Is EP&L a waste of time?

As promised (threatened?), another post about the work of the WBCSD and my involvement in the Council meetings in Atlanta last week.

I was greatly privileged to moderate a plenary panel session on the subject of "Redefining Value - costing externalities" with three incredible sustainability and business achievers.

Marie-Claire Daveu: Chief Sustainability Officer and Head of International Institutional Affairs of Kering and member of Kering Executive Committee.   

After embarking on a career as a senior civil servant in the field of agriculture and the environment, Marie-Claire Daveu served as Technical Adviser to the Cabinet of Prime minister Jean-Pierre Raffarin, the Principal Private Secretary to Serge Lepeltier, Minister of Ecology and Sustainable Development, before joining Sanofi-Aventis Group in 2005 as Head of Sustainable Development. From 2007 to 2012, Marie-Claire Daveu served as Principal Private Secretary to Nathalie Kosciusko-Morizet, first within the Ministry of Ecology, then in charge of forecasting and the digital economy, and lastly, within the Ministry of Ecology, Sustainable Development, Transport and Housing. Since 2012, Marie-Claire heads up sustainability at Kering. Kering is a Group of 22 Luxury and Sport & Lifestyle brands such as Gucci, Bottega Veneta, Saint Laurent, Alexander McQueen, Stella McCartney, PUMA and others.  

Roberto Salas: CEO of Masisa, Chile

Roberto Salas serves as President of Grupo Nueva and, since 2008, in addition, as CEO at Masisa, one of the Latin American leaders in production and marketing of wood fiber boards for furniture and interior decorations headquartered in Santiago, Chile. Roberto began his career in Grupo Nueva in 1989, Ecuador. Roberto is Co-Chair of the Development Area of World Business Council for Sustainable Development. He was a Professor at the Faculty of Economics, Universidad Católica de Guayaquil, for 17 years.

Roberto Pedote: Chief Financial and Investor Relations Officer, Natura, Brazil

Roberto Pedote is responsible for Natura's financial and legal matters, as well as investor relations and corporate affairs. Formerly, he spent 16 years with Unilever in Brazil, England and Latin America, and served as Finance Vice-President for the Food and Ice Cream Division in Brazil. Prior to this he served as  Finance and Control Director for Nokia of Brazil. Since 2010, Roberto has been a member of the International Integrated Reporting Council (IIRC), and in 2013 he was appointed member of the Advisory Board for BM&FBOVESPA Listing. Natura is a Brazilian manufacturer and marketer of beauty products, household, and personal care, skin care, solar filters, cosmetics, perfume and hair care products. 

This was a rare occasion to have a CEO, a CSO and a CFO of major corporations together on a stage and ready to share insights about a rather controversial aspect of sustainability accounting and disclosure. I opened up with a really easy question!

"When we talk about externalities, we refer to all those often invisible impacts on society of doing business – the indirect social and environmental effects of your activities on climate change, health and the quality of life. Does it make sense to suggest that companies should calculate and account for these costs? Or is this just a diversion designed to help companies avoid doing the hard work of changing how they business in a more sustainable way?"

All three panelists responded in different ways, referring to the value of the externality costing approach, particularly as a tool to help resource allocation, prioritization and decision-making withing the company. By bringing impacts to a common denominator language in money terms - monetizing impacts - organizations have a new tool to identify and quantify the ways their business activities show up throughout the entire value chain. By using a common language, impacts can be prioritized more easily. Not only this, the exercise forces debate. It presences aspects of business impacts that have previously never been considered. Just having a conversation about externalities in your organization is an interesting first step, and the process of evaluating them, even moreso. Through debates such as these, leading edge companies are now starting to change the game. In our favor. 

To remind you, Kering was, I believe, the first organization to publish in what was thought to be a very bold move, the Environmental Profit and Loss statement of one of its companies, PUMA, back in 2011. (See a great infographic about the value of the EP&L on the Kering website) Marie-Claire Daveu promised that the EP&L for the entire Kering Group would be published soon. The EP&L now can be used to compare and reprioritize impact and risk management across the entire Kering group of companies, using the same tool.

