Is reporting bad news?

As mentioned in my previous post, the annual  CR Reporting Awards CRRA '13 Winners were announced during a special, one-day, by-invitation-only CR Perspectives conference hosted by CorporateRegister.com in late April. The conference shared the results of the CR Perspectives survey, which was completed by hundreds of people around the world and yielded some very interesting results. A full analysis of the results will be published and made freely available by the end of May on CorporateRegister.com.

I chaired the CR  Perspectives conference, which gave me the opportunity to hear and share CR Perspectives with a full-house of fascinating people from all over the world, including China. 

Paul Scott, MD of CorporateRegister.com, a fully-fledged Sustainability Reporting authority and celebrity, told me: “As CR reporting continues to evolve, CorporateRegister was very pleased to offer a forum where recent developments and the direction of reporting could be debated by an informed audience of practitioners. CR reporting developed organically, and as it matures we find various organisations attempting to steer it one way or the other. What our CR Perspectives survey has shown is that people involved in reporting make up their own minds, and we could be in for some surprises.”

CR Perspectives opened up with  Richard Howitt, MEP and European Parliament's spokesperson on Corporate Social Responsibility who spoke about the recent non-financial reporting directive which has been proposed by the European Commission, which, if adopted, will require companies of 500 employees and more to disclose information on "policies, risks and results as regards environmental matters, social and employee-related aspects, respect for human rights, anti-corruption and bribery issues, and diversity on the Boards of Directors." Richard is optimistic that this will go through all the necessary approvals to become law within the next six months or so - resulting in another 18,000 companies delivering sustainability reports - integrated or standalone- a big increase from the 2,500 that Richard says make some form of disclosure today. Richard talked about ethics and trust  in business as being part of the economic crisis we find ourselves in today, and that these are not only part of the crisis, but the route out of the crisis. He believes the European Directive will help Europe to catch up with progress made in other countries such as South Africa, Denmark, Brazil and more, where non-financial reporting has already been advanced in some form. Interestingly, Richard said that non-financial reporting should not be a big financial burden on companies. He quoted a figure of GBP 4,200 additional cost for each company to produce this information, less for smaller businesses. I am not quite sure how this was calculated but I wouldn't bet my last ice-cream on that one. However, Richard Howitt's perspectives were a great starter for what turned out to be a fascinating, packed day of discussion and ... well.. perspectives.

 

Paul Scott shared the results of the CR Perspectives survey and I can't resist providing a glimpse of a few of the initial results, pending the full and final version later this month. For example:

• Over 95% of respondents agreed that CR Reporting builds trust. Great news!
• Mandatory reporting or disclosure was the thing that the highest number of people agreed would lead to better uptake of reporting (I proposed that reporters receive free ice-cream, but I don't think that gained too much ground). 
• Over half of the survey respondents agreed that improved standardization would lead to better quality reporting.
• 92% of respondents believe that an annual form of reporting is the way to go, with much less support for continuous updates throughout the year
• A whopping 63% of reporters supported country-specific reporting, as opposed to regional or global. This is validation for multinationals who commendably invest so much effort in producing local reports.
• Almost all respondents believe that all stakeholders are important audiences for CR reporting, which continues to make the reporting task a complex one, trying to meet the demands of multiple stakeholder groups.
• When asked what would make reporting more credible, the highest number of respondents said: bad news! Quantified data, assurance and use of a known reporting standard also came in with quite some support.

During the day, we heard from a range of CR practitioners and experts, including Jo Franses of Coca Cola Enterprises, Rupert Thomas of Royal Dutch Shell, Verity Lawson of BAT, Shannon Shoul of Nike, Core Olsen from Novo Nordisk, Sophie Guillou of La Poste, Joss Tantram of Terrafiniti  and Lois Guthrie, of the Climate Standards Disclosure Board, who is always an interesting contributor.

 

We debated with passion some of the big issues of the day, from the level of understanding that companies have of the value of reporting in a "survival"" context, to the use of reporting to drive corporate value. Of course, the concept of box-ticking came up, as it always does when people talk about reporting, and while a certain amount of that is always required, especially if we move to more standardized formats, the focus on materiality may well drive companies to think more deeply about what really matters rather than what boxes are available to tick.  

