Friday, August 31, 2012

The proposed GRI G4 GHG Emissions draft - explained

The plot thickens. After presenting the G4 Exposure Draft available for comment between 25th June and 25th September, the GRI has now published what it's calling Thematic Revisions, for public comment between 14th August and 12th November. I think that's what they call eating the elephant in two easy slices. Of course, the CSR Reporting Blog is here and ready with our analysis of one of the two new Thematics  - Greenhouse Gas Emissions - to make your life a little easier.  The other one (Anti Corruption) will be the subject of my next post.

First, download the draft GHG Thematic document here. It's 55 pages. Get them all. You're gonna have your work cut out as you go through this document.

According to the draft, the proposed revisions align with the GHG Protocol, jointly released by the World Resources Institute and the World Business Council for Sustainable Development, and the ISO 14064 Standard. The proposed GHG Emissions Indicators are fully aligned with the GHG Protocol’s grouping of emissions into three subsets (Scopes 1, 2, and 3), as well as the ISO 14064 grouping. Energy Indicators have been modified to align with the GHG Emissions Indicators and intensity Indicators were added for both energy and GHG emissions. More about intensity later....

Specifically the draft contains:
  • New disclosures and guidance for the Energy and Emissions Aspect (Environmental Category)
  • Edits to Indicator EC2 (Economic Performance Aspect, Economic Category)
  • Edits to Indicators EN3 – EN7 and Indicators EN16 – EN20 (Energy and Emissions Aspects, Environmental Category)
  • New indicators under the Energy and Emissions Aspects, Environmental Category
Before discussing the changes in detail, it might be worth listing the new EC2, EN3-7 and EN16 -20 and new indicators proposed in this section. First point to note is that 11 indicators now becomes 13 indicators, and this includes two intensity measures, energy intensity and GHG emissions intensity. As promised, more about that later.

  • CORE EC2: Financial implications and other risks and opportunities for the organization’s activities due to climate change
  • CORE EN3 Direct energy consumption
  • ADD EN4 Indirect energy consumption
  • CORE G415 Energy intensity
  • ADD EN5 Reduction of energy consumption
  • ADD EN6 Reductions in energy requirements of products and services
  • CORE EN16 Direct greenhouse gas (GHG) emissions
  • CORE G416 Energy indirect greenhouse gas (GHG) emissions
  • CORE EN17 Other indirect greenhouse gas (GHG) emissions
  • CORE G417 Greenhouse gas (GHG) emissions intensity
  • ADD EN18 Reduction of greenhouse gas (GHG) emissions
  • CORE EN19 Emissions of ozone-depleting substances (ODS)
  • CORE EN20 NOx, SOx, and other significant air emissions
So what's different? Intensity, as we've seen.  But more about that later.

GHG Protocol framework
A key difference is the clarification in definitions for energy and emissions reporting. The GRI has aligned itself with the leading carbon reporting standard - the GHG Protocol in which direct and indirect energy are classified into three scopes of emissions.
  • Direct Energy > Scope 1 emissions
  • Indirect Energy > Scope 2 emissions
  • Other Energy > Scope 3 emissions

You probably already know this, but for those of us who are not environmental experts, it does take some getting your mind around. Scope is a classification of the organizational boundaries where GHG emissions occur.
  • Direct (Scope 1) refers to emissions are created by sources owned or controlled by the organization. For instance, a coal-powered power plant which makes electricity.
  • Indirect Energy (Scope 2) refers to emissions resulting from the generation of the electricity, heating, cooling, and  steam that is purchased by the organization. Scope 2 emissions occur at facilities which are owned or operated by other organizations. For example, using electricity purchased from the coal-fired power plant (probably via a national grid) is classified as Scope 2, because the emissions were generated in producing the electricity and not in your organization.
  • Other Indirect  Energy (Scope 3) refers to emissions resulting from the organization’s activities, but are not created by the organization. This includes emissions from outsourced activities, such as the transportation of goods by haulage companies using vehicles that are not owned or controlled by the organization.
In other words, most companies report fuel and coal as direct energy sources and purchased electricity as an indirect energy source. In environmental reporting, the  energy source and what you do  with it is less important than where you do it. If the emissions occur in your factory, cue Scope 1. If they occur in someone else's factory, cue Scope 2 and if they happen on the bus to work or on a truck to China, cue Scope 3 (provided you don't own the bus or the truck).  

The John Lewis Partnership CSR Report for 2011 contains a good graphic that makes this all crystal clear:

Which emissions to account for: Control or Equity
The key to defining what to count is the precise scope of where emissions occur. On the face of things, it sounds straightforward, but in practice, there are two definitions are available: the equity or control method.

The control method calls for a company to account for the total GHG emissions from operations over which it has control, whether this be financial or operational control. It does not account for GHG emissions from operations in which it owns an interest but has no control. In other words, if you lease a factory, and you run it, and all the people working there are your employees, and all the materials used in the factory are sourced by you, and the final output is your products, then you have control.

The equity method calls for a company to account for GHG emissions from operations according to its share of equity in the operation. For example, if you have a 51% financial share in an operation, or even a lower financial share but full management control, you would report your emissions proportionately, according to the percentage share, and not full control.

This is an important distinction and must be applied consistently throughout the entire reporting spectrum. It could significantly change the level of emissions reported, so watch for the fine print when you are reading reports.

