayered presentation of valuable information. A high-level summary, presented on a site’s main page, is likely adequate for readers who simply want to gain an understanding of the company’s major commitments and broad involvements. The same Web site, moreover, can provide viewers with the opportunity to “drill down” and obtain detailed data about a company’s specific activities and their impact. Best practices also allow for two-way communication � a phenomenon that may eventually be enhanced by reports’ fuller integration with the tools and techniques of social media.

Until a higher technology emerges, today’s Web sites, thanks to their adaptability and ease of use, may offer the most “sustainable” approach to reporting going forward. The challenge for companies who want to use sustainability Web sites effectively, however, remains the same as it was in the heyday of sustainability “books”: making sure that the company tells a compelling story that can be appreciated by every reader, from the most casual onward, and that this story is convincingly supported by meaningful data.

1 “Carrots and Sticks for Starters,” The United Nations Environmental Programme and KMPG’s Global Sustainability Services, 2006.
2 Ibid.
3 “About GRI,” www.globalreporting.org.
4 KPMG International Survey of Corporate Responsibility Reporting 2005.
5 The 2007 Corporate Climate Communications Study, available online at www.corporateregister.com.
6 “Companies Increasingly Report On Sustainability Issues: Investors Hampered by Lack of Quality, Compatibility,” Social Investment Forum, news release, November 19, 2007.
7 KPMG International Survey of Corporate Responsibility Reporting 2005.
8 “Food companies take responsibility for improved sustainability reporting,” GRI, news release, November 20, 2007.
9 Alan Murray, “Will ‘Social Responsibility’ Harm Business?” The Wall Street Journal, May 18, 2005.
10 “Carrots and Sticks for Starters,” The United Nations Environmental Programme and KMPG’s Global Sustainability Services, 2006.
11 Ralph Thurm, http://globalreportingblogspot.com, June 27, 2007.
12 The 2007 Corporate Climate Communications Study, available online at www.corporateregister.com.
13 “SustainAbility Names Nike Top U.S. Company for Social Responsibility Reporting,” news release, November 9, 2006.
14 “Sustainability Reporting: Green Is the New Black — Pass It On,” PR News, October 1, 2007.
15 Ibid.
16 “About GRI,” www.globalreporting.org.
17 “Sustainability Reporting: Green Is the New Black — Pass It On,” PR News, October 1, 2007.
18 “Closing the Credibility Gap: The Challenges of Corporate Responsibility Reporting,” Environmental Quality Management, Summer 2007.

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