 

On credibility, given that the most significant credibility builder is apparently bad news, the one thing that companies don't want to report, I asked the panel what bad news they include in their reports and what they consider bad news to actually mean. The consensus seemed to be that bad news includes: failure to meet targets, failure to address material issues due to significant challenges, and worsening of performance such as in the area of safety or GHG emissions. For bad news to be noticed, it also should not be hidden way and minimized to the point that it's unrecognizable as bad news. This also gave me the opportunity to tell the story of the work I did with GSK Romania in helping to prepare their first, local, CR Report, called Valuing your Trust. In my first meeting with the General Manager, Pascal Prigent, I asked: "What can we not report? What do you not want to include in this CR Report?" Pascal looked me, puzzled, as if this was a rather odd question. His response: "Nothing. You can include in the report anything that is relevant to telling our full, honest and authentic CR performance in all the necessary areas." I didn't actually find too much bad news to disclose at GSK Romania, after interviewing all the management team and tens of others, and reviewing mounds of data and information, but the open approach of leadership and willingness to be fully transparent in the interests of building trust and credibility is something that more reporters would do well to emulate.

 

Now that we have established that bad news works, perhaps we can expect to be reading lots more bad news in future reports. This may be totally depressing but at least we will trust everybody:).

 

Watch this space for more bad news!

 

 

elaine cohen, CSR consultant, winning (CRRA'12) Sustainability Reporter, HR Professional, Ice Cream Addict. Author of Sustainability Reporting for SMEs: Competitive Advantage Through Transparency AND CSR for HR: A necessary partnership for advancing responsible business practices Contact me via www.twitter.com/elainecohen   or via my business website www.b-yond.biz   (Beyond Business Ltd, an inspired CSR consulting and Sustainability Reporting firm)

31 ways of looking at materiality

If everything is material, it's not material. Everything cannot be top priority. Everything cannot be most important. The complexity of sustainability, especially for large, global businesses, is vast. A list of potential material issues can run in to hundreds of issues. Ford, for example, started out with a list of over 500 issues and whittled those down to a mere 57 issues which the company considers material. Identifying and prioritizing material issues is one of the most difficult tasks of companies on the sustainability journey. Most ignore it. In Sustainability Reporting, most skip over the materiality piece, presenting instead what I call a shopping list of activities which includes just about anything which can be crammed into the heading of CSR. However, some do it better. The best reporters include a Materiality Matrix, which, arguably, is the most important part of any Sustainability Report, and certainly the thing I look for as soon as I have finished reading the CEO statement.

That's why the new report, Materiality Futures, from the recently formed consulting firm, Fronesys is a fascinating look at how companies report materiality. Chris Tuppen, formerly BT CSO, together with Jyoti Banerjee, a business application software professional, partnered up to found Fronesys and start making a material impact.

For those of you who can't remember what a Materiality Matrix looks like, here is the basic format that is included in the GRI Reporting Framework:

Issues appearing in the top-right part of the matrix are the most important ones which both impact the business results and are important to the organization's stakeholders.

Materiality Futures analyses the Materiality Matrices of 31 sustainability-reporting companies for reports published before August 2011, presenting a refreshing and innovative look at how materiality gets reported. Overall, Fronesys discerned 140 separate issues listed somewhere on these 31 matrices, quite a low number when you think that the companies analyzed listed between 8 and 65 issues with the overall average being 27 issues per company. The analysis whittles this down to 50 core issues which were listed by at least 5 companies, and are not industry sector specific, and mapped these issues in what Fronesys calls the Matrix of Matrices.