Alignment is Good
Closer alignment with the GHG Protocol (which is also used as the basis for CDP reporting) clearly makes sense, and hopefully will encourage greater comparability in energy and emissions reporting. At present, there are still wide variations but some do it well. ENEL, the energy company, for example, reports  for 2011 in classic textbook G4 style:

ENEL 2011 reporting EN3

ENEL 2011 reporting EN4

ENEL 2011 reporting EN16 Scope 1 Emissions

ENEL 2011 reporting EN16 Scope 2 emissions

ENEL 2011 reporting Scope 3 other emissions

Oh, did we mention intensity ?
G4 includes two new indicators relating to Energy Intensity (G415) and GHG Emissions Intensity (G417). This is a way of normalizing consumption and impacts to a common denominator which may be financial ($ of revenue), human (per person), physical (per square meter of factory or office space, or per vehicle) or per product (units sold, units produced) or, in fact, any other factor that you can imagine which is relevant to your business (or which makes your numbers look better than the absolute numbers). In most cases, my experience tells me, the intensity figures will always look better than the absolute figures - companies use more and more energy and generate more and more emissions, but on a per something basis, they proudly show a major reduction.  Take these examples:

Air China reports in the 2010 Corporate Responsibility Report on fuel consumption and carbon emissions by PTK (per ton/kilometer), stating that they have achieved "remarkable results" as they have reduced fuel consumption PTK by 6.6% in 2010 versus 2009. We do not know what the total fuel consumption was during this period.

Delhaize, the Belgian supermarket chain, shows fabulous energy intensity results per m2 sales in the company's 2011 CR Report. A 7.5% percent reduction over three years. (It is not clear whether this is all three Scopes, but I assume just Scope 1 and 2)

Delhaize 2011 reporting on emissions intensity
Delhaize does not disclose the total number of carbon emissions. Delhaize also reports to the Carbon Disclosure Project and you can access their report (after several clicks and registration on the CDP website) but you will find that the 2011 report covers 2010 data, and is therefore not comparable to the CSR Report 2011 period. After a quick calculation, I note that Delhaize absolute Scope 1 and 2 emissions increased by 3%, using 2008 as a baseline. Turning an increase into a decrease is the power of the intensity measure. This might have been achieved by increasing some prices, changing the sales mix or recording some currency adjustments and wow, suddenly the carbon emissions performance looks actually quite positive.

NH Hoteles 6th's CSR Report includes both absolute emissions and intensity rates per guest per night. Absolute emissions fell by 8.82% while intensity emissions fell by 11.9%.

What did NH Hoteles choose to highlight in its reporting narrative ? Intensity, of course.

CapitaLand's Sustainability Report for 2011 also shows a similar picture, in one handy graph.
Again, you can see that on an absolute basis, there is an increase of emissions by 39% since 2008 but intensity on a square meters basis reduces by 11.1% since 2008. CapitaLand's emissions target is an intensity target reduction of 20% by 2020, but there is no absolute target.

BT uses yet another model for calculation of emissions intensity and that is emissions per GBP million value added - which is EBITDA plus employee costs.  This formula is what BT has called its Climate Stabilization Intensity Target - a measure of carbon emissions in relation to its (financial) value added as a company and the contribution it makes to a country's GDP. Hmm. Make more profit, improve your carbon emission performance. BT's absolute emissions reduced 53% versus their 1997 baseline, and intensity improved by 61%.

What would be interesting to know is what specific factors contributed to this intensity improvement. BT report that they have improved energy efficiency, invested in renewable energy generation and purchased low-carbon energy. Wonder how much of what went into that 61%? And how much was a change in profit and employee costs?

Ericcson, on the other hand, report a different type of intensity. According to Ericcson's 2011 CSR Report, the carbon dioxide emissions associated with the lifetime operation of delivered products totaled approximately 24 Mtonnes in 2010. This is the measure used for carbon intensity. Don't worry about the fact that while carbon intensity was reducing every year, absolute emissions were increasing by 8% between 2008 and 2011.

Procter and Gamble have a lofty goal, stated in the P&G 2011 Sustainability Report: of powering their plants with 100% renewable energy. In the past few years, however, total carbon emissions (Scope 1 & 2, Scope 3 is off the radar) have increased  by 5% in 2 years. This doesn't prevent  P&G from proudly displaying the intensity figures:

As you can see, P&G refers to intensity per unit of production. Hmm. Now would that be a 5kg pack of washing powder, or a tube of Crest toothpaste, or a pack of Eukaneuba for dogs Denta Defense®, a type of micro-cleaning crystals that help reduce tartar by up to 55%?

Enough of intensity. By now you get the picture. Carbon emissions can be normalized to practically anything at all, depending on what a company wants to manage or what it wants to show to the world. In almost every single case you can find, intensity measures will always beat absolute measures. If only the planet would respond to intensity and become more sustainable. If every company were emitting carbon emissions relative to the number of expense claim-forms submitted, or the value of bottle-caps sold or the number of emails sent per hour, we might find carbon reporting much more interesting but it would hardly be saving the planet. If only we could become more sustainable by becoming less intense.

Why would the GRI choose to add two intensity measures to the G4 reporting framework? The GRI says this: "In combination with an organization’s absolute GHG emissions, disclosed with Indicators EN16, G416, and EN17, GHG emissions intensity helps to contextualize the organization’s efficiency, including in  relation to other organizations."
Normalizing energy consumption or carbon to financial values - turnover, sales or profit - or to other operational values - may be a way of comparing the performance of companies of different size in a similar sector. The carbon footprint of a cellphone is comparable whereas the manufacturers of cellphones may be very different in size and scope of operation. This might help investors (the ones who understand) to make decisions. Similarly, whatever the normalization factor, if a company consistently uses this to benchmark its own performance, it can be a management assessment and decision making tool. However, the trick is in the selected normalization factor. If such a factor has no direct relationship to whatever causes or influences the level of emissions, it may simply be a way to present good-news numbers. If my operations are the same size and my turnover increases because of a price-hike, or a change in currency exchange rates, I may still be generating equal or more carbon emissions but all of a sudden, my intensity plummets. We will have to be vigilant of the way that intensity measures are used in reporting, and ensure they are never  a replacement for absolute measures.

