Trust UsThe Global Reporters 2002 Survey of CorporateSustainability Reporting

SustainAbility

Trust Us

In Trust Us, we focus on three major issues in the accountability, transparencyand reporting agendas: Materiality,Governance and Brands. If the decade1992–2002 has been the TransparencyDecade, the decade through to 2012could be the Trust Decade, so long as we work out how to address these threeareas effectively — and soon.

But why focus on trust? Well, like ajumper’s bungee cord, trust is an elasticconnection that gives us all — and gives companies — space in which tomanoeuvre. Trust gives capitalism theflexibility needed for innovation.Miscalculate the length of the cord,however, or overload it, and disaster canensue. And even if disaster is avoided, the result can be increased friction in our societies and economies, slowingprogress and raising costs.

This would be bad enough if we weresimply trying to maintain the status quo, but we are not. The corporate socialresponsibility (CSR) and sustainabledevelopment (SD) agendas depend on high levels of trust to ensure accurateproblem recognition — and the efficientand effective development and delivery of solutions.

And because we hope this latest report in the Global Reporters series engages new players and opens up new territory in the reporting debate, we aim to keepthe debate going on our website: www.sustainability.com/trust-us

Executive Summary

Forewords

Introduction

Five Reporting PersonalitiesTruantsCosmeticsNerdsVirtuososSupersonics

The Big Picture

The Global Reporting Initiative

The 2002 Benchmark Survey Process

The Top 50

The Other 50

Clusters of Risk and OpportunityConsumer ProductsEnergyFinance & InsuranceFood & BeverageHeavy IndustriesIT & Telecommunications Transport.

Hot TopicsFinancial AnalystsVerification & AssuranceEmerging EconomiesSupply Chain ReportingEconomic Bottom LineBrands & ReputationGovernance

Conclusions and Recommendations

Appendix

02

04

05

08

10

14

20

23

32

35

44

62

64

01

‘Business relationships, like all human relationships, are built on a foundation of integrity and trust.’President Bush, 2002

Trust Us

02 Trust UsExecutive Summary

Corporate accountability gained newurgency in 2002. Following scandals in theUnited States, Europe and Asia, companiesincreasingly have felt demand fromstakeholders to account more fully for theiractions – through, among other things,increased transparency and reporting.

Trust Us, which summarizes the findings of the 2002 Global Reporters survey, aims to identify and classify best practice incorporate accountability across the triplebottom line (TBL) of sustainabledevelopment. The spotlight is on 100sustainability and corporate socialresponsibility (CSR) reports from around the world, with the Top 50 subjected to an in-depth benchmarking. In addition, we analyze current reporting across industry clusters and in terms of emerging ‘hot topics’.

As trust in capitalism and in companies has hit new lows, CSR and sustainabilityreporting potentially offers realopportunities for companies to rebuild thattrust. Key to this, however, will be threenecessary conditions:

MaterialityIntelligent identification of the issues that matter most for measurement, management and reporting

GovernanceNew frameworks for corporate decision-making, including improved board recruitment, structures and processes

BrandsCloser links between key areas of corporate accountability and company and product identity and communication.

Key Conclusions

Transparency’s Glass CeilingBest practice in corporate sustainabilityreporting appears to be hitting a plateau,with scores virtually unchanged since 2000.

Social and Economic Issues on the RiseSocial issues, and to a lesser extent widereconomic issues, are making a noticeablystronger showing in the latest companyreporting — alongside a corresponding (and potentially worrying) drop in emphasison environmental dimensions.

The Carpet Bombing SyndromeThe average page-length of printed reportshas soared 45% in just two years – with noassociated increase in overall report quality.Some reporters seem to be bombardingreport users with facts, with little or nothought for significance and materiality.

GRI Guidelines Raise the BarThe Global Reporting Initiative (GRI)sustainability reporting guidelines haveallowed first-time reporters to enter at amuch more sophisticated level of reportingthan previously possible.

The Magnificent SevenSeven companies scored over 50% in the2002 survey: The Co-operative Bank, NovoNordisk, BAA, BT, Rio Tinto, Royal Dutch /Shell Group and BP. The newcomer to thehighest-scoring bracket since the 2000survey is Rio Tinto. Interestingly, there areno non-European companies among theMagnificent Seven, although Bristol-MyersSquibb from the USA, South AfricanBreweries from South Africa and WMCfrom Australia are in hot pursuit.

North America Leads – JustOverall, average scores across the regionsremain relatively static, although in 2002the North American reports (45%) overtookthe Europeans (43%). Non-OECD reporters(41%) and Other OECD reporters (40%)follow very close behind.

GRI Users ExcelThere is a substantial difference betweenreports based on the GRI guidelines andothers. On average, GRI reports scored 8%higher than their non-GRI counterparts,with the most significant difference inscores at the bottom end of the Top 50 — a 17% difference between the lowestscoring GRI report and the lowest scoringnon-GRI report.

All in the MixThe scoring profile across the major areas ofour assessment methodology has remainedlargely the same since the 2000 survey, withstrong performance from all the Top 50reports in the Context and Commitments(48%), and Management Quality (42%). The Royal Dutch / Shell Group report topsthe league in Context and Commitmentswith 80%, while BT leads on ManagementQuality (69%).

ExecutiveSummary

01 A term used by SustainAbility Faculty member Jed Emerson to describe value added across several dimensions of the triple bottom line.

03Trust UsExecutive Summary

The area of greatest change is in thebalance of reporting. The early emphasis on environmental performance has shiftedtowards greater reporting on social andethical material, at the expense of theenvironmental dimension. Whileenvironmental reporting has gone down 9%, reporting on social performance hasincreased by a dramatic 24%. BT leadswith 67%, followed closely by newcomerChiquita and veteran reporter Royal Dutch / Shell Group (58% respectively).

Economic reporting remains the weakestaspect of performance reporting, althoughbright spots of best practice are emerging.BAA (71%) and South African Breweries(63%) lead the pack in this area.

Clusters of Risk and Opportunity

In the 2002 survey, we examined results in detail from eight clusters of companiesspanning a range of impacts and issues:

Consumer ProductsEnergyFinance & InsuranceFood & BeveragesHeavy IndustryIT & TelecommunicationsLife SciencesTransport

Common issues cross-cut all eight clusters,including: climate change, business models,and governance

Hot Topics

Section 4 examines and evaluates sevencurrent issues highlighted during thebenchmarking process:

Financial MarketsHow are corporate reporters seeking to engage the financial world?

Verification and AssuranceThe GRI will drive market demand, but how can real value be added?

Supply ChainsAs value webs globalize, how can they be made more transparent and accountable?

Emerging and Transition EconomiesWho is reporting on — and in — less developed regions?

Economic Bottom LineBeyond financial accounting, what economic information do we want?

Brand & ReputationHow does — and how should — reporting link to corporate and brand reputation and value?

GovernanceWhat are the appropriate roles for boards and top executives?

Breaking Transparency’s Glass Ceiling

The final section of the report focuses ontwo significant new priorities: materialityand integration.

MaterialityThe soaring size of corporate reports — a trend also now found in mainstreamfinancial reporting — underscores the needfor a new push in relation to the closelylinked areas of issue identification andmateriality. The plateau in scores can onlybe overcome if companies provide betterevidence of how sustainability issues,management programs, and performancetrends are significant. But in the process,current definitions of materiality will needto expand.

IntegrationThat said, the most important challenges tocome will have less to do with questions ofhow we report better, or govern companiesbetter, and more to do with how reportingcan help us use (and, where necessary,change) market mechanisms to define,develop and deliver sustainable businesssolutions. This will require a greater focuson four key areas of integration: BalanceSheets, with a new focus on ‘blendedvalue’; 01 Boards, as they wrestle with thenew governance agendas; Brands, withcompanies building new conversations withcustomers and consumers; and, as the needfor more radical solutions is increasinglyrecognized, Business Models.