The top 10 issues which emerge as important both for businesses and stakeholders in terms of number of times mentioned and relative importance to business and stakeholders are:

1 Sustainable Products
2 Product Carbon Footprint/Energy Efficiency
3 Economic Development/Emerging Markets
4 Customer Relationships/Satisfaction
5 Economic Stability/Recession
6 Climate Change (policy/strategy)
7 Energy Use/Own Greenhouse Gas Emissions
8 Employee Retention and Attraction
9 Legal Compliance
10 Product Safety

It is interesting that Sustainable Products takes top place. Perhaps this is an indication that companies are hoping to make some money out of sustainability. The fact that Legal Compliance appears in the top ten is perhaps an indication of the efforts companies need to make simply to keep up with changing legislation in the area of sustainability. Although compliance is often thought of as a precondition for voluntary sustainability efforts, the fact is that compliance is by no means something to be taken for granted.

Issue number 50, right down at the bottom of the materiality ranking list, is Senior Executive Remuneration, something which is starting to affect more companies as shareholders, not only stakeholders, are taking a stronger stand and demanding more proof of performance and bang for the executive buck.

The two issues which were mentioned somewhere on the matrix by most companies (irrespective of their positioning) were Health and Safety (25 times) and Climate Change (24 times). This is what the overall matrix of companies looks like for climate change - you can see that most companies have it right up there with the leading issues.

Fronesys also offers two additional ways of looking at materiality:

Issue Coherence Level: This is the degree to which companies (and their stakeholders) agree that an issue is material. In any given set of companies, each will note specific material issues in at different points on the Materiality Matrix. The degree to which all companies are synchronized regarding the relative importance of the issue as noted on their matrix, is the Issue Coherence Level (ICL). Across the 31 companies analyzed, the highest coherence is achieved for Economic Stability / Recession, Stakeholder Engagement, Employee Retention and Attraction, Customer Relationships/Satisfaction. Sustainable Products, however, has a much lower level of coherence, demonstrating that, although many companies include this on their matrix, not all agree about how important it is. The lowest level of coherence is biodiversity. This is indeed an issue which is either high on the radar or or very low, depending on sector, I think, so it doesn't surprise me to see companies placing this in different corners of the matrix.

Materiality Convergence: This is another metric invented by Fronesys which shows the degree to which a company and its stakeholders agree or disagree on the relative importance of a particular issue. For example, a company might rate customer satisfaction, as Cisco does in their 2010 materiality matrix , as very important to the business but not so important to society.

Fronesys says that total convergence of issues between a company and its stakeholders would be "odd" where as "a total lack of convergence would suggest the company is out of touch."

So far, this is all very interesting, but ...err... what's the point? Why is comparing materiality of different companies important? Well, first, Fronesys says, this represents a benchmark for all companies battling with materiality prioritization. If each company in your sector (and its stakeholders) confirms that renewable energy is one of its most material issues, but it's nowhere on your radar, perhaps you should be asking why not.

However, there is another important motivator for this analysis - the run-up to integrated reporting. Fronesys maintains that the integrated thinking which necessarily precedes integrated reporting will require good materiality work.

"It is hoped that the IIRC framework will not only lead to a consolidation of the reporting of a companyʼs most material issues, but also lead to more forward looking reports that illustrate a more strategic alignment between sustainability and conventional business objectives. For any company adopting the IIRC framework, the process of materiality determination will need to be at the core of their thinking."

I am not so sure. Right now, the materiality matrices contained in sustainability reports are based on sustainability issues and do really address core (financially material) business issues. There is some overlap, but broadly, sustainability matrices do not truly serve Integrated Reporting in their current form because they mainly address sustainability as separate from the business. For Integrated Reporting, a business materiality matrix containing financial and sustainability issues will need to be created. As mentioned in a previous post, I hope that when all the issues are put together,  the issues which are primarily sustainability driven won't drop off the bottom of the matrix. However, maybe the development of Materiality Matrix Muscles will help and I concur that companies need to get better at "the process of materiality determination".

The issue that the Materiality Futures Report does not cover is whether, having developed the Materiality Matrix, a company adequately discloses on the material issues in the Sustainability Report. I often find that a Matrix is stuck somewhere in the report but the actual issues are not addressed in any depth. The whole point of identifying material issues is to understand them, make decisions about them and report on them to stakeholders. If you see a Materiality Matrix in a Sustainability Report, look for disclosure on the highly material issues.

