‘A little less conversation, a little more action please,’ goes the Elvis song and current Nike jingle, and it could as well be exhorting other companies to put more bite behind their social and environmental bark. Many behave as though a little crooning over sustainability will satisfy shareholders, consumers and NGOs – like Elvis in another lyric, ‘Just a little bit of green clouds my eyes to what I’ve seen.’
Coca-Cola, for example, in April unveiled its first corporate social responsibility (CSR) report against the advice of the Interfaith Center on Corporate Responsibility, which was still helping Coke with its first code of conduct. According to a former Coke executive and advisor on the report, the company just wasn’t ready to publish. Perhaps Coke hoped its glossy brochure would appease the three separate groups of protesters outside its annual meeting.
Indeed, part of the challenge is satisfying all the different interest groups. ‘Social and environmental reporting is a complex world,’ says Allen White, acting CEO of the Global Reporting Initiative (GRI). ‘Unlike financial reporting, which has just one stakeholder group, investors, sustainability reporting has a whole gamut of other stakeholders, all with a shared interest in better reporting, but whose uses of the information vary widely.’
The last year has seen a spate of first-time CSR reports ranging from hollow efforts by Coke and McDonald’s to solid and stylish tomes from Chiquita Brands and Nike. According to new research from KPMG and the University of Amsterdam, 45 percent of the Fortune global top 250 companies are now issuing separate social and environmental reports, up from 35 percent in 1999, and an increasing number of the reports are independently verified.
Another survey of the UK’s top 100 companies by environmental consultancy ERM found 79 reporting on social performance, which is twice as many as last year, but three quarters provide no quantitative back-up. ‘Corporate gloss,’ ERM scoffs.
‘Some companies are making sustainability part of their own internal management. Others are just jumping on the bandwagon,’ confirms Mil Niepold, director of policy for Verité, a non-profit organization that helps companies with the monitoring of factory conditions.
Fools rush in
Why are such likely suspects as Nike and Chiquita only just producing their first reports? One reason is also one of the secrets behind their success: it takes a long time to do it right, especially considering the difficulty of venturing off the well-trodden path of environmental reporting to tackle labor and human rights issues.
Since accepting its environmental and human rights obligations after the sweatshop scandals of 1995-6, Nike has been involved in numerous projects to create frameworks for social accountability – the Fair Labor Association, AccountAbility’s new Gradient project, Ceres (the Coalition for Environmentally Responsible Economies), the UN Global Compact, and so on. ‘We had been so busy acting, we hadn’t articulated what we’d been doing,’ says Maria Eitel, vice president and senior advisor for corporate responsibility at Nike.
It took two years – twice as long as planned – for Nike to produce its first corporate responsibility report, which was issued in October 2001. ‘The first time is a nightmare,’ Eitel confesses. What are the parameters? What information can be collected in a certain amount of time? Finally, what should the report look like? ‘Nike is pretty snazzy in its design,’ Eitel says. ‘The dilemma was in making the report Nike-esque enough.’
Eitel believes companies, not investors, must set the CSR agenda: ‘The investment community will only take seriously what companies take seriously themselves.’ She regularly field questions from shareholders and goes on investor roadshows, but notes that mainstream investors aren’t yet focusing on corporate responsibility. It’s the SRI crowd that is ‘passionate’ and ‘very vocal’.
One problem in communicating the sustainability message to mainstream investors is the lack of financial underpinning. ‘It’s hard to measure reputational impact,’ Eitel says, adding that Nike is beginning to measure factors like sick leave and product quality to quantify labor issues. With corporate responsibility staff numbering over 100, the sportswear company doesn’t break out the cost – or benefit – of the work in its financial reports.
However, John Elkington, the author of several books on sustainability who coined the term ‘triple bottom line’, says some of the most interesting new reports ‘are going way beyond the traditional measures of success to identify the economic value added or subtracted.’
Elkington’s London and New York-based consultancy, SustainAbility, advises companies like Nike on CSR reports. He recommends they avoid ‘silos’: ‘Companies tend to institutionalize different bits of the CSR agenda. A corporate citizenship department, the IR department and brand managers often don’t talk to each other at all.’
Elkington admits it’s natural for companies to think ‘PR’ when thinking about reporting. ‘But over the last five years we have seen a profound shift,’ he observes. ‘These issues are now being driven up to board level.’ Before publishing a report, the board should sign off on the level of disclosure, the manner of reporting and the verification processes employed.
My way
Another major new trend in preparing corporate responsibility reports is stakeholder engagement, to the point that there’s competition to lure leading NGOs to meetings. Elkington recounts how in late 2000, SustainAbility helped Ford Motor Company bring 18 stakeholders from around the world to Detroit. Over two and a half days, the likes of Greenpeace and Friends of the Earth thrashed out the issues with 30 top executives including Bill Ford. Three priorities emerged: climate change, human rights in emerging economies and explaining the value model to Wall Street. ‘We didn’t try to steer the discussion to a triple bottom line outcome, but that’s what came out,’ Elkington says. ‘Ford initially found it very difficult, but identifying these priorities made it manageable.’
A lot of companies undertaking sustainability reporting have been accused of greenwashing, or covering up bad deeds with nice words. But solid reporting is in itself a good indicator of progress. Nowhere is this clearer than in Adidas-Salomon’s second social and environmental report, itself called Clearer.