Some Less Intense General Points
The environmental disclosures as with, I think, all other disclosures in the proposed G4 framework are not time-specific. This means that the reporting company could report data only for the declared reporting period. I believe it would make sense to require organizations to present 5 years data on these critical data points. Of course, those who do not have 5 years data cannot do this. But of the many companies who have been producing sustainability reports over the years do have the data available (and several already include this). As we look at sustainability with a long-term lens, it is often frustrating when companies report only current and prior year data. We should require a little more perspective in G4.

Similarly, I believe that the G4 could be tightened up by requiring explanations of how performance has been achieved. For example, it would make sense, if energy consumption has decreased by 20%, to know what the organization has done to reduce this. The G4 proposals  in the updated EN5 (Reductions in energy consumption) and EN6 (Reduction of energy requirements in products and services) require listings of the reductions achieved but not a full explanation for HOW they were achieved. Adding such information would be helpful both for internal review and for external stakeholders. Companies who have made serious efforts to reduce carbon emissions should be able to say what actions caused the reduction. Unless it was all a lucky strike!

The Last Word (it's not intensity)
Overall the new GHG Reporting Thematic Revision tightens up environmental reporting and makes several aspects both clearer and less overlapping. G4 also ups the stakes a little (a lot). The G4 framework requires reporting on all three scopes of carbon emissions as core indicators (EN16, EN17, EN18). This is also the case in G3 (EN16 and EN17), but in G3, companies had the option to report at Application Level B or C, reporting Scope 1 and 2 emissions under EN16 and avoid Scope 3 emissions in EN17. With G4, every company which includes climate change as a material issue will be required to report all three Scopes in order to be In Accordance with the G4 framework. Sounds like there's gonna be a lotta scrambling around for data going on, and suppliers of goods and services to In Accordance reporters are going to feel the heat.

Whew! Glad that's covered. I hope  Anti-corruption is not so complicated. Watch this space.

elaine cohen, CSR consultant, winning (CRRA'12) 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 (Beyond Business Ltd, an inspired CSR consulting and Sustainability Reporting firm)

Friday, August 17, 2012

Nine Magic Tricks in Sustainability Reporting

In many cases, the publication of a Sustainability Report can be likened to a magic performance. I was taking a look at the website  of Max Maven, an internationally renowned magician. He is currently featuring on a TV show in which amateur magicians present their tricks in an attempt to fool the Master Magician, Max Maven. Max then has to pronounce his verdict: either the trick fooled him or it did not, because he recognized the magic technique behind the trick. Imagine what Max Maven would say about Sustainability Reporting. Would he be fooled, or would he be able to see right through the tricks used in Sustainability Reports? Or would he take Sustainability Reports at face value, believing them to be accurate representations of corporate performance and impact?

Techniques used in magic are varied and incredibly creative. The Wikipedia Magic page lists several types of magic. All the magic types and descriptions below are reproduced from that page.

Production: The magician produces something from nothing—a rabbit from an empty hat, a fan of cards from thin air, a shower of coins from an empty bucket, a dove from a pan, or the magician him or herself, appearing in a puff of smoke on an empty stage—all of these effects are productions.

In Sustainability Reporting terms, the production is the report itself. Some companies produce reports as though they are the subject of a magic trick, appearing in a puff of PR in an email alert somewhere. In other words, companies which have not pursued a sustainability program, and have no sustainability performance results of note to disclose, or simply want to get on the reporting train without actually wanting to be transparent, suddenly produce a Sustainability Report, as if by magic. We all know by now that Sustainability Reporting is part of a process, and not the first part by any means. In order to produce a Sustainability Report, you first have to produce results. A Magic Sustainability Report would not fool Max Maven. And it doesn't fool us, either. In the case of McKesson, it also didn't fool William D'Alessandro, who reviewed the McKesson Fiscal Year 2011 Corporate Citizenship Report for In this review, William says: "Taken together, the information McKesson metes out is too weak to alleviate any but the mildest stakeholder concerns about the corporation’s social and environmental affairs." Sounds like the McKesson report contained a little magic dust.

Vanish: The magician makes something disappear—a coin, a cage of doves, milk from a newspaper, an assistant from a cabinet, or even the Statue of Liberty. A vanish, being the reverse of a production, may use a similar technique, in reverse.

In Sustainability Reporting terms, the vanish is the information that the reporting company doesn't want you to know. It is the very careful omissions that the sustainability reporters stealthily slide under the reporting radar. In Kathee Rebernak's Ethical Corporation review of Shell Coorporation's 2011 Sustainability Report, she refers to several items that have vanished, for example, the lack of discussion of oil's contribution to climate change, the impacts of hydraulic fracturing (fracking) and the relative pace of biofuel production in comparison to global fuel demand. It all just vanished, as if by magic!

Transformation: The magician transforms something from one state into another—a silk handkerchief changes color, a lady turns into a tiger, an indifferent card changes to the spectator's chosen card.

In Sustainability Reporting terms, the transformation is the way sustainability reports create good performance out of bad performance, or present an exaggeratedly positive version of the truth about their sustainability results. Peter Mason, in his Ethical Corporation critique of the 2011 Sky Bigger Picture Review , writes: "More evidence of Sky giving itself an easy ride emerges in the environment section, where the review describes the company’s 10 green targets as “very challenging”. Figures in the data section suggest otherwise. Sky has set itself a target of a 20% increase in energy efficiency by 2020 on a 2008-9 baseline, yet it has already comfortably exceeded that figure – with eight years to go. It wants to cut CO2 equivalent emissions by 25% by 2020, yet had already made reductions of 19% by mid-2011."  Similarly, in my review for Ethical Corporation of the Boeing 2012 Environment Report, I made the following point: "The report says: “Boeing has reduced its environmental footprint at a time of significant business growth.” The company makes reference to “unprecedented increases in airplane production”. With mainly negative revenue growth and largely flat average aircraft delivery levels noted in this report, Boeing’s environmental goals don’t seem to be breaking the sound barrier." 

