Environmental reporting – meaningful measurement remains illusive

7th December 2010

The global banking crisis and the Deepwater Horizon oil spill have demonstrated how inextricably entwined and interdependent the world’s economies and environments are. But knowing that the future of the planet is a responsibility we all share is very different to doing something about it, or measuring and recording this. Lesley Meall, FSN contributing editor looks at some of the (very many) sustainability initiatives that businesses are taking, some of the (very many) metrics they are using to measure these, and some of the (very many) sustainability guidelines they are trying to follow.

Give the embarrassment of riches it’s hard to know where to begin. But as cement production accounts for five per cent of global C02 emissions it seems like a good industry to start with, as China is the single largest producer (of C02 and cement) it seems like a good country to start in, and as Huaxin Cement was the first cement company in China to publish a corporate sustainability report (CSR) in 2008 it seems like a good company to start with. ‘Huaxin’s development should not be at the cost of the environment,’ suggests its CEO, Li Yequing, so the organisation is ‘seeking for a harmonious development together with society and nature.’ 

This may seem to be in conflict with China’s growing C02 output and Huaxin’s role as the main supplier for China’s Three Gorges Project (which some see as a huge environmental disaster), but it highlights the pragmatic approach that many commercial organisations have to take on sustainability: doing more of the right things and less of the wrong things. ‘To foster a responsible company image requests us not to exclusively pursue profit,’ explains Li, and Huaxin tries to ‘fulfil its social responsibility’ as well as ‘continually improving’ its environmental performance, and ‘meeting the standards’ of its many stakeholders. 

So how does this translate into action and ambitions, how can the progress and success on these be measured and reported, and are the reports in any way meaningful? In a perfect world, answering these questions would be a lot simpler than they are. In a perfect world, there would be one universal set of rules and regulations for corporate social responsibility (CSR) reporting – not unlike International Financial Reporting Standards. But as even a definition of CSR is something that most people would struggle to agree on, and there is little chance of a consensus on what should be measured, let alone how, what can organisations such as Huaxin do? 

In partnership with its biggest shareholder, Swiss building materials giant Holcim (which has won awards for its actions and reports on sustainability), Huaxin has taken various initiatives. ‘Huaxin tries to learn as much as possible from its global partner, to set an example in sustainable development in China,’ says Li. ‘Technology transfer’ has led to conservation and restoration projects in some quarries, a focus on waste reduction, adoption of more energy efficient milling systems, and increased use of alternative fuels and raw materials, which Huaxin reports on using mixture of industry guidelines and the G3 Global Reporting Initiative guidelines.

 Even if you forget about thorny issues such as accuracy and assurance (on which more, later) the details of industry-oriented sustainability reports tend to mean a lot more to those with some industry knowledge than to those without (which creates immense challenges in a world where we have all become stakeholders in everything). In the case of the cement industry, this means knowing about things such as blast furnace slag, or hazardous waste from cement kilns, and it requires you to get your head around terms of reference such as ‘klinker; the sustainability initiatives and preoccupations of some other industries are similarly baffling to all but those on the inside. The G3 guidelines from the GRI are another matter. 

Named G3 because they cover the three pillars of economic, societal and environmental impact of organisations’ operations, they have been around since before CSR reporting became a must-have business fashion accessory. The GRI is a network made up of thousands of experts and stakeholders in dozens of countries, and its G3 guidelines are currently the world’s most widely (and voluntarily) used CSR disclosure framework. The G3 outline core content for measuring sustainability, and reporting on the progress to stakeholders, in a universal generic framework that’s relevant to all organizations regardless of size, sector, or location. 

 The G3 provides: 

  • Principles to define report content: materiality, stakeholder inclusiveness, sustainability context, and completeness;
  • Principles to define report quality: balance, comparability, accuracy, timeliness, reliability, and clarity;
  • Guidance on how to set the report boundary

It also provides standards on disclosures for:

  • Strategy and Profile;
  • Management Approach;
  • Performance Indicators. 

Because there is a limit to the ‘one size fits all’ approach, the G3 include sector supplements. These capture some of the unique sets of sustainability issues faced by different sectors such as mining, automotive, banking, and public agencies, and by 2012, when the G3 is superseded by G4, it will provide more of these, and provide a stepping stone towards the integrated reporting framework currently being developed by the International Integrated Reporting Committee (IIRC). The IIRC aims to harmonise environmental, social, governance and sustainability reporting practices around the world and provide a framework that includes financial performance. 

The debate on industry-based sustainability measures is a complex and contentious one, and those who want to learn more about it will find some interesting insights in a recent report from it is addressed in some detail in a recent report from Domini and the coverage it generated in various specialist publications (online and offline). New developments such as G4 and the work being done by the IIRC (which involves many of the great and the good from the world of accounting and finance) mean that the areas of industry-based standards and more universal standards for sustainability reporting are potentially vast. So FSN will explore all of this in more detail at some point in the future. 