There is another whole debate (which Materiality Futures references) and that is the process for determining material issues, stakeholder inclusion, diversity of stakeholder voices and how issue are prioritized. The fact that a Materiality Matrix exists is not necessarily an indication of good process, which Fronesys highlights as another area where disclosure should be improved. Sustainability is as much about the "how" as it is the "what". If you see a Materiality Matrix in a Sustainability Report, look for disclosure on how the Matrix was developed.

If I were to do a materiality matrix of issues in my life, I would probably find that 24/7 Ice Cream Supply probably comes out as the top issue, but don't ask me about process or the convergence score or the coherence level. 

 

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 www.twitter.com/elainecohen  on Twitter or via my business website www.b-yond.biz/en  (BeyondBusiness, an inspired CSR consulting and Sustainability Reporting firm)

How to set sustainability goals

A recent piece of research from GreenResearch ^TM, a research, advisory and consulting firm focusing on cleantech, alternative energy and sustainability, looks at the trends and best practices for defining, managing and communicating sustainability goals. This is an interesting subject. The quality, quantity, scope, "softness" and "hardness" of sustainability goals as presented in sustainability reports varies widely, from those which are clearly measurable (and therefore manageable) to those which are broad directional aspirational type statements which offer no clue as to how progress will be assessed.  (The researcher David Schatzky notes in the GreenResearch ^TM report "Aspirational goals can bring excitement to a sustainability strategy, but can engender grumbling from mid-level executives if they are held accountable for achieving them."

Mostly, I believe, the type of goals a company sets and commits to in a Sustainability Report will have to do with the company's approach to sustainability. Those companies who have a clear sustainability strategy with clear action plans will find it easier to define SMART goals. Those companies who are just doing stuff, and want to report on it, find it harder to formulate a set of quantifiable goals. There tends to be quite a clear correlation here.

Good example

The Cooperative Group Sustainability Report  2010

The Cooperative Group has a clear strategic approach to sustainability and SMART quantified goals in each of the three core strategy areas: social responsibility, ecological sustainability and delivering value. Some goals span several years. Here is an example of the goals in the Social Responsibility area:

Example of targets from the Cooperative Group Sustainabilty Report 2010 (page 9)

The top two on this list (as it's quite hard to read on this blog) are:

• Ensure that 10% of the profits available for distribution is made available for community investment by 2013, with £5m deployed per annum to tackle UK poverty around stores and branches.
• Stores and branches will act as a focus for 10,000 community initiatives per annum.

You can see how these are very specific and define measurable outcomes. All the Cooperative Group's 14 key targets are similarly expressed.

Less good example:

Mauser Sustainability Report 2010

The Mauser Group  has a list of targets in its Sustainability Report for 2010 and while the company should be commended for publishing targets, it is easy to notice the difference - the targets are not entirely quantifiable. They are just specific enough to guide the work but not specific enough to measure success. "Work on market introduction of light-weight packaging" provides an item on the action plan but hardly defines measurable outputs. Will the fact that people work on light-weight packaging be enough to meet the target? Or is the delivery of light-weight packaging the goal? And how much light-weight packaging? One item? All items?

Example of targets from Mauser Sustainability Report 2010

Another less good example

Occidental Petroleum Corporation (Oxy) Social Responsibility Report 2010

Oxy also should be commended for making commitments to targets in its Sustainability Report, however these are also quite vague. "Continue to engage with key stakeholders on Oxy’s corporate governance, HES and social responsibility efforts" doesn't really describe the kind of step-change activity or desired result. Sounds a little like a more-of-the-same soft-option target. What will people do differently? How will success be measured?

Another of Oxy's targets is "Maintain efforts to make Oxy’s workforce reflect the communities in which the company operates, through national, regional and local hiring practices and equal opportunities for women and minorities." Any time a target or goal starts with "maintain efforts", it is describing the effort, not the result. It's hard to measure efforts. Stakeholders don't buy efforts. They buy results.

