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What Do Social Responsibility Reports Really Tell Us?
Gil Friend, 20 Mar 05

Gil Friend is a systems ecologist and business strategist, and is the CEO of Natural Logic, an environmentally-focused strategy, design and management consultancy. He writes occasional essays on sustainable business for our Sustainability Sunday feature. Take it away, Gil:

With some 2000-3000 companies worldwide producing "corporate social responsibility" (or citizenship or environmental or sustainability) reports, it's time to ask both "how good are they?" and "what do they really tell us?"

SustainAbility’s biennial benchmark of CSR reporting addresses the first question. They found that companies have made a "huge leap forward" in overall reporting quality, but reports still fail to fully engage stakeholders, particularly financial analysts who continue to struggle to identify the data needed for their analyses of corporate performance. The report also finds that "most companies still fail to identify material strategic and financial risks and opportunities associated with the economic, social and environmental impacts captured by the 'triple bottom line' agenda."

To address the second question, Natural Logic analyzed the publicly reported data for the Technology and Telecommunications leaders in SustainAbility’s report, using our web-based KPI (key performance indicators) system, Business Metabolics™. The inconsistency of metrics reported by each company made interpretation difficult, but here’s some of what we found regarding greenhouse gas emission. (Read the expanded article, with observations about water and “wastes,” and a link to fly through the data yourself, here.)

Some companies (Deutsch Telecom, Sony, tied for #45) show steady improvement in the core sustainability indicator of Greenhouse Gas Emissions (GHG); others show little change (British Telecom, #4, Ricoh), and the data for some are inconsistent (Philips, #39).

Comparing GHG with Sales, lower ranked reporters Sony and Philips seem to be doing exceedingly well, while some leading reporters, like BT, are now at the bottom of the pack. On the other hand, the two companies reviewed in this sector that didn't make the top 50, IBM and Ricoh, appear to rank near the bottom of the pack on this measure, while HP (#10) also does very well. Reporting quality may be an indicator of how well sustainability issues are managed, but other factors are clearly involved.

Comparability is especially elusive with regard to GHG reporting. Some companies report on several types of GHGs, while some just track CO2. Low performers might simply be accounting for more of their operations more inclusively, and collecting better data; high performers might have outsourced more of their manufacturing -- a growing trend with technology companies -- and are not reporting impacts that have now been offloaded onto their suppliers. The graphs alone don't tell the story. Comparability and boundary standards are evolving, through the work of the Global Reporting Initiative (GRI), but reporters need to clearly specify the boundaries and assumptions underlying their analyses, so their readers have a better chance at meaningful comparisons; meanwhile, readers should read and interpret carefully.

Sony, for example, is the only company in the group that reported GHG emissions in a life cycle framework, disclosing that the bulk of their reported GHG emissions -- more than 97% -- came from the use of their products in the world, not from their own operations. The GHG impact of their contract manufacturers is not reported, so the "life cycle" framework is not complete. But even so, this argues for a strong focus on product efficiency -- a goal declared, but not reported on, by HP; Sony has been far more successful, so far, in reducing GHG from operation of their facilities than from operation of their product "fleet".

(Sony was also the only company in the group to report on product yield -- the percentage of material throughput that's turned into product. This Product to Non-Product Ratio -- which Sony reports as exceeding 85%, and improving -- is so valuable for focusing management attention on the sustainability value proposition that we've built it into Business Metabolics as our Throughput Pie™. (Japanese companies seem more likely to report this data than their US and European counterparts.))

Here’s one other indicator: While one would expect the telecomm companies to be more productive than the manufacturers -- measured as Sales/NonHazardous Waste -- top ranked BT lags well behind lower ranked Deutsche Telecom. Among the manufacturers, lower ranked Sony & Matsushita come in well ahead of HP -- which along with Sony shows the most dramatic improvement trend -- and the others.

What have we learned from this initial analysis?

  • The best reporters are not necessarily the best performers, though -- personal speculation here -- they have inserted themselves into a process of transparency and self-reflection that could contribute to future performance improvement.
  • Despite the good efforts of the Global Reporting Initiative (GRI), reporting is far from standardized, and lack of comparability across reported metrics (as well as the growing trend to outsourcing) makes meaningful comparisons challenging.
  • Even so, side by side performance comparisons -- whether between companies in an industry, or facilities within a company -- can provide valuable perspective on what constitutes good performance, and raise the bar on what's possible.

    To fly through our analysis yourself, visit our interactive demo at http://www.businessmetabolics.com/GR. (Not all functionality is enabled in this demo; for example, Sony was the only company whose data supported the the Throughput Pie calculation. Only the Technology and Telecommunications sector are shown at this time.)

    Coming soon: the results of our recent survey of CSR reporters, conducted in collaboration with greenbiz.com.

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