Another example of transformation can be found in Raz Godelnik's mince-no-words Triple Pundit review of Chevron's 2011 CSR Report. Raz writes: "The problem starts with the general tone of the report which is positive to an almost ridiculous degree.........Chevron didn’t manage to create a balance, providing almost only good news. too many parts of the report, the positive information is either presented in a biased way or is missing some important parts."

It certainly needs some sort of magic wand to make poor performance sound like great performance. Magic wands should not be standard-issue for sustainability reports. Sooner or later, when the magic trick is over, we end up seeing the company as it truly is.

Restoration: The magician destroys an object, then restores it back to its original state—a rope is cut, a newspaper is torn, a woman is sawn in half, a borrowed watch is smashed to pieces—then they are all restored to their original state.

In Sustainability Reporting terms, the restoration is the presentation of a comeback after a disaster, or the upside of a downside. For example, my review, published in the Sustainable Business Forum,  of  Chrysler's first Sustainability Report for 2010,  offers a frank review of how Chrysler has emerged from the past couple of years a different company, with new management, a new strategy and a strongly Italian flavor. The report expresses Chrysler's change of heart (and almost everything else), getting the message over loud and clear that, for Chrysler, it is definitely not business as usual. By 2011, the restoration magic had not completely worked and instead of reverting to its original state,  Chrysler's second report for 2011 is now called Fiat.

Teleportation: The magician causes something to move from one place to another—a borrowed ring is found inside a ball of wool, a canary inside a light bulb, an assistant from a cabinet to the back of the theatre, a coin from one hand to the other.

In Sustainability Reporting terms, teleportation is the use of fabulous case studies which transport us from the drab world of recording energy consumption and carbon emissions, to the life and soul of community involvement through the use of glorious case studies, amazing imagery and personal stories of inspired or inspiring people. Some sustainability reports are actually works of art in themselves. For example, the Kuoni Corporate Responsibility Report for 2010 takes us on a journey through the Lost Islands in the Maldives, Tuvalu, Kiribati and other exotic places.

When the magic wears off, however, the raw facts and candid discussion about sustainability impacts are still what makes the Sustainability Report a document of value.  

Escape: The magician (an assistant may participate, but the magician himself is by far the most common) is placed in a restraining device (i.e. handcuffs or a straitjacket) or a death trap, and escapes to safety. Examples include being put in a straitjacket and into an overflowing tank of water, and being tied up and placed in a car being sent through a car crusher.

In Sustainability Reporting terms, the escape is the assurance process. You invite an independent third party into your organization and, if they do their job well, they might just make you feel like you are being put through the car crusher. The escape is their Assurance Statement, because the minute they write that nothing has come to their attention that might not indicate the fact that there might not be anything that doesn't comply with the principles of materiality completeness and balance, you can breathe easy. Of course, not every assurance process is that rigorous, and not every Assurance Statement will feel like an escape, Sometimes it will just be another tick on the to-do list. But when it's done well, it adds value to the reporting company. See a good review of the Assurance Process by Joss Tantram of Terrafiniti  and also, an admission from the UPS Sustainability Communications Manager, Lynnette McIntire, writing for Triple Pundit, who confesses to enjoy the assurance process, describing it in this way: "a bunch of accountants come into your world for a rigorous review of your numbers. They require (gasp) documentation to prove your “facts.” They find those discrepancies between last year and this year. They challenge your subject matter experts on the methodology of their charts and graphs. And to be honest, they take a lot of glee in your mistakes."

Another form of escape is when the sustainability report gets a good review or wins an award. Regular reviews of sustainability reports can be found on or in the Ethical Corporation Magazine, and occasionally on other sites such as Triple Pundit or those of different sustainability bloggers. Producing a sustainability report is always a risk. Transparency always makes you vulnerable, no matter how strong your performance is. Getting a good report review is like coming out of the car crusher unscathed. My review, for the Sustainable Business Forum, of De Beers Family of Companies Report to Society for 2010 notes: "The De Beers report is a delight to read, it is intelligently structured, well-cut, polished and completely aligned with the report's title "Living up to Diamonds". Getting an award for reporting is like escaping out of the handcuffs to safety. See the winners of the annual online reporting awards, CRRA, in 2012: "The star ... was Coca Cola Enterprises Inc., U.S. who took two awards with overall Best Report and Best Carbon Disclosure categories, and a runner up in the Best Relevance Category."

Levitation: The magician defies gravity, either by making something float in the air, or with the aid of another object (suspension)—a silver ball floats around a cloth, an assistant floats in mid-air, another is suspended from a broom, a scarf dances in a sealed bottle, the magician hovers a few inches off the floor.

In Sustainability Reporting terms, the levitation is  when the report contains no context whatsoever. It just remains suspended, in air, with no anchoring points of reference. I am referring to general context, such as prior year data, regional or sector benchmarks or relevant background information about the company's role in society or sustainability objectives. Emily Hayne's Ethical Corporation Review of the John Lewis Partnership Report for 2011 makes this point: "...the report as a whole fails to tell a compelling story. Rather than setting out performance in the wider context of the issues and challenges identified, it simply lists issues, indicators and activities. Individually many of these seem impressive, but the report fails to pull them together into a meaningful long-term strategy."

Penetration: The magician makes a solid object pass through another—a set of steel rings link and unlink, a candle penetrates an arm, swords pass through an assistant in a basket, a saltshaker penetrates the table-top, a man walks through a mirror. 