The Top 50 Companies

The Co-operative BankNovo Nordisk

BAABT GroupRio TintoRoyal Dutch / Shell GroupBP

Bristol-Myers SquibbITT FlygtSouth African BreweriesBASFVolkswagen GroupWMCCIS Co-operative

InsuranceBaxter InternationalCable & WirelessRicoh JapanKirin BreweryChiquita Brands

InternationalUnited UtilitiesSuncor EnergyBC HydroEskomMatsushita Electric GroupManaaki Whenua British AirwaysSAS GroupAlcanGeneral Motors

HenkelKeskoNovartis InternationalUnileverRWEBayerDeutsche TelekomProcter & GambleSwiss ReToyota Motor CorporationBMW GroupTescoAWGDanone GroupSiemensAracruz CeluloseSony CorporationTEPCOSuezCredit Suisse Group

adidas-Salomon

12

34567

89

12

14

15161718

202122

26

2829

30

3132343536

39404142

4445

474849

50

Rank Company

120118

116114107104103

96959595949491

8988878685

83828181818180807978

7777767573727272727170696868676666646261

57

6160

5958555353

49484848484846

4545444443

42424141414141414040

3939393837373737373636353535343434333231

29

%Score

Figure 01

The World Summit on SustainableDevelopment (WSSD) in Johannesburgconfirmed the need to engage business aspart of the solution to the sustainabledevelopment challenges we face in theworld. At the same time, news of corporatescandals earlier in the year heightened thedebate on corporate responsibility andaccountability. It was therefore no surprisewhen the Johannesburg Declaration calledfor ‘private sector corporations to enforcecorporate accountability’. Clearly the focuson ‘trust’ in the 2002 Global ReportersSurvey is a timely one.

How do we build trust? In our work withbusiness and industry, UNEP has alwaysencouraged leadership and pro-activevoluntarism that goes hand in hand withtransparency and open communication.This is why we are proud to have beenworking with SustainAbility Ltd. since 1994 to promote environmental and socialreporting as one of the key elements ofcompanies’ strategies on ‘CorporateResponsibility’. Indeed, sustainabilityreporting has been increasing significantlyover the last 10 years as demonstrated inthe previous 3 UNEP/SustainAbilitybenchmarking surveys, and highlighted theUNEP report for WSSD Industry as a partnerfor sustainable development.

We are also pleased that this work hascontributed to the establishment of theGlobal Reporting Initiative (GRI), which —through a bottom up and multistakeholderprocess — has developed standardisedguidelines and indicators for sustainabilityreporting. The recognition of the GRISustainability Reporting Guidelines in theWSSD Plan of Implementation confirmesthe need for such an initiative.

Still, it cannot be assumed that environ-mental reporting — let alone sustainabilityreporting — is firmly established. Reportingis still practised by a minority of the world'scompanies. This means that whilst reportinghas made an incredible appearance over thelast 10 years, much work remains to bedone to reach out to non-reporters.

The Global Reporters Survey helps us todefine the growing business case forreporting. I am sure that this edition of The Global Reporters will strengthen theincentives for sustainability reporting as a tool to build trust, facilitate dialogue with a wide range of stakeholders andensure integrated internal management for a sustainable future.

Jacqueline Aloisi de LarderelAssistant Executive Director,United Nations Environment Programme

The Trust Equation

It’s now a decade since SustainAbilitybegan its program of work on corporatereporting. To begin with, the focus was onenvironmental reporting, but in 1994 —having coined the term triple bottom line(TBL) — we began the shift to corporatesustainability reporting. By 1996, when wepublished Engaging Stakeholders, thisapproach was central to our work. Indeed,as early participants in the Global ReportingInitiative (GRI), we led the charge to ensurethat the GRI Guidelines embraced the widerTBL agenda, not just environment.

And now we may be paying the price.

In the results of this second internationalsurvey of corporate sustainability reporting,we see — for the first time — a decline inthe coverage of environmental issues andperformance relative to wider social,economic and governance issues. In somesenses this rebalancing of attention andcoverage was inevitable and necessary.Indeed, it may simply be that environmentalreporting has settled down, grown up, witha clearer idea of the key issues, performanceindicators and metrics.

Whatever the reasons, our sense is that we are seeing the beginnings of a profoundshift in the whole field of corporateaccountability and reporting, with majorimplications for both reporting and non-reporting companies.

One key reason: 2002 saw trust emerge as something of a ‘Holy Grail’ for business,as the investor and wider societal trust inmajor corporations was powerfully erodedin the wake of major corporate collapsesand other scandals.

There are both opportunities and risks forthe TBL agenda.

The fact that the whole corporategovernance and accountability agenda is under intensive review opens up hugeopportunities to drive the TBL agenda tonew levels. At the same time, however, the narrow focus of many of the inquiriesand initiatives now under way pose a riskthat the ultimate outcomes may be verymuch more blinkered than the longer term 21st century business environmentmight dictate.

Trust Us benchmarks 50 of the world’s bestcorporate sustainability reports. And itconcludes that three aspects of the trustequation now need intensive work:

MaterialityThis is emerging as the No. 1 challenge forcorporate reporters, both in terms of issueidentification (including, for example, the‘carpet bombing’ syndrome) and, moreimportantly still, in persuading financialmarkets that TBL performance matters.

GovernanceThe growing complexity of the TBL agenda,coupled with expectations that business will play an increasingly prominent role not only in defining but also in deliveringsustainable development, is pushing thisagenda up to board level. The overlapbetween it and the more narrowly defined corporate governance agenda isunderscored by the 2002 crop of reports.

BrandDespite the weakness of materiality andgovernance coverage in most currentreports, this is probably the most critical of the three priority issues, long term.Although more brand name companies are beginning to report, corporate CSR andSD people on the one hand, and brandmanagement people on the other, remain in their silos. Current reports havesurprisingly little to say on brand issues.

Linking the TBL agenda and brand-levelconversations with customers andconsumers is a vital next step

A final warning: In all three areas, TBLlanguage may actually end up doing us a profound disservice if it encouragesfurther corporate silo-building and if, in the process, we fail to recognize that thereal challenge for the next 2-3 years isintegration — in all three areas.

This will be a key focus of our future work.

John ElkingtonJudy Kuszewski Nick RobinsonSustainAbilityLondon and New York

04 Trust UsForewords

JacquelineAloisi de Larderel

JohnElkington

JudyKuszewski

NickRobinson

Trust Us is the latest in a series ofinternational benchmark surveys producedsince 1993 02 by SustainAbility for theUnited Nations Environment Programme(UNEP). It builds directly on the workreported in our first Global Reporters survey,published in 2000. Once again, we identify50 top reports from around the world (the'Top 50’), analyzing them in depth.

We also spotlight another 50 reports (the‘Other 50’) that offer further insights intowhere best practice in sustainabilityreporting is headed. We explore some of the trends in eight clusters of economicactivity and we focus in on seven ‘hottopics’, ranging from brands and reputation,through supply chain reporting to some ofthe ways companies are trying to addressfinancial markets.

As it turned out, 2002 was a watershed year in a number respects, particularly in relation to the corporate responsibilityagenda. The fate of companies like Enronand Andersen once again signalled agrowing need to focus on issues related to financial accountability and corporategovernance. Our overall conclusion from the 2002 survey: corporate sustainabilityreporting is in danger of hitting a qualityplateau, with scores virtually unchangedsince 2000.

The necessary next step in pursuit of theHoly Grail of trust is a new focus on threekey issues: Materiality, Governance andBrands.

05Trust UsIntroduction

Early Reporting Drivers

Year

1987

1988

1989

1991

1992

Drivers

US Toxic Release Inventory(TRI)

Chemical Manufacturers’Association Responsible Care

CERES Valdez Principles

International Chamber ofCommerce Business Charter forSustainable Development

UN Earth Summit Agenda 21

Description

Mandatory public disclosure of use andemissions of regulated chemicals

Code of conduct including performancereporting to CMA

Code of conduct including standardized,public environmental reporting

Code of conduct with provisions onenvironmental reporting

Global action on sustainable developmentincludes call for corporate environmentalreporting

Introduction to the2002 BenchmarkSurvey

1.0

02 SustainAbility, Deloitte Touche Tohmatsu International, International Institute for Sustainable Development, Coming Clean: Corporate Environmental Reporting — Opening Up for Sustainable Development,1993; SustainAbility / UNEP, CompanyEnvironmental Reporting: A Measure of the Progress of Business and Industry Towards Sustainable Development, 1994; Engaging Stakeholders, in two volumes(The Benchmark Survey and The CaseStudies), 1996; The 1997 BenchmarkSurvey: The Third International ProgressReport on Company EnvironmentalReporting, 1997; The Global Reporters: TheFirst International Benchmark Survey ofCorporate Sustainability Reporting, 2000.

Figure 02

06 Trust UsIntroduction

1.1 A decade of progress

To give some sense of how much progresshas been achieved in this area, let’s taketwo dates — 1992 and 2002 — and sketchthe reporting agenda at the time of the RioEarth Summit and, a decade later, of theWorld Summit on Sustainable Development(WSSD) in Johannesburg.

1992: Corporate Confessors

From 1990 on, a series of major incidentsinvolving loss of trust forced early reportingpioneers to ‘come clean’, ushering in theTransparency Decade. In what now seemslike deep history, corporate environmentalreporting was still largely at the conceptionstage. Most companies dismissed calls forwider reporting as impractical, evenimpossible. Industry federations presentedunited fronts, resisting all calls for greatercorporate transparency.

