Saturday, December 10, 2011

Are sustainability reports really that bad ?

The shock-horror headline "Howlers and omissions exposed in world of corporate social responsibility" which first appeared in the Guardian on 24th November 2011, and then rapidly did the rounds of all online CSR news and information sites, morphing into "Lies, damn lies and CSR" by the time it got to the following day, alerted us to an important discussion which appears to have been somewhat sidelined in the efforts to mainstream sustainability reporting. The discussion about the quality of reports. Despite the fact that sustainability reporting is now the "de facto" law for business, as pronounced by KPMG in their 2011 survey of Corporate Responsibility Reporting, this is not an invitation to rest on our laurels. For mainstream reporting to become credible reporting, it needs to be ... well, credible. That means accurate, verifiable, consistent and clear.

The howler article, which claims to reveal "irrelevant data, unsubstantiated claims, gaps in data and inaccurate figures" after an examination of over 4,000 Sustainability Reports, certainly made a splash. The claim is "that every second company has major problems" which I assume to mean that 50% of reports include inaccurate or incomplete data. In general, I would not be surprised if there were some truth in this. In my (also fairly expensive experience) of analyzing Sustainability Reports, I would agree that there are serious errors, omissions and misrepresentations. Whether this is at the rate of 50% of reports, I couldn't say, so I will be interested to see the data when the full report is published in 2012.

So what should we make of this? Why would so many companies go to so much trouble to produce so many reports, only to do so in a sloppy or poor quality way?

I suspect that most companies do aim to deliver accurate data. There may be some which attempt to mislead in order to mask a problem, but in general, I believe reporters have a vested interest in accuracy. I can certainly say that all the companies I have ever worked with on sustainability reporting (hah, that doesn't come close to 4,000 ... yet :)), have earnestly tried to present accurate data. In some cases, sure, companies prefer not to disclose ALL data, i.e. they leave certain operations out of the report scope. This is acceptable as long as it is clearly stated. But I have never experienced working with a company which has knowingly reported inaccurate data.

The core issue for accuracy and fair representation of data and information in Sustainability Reporting goes back to the management of sustainability reporting and the degree of priority and professionalism it enjoys in the hierarchy of leadership decision making. Several factors contribute to reporting inaccuracies and misrepresentations:

Data collection processes in companies: Both for large global multi-nationals, and yes, even for smaller companies, sustainability data collection processes are challenging (note: euphemism for backbreakingly tough). Unless companies have invested in global ERP systems with built-in accuracy control mechanisms, the process for collecting data locally, transferring it to spreadsheets, aggregating and cutting, sorting, copying, pasting and charting is an invitation for error. To ensure the accuracy of global data, companies need check-steps at every step of the data collection process as well as consistency checks with prior reported data. Not all companies adopt this level of rigor. A small oversight, such as the loss of a zero (or two) in one of the aggregation steps, can make the difference between carbon neutral and carbon negative. 

Conversion factors are complex: Most companies don't collect data in gigajoules. To report in gigajoules, you have to use conversion factors. To calculate carbon emissions, you need to use up-to-date emission factors. Reporting OSHA rates requires a lucid understanding of the methodology and what gets divided by what. Errors occur.

Speed reduces accuracy: Reporting is often a race against time. There is so much that needs to be done in order to get to that green go-to-print light, that consistent, rigorous checking of all datapoints may fall through the cracks in the rush to complete. Many companies will prefer to hit their deadline than to delay in the name of perfect accuracy. 

Sustainability Reporting is just not that important:  Yes, it has to be said. There are no mandatory auditors, no external regulations which require accuracy checks, no teams of accountants following audit trails until they fall from exhaustion. The Sustainability Report is not equivalent to the Annual (financial) Report. The CEO is not generally called to account for the quality of data in Sustainability Reports as s/he is with Financial Reports. There is no flurry of interest from external analysts who know how to dissect Sustainability Reports the minute they are published in the same way as there is when Annual Reports are published. The quality of Sustainability Reporting in organizations, whether internal or external, generally does not have the most senior leadership's full attention in the same way as Financial Reporting does. Often, the providing data for a Sustainability Report may be a necessary headache, relegated to a lesser level of importance than the reputational (marketing) value of  the report which is narrative-based and easier to present. Until corporate leadership universally accepts that Sustainability Reporting is equal in stature and importance to Financial Reporting (and I don't believe that Integrated Reporting is the only answer - see below), assigns the right amount and quality of resources to produce the report and insists on the same degree of professionalism, then errors will continue to show up.