Meanwhile, in recognition of the fact that improving CSR is more of a journey than a destination, the G3 also provide different application levels, so that organisations follow a pathway towards the continuous improvement of their sustainability reporting, enhancing it over time. When organisations start using the guidelines they self select which level of ‘disclosure’ they will apply. The options range from the lowest disclosure level C, to the highest disclosure level A, and it is worth noting (in case you are ever looking at any CSR reports that have adopted GRI standards), that only externally assured reports can add a + to the level, to become C+, B+ or A+. 

In 2007, when Marks & Spencer decided to set itself some very public CSR targets, it chose to apply disclosure level C. Three years on, M&S is still applying the same level of disclosure, so you could suggest (as M&S does) that ‘following the structure of previous reports allows direct comparison with previous years’ (as it does), or you could suggest that M&S doesn’t seem to be ‘continuously improving its sustainability reporting’ (as the G3 guidelines describe it), and you could also debate the significance of this (as both these things may simultaneously be true). But M&S has chosen its own yardstick for measuring its progress on sustainability: Plan A. 

M&S introduced Plan A early in 2007, and then reported on it in its first How We Do Business Report 2007, later in the year, and FSN analysed it in depth. FSN paid particular attention to the decision M&S made to include an independent assurance statement prepared to the relatively limited International Federation of Accountants’ International Standard for Assurance Engagements Other Than Audits or Reviews of Historical Financial Information (ISAE3000), when M&S could have opted for the more rigorous standards of the Fédération des Experts Comptables Européens or the AccountAbility AA1000 standard on assurance practice, and you can read the comments and conclusions here

It’s worth noting that the AA1000 standard takes the most cautious approach to judging assurance on CSR reports. It provides an opinion on the quality and accuracy of the performance information, and assesses reports against three core principles of stakeholder accountability: inclusivity, materiality and responsiveness. The AA1000 also requires the assurance statement to include comment and recommendations on the overall quality of the report, and the underlying organisational processes, systems and competencies reflected in the content. (Something you can learn more about from the specialist AA1000 assurance provider Two Tomorrows.) 

Now, back to Plan A, which M&S chairman Stewart Rose describes as ‘a commitment to change 100 things over five years, because we’ve only got one world and time is running out.’ If you want to learn a great deal more about the 100 things that M&S has selected as targets, and its progress, you will need to wade through the 52 pages that make up How We Do Business Report 2010 and compare this to its previous three reports too. Giving them a proper going over may take a day or two, but you can take some comfort from the knowledge that you will be able to do so without understanding technical terms such as ‘klinker’; whether it will help you to understand very much about CSR at M&S is another matter. 

Taken at face value, the report shows that M&S has achieved 62 of the 100 CSR commitments it made (with 2012 targets) when it launched Plan A, and introduces 180 new targets for between now and 2015. The list of achievements since 2007 includes cutting the carbon emissions from M&S operations by 8% (whether they’ve risen or fallen elsewhere in the supply chain is more of a mystery), reducing the average weight of non-glass packaging by 36% on general merchandise items and by 20% per food item, and using 400 million fewer carrier bags in 2009/2010 than in 2006/07 – and many of these things have been good for business and CSR. 

‘We’ve learned that improving our sustainability doesn’t have to cost more. There’s a compelling business case for improving efficiency by using less energy, reducing packaging and waste, and creating new markets such as M&S Energy,’ reports Richard Gillies, director of Plan A, CSR and sustainable business. ‘Together these have generated additional profit of £50m for 2009/10,’ he adds, ‘which has been invested back into the business.’ It’s also learned how important it is to enable customers to take action, ‘by making the solutions affordable and easy’, which has led M&S to ‘set bolder targets that will involve our customers, employees and suppliers more directly than ever before.’ 

The How We do Business Report 2010 also reveals some of the areas where M&S is struggling to meet its self imposed targets, such as travel-related emissions, use of bio-diesel and local food suppliers, and the sales of organic food (which are in decline). But despite featuring its fair share of percentage increases, about the only thing you can be sure of after reading its last 3 CSR reports is that between 2007 and the present day, overall, M&S looks as if it has been doing more of the right things and less of the wrong things – which is something we almost all like to think we are managing. Whilst the CSR aims and achievements of M&S may be laudable, their lack of context raises questions about how meaningful they are. 

‘We want to become the world’s most sustainable major retailer by 2015,’ says Gillies, but neither M&S nor its stakeholders have anything to relate this to. There is no single benchmark of what it will take for M&S to achieve this target, and no destination on which to plant a flag when it arrives (despite the availability of aggregated performance data on CSR from organisations such as Trucost, which can be used to assist with monitoring and benchmarking). So even if M&S does claim to have achieved its aim in How We Do Business 2015, there will be no way of knowing whether or not it has – and neither the G3 or any of the audit and assurance processes currently available will be able to confirm this either way.