In a chicken-and-egg process, manypotential users didn’t know what to ask for and most companies experienced little in the way of market demand forenvironmental performance reporting. Some early drivers of this process arespotlighted in Figure 02.

The assumption in business circles was that no company in its right mind wouldchose to do this stuff voluntarily. But theneed to build or rebuild trust demandedtransparency — and, in 1990, Monsantoand Norsk Hydro were the first to report.Following publication of Coming Cleanin 1993, and even more so of CompanyEnvironmental Reporting in 1994, we began to see a more competitive approachevolving, with companies putting real effortinto developing new and innovative formsof disclosure, all hoping to be recognized for leadership, responsibility and, ultimately,trustworthiness.

2002: Global Reporters

The early years of the 21st century haveseen seismic shifts in relation to corporatetransparency, accountability and reporting— suggesting that we are seeing the start of the Trust Decade. Companies like Shell,Monsanto, Nike, Enron and Andersen havebeen exposed to the disorienting pressuresof the ‘CNN World’ — some deserving thetreatment more than others. But most majormultinational companies now acknowledgethat new forms of accountability areemerging, fast.

2002 saw the inauguration of the GlobalReporting Initiative (GRI), after a five-yeargestation period from 1997. A progressreport on the GRI can be found on pages14–19. From the perspective of 2002, themost striking changes over the previousdecade included the:

— growth in the number of reportingcompanies from a few dozen to a fewthousand;

— evolution of the reporting agenda from environmental to wider triple bottom line disclosures;

— huge leap in the volume of information available — both printed and online.

That said, the total number of companiesreporting by 2002 was still very small whencompared with the estimates of more than50,000 multinational corporations, let alonethe millions of smaller companies operatingin different parts of the world. Interestingly,too, best practice in reporting shows someevidence of the ‘Usual Suspects’ syndrome,although our surveys have also picked up a range of smaller or less well-knownreporters. Figure 03 shows the top reportersin our 1994, 1996, 1997, 2000 and 2002benchmark surveys.

From 2002’s perspective, the most strikingchallenges still remaining to be facedinclude the:

— widespread failure to link company sustainability issues with brand and corporate identity;

— continuing disinterest of most financial institutions and analysts in most of the data and information currently being reported;

— widespread and growing syndrome we dub ‘carpet bombing’: bombarding readers with ever-more information, without providing insight as to relevance, meaning and, above all, materiality.

1.2 Structure of report

This report is divided into ten sections:

1 IntroductionAn introduction to the Global Reportersseries of reports.

2 What Sort of Reporter are You? The five dominant reporting personalities.

— Truants— Cosmetics— Nerds— Virtuosos— Supersonics

3 The Big PictureHow reporting is changing and being changed by companies and emerging institutions; and the critical position of the assurance industry in relation to the dynamics of trust.

4 GRI Special Focus

We go behind the scenes at the Global Reporting Initiative to assess the guidelines, uptake and future path of this new, influential institution.

5 The 2002 Survey Process Our assessment methodology and how we conducted this survey.

6 The Top 50Rankings and results across our selection of reports.

7 The Other 50Insights from reports not included in the survey.

8 ClustersAnalysis of issues and reporting needs across companies in the areas of:

— Consumer Products— Energy— Finance & Insurance— Food & Beverage— Heavy Industries— IT & Telecommunications — Transport.

9 Hot TopicsAn in-depth look at the reporting agenda with respect to:

— Financial Analysts— Verification & Assurance— Emerging Economies— Supply Chain Reporting— Economic Bottom Line— Brands & Reputation— Governance

10 Conclusions & Recommendations We revisit our recommendations from 2000 and offer a new agenda to increase future accountability.

Top reporters

07Trust UsIntroduction

Figure 03

1994

Body ShopBristol-Myers SquibbBritish AirwaysBritish GasBTBSO/OriginDow ChemicalsKunertNorandaOntario HydroShell CanadaThorn-EMIUnion CarbideWaste Management

1996

Body ShopPhillips PetroleumMonsantoBristol-Myers SquibbDow EuropeIBMOntario HydroPolaroidWaste ManagementDuPont

1997

Body ShopBaxterNesteNovo NordiskBritish AirwaysVolvoGeneral MotorsSun CompanyBristol-Myers SquibbPolaroid

2000

BAANovo NordiskCo-operative BankBTBPShellWMCESABBristol-Myers SquibbVolkswagenING

2002

Co-operative BankNovo NordiskBAABTRio TintoShellBPBristol-Myers SquibbSouth AfricanBreweriesBASF

08 Trust UsFive Reporting Personalities

Five ReportingPersonalities(What sort of reporter are you?)

2.0

Truants Cosmetics

Read the latest reports and fivedifferent reporting personalities jumpout at you. The first type doesn’treport. The other four do, with varyingdegrees of success. Despite thetremendous number of companies that still fail to report in any form The Truants, we see a growing numberexperimenting with different forms of reporting. Some The Cosmeticsare obsessed with burnishing theircorporate image, focusing on stylerather than substance. But the leaders are now producing much richer data sets The Nerds — and someThe Virtuosos are defining the leading edge of CSR and SD reporting andcommunication. The next 3-5 years,however, are likely to see pioneers The Supersonics breaking through thebarriers that are holding back even thebest of today’s reporters, establishingnew benchmarks and, in the process,potentially transforming markets.

2.2 Cosmetics

Like cosmetic surgery clients, the CorporateCosmetics rely on the skills of others togive them the look and feel of corporatecitizenship. Some are masters of spin. Thefocus is on PR — looking good, too oftenregardless of the underlying performance.

Rather than having their lips and breastsenhanced, Corporate Cosmetics try toinflate their reputations by aping theoutward signs of beauty, often maskingugly reality. This is the 21st century, triplebottom line version of ‘greenwash’.

2.1 Truants

By accident or design, the CorporateTruants are stealthy. They don’t reportbeyond legal requirements — and manydon’t even go that far. They operate incountries, industries or value chains wherereal disclosure isn’t a condition of entry.

Some non-reporters have major impacts,but are designed to operate beneathsociety’s radar. Others create few majorimpacts, but in failing to engagestakeholders Corporate Truants riskmissing out on key market intelligence,emerging opportunities for new products,services and relationships.

Nerds Virtuosos Supersonics

09Trust UsFive Reporting Personalities

2.4 Virtuosos

Like prima ballerinas or prima donnas, theCorporate Virtuosos are rare, highly prizedand — sometimes — highly strung. Theyoperate at the leading edge. You knowthem: they dominate our Top 50 — andalways seem to get the award you wanted.

Corporate Virtuosos have their own in-house nerds — and are happy to show youthe numbers. But they also see the BigPicture, communicate like crazy — andincreasingly have the performance tomatch. If they don’t, they generally knowwhere the problems are and focus theirefforts accordingly.

2.5 Supersonics

Corporate Supersonics have it waxed.What was once virtuosity is now secondnature. For these companies, CSR and SDare hard-wired. Corporate Supersonics aremainstream, successful. They ‘get it’ — andget on with it. They have moved on fromthe business case discussion to theevolution of new business models.

By breaking through transparency’s glass ceiling and other critical barriers,Corporate Supersonics move towards thegoal of total transparency, operating fromstate-of-the-art accountability platforms,but still know how to maintain theirbiggest secrets from competitors’ eyes.These companies are smart and highlynetworked — and will redefine themainstream.

The Corporate Supersonics may be afigment of our imagination today, but when they arrive we will know them. These companies will use their reportingnot simply to provide assurance but also to offer prospectuses for transformingmarkets towards CSR and SD objectives —whether or not they use such language.

2.3 Nerds

Corporate Nerds are numbers-crazy. Ask any question, and they have the data —or know where to get it. The CorporateNerds help drive new forms of accounting,some of which will go mainstream.Corporate Nerds operate at the MS-DOSlevel, needing someone else to provide theequivalent of Windows user-friendliness.

Like their IT counterparts, Corporate Nerdscan drive revolutions. But they risk missingout on the Big Picture — and most oftenstill struggle to catch the attention of theirboards. The real question is whetherstakeholders can make any sense of all thedata they are now being provided with. The American term ‘drinking at the firehose’comes to mind.

10 Trust UsThe Big Picture

The 2001–2002 period has beenmomentous in a number of ways. In thisoverview section, we explore one of themost striking trends of the past fewyears: the rapid professionalization ofsustainability management and reporting.In addition, we zoom in on the events andtrends that may be potential acceleratorsand brakes on the expansion of the field.