In Sustainability Reporting terms, the penetration can be likened to the report within the report. For example, in HP's Corporate Citizenship Report for 2010, and entire sixteen photo account of A Day in the Life of an HP Auditor enabled us to penetrate the detailed workings of the supply chain monitoring process.

Penetration might also be linkened to the mutliple types of Sustainability Reports produced by one company. Reports which link and unlink. Separate, yet part of a whole. This might include local reporting, for example, ArcelorMittal , where global and local reporting live side by side, linked by core strategy and messages, but very different in local flavor.

Prediction: The magician predicts the choice of a spectator, or the outcome of an event under seemingly impossible circumstances—a newspaper headline is predicted, the total amount of loose change in the spectator's pocket, a picture drawn on a slate.

In Sustainability Reporting terms, the prediction is, of course, the targets, future outlook and/or what we will do next section. Many reports do not contain predictions. Many of the predictions that some reports contain are also not predictions, because the targets are so vague as to be rather meaningless or, they always remain goals and never results. David Schatsky of GreenResearch did some analysis of sustainability goals and benchmarking and found, for example, that just five of the 11 largest global oil and gas companies have announced public environmental sustainability goals. There is no magic in setting good sustainability goals. But there is magic in delivering on specific targets. The Unilever Sustainable Living Plan includes some goals which, if they are achieved, will be truly magical. In the area of Greenhouse Gases for example, one Unilever target is "By 2015 we aim to reach 200 million consumers with products and tools that will help them to reduce their greenhouse gas emissions while washing and showering. Our plan is to reach 400 million people by 2020" but, Unilever say,  "We are finding this target challenging and our progress is modest." If Unilever does eventually manage to crack this, it will be nothing short of magic and Max Maven will be duly impressed, I am sure.

This concludes my round-up of Sustainability Reporting Magic. I am sure there are many companies with a few tricks up their sleeve that I haven't covered, and many more which think that the Sustainability Report will magically transform their reputation and protect them from all evils.

The truth is that there is no magic in Sustainability Reporting. Just as Max Maven knows, behind every magic trick is an accumulation of strategy, innovation, creativity, hard work, performance development, perfecting the script and flawless delivery. Behind every magic trick is methodology. Behind every Sustainability Report should be proven practice. Nonetheless, when you do come across that Sustainability Report which appears to do the best job possible, you can't help feeling that there's a little magic in the air.

elaine cohen, CSR consultant, winning (CRRA'12) 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  (Beyond Business Ltd, an inspired CSR consulting and Sustainability Reporting firm)

Friday, August 10, 2012

Part Two: Sustainability: What the Numbers Tell You

Since my recent Sustainability: What the Numbers Tell You post was so resoundingly successful, I have decided to maintain the momentum and  take a look at some more numbers. This time I am going to look at environmental metrics that were covered in the Sustainability Practices 2012 Edition, which I fairly glossed over in my previous (resoundingly successful) post. The Report covers a range of environmental metrics including those relating to: emissions, energy, water, waste, recycling, packaging, purchasing and spills and fines. Let's start with this number:

of companies in the Bloomberg ESG 3000 Index report having a Climate Change Strategy. This compares with only 26% of the S&P 500 and 16% of the Russell 1000. (Just to remind you, the Bloomberg ESG 3000 covers a range of global companies while the S&P and Russell indices cover large-cap U.S. companies. So when the Bloomberg is higher than the S&P/Russell, it means that the world is doing better than the U.S.) In this case,  U.S. companies have not yet caught up on climate change as something they need to be making decisions about.

Many people probably don't know the difference between a climate change strategy and reducing energy consumption. In the Sustainability Practices Report, a climate change strategy is defined as: "a set of risk management procedures designed to mitigate the impact on business operations of climate change". Typically, as defined in the report, such a strategy will include: an assessment of the energy efficiency of the business, a commitment to capital investment in environmentally preferable technologies and a search for new sources of capital through commodity trading of GHG emissions or government subsidies for GHG emission reductions. 71% of big companies (over $100 billion revenues) have apparently given this some thought as they do have a climate change strategy. Only 22% of companies under $1 billion have done the leg-work in this area. The rest of them either they have a policy and are not disclosing (unlikely) or they don't have a policy and they are ostriching (likely). That's a shame, because "if you think mitigated climate change is expensive, try unmitigated climate change", (a quote from Dr Richard Gammon) .

And now for a little quiz: How many of the Bloomberg ESG 3000 actually report their total carbon  emissions?
A: 83%
B: 72%
C: 65%
D: 48%
E   34%
F:  21%

Yes, great, you were either wrong or right. The correct answer is:


That's it. Just over a third of the world's leading companies disclose their total carbon emissions. But this is not really the world's companies - it's Japan. In the Bloomberg 3000, there are 644 companies from Japan of which 80% disclose CO2 emissions, which is required by law. In the U.S., for example, only 8% of the 70 U.S. companies in the 3000 Index disclose CO2 emissions, which is the lowest rate of disclosure across a range of countries. The Netherlands and Sweden do better at 70% and 62% respectively, but France and the UK are lagging with 39% and 30%. This might be changing fairly soon in the UK with new legislation which will require large listed UK companies to disclose GHG emissions.  But disclosure is one thing and sustainable performance is another.  Think about this next number:


which is the average total CO2 emissions in tons from the 36 disclosing companies in the S&P 500 Index. This is a whopping 5 times higher than the total emissions from the 1,033 disclosing companies in the Bloomberg ESG 3000.  Utilities and energy companies reported the highest level of emissions, as you might expect. It takes energy to produce energy, apparently. Double whammy. When normalized per employee, we find that the utilities sector produces 1,473 tons of CO2 emissions per employee (median, not average). This is equivalent to emissions per employee resulting from powering 167 homes with electricity for a full year, or running 262 passenger cars for a full year. Wonder if all those employees think about that on their morning commute: "Hah, wonder how many cars on the road the carbon emissions resulting from my working today will equate to?" Perhaps this could be the next stage in sustainability-driven Employer Branding. It might work for the Financial Services Industry, where CO2 emissions are a mere 3 tons per year per employee (median). "Do you feel you have a personal responsibility for protecting our planet? Come and work for us. Your work will generate only 3 tons of carbon emissions per year, which is less than the equivalent of keeping one car on the road. You can manipulate interest rates with hardly any impact on the environment".  