The EP&L created quite a  stir in its day with many hailing it as the new way forward for corporate disclosure. Although many were impressed, there were also many questions. Is it reliable? Does it make sense to put a price on the environment? Is it accurate? Does monetization devalue the true impacts of business? Like, can you put a price on caring? 

We have not seen too many companies follow suit and take the leap into externality costing and disclosing the results. Partly because it is rather a complex exercise. And if you think monetizing environmental externalities is tough, then social externalities and their far-reaching impacts are even tougher to assess. And disclosure is a risk. WBCSD maintains that we will only ever be able to know the true cost of business if we make progress in understanding, assessing and accounting for these external costs, and is encouraging its members to make bolder moves in this direction. That's the essence of "redefining value", one of the strategic priorities of WBCSD in the organization's Action2020 program. The sustainability leaders in our panel discussion believe the process of externality costing adds real value.

Masisa is a company with a strong passion for sustainability and a vision through to 2050.

Masisa publishes an Annual Integrated Report and in 2013, for the first time, published monetized impacts.

Roberto Salas described one approach to externality costing on the social side. He talked about the work Masisa does in communities, considering a range of community needs and managing social development over time. His view is that, by taking a small number of social indicators, and tracking development over a period of several years, social impact will be quantifiable and correlatable to corporate interventions and positive actions. Monetization is not a one-off thing. Externality costing must be viewed as a long-term activity.

Roberto Pedote of Natura shared an important insight. Natura has not yet published an EP&L but they are working internally to develop this. Roberto made the point that the EP&L, however, is not about precision. It's about the trend that the numbers show over time, and the ability to compare the size and scale of impacts as they occur throughout the value chain. This will never be a completely precise exercise, and although it's about numbers, it's not the numbers that are most important. It's the understanding of relative weightings of different material impacts, and deep internal discussions about the accountability of the company to mitigate or improve them. As such, externality costing can be an extermely useful internal engagement and decision-making tool.

I asked the panel if stakeholders are actually asking for EP&L's? Is anyone really all that interested? The response was that, while there are not many explicit demands for this specific calculation, stakeholders are showing more interest and demanding greater transparency from companies. The requests that stakeholders make for information are often those that can be met through the work that an EP&L reqires. Doing the work on some form of EP&L accounting enables companies to respond to broader stakeholder demands for transparency in a more considered and thorough way.

I have to confess to having been somewhat dismissive of EP&L accounting prior to the session and the research I did in preparation and pre-conversation with the panelists and their teams. I had always felt that we spend too much time in analysis-paralysis and not enough time taking bold action. But, now, after engaging with such clear-thinking, driven and enlightened leaders, I am more open to hearing the benefits. As Marie-Claire Daveu, the champion of EP&L pointed out: How can you act without a tool to help you evaluate priorities in a holistic way?

While EP&L may not be everybody's double-fudge ice cream, it's a tool that seems to be helping some of the world's leading companies move forward and it's bringing the discussion around sustainable development to another level. We should probably keep our eye on externality accounting. My guess is that we will be hearing a lot more about it in the coming years.

elaine cohen, CSR consultant, Sustainability Reporter, HR Professional, Ice Cream Addict. Author of Understanding G4: the Concise guide to Next Generation Sustainability Reporting  AND  Sustainability Reporting for SMEs: Competitive Advantage Through Transparency AND CSR for HR: A necessary partnership for advancing responsible business practices . Contact me via Twitter (@elainecohen)  or via my business website www.b-yond.biz   (Beyond Business Ltd, an inspired CSR consulting and Sustainability Reporting firm).  Check out our G4 Report Expert Analysis Service - for published G4 reports or pre-publication - write to Elaine at info@b-yond.biz to help make your G4 reporting  even better.  