3.1 Invasion of the Suits

There was a time when all this sustainabilitybusiness was left to a few enthusiasts whobecame their companies’ early champions —and who were not taken especially seriouslyby the top brass. Thankfully, those days arerapidly waning. Today, we see businessprofessionals of all sorts playing leadingroles in helping companies come to gripswith their sustainability managementsystems, accounting and reporting, and, to a lesser but growing extent, stakeholderengagement processes.

These professionals — ‘The Suits’ — are apositive influence in a number of ways. They bring rules and standards to bear onTBL issues, and they can hold companyleadership’s attention much longer than can many of the enthusiasts. Indeed, thisprofessionalization, in the form of standardsand verification, has been a key wish ofstakeholders for years.

Whether dressed in black, blue, grey or pin-stripes, accountants, auditors, verifiers,certifiers and other managementprofessionals play a central role in thewhole business of governance, assuranceand trust. But, just as financial and widereconomic accountability issues aresurfacing in the media, the accountants and auditors who help maintain or buildtrust in corporations have themselves beenunder fire. So, as they continue to colonizethe fields of CSR and SD reporting andverification, we should ask: Is this a goodthing? Has trust increased as a result oftheir efforts?

The answer is both yes and no. Moderncorporations increasingly depend onconsultants and other outsiders to advisethem how to define and respond to bothestablished and emerging accountabilityagendas. In the wake of the outsourcingwaves of the 1980s and 1990s, The Suitsbecame indispensable for businesseswanting to comply with the law — andmake at least some progress in relation tonew voluntary standards and wider societalexpectations. With their help, manycompanies have begun making progresstowards the ‘involve me' world,characterized by high levels of trust (Panel 01). Today The Suits can provide some highly creative work, providing robustfoundations for assurance and stakeholderconfidence.

And companies have responded: As our HotTopic section on verification and assurancenotes (pages 49–51), the proportion ofreports externally verified (a key offering ofThe Suits) grew from just 4% of reportscovered in our 1994 work, to 28% in 1997.Next it jumped to 50% in 2000 — and theproportion in 2002 was 68%.

3.2 Buying Trust

And what is it that clients hope to get fortheir money? In essence, two things: anindependent review of the robustness oftheir process and, as a result, stakeholdertrust. Indeed, SustainAbility’s own serviceshave at times amounted to much the samething. Figure 05 (page 12) shows asustainability reporting model – and whereThe Suits might fit in. As with theirfinancial accounts, reporting companieshave concluded that sign-off by The Suitsadds materially to the credibility of thereported data, even if in most countriesthere is as yet no legal requirement forverification or other forms of assurance inthe areas of CSR and SD reporting.

The Big Picture

3.0

03 ‘Auditing Firms Face a Grave New World’, Financial Times, 30 August 2002.

In light of the confluence of such trends,many might have predicted 2002 to be aboom year for The Suits. But things turnedout differently. In the wake of the collapseof companies like Enron and Andersen, theaccountancy profession found its landscapechanged completely — and probablypermanently.03 In the past, the accountancysector had been hugely influential inWashington, DC, because of its reputationfor professionalism and integrity. Now doors long wide open for accountants wereslamming shut on Capitol Hill — the resultof peddling ‘soft’ accountability, allowinginappropriate company influence to corruptthe assurance process.

There is no doubt that, after Andersen, the remaining Big 4 will make every effortto ensure illegal, unprofessional oruntrustworthy behavior never sullies theircollective reputation again. But, as lawyersand physicians around the world havelearned, a self-policing community musthold itself to high standards in order tonurture and maintain public trust.

3.3 So Who Do We Trust?

All of which raises major issues for thetransparency revolution. If you can’t entirelytrust your auditors to handle even thefinancial dimensions of the triple bottomline, what hope is there that they will dealadequately with the wider economic, socialand environmental dimensions? And let’s bedeliberately provocative: In today’s climate,is the person on the street more likely tobelieve a corporate CEO or his auditor? Both have been whacked down a fewnotches of late — let’s hope this isn’tperceived by the public as choosing thelesser of two evils:

‘Trust us, we’ve got the professionals working on this.’

Companies all too frequently turn to outsidebusiness professionals to validate theirchosen course. True, most consider it goodvalue to have their systems and processesscrutinized — after all, solid systems arevital to delivering the goods. But far too fewlook to their chosen professional servicesfirms to challenge the fundamentals of theirsustainability propositions.

In these cases, the assurance provided by auditors or accountants is offered as a proxy for sustainability performance. The challenge is how to give readersconfidence that ‘real’ sustainability ismaking progress behind the scenes.

‘Trust us, we’re professionals.’

Well-intentioned, even rigorous, thoughthey may be, consultants, auditors andverifiers are not ‘real’ stakeholders. Theirviews cannot substitute for strong externaloversight and challenge — although theycan provide a good interim bridge.

Is the current state of assurance, say, orsustainability management systems reallywhat stakeholders have been asking for? Is it verification they want, or is it truth?Are they the same thing? Is it standardsthey want, or is it a whole new way ofbehaving and doing business? By definingsome of these fundamental questions rightout of their service engagements withcompanies, too many Suits allow the valuethey bring to be diluted.

We see the role of the professional servicesfirms to be absolutely crucial in the comingTrust Decade. Are they up to the job?

11Trust UsThe Big Picture

The Dynamics of Trust

One interesting visual that surfaced awhile back in the field of corporatereputation and trust was Shell’s mappingof the interplay between transparency andtrust (Figure 04). As transparency goes upin the ‘CNN World’, Shell argued publictrust in most parts of business and mostpolitical institutions falls.

As trust falls, we move from a worldwhere key actors in business andgovernment insist that the public ‘trustus’, through later stages where the publicincreasingly wants to be told what isgoing on — and then insists on beingshown real world evidence ofcommitment and progress. The best wayto turn the corner and move back towardshigh levels of trust, the logic goes, is toactively involve stakeholders in keydecisions.

Figure 04 Shell International Sustainable Development Group

The emerging ‘Show me’ world

High Trust

High Transparency

Low Trust

Low Transparency

‘Trust me’

‘Tell me’

‘Show me’

‘Involve me’

As trust diminishes, the demand fortransparency in the form of assurancemechanisms increases

Panel 01

3.4 Accelerators: speeding progress

Mandatory Reporting Requirements

A series of events have helped pushreporting requirements higher up thecorporate agenda. Some involve strategicchanges in corporate governancerequirements such as the UK company law review and similar initiatives incountries like Germany and Australia.

Others have involved even more focusedattempts to shape future reportingrequirements. In Norway and the UK, forexample, there are new laws declaring thepublic’s right to environmental information.In France, meanwhile, the governmentannounced in February 2002 a requirementfor all companies listed on the French stock exchange to include a range of social,environmental and labor information intheir annual reports to shareholders. The requirement is part of the sweepingnouvelles régulations économiques whichare designed to overhaul the country’scompany law completely.04

Such requirements will push CSR and SDissues up the corporate agenda in affectedcountries, which will be particularly helpfulin places where these issues have struggledto gain recognition. But the long-termimpacts are far from clear. In France, forexample, the regulation provides noguidance on specific indicators, assurancerequirements, or penalties for non-compliance. It would not be surprising ifmany large, high-profile companies workedto comply, while many others did not.

A small crop of French reports appears inthe 2002 Top 50 and Other 50, boding wellfor future reporting in the region. SeveralFrench reporters, such as Danone andLafarge, are beginning to set themselvesambitious targets. It will be interesting tosee how this trend develops — and how thecultural differences play out.

12 Trust UsThe Big Picture

Sustainability Reporting Models

1Impacts

Early focus onnarrowly definedimpacts expands toa wider range oftriple bottom lineimpacts, bothpositive andnegative

Impact and life cycle assessments

Model

Stage

Focus

Key tools

Perspective

Assurance

2Internalization

Externalities areprogressivelyinternalized.The focus is oncompliance,managementsystems and newmarket standards

Audits and intranets

3Inclusion

As the costs ofinternalization grow,so too does the needto prioritize — inways that buildtrust. A range ofstakeholders mustbe engaged

Dialogue, reports,websites

4Integration

The TBL agendacuts acrossdepartmental andbusiness unit silos,so there is agrowing focus onintegration up toboard level and outthrough valuewebs

Scenarios, boardaudits

Prospectus

Mainlybackward-looking

Increasinglyforward-looking

5Incubation

Whether you define SD as theTBL, radical eco-efficiency or B24B(business-to-4-billion) approaches,today’s businessmodels andtechnologies areunsustainable.So companies beginto offer marketprospectusesdetailing plans for change

Fully integratedcommunication

Figure 05

13Trust UsThe Big Picture

Growth of the GRI

As we outline in our detailed section on theGlobal Reporting Initiative (GRI) on pages14–19, the rise of the first internationallyrecognized standard for sustainabilityreporting may also be playing a role inadvancing progress. With more companiesstarting to use the guidelines all the time —and with the guidelines being suggested asa reference point for legislative efforts —the GRI appears set to remain a drivingforce for some time to come.