But, enough of CO2, let's go deeper and look at energy efficiency. Consider these numbers:

 1,933  -  249  -  321

These are the actual numbers of companies in our three reference indices of 3,000, 500 and 1,000 companies which declare that they have an energy efficiency policy. 64%, 50% and 33%. I find that incredible. Forget sustainability, just think about energy costs. Heck, we even have an energy efficiency policy in our home! (Well, I admit, it's not a written policy, but if the kids leave the lights on in their bedrooms, they know there will be unpleasant consequences). Why wouldn't businesses have an energy efficiency policy? Ah, you might say, "companies which are primarily office based have more significant sustainability impacts to think about and more important cost considerations". Ah, I might say back to you, "and pigs can fly".  Even the financial sector, primarily office based as it may be, has a higher rate of energy-efficiency policy disclosure at 52% of companies than the energy sector itself at 46%. Energy efficiency is the second most material issue for companies everywhere, based on a study that was done last year on materiality issues. So how come so few have a policy? Possible they are just doing it because it's in their DNA. (A friendly reference to Oliver Balch, who tweeted "Please, one piece of advice to all companies: ban the phrase 'In our DNA' from your corporate lexicon"). Consider this number:


which is the percentage of companies in the Bloomberg ESG 3000 which report using renewable energy. That's just 164 companies. For all the others, renewables are apparently not yet in their DNA.

Moving on to water consumption, consider this:


is the ratio of average water consumption in the U.S. based S&P 500 to the average in the Bloomberg ESG 3000. The average water consumption per S&P company in the U.S. sample (104 companies disclosing) is 3.72 times higher than the global sample (1,111 companies disclosing). Clearly, size does matter, as the bigger companies have higher water consumption.  Yet still only 74% of the companies in the $100 million revenue category disclose total water consumption, despite the fact that the median water consumption for this group is over 35 million cubic meters in comparison to a $1-10 million revenue company which uses 1.4 million cubic meters per year. With water scarcity becoming the number one resource issue globally, it seems incredible that disclosure for such large corporate users should not be mandatory, leaving 26% of the largest companies in the world to decide for themselves whether to manage water consumption transparently or not. But it gets worse. Consider this:


is the number of companies which report that they use recycled water. 74 companies in a sample of 3000. But it gets worser. Waste is also one of the big drags on our economies and quality of life, not to mention sustainability. Here's another number:


is the average waste in tons generated by companies in the materials sector (which is made up of companies that manufacture chemicals, construction materials, containers and packaging, paper and forest products, extractives etc) which is more than the total average waste of all the other sectors added together, yet only 36% of companies in this sector report on the total levels of waste generated. Waste is cost. More often than not, it's unnecessary cost. How are investors using this information? Companies which are generating so much waste are also wasting investors' money.  Which brings us to the next number:


which is the average amount that companies in the Bloomberg ESG 3000 spend on environmental fines each year. In the S&P 500 index, this becomes a whopping $2,224,831.

I could go on, but I won't. The Sustainability Practices 2012 Edition Report is an encyclopedia of data and comparative numbers. I have given you a jump start. You'll have to do the rest of the leg-work yourself :)  

By now, I think you get the picture. It's one of desperately poor levels of disclosure. Despite the growing momentum of voluntary disclosure and Sustainability Reporting, frameworks, measures, surveys, CEO commitments, investor pressures and all the hype that this brings with it, the picture on transparency is still bleak. Most of the largest companies in the world are barely disclosing most of the most important sustainability metrics. And this low level of disclosure gets proportionally lower and lower as company size decreases. In the U.S., performance is generally lower in comparison to the rest of the world. So it's fabulous that the U.S. is now leading the Medals League Table at London 2012 (39 Gold Medals as I write), but sooner or later, even that performance will not be sustainable without stronger and more transparent behavior by American corporations.

There is something about numbers. They clarify our reality. In this review of environmental sustainability and transparency-by-numbers, that reality is rather depressing, because there is a stark realization that, for all the talk, the results are pretty shameful and perhaps, voluntary disclosure is not all it's cracked up to be. Self-regulation is more self than regulation. When the authors of this Sustainability Practices benchmark report maintain that "there is significant room for improvement", I think we can safely agree that this is more than a mild understatement. With Paragraph 47 not promising to be massively instrumental in driving change in transparent disclosure, we have to wonder just what will propel corporations around the world into a different paradigm, before something else propels them out of ostrichland.

An eternal optimist, I believe change will happen. As a realist, I see it's painfully slow. As a pragmatist, I accept that we have to move on and, as the amazing Pema Chodron says, Start Where we Are. As an icecreamist, I know there is always comfort just around the corner.

elaine cohen, CSR consultant, winning (CRRA'12) 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  (Beyond Business Ltd, an inspired CSR consulting and Sustainability Reporting firm)

Saturday, August 4, 2012

The Co-operative Group: Warts and All?