Anyway, the above-mentioned research had 32 respondents (senior executives at major corporations in USA, Europe and Asia) from companies which are considered to be leaders in sustainability. The research therefore targeted to represent best practice, not all practice. Additionally, interviews were conducted with with 14 companies including Alcatel-Lucent, Barclays, Dell, Edelman, Johnson Controls, Kraft Foods, Nokia, Unilever and Telefonica  and more. Key questions addressed by the research are:

• What is the right way for companies to establish sustainability goals?
• How should companies manage sustainability performance to ensure they achieve their goals?
• When and how should sustainability goals be communicated to the public, and what is the place of internal sustainability goals?

The research shows that several factors influence the establishment of sustainability goals:

Factors influencing the selection of sustainability goals from GreenResearch 2011

Interestingly, the top factor relates to environmental impact goals, arguably the easiest and most quantifiable area of sustainability practice (though I believe all other areas of sustainability performance can be quantified in clear goals). The research shows that 79% of respondents have publicly declared goals on carbon emissions, 57% on overall energy consumption, 45% on solid waste, water and renewable energy consumption and 41% on recycling.

55% of respondents indicate that goals are set annually with only 3% setting goals on a 3-5 year horizon. This may be indicative of approach or of semantics. Sustainability requires longer term thinking, so annual goals are inadequate. However, multi-year goals with annual milestones which are adjusted along the way is a good approach. Sometimes milestones may be expressed in terms of annual goals.

Another interesting aspect of goal-setting includes the degree to which executive compensation is tied to sustainability goals. The research shows that very few companies mandate that all leaders and managers should have part of their compensation package related to sustainability, and only 7% of companies indicated that some or all Board members are compensated on this basis. 

Link between compensation and sustainability from GreenResearch 2011

Finally, the research around Sustainability Goals refers to the debat about publication of goals externally versus the use of goals at an internal level only. Why would a company (which reports on sustainability externally) not publish goals externally? Some suggestions thrown up by the research:

• Belief that this is not very relevant to external stakeholders.
• Lack of good tracking systems or credible data for measuring performance.
• Lack of confidence in their ability to meet their goals, sometimes because of a dependence on third parties to achieve a goal.
• Regional factors affect goal-setting such that an overall global goal would not be realistic.
• Competitive considerations, including a reluctance to see competitors outpacing the company by setting more ambitious goals.
• Creating a sustainability report (with goals) would be redundant, time consuming and costly (a direct reference to Apple's statements relating to Apple's (misguided) reluctance to report on sustainability).

I agree with GreenResearch that publicly stated goals have power and making an external commitment should really be the best practice that companies aspire to both as a management tool and as a route to gaining trust and credibility with stakeholders. No-one expects perfection, it is understandable that some goals may not be achieved, but as a minimum I think we should expect transparency. If sustainability reporting is about building trust, reporting needs to address what companies WILL do not just what they HAVE done.

The conclusions shared by GreenResearch are:

• Companies should craft sustainability goals in consultation with internal and external experts and stakeholders, combining bottom-up and top-down analysis to produce goals that are material, achievable, quantitative and time-bound. A quarter of sustainability executives at leading companies have “aspirational” sustainability goals without a clear plan to achieve them.
• CEO support, operating executive accountability and regular progress reporting are the best practices of managing sustainability goals. Fifty percent of sustainability leaders tie part of C-level executive compensation to the achievement of sustainability goals. But over forty percent say progress on sustainability goals is reported to senior management only semi-annually or annually.
• Public sustainability goals demonstrate commitment and help galvanize internal staff and drive results. Seventy-nine percent of sustainability leaders have public greenhouse gas emissions goals while 45 percent have public waste and water goals. Companies with immature management or measurement practices should start with internal goals but aim to go public in short order.

So, time for a review of your sustainability goals?

Learnings from GreenResearch's report might indicate it might be a worthwhile exercise.

(Disclosure: I have no relationship with GreenResearch and do not benefit from sales of the company's reports)

 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 www.twitter.com/elainecohen  on Twitter or via my business website www.b-yond.biz/en  (BeyondBusiness, an inspired CSR consulting and Sustainability Reporting firm)