3.5 Brakes: slowing progress

The Kasky Case

As the reporting dynamic builds, it isinevitable that we will see resistance, andon various fronts. Much of the corporateresistance happens behind the scenes,whereas perhaps the most worrying brakeon reporting — at least in the US — hasbeen highly public. This started with alawsuit filed against Nike by activist MarcKasky and could have major implications for corporate sustainability reporting, atleast in the short term — and may in factset an important legal precedent for futuredisclosure.

In May 2002, the California State SupremeCourt ruled 05 that statements Nike hadmade in defense of some of its supply chainlabor practices constituted ‘commercialspeech’ — intended to influence its sales or stock prices — and therefore were notcovered by the US Constitution’s FirstAmendment free speech protection. Thisruling opened the way for Kasky’s ‘falseadvertising’ suit to move forward. Nikeappealed to the US Supreme Court, and itshould become clear early in 2003 whetherthe Court will agree to hear the case.

The current ruling leaves a number ofhugely important questions unanswered. For one, it does not require a plaintiff toshow that he or she was personallydamaged by a company’s statements,allowing both legitimate and potentiallyfrivolous claims. It also has set no guidelineon reparations. A company held to be inviolation is required to relinquish any salesor profits it made in connection with thestatements, but defining and estimatingthese may be next to impossible.

At issue is how much room for uncertaintythe law will allow companies whendiscussing environmental or socialresponsibility issues and activities. Whilecompanies may believe that they areengaging in a public debate on issues ofimportance to their stakeholders, the lawmay view them as attempting to influencesales positively, and require statements toconform to truth in advertising regulations.This state of affairs, it is feared, will silencecompanies who might be genuinelyinterested in engagement. Indeed, Nike hasannounced that it will not be issuing apublic sustainability report unless and untilthe matter is resolved. As American CivilLiberties Union lawyer Ann Brick put it, ‘Freespeech is the loser here. It opens businessesup to false advertising suits whenever theyspeak out on an issue of public debate whenit has to do with their business practices.’

Conspicuous Casualties

Another possible brake on reporting, though less serious to date, is the fact thata number of companies that have embracedsome elements of sustainability reportinghave failed commercially. One reason is thatreporting has attracted attention fromhundreds of companies, not all of themrobust in business terms. Enron, forexample, is now notorious, and yet hadproduced at least one CSR report.

By contrast, among this year’s Top 50,banana grower Chiquita has beenapplauded for its ground-breaking report —including its efforts to adhere to rigorousperformance standards — during thecompany’s recent Chapter 11 bankruptcyproceedings. Other reporting companiesthat have run into major problems includeVivendi and ABB. In ABB’s case, CEO andchairman Jürgen Dormann noted that heneeded to ‘sort out what is wishful thinkingand what is reality’ in the company’sinternal reporting, with a new focus on‘openness and transparency internally’. 06

Such mismatches between the letter andspirit of CSR and SD are perhaps inevitable,but they will seriously undermine trust insome sectors and some countries. Overall,however, they signal the growing need tofocus not only on transparency andreporting but also on high level oversightand other aspects of corporate governance.

04 See, for example, www.socialfunds.com/news/article.cgi?sfarticleId=798as well as French rating agency ARESE (Agence de Rating Social et Environnemental sur les Entreprises) www.arese-sa.com for further information.

05 The full opinion is available at www.courtinfo.ca.gov/opinions/archive/S087859.PDF.

06 Dan Roberts and Aline van Duyn, ‘ABB on the brink of collapse’, Financial Times, 23 October 2002.

4.1 We go behind the scenes to offera progress report on the GRI

One clear message from this year’s Top 50 is just how significant a role the GlobalReporting Initiative (GRI) Guidelines haveplayed in stimulating reporting in the lastyear or two. A large proportion of the Top50 and the Other 50 are first-time reporters,many from sectors not frequently seen inreporting circles previously. Of these, 52%are identified as having been developedusing the GRI Guidelines — as are a full60% of the Top 50. Furthermore, it is clearthat these reporters have tended to enterthe game at a higher level than many oftheir predecessors, which we think speaksvolumes for the quality and robustness ofthe GRI as a reporting framework.

All good news, but we wanted to knowmore: Just where did the GRI come from?How did it become so influential so quickly?Where is it going, and who’s calling theshots? What sort of an impact have theguidelines had on reporting companies andon others?

In this section, we explore the history andimpacts of this influential new institution.We also attempt to predict how the GRI, the Guidelines, and the companies that use them are likely to evolve, based oninterviews with a range of GRI participantsand on two possible future scenarios.

4.2 Emergence of the GRI

The GRI was created as a joint initiative ofthe US based Coalition for EnvironmentallyResponsible Economies (CERES) and the UN Environment Programme (UNEP) in1997. It was born of the desire to makesustainability reporting a serious issue forcompanies and a real basis of engagementand decision-making for stakeholders.

Five years on, the GRI has got off to a flyingstart. Its Sustainability Reporting Guidelines— now in their second version — arerecognized as setting the pace in thisemerging field, and a new board ofdirectors, including international thoughtleaders on corporate responsibility, hastaken the helm of the newly inauguratedindependent institution.07

GRI companies in the Top 50 GRI companies in the Other 50

BAABASFBaxter InternationalBC HydroBristol-Myers SquibbBritish AirwaysCable & WirelessChiquitaDanone GroupEskomGeneral Motors GroupHenkelITT FlygtKeskoKirin BreweryManaaki WhenuaMatsushita Electric GroupNovo NordiskProcter and GambleRicoh JapanRoyal Dutch / Shell GroupScandinavian Airline SystemsSiemensSouth African BreweriesSuezSuncorThe Co-operative BankVolkwagenWMC

ABBCarillionCity West WaterFord Motor CompanyHeidelbergING GroupJ SainsburyKLM Royal Dutch AirlinesMTR CorporationNissan Motor CompanyNovozymesNutrecoRabobank GroepSasolSunocoTata SteelTelecom ItaliaTXU EnergiWartsilaWatercare ServicesWestpac BankYasuda Fire and Marine Company

14 Trust UsThe Global Reporting Initiative

Special Focus The Global ReportingInitiative

4.0

Figure 06 Figure 07www.globalreporting.org

07 For information about the GRI organization, structure and Guidelines, visit www.globalreporting.org

08 American figure of speech meaning ‘the whole amount’ (‘the full monty’, ‘the whole ball of wax’, ‘the kitchen sink’).

A number of clever decisions early on setthe tone for what was to follow. Firstly, the GRI’s organizers recruited a steeringcommittee to advise and publicly supportthe process of developing a reportingframework, populated by recognized leadersin the field — including those whose publicsupport would have been conspicuous if it were absent. Second, in a move cited by a number of our interviewees, the historicdecision was taken in April 1998 to openout the reporting agenda to include socialand economic aspects beyond the originalenvironmental scope. This latter move wastaken almost in spite of GRI’s organizers,with their abiding concern over ‘missioncreep’, who nevertheless allowed it to happen.

4.3 The whole enchilada 08

The decision to tackle the murkier space of sustainability reporting was dubbed ‘the whole enchilada’ at a meeting of thesteering committee in June 1998. It’s auseful metaphor to describe the initiative at a deeper level. The secret of GRI’s success has been an abiding commitment to deliver beyond expectations.

GRI has led the field because it set out tofulfil a whole spectrum of needs, many ofwhich appear contradictory:

Both ambitious and humbleThe GRI guidelines aim to define real, usable parameters for sustainabledevelopment and corporate performance —in many cases where such parameters havenever before existed. They are marketed as a serious, strategic, professional tool. At the same time, they are a perpetual work in progress, to be continuously refinedin light of experience and new knowledge,and every report built on them has beensomething of an experiment.

Both rapid and professionalGRI’s work plan has always cleaved toambitious time lines: the first exposuredraft of the guidelines was developed over the course of some six months andreleased at a symposium in March 1999.But in spite of the quick delivery times, an ongoing commitment has beenmaintained to produce a credible,illustrative tool a company can use straight away.

Both high-caliber and inclusiveThe GRI has striven to attract participationfrom noted and emerging experts in variousaspects of sustainability and corporatesocial responsibility — but to be completelyopen to participation from all interested and committed parties. Anyone can sign up as a ‘registered stakeholder’ of the GRIand thereby be invited to participate inguidelines development, submit commentson work in progress, even be elected to avariety of technical and governance bodies.