The opening chairman’s letter dwells much on the reporting process itself, discussing the GRI framework and Adidas’ inclusion in the Dow Jones Sustainability Index and the FTSE4Good index: ‘As we move towards becoming a more sustainable company,’ Adidas writes, ‘producing this report has helped us stand back and reflect on our own work. It gives us a clear perspective: not just on our progress over the year, but also on the challenges we’ll face in the future.’
Adidas was the first global sporting goods company to publish annual sustainability reports, although the rest all now do so. Its report focuses on Adidas’ standards of engagement and its 30-strong SOE team which monitors suppliers’ factories. Indeed the report was developed by the SOE team and the broader social and environmental affairs department which it is part of.
The latest edition was launched in print and on the web on March 7. ‘We launched it on the same day as the annual report to show our stakeholders that the social and environmental report is on the same level of importance as the financial results,’ says Frank Henke, Adidas’ head of social and environmental affairs in Europe.
Return to sender
As Elkington recommends, Adidas consulted with several stakeholder groups to identify the key topics before starting work on the report. Even letters from retailers and consumers helped inform the process. With supply chain management heading everyone’s list of priorities, that’s the subject of the report’s biggest section.
Stakeholder engagement also helps in evaluating the report and preparing for the next one. With a third party as ‘mediator’, Adidas organizes discussions with NGOs in different regions around the world. For example, it worked with Business for Social Responsibility in the Far East, and plans to use a similar organization in Europe. The latest report even has a feedback form. ‘We learn from year to year and improve the quality of our report,’ Henke says.
Another way to benchmark a report is to compare it to others, and as a member of the World Business Council for Sustainable Development, Adidas looks at reports from the organization’s 150 members including the admired Volkswagen and Novo Nordisk. Other reports Henke checks out come from BT, Shell and Cooperative Bank.
Considering those models, CSR reporting may seem like the exclusive domain of corporate giants. It certainly is not, though they do seem to be on the front line. ‘Because we’re large, we tend to get hit by the first wave of external scrutiny, whether it’s lobby groups or investors,’ remarks David Graham, environment manager at the Royal Bank of Scotland Group. Indeed, corporate responsibility spans several dimensions in a big bank like RBOS, from its own operations to its supply chain as well as business partners and customers.
RBOS produced its first separate environmental report in late 2001. The complete report was published solely on the web with a printed summary report now in the works. Graham says the reason for this unorthodox method is partly that the bank was under pressure to get something out quickly, but also because the web-based report can be easily updated.
Graham is enthusiastic about RBOS’s work with Forge, a group of big financial services firms in the UK, including Abbey National, Barclays, CGNU, Lloyds TSB, Prudential, Royal Bank of Scotland and Royal & Sun Alliance. Forge has produced voluntary guidelines on environmental management and reporting for financial services, and is working through the UN to globalize the project and widen it to include social issues.
It’s now or never
Research suggests that one company in two isn’t yet producing a separate social and environmental report. But that’s changing fast. At Swedish clothing retailer H&M Hennes & Mauritz, environment and CSR manager Ingrid Schullstrom is part of a team of 30 people monitoring conditions in suppliers’ factories. The company introduced a code of conduct in 1997, and it includes some CSR information in its annual report. However, it doesn’t publish a separate printed document and has only just produced its first online CSR report in conjunction with Global Responsibility, a reporting platform owned by insurance giant Skandia (www.global-responsibility.com).
Schullstrom says there is a need to harmonize reporting standards, and H&M is working with other companies on several initiatives. The Global Responsibility platform, which H&M helped found, is ‘an attempt to streamline reporting practices.’
H&M is in the Dow Jones Sustainability Index and FTSE4Good and regularly receives questionnaires from screening companies and directly from investors. ‘It seems that today not only SRI funds look at CSR, but also mainstream investors,’ Schullstrom suggests.
Avon Products is another well respected company now turning its attention to reporting on its good works. Business Ethics magazine recently named Avon one of the top ten corporate citizens, citing its work since 1996 with Social Accountability International (SAI), a human rights organization whose SA8000 certification Avon helped devise. Another area where the beauty products company excels is philanthropy. It has raised $190 mn for women’s health, and through projects like the Avon Breast Cancer Crusade, it hopes to bring that total to $250 mn by the end of 2002.
Raising the profile of corporate responsibility information is a big reason behind Avon’s current web site revamp. More significantly, the company is planning to expand a regular booklet called We are Avon into a real corporate responsibility report. To achieve this, Avon’s executive communications team is spearheading a group made up of department heads from shareholder relations, corporate affairs and global sourcing. As part of the process, Laura Castellano, corporate affairs manager, has been studying CSR reporting – in print and on the web – from the top 100 US companies. ‘The bar has been raised in terms of transparency,’ she comments.
Avon’s corporate responsibility hasn’t yet been a big part of the company’s investment story; unlike many companies lately, it’s had a great growth story to focus on. But with heavily institutional ownership, Avon is stepping up efforts to attract individual investors, and that’s where CSR meets IR, according to Renee Johansen, the company’s executive director of IR: ‘We can target individual investors who are interested in socially responsible investing,’ she says. ‘Consumers make choices based on whether they believe in a company. It’s the same with stock.’
Like Nike, Adidas and others whose corporate responsibility reports signify real progress behind the scenes, not mere cosmetic cover-up, Avon echoes the King (for the last time, really): ‘We ain’t fakin’, a whole lotta shakin’ goin’ on.’