External assurance is inadequate: The Wild West of external Sustainability Report assurance has not yet reached the level of unequivocally adding to report credibility, in many cases. External assurance is often limited in scope and falls short of comprehensive verification of reported data. Despite assurance seeming to offer an additional stamp of approval for report quality and credibility, I suspect that there are more problems with the accuracy of assurance processes than there are with reports themselves. Assurance has to become full assurance and verification to be effective, and it needs to be performed by those who understand organizations and sustainability as well as audit processes and results. 

There are not enough critical stakeholder voices:  In the absence of regulation and comprehensive Sustainability Report auditing, those who pick up errors and misrepresentations are mainly academics, NGO's including environmental, labor representation and human rights organizations and CSR professionals. Consumers and members of the general public, even if many were to read Sustainability Reports, are not competent to understand the intricacies and the small print of reporting and make an informed assessment of whether 600,000 tons of CO2e is positive sustainability performance or not. At best, the lay reader gains an impression of a company's performance versus its own past disclosures or targets. Often, performance, even bad performance data, is so often shrouded in positive language (an increase in current carbon emissions may be presented as a reduction in overall emissions for the past five years, for example) so that it is easy for lay readers to be impressed by the words and showy report designs and less by the numbers. There are tools that are being developed to assist comparisons between company reporting, such as the Justmeans Insights database - see the following example of a comparison of Carbon Emmissions Intensity by four leading Computer and Peripherals manufacturers - Dell, IBM, HP and NEC - but even these tools rely on data supplied by corporations in their own Sustainability Reports and communications.

In a non-regulated Sustainability Reporting world, we need more people to become more competent at reading and analyzing reports, and more stakeholder voices to speak out.

NGO's often do this - see my post about the Alternative Hershey report - and an article I wrote for about Shadow Reporting. Just this week, I was alerted to a critical assessment of Deutsche Telekom's GRI-based A+ level externally assured CR Report, produced by the Trade Union Advisory Committee to the OECD (TUAC) to coincide with International Human Rights Day.
A criticism of Deutsche Telekom's report : "D+"

The UNI General Secretary Philip Jennings made the comment: “Deutsche Telekom gives itself an A+ on its corporate responsibility but with so many holes in the report, we’d give it a D+”. (UNI Global Union is the global union representing 20 million workers in the private service sector worldwide, including more than 3 million workers in the telecommunications and IT industries.) This is the sort of pressure that will drive more accurate Sustainability Reporting. But, with thousands of reports produced annually, and more to come given the drive to mainstream reporting, these isolated voices are not sufficient. The drive to Integrated Reporting may help to raise the bar if full verification and external assurance is applied to the full contents of Integrated Reports, but even so, it is not yet clear how this will play out as the IIRC is still debating the issue, and in any case, it will take several years to embed, and the scope of sustainability data in Integrated Reports is likely to be more limited than current best practice Sustainability Reporting.

Perhaps what we need is a global NGO that focuses on report accuracy. It could be called the Complete Reporting Accuracy and Precision Organization for Universal Transparency (CRAP-OUT, for short).  Now, there's a thought.

In the meantime, we shall have to continue to urge more companies to report while remaining vigilant regarding report completeness, accuracy and quality. Reporting companies should be more proactive in ensuring the integrity of their own reporting.

The howlers headline? Well, it may be just a little sensationalist, but if it's a Red-Alert for improving Sustainability Report quality, we could probably do with a few more like that.

elaine cohen, CSR consultant, Sustainability Reporter, HR Professional, Ice Cream Addict. Author of CSR for HR: A necessary partnership for advancing responsible business practices Contact me via  on Twitter or via my business website  (BeyondBusiness, an inspired CSR consulting and Sustainability Reporting firm)


Riccardo Wagner said...

Hello Elaine, we asked Deutsche Telekom for a statement and received this morning a short but complete denial of responsibility. Instead DTE is pointing towards GRI.

Greetings from Cologne/Germany and thx again for your Twitter Support

Riccardo Wagner

elaine said...

hi Riccardo, thanks for your comment, I have also responded on your post. Interesting to see how everyone is passing the buck!

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