Both business and civil societyCrucially, the GRI has embraced a balance of stakeholder and regional perspectives as fundamental — its various governancebodies and working groups must includerepresentation from business, civil society,accountancy and labor, from various worldregions. No one group can be permitted todominate at the expense of others’perspectives.

15Trust UsThe Global Reporting Initiative

GRI Guidelines

Part AUsing the GRI Guidelines

General overview of how theguidelines can be applied indeveloping a sustainabilityreport.

Part BReporting Principles

Essential principles againstwhich good reporting isdeveloped, and which helpensure that a report is credibleand meets stakeholders’ needsfor information:

— Transparency— Inclusivity— Auditability— Sustainability— Context— Completeness— Relevance— Neutrality— Comparability— Accuracy— Clarity— Timeliness

Part CReport Content

This is the section that specifies what informationshould be included in asustainability report:

— Vision and strategy— Company Profile— Governance structure— Management systems— GRI Content Index— Performance Indicators:

— Economic— Environmental— Social

Part DAnnexes

— Overview of the Global Reporting Initiative

— Links between sustainability and financial reporting

— Guidance on incremental application of the guidelines

— Credibility and assurance— GRI Indicators— GRI Content index

Figure 08

4.4 Guidelines overview

The September 2002 Guidelines (Figure 08page 15) represent, in different ways, bothan evolution from the earlier version, and asignificant overhaul. They were developedthrough an enormous, extensiveengagement process, comprising:

— ‘Structured Feedback Process’ for companies experimenting or using the June 2000 Guidelines;

— 150-member Measurement Working Group (sub-divided into Economic, Social and Environmental streams) to develop indicators;

— Revisions Working Group to turn MWG output and other feedback into proposed changes to the Guidelines.

The most significant and widespreadchanges to the Guidelines are in thePerformance Indicators section, which wasthe subject of the most intensive effort bythe Measurement Working Group. It nowconsists of 97 separate indicators, of which50 have been identified as ‘core’, meaningthey are of significance to most companiesand of interest to most stakeholders, andtherefore are considered generallyapplicable. The remaining 47 indicators are ‘additional’ and therefore are applicablein company-specific circumstances.

Significantly, it has been noted that thisflexibility means companies need to bemore transparent about exactly how theyare making use of the Guidelines, as anycompany’s ‘GRI Report’ can differ greatlyfrom another’s. One solution offered is forcompanies to report ‘In Accordance’ withthe guidelines, a designation which carriesfive requirements:

— Inclusion of a GRI Content Index, which allows readers to cross-reference reports to the guidelines;

— Reporting on all the numbered elements in the Vision, Profile and Governance sections of Part C;

— Responding to each core indicator in the Performance Indicators section with either the requested performance information or an explanation for its omission (in the GRI Index);

— Ensuring that the report is consistent with the reporting principles in Part B;

— Including the following statement signed by the board or CEO: ‘This report is prepared in accordance with the 2002 GRI Guidelines. It represents a balanced and reasonable presentation of our organization’s economic, environmental and social performance.’

These requirements are rigorous, and other,less demanding options have not beenformally developed yet. Furthermore, GRIwill not certify claims of ‘In Accordance’,and will not investigate companies’explanations for omitting certaininformation. The entire approach dependson ever-increasing transparency andstakeholder investigation and challenge.Said Erin Kreis of General Motors:‘Companies need to consider how crediblethey want their reports to be, and the “In Accordance” option, with CEO signoff,provides a degree of credibility.’

4.5 All things to all stakeholders

Delivering both-and in an either-or worldisn’t easy, and the GRI has several majorhurdles to surpass, all of them critical to itsmission. Here we attempt to deconstructthe major decisions facing GRI’s new boardand offer a set of challenges which, if met,we believe will ensure positive results and a permanent impact.

If ‘the whole enchilada’ is both mission andmethod for the GRI, then it must bereflected in everything the organizationdelivers. There are a few ways in which theGRI as an organization, the guidelines, ortheir positioning have not fully deliveredboth-and, and they loom large:

New Guidelines may be overlyburdensome

In some cases, the onerous nature ofcollecting and reporting certain indicatorsoutweighs their obvious benefit: totalmaterials used, for example, or global NOxemissions. Such indicators, says Bill Boyle of BP, are ‘high burden, especially to local operations, with no clear value.’ In a sense, such indicators are both toomuch information and, oddly, not enough. 50 core indicators can be incrediblydaunting for companies, and yet it is not always clear they will be sufficient tocover stakeholder needs for information(e.g. SRI questionnaires).

Company complaints regarding theburdensome nature of sustainabilityreporting generally have been around aslong as there have been reports. From ourperspective, stakeholders’ significant needsfor information would tend to outweigh any burden reporting represents forcompanies, but it is up to thosestakeholders to demonstrate that therereally is such a need. The jury is out onwhether some of the indicators in thecurrent version of the guidelines will reallybe of use to many stakeholders, andtherefore, justifiable.

16 Trust UsThe Global Reporting Initiative

‘GRI needs to be increasingly vigilant of company abuse.’Alan Willis

17Trust UsThe Global Reporting Initiative

GRI Guidelines encourage detail, not relevance

What should a company report on? This isthe question the GRI first set out to answeruniformly. The simplest answer is that acompany should report on what is mostimportant — both to its stakeholders and toits business. But, for the moment, the GRIGuidelines provide little guidance on how to make this judgement and, as a result,companies may be reporting on a lot ofthings, but not necessarily the right thingsfor them.

With detailed protocols being developed onreporting such indicators as child labor,energy and water, along with sector-specificsupplements for mining, finance, touroperator, and automotive companies, thereis no shortage of specificity on the detailedimpact indicators companies should beconsidering. But, says Simon Zadek, ChiefExecutive of the Institute for Social andEthical AccountAbility, the guidelinesthemselves allow companies partially offthe hook: ‘A company can be GRI compliantwhilst looking at the least impactful aspectof their business.’ Consider the case ofMcDonald’s, whose inaugural GRI-basedreport, released earlier in 2002, makes onlypassing mention of agriculture issues, wherean enormous proportion of McDonald’simpact lies — the phenomenon we dubbed‘the elephant in the bedroom’ in the 2000Global Reporters survey.

It is not clear that report content — that is,the landscape of issues a company mustcover, and how — will remain a major focusof interest in the wider universe in thefuture. Energy may shift to related relevanceand usability issues. ‘Most of [InternationalPetroleum Industry EnvironmentalConservation Association] IPIECA’scomments on the most recent exposuredraft were not about the indicators(although that’s what changed mostsubstantially as a result of public comment),’said Bill Boyle.

‘They were about the eleven ReportingPrinciples. The questions we have are to dowith what’s behind those principles, andwhat they imply for the future. Will therequired report content just become moreand more prescriptive as these principlesbecome more evolved?’

Because the eleven Reporting Principles(Part B) require considerable qualitativeunderstanding, the GRI will need to focusdeeply on how those principles areunderstood, interpreted and represented in companies’ reports. Prescriptive reportingrequirements alone cannot deliver on such principles, as they cannot recognizethe range of stakeholders’ needs andcompany realities.

An important related note is that GRI’sfocus has been on the definition ofmeasurements, not on performancestandards. A company using the SA8000supply chain labor standard, for example,may be undertaking many of the right steps,but to simply note compliance with thestandard ‘is not alone acceptable within the current GRI approach,’ said Simon Zadek. ‘The guidelines can’t absorb all theinnovations going on in the world, so GRIneeds to figure out how to recognize andlegitimize them when they’re happeningelsewhere.’

Guidelines open up tremendous need forassociated assurance

That a company chooses to affiliate itsreport with the GRI guidelines shouldindicate something about the seriousness of its report. Stakeholders should feelconfident that the information reportscontain is appropriate, sustainability-relevant and designed with their needs inmind. The fact that the GRI is an entirelyvoluntary, open initiative makes thisdifficult to achieve. To the extent thatcompanies will want to use the guidelinesto increase their reports’ credibility, therewill always be those who do so in goodfaith, and those who do not.

This raises a serious need for robustassurance. Whether such assurance takes the form of professional third-partyverification or more broad-basedstakeholder challenge, or perhaps all of theabove, is an open question. In favor offormal verification, Alan Willis, one formerGRI Steering Committee member andVerification Working Group participanturges: ‘GRI needs to be increasingly vigilantof company abuse of the guidelines orprocess — claiming their reporting is “In Accordance” when it’s not; incomplete,inaccurate, misleading or inappropriate.Wouldn’t you want this rooted out?’