One company I have found particularly inspiring in the CSR landscape today is the UK's Co-operative Group, and not only because they are headquartered in my home town of Manchester. (They are currently in New Century House, a venue which remains embedded in my memory as New Century Hall because of a teen-idol Bay City Rollers concert I attended there at a very young age, amidst a massive crowd of swooning girls). Another reason to check out the Coop is that 2012 is the United Nations International Year of Cooperatives! Betcha didn't know that, right? There is even a Year of Cooperatives Blog. This initiative is "intended to raise public awareness of the invaluable contributions of cooperative enterprises to poverty reduction, employment generation and social integration. The Year will also highlight the strengths of the cooperative business model as an alternative means of doing business and furthering socioeconomic development." Who knew there was a Year devoted to a business model? I wonder if there will be an International Year of CSR Bloggers one day? Or even better, an International Year of Ice Cream! Anyhow, in the Year of the Co-op, it's fitting that we review the Co-op's report.

The Co-op recently released its latest in 15 years of Sustainability Reports, the 2011 Report, entitled "Inspiring Through Co-operation". Having admired the Co-op over the years for its thorough and award-winning sustainability practices, and robust, transparent and award-winning reporting , I thought it's about time to examine the latest report, and see how many cones the Co-op deserves.

The Co-op describes its report as "warts and all". The origin of this phrase is said to derive from Oliver Cromwell's instructions to the painter Sir Peter Lely, when commissioning a portrait - "Paint me as I am", he nobly demanded of the artist. The Co-op's reporting - warts and all - is therefore an invitation to scrutinize just how many warts the report actually contains. Oliver Cromwell did have quite a few warts -  check out that whopper under his lower lip. 

Oliver Cromwell by Sir Peter Ely, from
The Co-operative Report, as a GRI A+ 116 page report, offers plenty of wart-scope.

The interests of this corporation, once known mainly for its corner-shop-style good value supermarkets, have sprawled into a diversified set of activities, making it the UK’s fifth biggest food retailer, the leading convenience store operator and a major financial services provider, operating The Co-operative Bank, Britannia and The Co-operative Insurance, with other specialist businesses including funeral services and Britain’s largest farming operation. This is interesting diversification for a business which operates only in one country.

The Group operates 4,800 retail trading outlets, employs more than 106,000 people and has an annual turnover of more than £13bn. The fascinating thing about the Co-op, of course, is its business model and governance structure: it is owned by its members - over 7 million individuals and 80 or so Independent Co-operative Societies. It's a sort of business democracy, founded on values of equality and community solidarity which align well with the themes of socially responsible business. Transparency, as a way of doing business, is also something which this type of business model demands, so perhaps it is not surprising that the Co-operative should be getting pretty good at that. The report has a three-part structure: Social Responsibility, Ecological Sustainability and Delivering Value. But first, I started with the end.

79%  Achievement against Targets
Page 113 of the report contains a 2011 Target Overview of the 104 long-term targets set in the Cooperative Group 2012-2014 Ethical Plan. Of these 104 targets, 62 have been achieved and 20 are on track. That's a 79% success rate. The rest are either close to target, behind target, not achieved or dropped. 79% is certainly an achievement and generally, 70%+ scores in most education systems are pretty good, and in some cases, represent the highest ranking available. So the Co-op should get a cone for achieving 79% against a very ambitious program. Clearly much is being done.

The CEO Statement
Some CEO statements are boring, some are insightful. Some contain meaningful previews of report content, some are just full of cliches. Some use the same old language to say the same old things. Often reporters approach the CEO statement as one of those irritable but necessary pieces of content which the GRI mandates that every report worth its salt should contain. They string together a list of waffly air-bubbles in last year's language and hope it flies. Others take the CEO message as a more serious affair altogether, using it to introduce the real news in the report, highlight areas of both achievement and sensitivity and, perhaps, warts, and create a more convincing representation of the highest level commitment in the company to sustainability. In the Co-op report, CEO Peter Marks's message is one of the better kinds. It's relevant, upbeat, proud without being smug, and picks out just enough highlights to give you the impression that the CEO really does know what sustainability and reporting is all about. Peter Marks says: "This Report charts how we have managed to achieve ... growth with a sustainability performance that I would contest is second to none." Sounds like a guy who doesn't mince words. I give Mr Marks a cone for his opening message. It's inspiring and makes you want to read the report.
The Executive Summary
The Co-op report contains a two-page summary of the rest of the 114 pages. If you have 5 minutes and this is all you have time to read, you end up with a good summary of the report highlights - without any warts, though. It's mainly about inputs rather than impacts, but I don't want to nitpick. I'll give the Co-op a cone for this summary. It's a useful inclusion for busy people (who isn't?) and makes the key messages more accessible.

Performance Benchmarks
Throughout the report, the Co-op provides benchmarks which help to put their performance data into perspective. For example, "In 2011, the Group’s absence rates remained stable at 4% for both the Trading Group and Banking Group (2010: 4%). The 2011 average UK absence rate was 3% and the industry average absence rate in the finance, insurance and real estate sector was 4%." Another example is : "At The Co-operative Bank and Insurance, 91% and 95% of customer complaints respectively were resolved within eight weeks, compared to an average of 86% across the financial
services industry." These benchmarks are rather selective, reflecting, I expect, only those benchmarks which create a positive score for the Co-op, but nonetheless, providing benchmarks and context is a cone-worthy reporting practice.

The War on Waste
A particularly interesting section of the Co-op report relates to waste, where incredible progress has been made. Food retailers are  major players in the food value chain and have considerable influence over upstream and downstream waste in the system. Considering that in the UK alone, it is estimated that 15 million tonnes of food gets thrown away every year, this is something the Co-op, and other retailers, have to take seriously. The Co-op reports continuing reductions in waste generated and waste disposed as well as reductions in primary packaging and increase in recycling. This includes making consumers aware of best food storage methods as well as maintaining the drive against single-use carrier bags. They are making tangible progress.