12 CSR Reporting Trends for 2011

I recently published an editorial on CSRwire.com called "Sustainability Reports: don't ask "if", ask "how". In a nutshell, using the PwC CSR Reporting Trends 2010 study published last month, and the Radley Yeldar "How Does It Stack Up" reviews of European and UK CSR Reports, and the Lundquist second "Global Leaders" report, which assesses online sustainability communications (and not just sustainability reports),  the inevitable concusion to be drawn was that sustainability reporting is now a minimum expectation of companies and the key to differentiation is the way a company reports, rather than, as was the case not so many years ago, whether the company reports. There are still thousands of companies who do not communicate on sustainability, but sooner or later, there will be no avoiding full accountability and transparency. The ones who do it well will gain a range of internal as well as external benefits. You can read my full editorial here.

Anyway, as it is now mid-November, thoughts are turning to the end-of-year lists (The Best of 2010... The Worst of 2010... The Trends.. The Rising Stars .... The Leaders and the Laggards ... etc) and all those kinds of articles which appear in December, and I have already been asked for my view of how CSR Reporting did in 2010 and what the trends I see for 2011, for an article to be published on this subject. My response ended up being blop material. So here it is. After I tidied it up a little!

CSR Reporting 2010 and 2011 trends

2010 has been a good year for reporting. It started well with news of a sharp increase in reports produced by the S&P 100 in 2009,  93 of the 100 now reporting and by mid October, the GRI was reporting a 60% increase in reporting in 2010 versus 2009. . The PwC trends summary for 2010 shows strong advancement of a reporting culture. The success of the GRI 2010 Conference in Amsterdam and the establishment of a new GRI foothold in the USA, the continued expansion of the Carbon Disclosure Project and their new Water Disclosure Report  as well as many other other frameworks  all point to increasing focus on business transparency and reporting.  Companies are becoming more creative with reporting techniques, and using the power of the internet to reach more readers. The strong push towards Integrated Reporting and the establishment of the Integrated Committee (IIRC)  has provoked new debate, activity and even listing requirements on some stock exchanges. The focus on reporting as a feed into investment analysis tools has heightened with Sustainable Indexes continuing to have an important role, including the publication of the Global 1000 Index by CRD analytics, which powers the NASDAQ Global Sustainability Top 50.

The debate on reporting moved in 2010 from whether to report to how to report – and this includes fundamental questions about presentation of CR reports (online or print/download) , separate versus integrated and frequency of update (annual or more frequently). Whilst the talk is towards integrated, companies are not moving wholeheartedly in this direction and much work still  needs to be done to define what integrated really means and how it can be applied in a way which is better than now. Perhaps many will wait to see what guidelines and frameworks will emerge to assist them in addressing the highly complex issues that true integrated reporting poses.

Trends to watch in 2011

Non-profit reporting : We are starting to see more scrutiny of large NGO's and the understanding that as large organizations, they should be committed to transparency in spite of, or perhaps because of, their inherent social or environmental nature. The release of the GRI NGO sector supplement will probably have an influence here.

Integrated reporting : It is likely that more companies will want to get ahead of the game on integrated reporting, and will start by joining a financial report and a sustainability report in one cover. Whilst this is not true integration, some companies will go this route for many reasons, if only to be counted as leading a new phase of sustainability reporting. What we might see, however, is a greater attempt by companies to quantify the financial impact of their non-financial performance in one way or another. This is long overdue and would be a welcome development in Sustainability Reporting , even if full integration is not yet a practical option for most.

Online engagement around reporting : The drive to use reporting as a platform for interaction will gain speed in 2011. Today, only a handful of reporters (Guardian, SAP, Timberland to name a few) have really designed their reporting efforts around a more holistic view of sustainability communications and are using their report as a catalyst to engage stakeholders. As time goes by, more companies will realize that this is not only far less risky than they think, but also an inevitable feature of being a sustainability leader.

Use of social media tools to engage stakeholders in the reporting process : As online engagement becomes more widespread, companies will have no choice but to explore the possibilities of Social Media and use tools that are available on the Internet. We will see a proliferation of corporate CSR blogs, more Facebook pages and more tweets from Company accounts. Some may even take the lead from the Guardian who used their blog platform to ask stakeholders what the Guardian should be reporting on . In this way, Companies will try to engage stakeholders in the content and development of the report, rather than just gaining their reactions.