Regardless of how companies choose topursue assurance individually (and there is no reason to think GRI will take on theverification agenda itself), there is agrowing need to ensure that the GRI willprovide a level playing field: ‘If I was goingto suggest one thing to GRI it would be todo a major evaluation of conformance tothe guidelines,’ noted Sarah Severn of Nike.

The Guidelines contain something foralmost every stakeholder group, but notnecessarily in a way that encouragesuptake by companies

All things to all people versus standardized— this is a difficult both-and to deliver. At time of writing, only one company haddeclared reporting ‘In Accordance’ with theguidelines, Musgrave Foods of Ireland. Saidone former Steering Committee member, ‘I think when companies look closely atwhat’s in the core indicator package,reporting “In Accordance” will be dauntingand not very popular. In theory, it should be pretty straightforward and reasonable,but if you look at what the expectations are, they could be very challenging forcompanies to satisfy.’

18 Trust UsThe Global Reporting Initiative

This impression may be slightly overstated,however. According to Erin Kreis of GeneralMotors, the ‘In Accordance’ requirementsmay seem too restrictive, ‘But this is a falseimpression — the guidelines provide reporterflexibility, so that if a GRI core indicatorisn’t relevant, is proprietary in nature, orpresents too great a burden, for example,the reporter can leave it out, and simplystate the reasons why.’

One suggestion raised by Kreis, Mark Lee of Business for Social Responsibility andothers is that GRI undertake a carefulanalysis of which indicators aren’t beingadopted by companies and the reasons theycite. If the omissions appear similar acrosscompanies, this should provide stakeholderswith insight as to some of the morecomplex challenges posed by reportingrequirements — and should aid GRI inimproving the guidelines in the future.

The 2002 Guidelines came to marketquickly, but not through a true process of maturation

There is some concern that the currentGuidelines have gone ‘too far, too fast’. Said GM’s Erin Kreis: ‘The Revisions WorkingGroup were given three meetings over thecourse of four months to come up with the latest draft, and there were a lot ofcomments to take on board. Then the draftwas only given a 60-day public commentperiod. We managed to work to theseincredibly ambitious timelines, but aquestion remained: should the documenthave gone out one more time for comment?Yet at what point do you cut off publiccomment and still ensure completeness?’

Furthermore, it must be noted that the 2002 Guidelines represent a very significantrevision to the Content section. While manyof the individual changes are small innature, they can add up to guidelines thatbear little resemblance to the previousversion. This can present a major barrier toentry for companies. Said Maria EmiliaCorrea, Vice President for SD at Costa Rica’sGrupo Nueva (and an early GRI SteeringCommittee member), ‘When I saw the newguidelines I was very surprised — we hadworked for a year and a half to develop allour information systems for the last version,and now we have to start over. It is a shamethe guidelines changed so drastically insuch a short period of time, because itrequires an enormous, expensiveinformation gathering process. We nowhave to evaluate the expense involved inconforming to the new guidelines.’

In the future, GRI should consider whether a ‘rolling’ revisions cycle would betterensure both quick delivery and considered,complete deliberations. In this way, discreteissues can be raised and considered, andamendments made, on a more timely basis,and one which would likely be lessoverwhelming to the secretariat.

The Guidelines have expanded reporting,encouraged newcomers, raised thegeneral level of disclosure — but have had no impact at all on externalquestionnaires

One of the early promises of the GRI wasthat once companies and stakeholdergroups had agreed the basis for corporatesustainability reporting, the need to respondto heaps of questionnaires, each just slightlydifferent from the last, would disappear. If the number of organizations using theirown customized questionnaires for rating is anything to go by, this simply hasn’thappened.

‘Questionnaire fatigue’ in some ways isworse now than it was in 1997 — and, to alarge extent, that’s not GRI’s fault, but it’sdefinitely GRI’s problem.

Again, it is difficult to know how significantan issue this is in all cases. A few companiesare beginning to reject specializedquestionnaires and are instead directingresearch companies to read their GRIreports, and then come back withadditional, more specialized questions the reports don’t answer. There is mixedevidence of where and how this works forcompanies. The Investor ResponsibilityResearch Center (IRRC), for example, cross-references its questionnaire with anyrelevant GRI indicators. But, says IRRC’sMark Bateman, ‘One key issue is thatIRRC needs a sufficient volume ofcompanies making information availablethrough the same methodology to providethe consistency we strive for. With only ahandful of companies using GRI, this meansthat data mining for our research using onlythe GRI guidelines isn’t yet a viable option.’

The socially responsible investment (SRI)movement has grown significantly inNorthern countries in the last few years —and an inevitable result of this is anincrease in the numbers of organizationsproviding analysis or ranking of companieson SRI issues. For GRI to enjoy uptakeamong this community, analysts will needto feel certain that their issues of concernwill be reflected in GRI reports. Only thenwill they be likely to de-emphasize theirown questionnaires.

It is clear that uptake of the guidelines is a major issue for GRI — but this is true ofusers as much as it is of reporters. SaidMark Lee, ‘I think we’re trying to create adifferent culture more than improvereporting.’ GRI needs to ensure effectiveoutreach to user groups (notably SRIanalysts), and follow up with study of where uptake has succeeded — and where it has failed — among users.

‘I think we’re trying to create a different culture more than improve reporting.’Mark Lee

19Trust UsThe Global Reporting Initiative

The process appears to some observers tohave become more of a politicalbalancing act, to the potentialdiscouragement of GRI’s core audience,its corporate adopters

There has been some criticism that, in the revision process leading to the 2002Guidelines, GRI placed rather moreemphasis on ‘balance’ at the cost ofrelevance and practicality in indicatorselection and design — to the point ofrendering some core indicators particularlyproblematic. ‘The need to reflect a variety ofdifferent stakeholders’ needs has stretchedthe definition of core indicators,’ said MarkLee. It is to be hoped that this impressionwill wear off as the organization matures,as structures such as the StakeholderCouncil provide an effective ‘listening’ and‘debating’ forum — which can influence thedevelopment of the guidelines throughliaison with the (as yet unformed) TechnicalAdvisory Committee.

4.6 Different scenarios, different futures

The GRI may develop in any number ofdifferent ways in the future, and to a largeextent this is still an unwritten story, withmultiple plots and endings possible. Ofcourse, the GRI will not exist in a vacuum,and will need to be sensitive and responsiveto how society changes around it, and the associated transparency requirementsthese changes will bring.

In considering GRI’s future, we wereinspired by the two future societal scenarios— called Business Class and Prism —developed in 2002 by the Shell Internationalscenarios team.09 Scenarios present differentcredible views of the future which help usto think through the present. We appliedsome of this thinking to the GRI, and cameup with the following observations:

Business ClassThe Business Class scenario is of a worldwhere the most influential forces will be of a globally-connected elite, and progresswill be sought toward greater economicintegration. The GRI goal of ‘harmonization’is interpreted to mean a single disclosuresystem, and a single notion of whatinformation is important to stakeholders. In this situation, the GRI will be led by andhave greatest influence upon high-levelleaders. Global-level, aggregate guidelinesremain the core; sector-specificsupplements are developed by experts.Stakeholder involvement takes the form of membership of a certain group (forexample, stakeholders are ‘NGOs’ or ‘Asian’) rather than flexibility for multipleaudiences or users.

PrismIn a Prism world, many different networksexist, rooted in history and culture. Progresswill be sought toward multiple modernities— different systems that work for differentregional or historical networks of people(one of which will remain the globallyinterconnected elites). The basis of‘harmonization’ here is in the principles that underlie disclosure, with differentcultural interpretations of the specifics. A stronger regional presence for GRIbecomes much more important, as theorganization and the guidelines will need to nurture society’s trust. Standardizationtakes on new forms.

We see serious limitations for GRI in each of these scenarios. In Business Classbecause it will likely deepen the carpetbombing syndrome, and as a major, eliteglobal institution will itself likely become a target, as multinational corporationsthemselves have been in recent years.Crucially, this appears to embody GRI’scurrent path, one not without incrediblehurdles to clear, but in many ways easier to comprehend than the second.

In a Prism world, the GRI’s influence will be limited by the fact of multipleinterpretations of transparency andaccountability. Reporting organizations will indeed not be held to a single standard— because various groups will reject thenotion of a single standard altogether. Itshould be noted that, in this scenario, GRIcan still be a major success among globallyinterconnected elites — but those elites may themselves be perceived as irrelevantto the world’s majority.

