The Best Sustainability Reports are Built on Trust
Done effectively, sustainability reporting builds trust and curates strong relationships with important stakeholders – including employees.
Each month, NBS spotlights a key sustainability issue for business leaders. These issues have been identified by NBS’s Leadership Council, a group of Canadian businesses recognized for their leadership in sustainability. This month, Irene Herremans of the University of Calgary provides guidance on effective sustainability reporting.
If a report is published and no one believes it, does it have any value? For stakeholders to believe and use the information in a sustainability report, they must trust the company issuing it. The latest Edelman Trust Barometerfound that people are more likely to believe negative rather than positive information about a company, unless the company is trusted. Trust comes when companies provide credible information -- information that is accurate, useful, and represents what a firm is actually doing.
Although 95 percent of Global 250 companies provide sustainability reports, according to the latest KPMG International Survey, this number tells us little about the quality of the reporting and whether it is trusted.
How to Make Your Sustainability Reporting Credible and Trusted
To issue trustworthy reports, companies need to have strong reporting systems and communication approaches. High quality organizational systems related to reporting ensure accuracy of information. High quality communications ensure that the reporting is useful to stakeholders in their decision-making.
Key organizational systems related to reporting include:
Clear corporate mission and objectives. The report should evolve from these commitments, to show the company’s progress in fulfilling them. (Additional policy statements may be necessary to give sustainability sufficient emphasis.)
Organizational structures for managing data. Managers should assign responsibility for data collection, provide guidance on data analysis, and discuss opportunities for improvement.
Management systems that establish sustainability as a priority. A corporate commitment to sustainability leads to ethical employee action even when performance isn't being monitored. For example, Suncor makes the Chief Financial Officer responsible for environmental and social indicators as well as financial indicators, giving equal weight to all.
Review by an assurance provider and a panel of stakeholders. Assurance providers (auditors) verify data accuracy but will not assess performance. The stakeholder panel will comment on both reporting and performance. Stakeholders can provide feedback on report readability and content -- for example, whether important themes are adequately discussed and whether performance is consistent with the organization’s commitments.
Quality communications involve:
Using the Global Reporting Initiative (GRI) guidelines for reporting. The GRI has been designed through a multi-stakeholder process specifically to address the informational needs of users.
Indicating progress by showing performance against benchmarks. Companies usually compare their performance to how they have done in past years. Stakeholders are most interested in how a company is doing compared to the industry overall. In Canada, energy companies often compare themselves with the industry average provided by the Canadian Association of Petroleum Producers.
Demonstrating commitment by setting targets. Targets should be related to the company’s priority areas.
Communicating through multiple channels. Diverse communication outlets are necessary because sustainability reporting has many stakeholders. Appropriate channels include the annual company report, the stand-alone sustainability report, the website, and NGO partnerships such as the Carbon Disclosure Project. Information should be consistent across these various channels.
According to KPMG, European companies are global leaders in both areas required for trustworthy reporting: reporting systems and communications approaches. North American companies are particularly weak in their sustainability reporting systems. Building these systems takes time and effort; European companies may be leading because they have been reporting longer than North American companies.
Trust Starts at Home: Companies Need to Believe in Reporting
Companies need to see value in reporting in order to make the effort required. Ideally, sustainability reporting is motivated by internal values or an appreciation of the business benefits of reporting. Too often, companies start reporting due to external pressure: e.g. from governments and institutional shareholders. Environmental or social disasters that question the social license to operate can also spur reporting.
In these situations, companies are in a defensive position, seeking to demonstrate quickly that they are responsible citizens. The company doesn't have the internal capacity to provide quality, trusted information. More proactive companies, beginning reporting in the absence of external pressure, have time to develop the internal systems and controls necessary to report trusted information consistent with their performance.
Once companies begin to report, however, they often start to understand the many benefits of reporting. There is a business case for reporting trustworthy information, though benefits are not automatic and many are intangible and difficult to quantify. Yet it's possible to understand how environmental and social performance complement financial performance. For example, Baxter, a medical device and pharmaceutical company, issues an Environmental Financial Statement (EFS), which monetizes the costs and benefits of its stewardship activities. On average, Baxter reports a return of $3 per year for each $1 of investment. Reporting allows the company to identify exactly where to focus resources for the greatest return.
The next step in reporting is integrated reporting, in which environmental and social information is combined with financial statements in one report. Integrated reporting shows that the company understands how environmental and social performance are complementary to better financial performance. This kind of commitment produces the most credible, trusted reporting, and the most useful information for stakeholder decision-making.
The University of Calgary offers online modules on key areas of sustainability reporting, with a particular focus on credibility, performance, and assurances. This project was funded in part by the Network for Business Sustainability.
About the Author
Dr. Irene Herremans is a professor in the Accounting, Tourism, and Environmental Management areas at the University of Calgary's Haskayne School of Business. Her research interests focus on many contemporary issues including management and environmental control systems, environmental performance, international business, intellectual capital, and performance evaluation.