I couldn't help laughing when I read that the Co-op's own brand toilet tissue is made from waste paper from the Co-op head office. Just think how many people are wiping their bums with what were once important memos from the CEO or financial documents with profit calculations and forecasts. I have to give a cone for the Co-op own-brand recycled-office-docs toilet tissue. I just hope they remember to bleach it in the recycling process, so that the numbers don't stick to our private parts :)

Where Are the Warts?
As mentioned above, the Co-operative Group Report includes intensive detail about everything the Co-op is doing within the vast scope of their diverse business units in the vast range of their business. But, try as hard as I could, I really couldn't find all that many warts. There were seven missed targets out of a total of 104, which, arguably, is not so disastrous, but you have to work hard to find these in this report. There is no detailed summary (only a topline overview) of all the targets and their status,   which would make it easier to assess the actual status of performance at a glance. Instead, the target summaries are located in the various sections throughout the report. This is a de-cone.

What's more,  detailed explanations for missing targets are not always provided, and future plans to revive performance do not include what actions the Co-op will take to drive a change. For example, one target relates to finalizing a new strategy for Public Policy Engagement: This target was not progressed in 2011. Why not?  Don't know. The Co-op says: "Our Political Strategy Working Group met in November 2010 to consider the purpose and define goals, transparency of process and ownership of a strategic political engagement policy. No further progress was made in 2011." Failure to achieve a Trading Group Return on Capital Employed (ROCE) of 12.6% (10.5% achieved) is explained by "difficult economic conditions". Err. What's new? Similarly, a target to Achieve FSC certification for The Co-operative Food’s greaseproof paper by 2011 was not achieved, "despite work with suppliers", and this is rolled into 2012. I think a de-cone is in order for lack of accountable explanations for missed and behind-plan targets.
Coming back to the warts, here's one: Pesticides. While the Co-op has been named as one of the two UK Retailers doing the most to address pesticide use and contamination of food, the fact is that the Co-op allowed the use of prohibited pesticides in 173 cases, more than in 2010. This is explained in the report and action is underway to continue to resolve issues but this sounds like a really important wart to me. I'll give a cone for this.

While there is clear and honest reporting about the status of performance against plan, I couldn't find any other significant warts. This, I suppose, is a good thing. The Co-op is doing everything right. Right ? Or is it a bad thing because they just forgot to add the warts? Overall, the performance of this democratic collective is impressive and their report is certainly a model of transparent performance reporting for many.  But it's generally about positive performance and performance in a positive light. No whopper-wart like Oliver Cromwell's. Perhaps the Co-op should play down the warts thing in the next report. If ya ain't go no warts, why brag about them?

Outcomes are Worth More than Warts
More important than warts, are outcomes. The Co-operative Report is an action summary. It's about what the Group has done, is doing and plans to do. What's wrong with that ? It's not enough. Sustainability is not only about doing things. It's about achieving outcomes. Sustainability is the outcome, not the action. All the Co-op targets are expressed in terms of inputs. Intuitively, we know that many of these inputs lead to desired outcomes, but the Co-op neither articulates desired outcomes nor describes actual outcomes. For example, community investment reporting shows achievement of targets with 10,000 community initiatives supported, profits deployed to address UK poverty and over GBP 7 million  raised for charities Mencap and ENABLE Scotland Partnership. Over 13,000 employees volunteered in the community to a value of over 27,000 days. In total, the Co-op invested GBP 18.9 million in the community. What difference did it make? To whom? What changes in society did this massive investment (benchmarked as almost 7 times higher than other large businesses) achieve or is on track to achieve? I am not suggesting that the Co-op adopt a sophisticated Community SROI measure - these are unsatisfactory in most cases - but some examples of the outcomes of programs which, for example, "help school children improve their numeracy, financial literacy and employability skills" would be worthwhile noting. At some point, the Co-op members should be demanding to know whether the millions invested in the community are effective and not just available. I won't take away a cone for this, as very few companies understand this concept. Investing in the community, for a business, may not be evaluated using the same tools as a financial investment (where ROCE is clearly monitored and reported), but the Co-op and its stakeholders should have some indication of whether this money is being used effectively and how.   

Materializing Materiality
This is another aspect of the Co-op's reporting which would be worthwhile to reconsider in the future. The Co-op report does not contain a materiality analysis or matrix. The Ethical Plan does not explain the process for defining the impressive set of targets that the Co-op is currently advancing. While the Assurance Statement confirms that "nothing came to our attention to suggest that the Report does not properly describe The Co-operative’s adherence to the Principles or its performance" (which include Materiality), material issues that reflect stakeholder concerns are not defined and the report does not differentiate between the more important issues and the less important issues. Instead, each chapter is headed by a section called "Materiality and Strategy" which gives some general background context, but does not define specific Co-op relevant material issues. If the GRI G4 kicks in in 2013 as it is proposed in the current Exposure Draft, the Co-op is going to have to make a comprehensive reassessment of the way it reports, if it wants to remain GRI compliant, by engaging in greater process for defining and reporting on material issues.

No Stories
I might also mention that the Co-op's reporting contains no stories, no case studies and no people. No stakeholder voices, as I call them. Except for a complimentary "expert commentary" from Jonathon Porritt, who, obviously, doesn't focus on warts, only on what the Co-op is doing well. I do believe reporting comes alive with stories and people. It would be nice to see the more personal side of the Co-operative organization and the way people are empowered and energized by this sustainable model  as well as some more balanced stakeholder input. This could lend a little more credibility to this informative (but not entertaining) report.  

Overall, then, The Co-operative gets 6 cones and 2 de-cones, leaving a balance of 4 net cones. That's pretty good in the emerging Cone Award League Table. Next time I go shopping in a Co-op, I will be sure to buy their own brand toilet-tissue. Maybe I will get the batch that was made from all the discarded drafts of the 2011 Sustainability Report :) 

elaine cohen, CSR consultant, winning (CRRA'12) 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  (Beyond Business Ltd, an inspired CSR consulting and Sustainability Reporting firm)
Related Posts with Thumbnails