Dominant online formats: More companies will develop their online architecture to include sustainability data and use the annual reporting cycle to create order, priorities and create a structured report which is printed only in a summary form. Websites will be the domininant information carriers.

Issue based reports: We have seen an increase in sustainability reports which  are region or issue based: L'Oreal issued a report on Diversity, SAB Miller issued a report on their economic impact in South Africa, Unilever has issued a series of reports on different aspects of their sustainability initiatives, Nestle has issued a report on water management, and another on Nutrition and Diet. More companies will be looking to differentiate themselves through focused and targeted reporting on their impacts in specific regions or on specific issues.

Materiality and Engagement: These two areas are those which most companies fail to report well, and yet are key to good sustainability communication. We have seen companies start to mature into reporting on these issues. I believe better reporting on materiality and stakeholder engagement will characterize 2011 reports.

Some trends I would like to see but I doubt will materialize in 2011:

Brand based reporting for consumers: I would like to see more companies influencing consumers with their sustainability reporting, via the brands that they distribute and the customers they serve.  I would like to see some Sustainability Reports for Brands rather than global reports which mean little to local consumers or customers. I would like to see consumers being engaged at the point of sale with sustainability information contained on product packaging so that they can make the right choices as they purchase.

Employee involvement: I would like to see evidence of greater employee engagement and involvement in the reporting process. Many companies do not report on the process of their report development or use the great insights of employees in the body of the report itself. I would like to see more evidence of a CSR enabled culture in the business and its evidence in the reporting process and the report.

Outcomes: The most important change I would like to see is the move from reporting on what has been done to what a difference has been made i.e. the move from inputs, decisions, plans and actions to a real assessment of what impacts the company is making as a result of all these inputs, decisions, plans and actions. Outcomes has to be the key focus for 2011. However, I suspect that so many companies will continue to take the easy route of just listing all the good things that they have been doing and not really bothering to put in the extra effort so that we can all know whether it was worth it. This would mean considering the indirect impacts as well as the direct impacts a company has.

Localized reporting: I would like to see more global companies producing local reports describing their local impacts. When a global business reports, it is at a high level and meaningless for local stakeholders. Intel, GE, Vodafone,  Telefonica, Motorola and others have developed a leading habit of parallel reporting at local level. I hope that more global companies will do the same in 2011.

SME reporting: There are some glimmers of hope in the SME community but by and large, reporting has not been assimilated in this sector. However, as SMEs drive economies, we cannot ignore their collective impact on our societies. My firm view is that SME reporting will be largely driven by MNE requirements for reporting in their supply chain, much like the excellent initiative of Puma in the context of a GRI project or the requirements of Walmart from its first tier suppliers. I would like to see more MNE's driving this and supporting their supply chains in becoming more transparent and more sustainable.

Finally, a word about context. There is a body of thought that says sustainability reporting should be contextual, i.e. impacts which are defined in terms of their contribution to overall global sustainability rather than individual unconnected impacts of a single company. See this interview with Mark McElroy of the Centre for Sustainable Innovation. I am going to remain quiet on this for the time being till I distill my thoughts more comprehensively, but suffice it to say that beyond the additional more general contextual information shared as background to material issues reported on, I don't see many companies going this route, whatever its merits or otherwise.

So there you have it. Be prepared for an onslaught of posts, opinions and predictions of reporting trends for 2011, many of which will differ and only some of which will prove to be relevant. See you in December 2011 to check out how everyone did.

elaine cohen, CSR consultant, Sustainabilty Reporter, HR Professional, Ice Cream Addict. Author of CSR for HR: A necessary partnership for advancing responsible business practices  Contact me via www.twitter.com/elainecohen  on Twitter or via my business website www.b-yond.biz/en (Beyond Business Ltd, CSR consulting and Sustainability Reporting firm)