Why not report? Lessons from the environmental front
September 29, 1998
John Elkington from SustainAbility has led the way in helping companies to improve their environmental reporting. His latest study, looking at why the majority of multinational companies still do not report, offers pointers to the development of wider social accounting and reporting.
Over the past decade, voluntary corporate environmental reporting has expanded rapidly. More than 600 companies have produced a corporate environmental report (CER) and even more have EMAS environmental statements (under the EU Eco-Management and Audit System). Despite this encouraging growth, reporting companies still represent only a small percentage of the more than 35,000 sizeable multinational corporations.
Early in our on programme with the United Nations Environment Programme (UNEP), we concluded that the ultimate success of reporting hinged on getting more companies to report. So for our fifth publication in the programme (The Non-Reporting Report, published in September), we decided to explore why some companies do, and some do not, produce CERs, focusing on 50 large companies with significant environmental impacts.
Of course, reporting is not an end in itself, but it can be a tool to spur corporate policies, strategies and management systems. Many people believe that shareholders and stakeholders have a ‘right to know’ information on about companies’ performance on environmental and social issues, and one way of doing this is through the CER. We also now begin to see a trend towards ‘triple bottom line’ reporting, focusing on a given company’s economic, social and environmental impacts and performance.
Five stage model
SustainAbility has developed a five stage model to chart progress in reporting and for our study of non-reporting companies, in essence we looked at those who are at Stage 1 or Stage 2 only.
Stage 1 – Green glossies: glossies, news letters and videos; short statement in the annual report.
Stage 2 – One off: one-off reporting, often linked to first formal policy statement.
Stage 3 – Descriptive: annual reporting, linked to EMAS, but more text than figures.
Stage 4 – State-of-the-art: provision of full performance data on annual basis; input/output data for service companies; corporate and site reports; available on disk or on-line; referred to in annual report.
Stage 5 – Sustainability: sustainable development reporting, with the policy aim of no net loss of carrying capacity; linking environmental, economic and social aspects of corporate performance, supported by indicators across sustainability’s triple bottom line; integration of full-cost accounting.
Obstacles and benefits
So why have so many companies not yet decided to report? We asked 50 to say why and to describe the perceived obstacles. The main reason is that they are not convinced of the benefits. They expressed this in different ways – it would not increase sales; our competitors don’t do it; we provide information in other ways; it’s too difficult to get the data. Difficulties of gathering data and the lack of indicators are perceived as the main obstacles.
When we asked reporting companies what they perceived as the main obstacles, they cited the same ones, but accorded them much lower scores – in other words, these are real difficulties, but not as big as most companies fear. For those reporting, the main benefits are in enhancing credibility with stakeholders, helping to answer increasing demands for information and – for some, unanticipated – added rigour in internal data gathering.
Trends
It is clear that the number of companies producing reports will continue to grow. Indeed half the interviewed non-reporters say they are planning a first report before 2000. Several developments will accelerate this trend.
Efforts are underway to achieve greater clarity and consistency in reporting standards, notably the multi-party Global Reporting Initiative, spearheaded by CERES, the Coalition of Environmentally Responsible Economies. Already the International Chamber of Commerce has a voluntary code, the Business Charter for Sustainable Development, with over 2,000 signatories worldwide. Among its 16 principles is the need for measurement of environmental performance, regular audits and periodic reporting to the public. However, most of the signatories do not yet produce a proper Stage 3 or higher CER.
There is also a trend towards mandatory reporting. In Denmark, some 2,000 companies will be required to produce ‘green accounts’ by 2000. In the Netherlands, some 300 industrial companies will have to produce annual CERs from January 1999. From the same date, all Swedish companies with significant impacts must report on them in their annual reports. In the USA and in Asia/Pacific countries, this trend towards greater environmental regulation is also apparent.
Case studies
In our study, we look at four matched pairs of companies in the same sectors, examining why one did and one did not report. For example, NatWest has reported since 1993, sees its CER as a good way to demonstrate commitment to stakeholders and perceives internal benefits. Barclays, on the other hand, has so far only produced a first ‘prototype’ report, but is likely to report more extensively in future. This apparent change of heart appears to be driven by the expectation of benefits, such as an enhanced reputation, cost savings, increased efficiency, enhanced employee morale and new business development opportunities.
Recommendations
For non-reporters, we recommend:
– commit to an on-going reporting strategy with a first report targeted for release within the next financial year;
– don’t wait for standardised formats, as convergence to a common standard is still several years away;
– ask for help if needed.
– For existing reporters, we recommend:
– share your experiences with non-reporting companies, as they over-estimate the challenges and underestimate the benefits;
– get involved in sector-specific reporting efforts;
– encourage non-reporting supplier companies to start reporting.
For stakeholders, we recommend:
– encourage companies to report;
– give feedback on reports;
be patient with first time reporters – appreciate their commitment and understand the challenges of collecting and collating high-quality information from diverse businesses around the world.
Conclusions
While the majority of companies do not yet report, the pressure is likely to grow, as stakeholders increasingly draw comparisons between reporting and non-reporting companies. The financial sector could play a pivotal role here – one third of non-reporting companies in our survey explicitly mentioned that investors and the financial community had already requested environmental information.
The ultimate answer, however, may well rest in legislation. A number of stakeholders have already concluded that voluntary disclosure alone will never be sufficient. While the practice of environmental reporting is more advanced, many of the trends will also apply to wider sustainability reporting, encompassing the social and economic dimensions performance.
John Elkington is chairman of SustainAbility a member of Community Affairs Briefing’s Editorial Advisory Panel.
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