These two alternative realities make itdifficult if not impossible to come up with a clear GRI business plan. Perhaps in thiscontext, the GRI should think back to itsroots: ‘the whole enchilada’ is what allowedthis current success story to exist, anddelivering both-and may be what keeps italive for years to come.

09 Shell International Limited, People and Connections: Global Scenarios to 2020, Public Summary, 2002.

GRI Vital Statistics

Foundation

Headquarters

CEO

Funding

Board

StakeholderCouncil

Companyuptake

1997

Amsterdam

Ernst Ligteringen

Charitable grants fromvarious foundations;‘charter group’ initial capitalization.

14 individuals; chaired by Judy Henderson (ex-chair, Australian EthicalInvestment Ltd)

36 individuals appointedJune 2002: a further 24 to be selected by theother SC membersDecember 2002.

140 companies areidentified as users of theGRI Guidelines forreporting.

Figure 09

20 Trust UsThe 2002 Benchmark Survey Process

Most people who want to use a computerare not interested in how the softwareworks. But when ranking and ratingcompanies — and their reports — at the end of the Transparency Decade it seemsessential to open out the underlyingmethodology. Although we released earlierversions of our methodology, 2002 marksthe first time that we have released the fullGlobal Reporters package. Our hope, as withthe Linux software community, is that theresult will be that there are significantimprovements by the time we do our nextround of report benchmarking.

The heart of our assessment of sustain-ability reporting is the detailed scoring ofthe sample reports against a benchmarktool (the selection process used to pickreports for the sample survey is described on page 22). Here we briefly describe theorigins, content and use of this tool — andrefer readers to the SustainAbility website(please see Appendix page 64) for a moredetailed discussion.

5.1 Origins

The methodology currently covers 49criteria, each scored on a consistent scale(see page 21). Underlying the selection ofaspects and how they are scored are thefollowing questions: How well does thereport help a reader assess the company’s:

— commitment to address sustainable development in a real and strategic way, in both the short and long term?

— operational performance and impacts over the reporting period?

— likely future performance and impact, as judged from the quality of a company’s leadership, structures, systems, and incentives?

— ability to ensure the integrity of the reporting and disclosure process itself?

Process

A

B

C

D

E

F

A

B

C

D

E

F

Figure 10

The 2002 BenchmarkSurvey Process

5.0

1 Collection— Call for reports issued across the

SustainAbility network, website and publications.

— Reports pro-actively researched and collected from award schemes, membership lists and personal recommendations.

2 Classification and Preselection— Reports identified and classified

into types (sustainability, social, environmental, annual, etc.)

— Pre-selection of reports that showed the most promise in terms of completeness, innovation and integration.

3 Selection— List refined to 100 reports for

consideration by the Selection Committee.

— Final selection made of 50 reports for inclusion in the survey (see Figure 12 on page 23 for a detailed description of this year’s selection process).

5.2 Content and Scoring

The 49 criteria cover:

— direct indications of a company’s level of commitment (e.g. policies, use of stakeholders in identifying key issues, alignment of public policy activities with sustainability goals);

— direct indications of a company’s performance (e.g. reporting on air emissions, ethical labor practices, community economic impacts);

— leading indications of a company’s future performance (e.g. management systems, organisational accountability);

— indirect indications designed to illuminate aspects of performance not reported (e.g. scope of coverage, verification and assurance mechanisms).

Generally, the current methodology containsthe same 49 criteria identified in 2000. The major change in 2002 was to make thescoring system more consistent across allareas, as explained in the box below.

Scoring system applied to each criterion

0 Nothing

1 Sketchy

2 Systematic

3 Extensive

4 Integrated

No relevant coverage, or nothingsufficiently significant to suggest that thecompany is taking this issue seriously.

Company appears to recognize the issueand present it seriously, but reporting onthis aspect is not (yet) in systematic.coherent manner.

Company appears to present the issueseriously and systematically, but reportingsystems and processes have not yet beenfully developed or rolled out across thecompany or across the full set of relevantissues.

Coverage is serious and systematic andnot suffering from major gaps in coverage,presentation or interpretation, but there islittle indication that general businessactivities have been influenced byreporting.

Reporting is serious, systematic, andextensive, and it is clear how reporting islinked to general business decision-making and core processes to improve SDeffectiveness.

21Trust UsThe 2002 Benchmark Survey Process

Total

100

80

60

40

20

00

Figure 11

4 Benchmarking— Training given to analysts on

benchmarking criteria and concepts of scoring system.

— Reports and clearly associated material (e.g. websites) read thoroughly.

— Reports scored against each of the 49 criteria with supporting evidence cited.

5 Quality Control— Reports and assessments reviewed

by the most senior analysts for correct and consistent application of the criteria.

— Scores queried as needed.— Final scores reconfirmed with analysts.

6 Analysis and Presentation— Scores tallied and analyzed.— Key statistics compiled for publication.

5.3 Comparability With 2000 Survey

It is important to note that changes made to the scoring methodology for 2002 mean that direct comparison with the2000 results may occasionally be difficult.While we are confident that generalcomparison between the two surveys isvalid, some scores have shifted slightly and it is not clear in all cases whether thisis due to changes in reporting practices orto modification of our methodology.

In specific, the greatest overall change wasin the performance section, with a slightdecrease in the environmental categorythrough merging of several criteria, and a slight increase in the economic section. This, combined with increasing theconsistency of the scoring device, mayresult in slightly higher or lower scores than would have been the case without any refining of the methodology.

5.4 How We Conducted the Survey

CollectionThe call for reports was issued across theSustainAbility Network, via our website, and through relevant publications. Inaddition, we looked for relevant reports and reporting processes through awardschemes, membership lists and personalrecommendations.

Classification and pre-selectionThe reports identified through theseprocesses were then classified into types(e.g. sustainability, social, environmental,and annual). Selection by the GlobalReporters team narrowed the field to justover 100 reports that already showedpromise in terms of completeness,innovation and integration.

SelectionThe next step involved turning theshortlisted reports over to the SelectionCommittee (membership listed on page 22). The Committee made the final selection of the Top 50 reports for inclusion in the survey.

BenchmarkingTraining was given to analysts on thebenchmarking criteria and the scoringsystem. The selected reports and clearlyassociated material (e.g. websites) wereread thoroughly — and the reports scoredagainst each of the 49 criteria, withsupporting evidence cited by each analyston company forms for later cross-checking.

Quality controlThe reports and assessments were thenreviewed by senior analysts, to ensurecorrect and consistent application of thecriteria. Scores were queried if thereappeared to be anomalies. The final scoreswere then reconfirmed with the analysts. All scores were tallied and analysed, and the key statistics compiled for publication.

22 Trust UsThe 2002 Benchmark Survey Process

Judy Kuszewski, Stanislas DupréIvo Knoepfel, Nick RobinsonNancy Bennet

Statement on Selection of Reports

SustainAbility’s 2002 Global Reporterssurvey does not aim to be exhaustive.Rather, the fifty reports selected forinclusion are aimed at illustrating global‘best practice’ in sustainability reporting.With this in mind, the SustainAbilityGlobal Reporters team narrowed a field of235 reports down to 100, from which theReport Selection Committee selected thefinal Top 50. Selection relied on theexpertise of panel members in the field ofinternational sustainability reporting, aswell as consideration of aspects such as:

— Recipients of awards or accolades for reporting;

— Users of the Global Reporting Initiative or other major reporting frameworks;

— A high rank attained in the 2000 Global Reporters survey;

— Particular innovation in coverage, presentation or interpretation;

— Notable depth of integration with core business thinking and communication;

— Exemplars from various regions of the world and business sectors.

Naturally, the selection panel had to make some difficult choices. All of thereports in the field of 100 are notable forvarious reasons, and undoubtedly othersmay have chosen differently. Indeed, weeach have our individual opinions, but weare confident that the selected Top 50represent an enlightening array ofinternational best practice that will serveto further develop and advance the fieldof sustainability reporting globally.

Global Reporters 2002 Selection PanelNancy Bennet, on behalf of UNEPStanislas Dupré, UtopiesToshihiko Goto, Environmental Auditing

Research GroupIvo Knoepfel, onValues

The Top 50

6.0

23Trust UsThe Top 50

The Top 50 Companies

The Co-operative BankNovo Nordisk

BAABT GroupRio TintoRoyal Dutch / Shell GroupBP

Bristol-Myers SquibbITT FlygtSouth African BreweriesBASFVolkswagen GroupWMCCIS Co-operative

InsuranceBaxter InternationalCable & WirelessRicoh JapanKirin BreweryChiquita Brands

InternationalUnited UtilitiesSuncor EnergyBC HydroEskomMatsushita Electric GroupManaaki Whenua British AirwaysSAS GroupAlcanGeneral Motors

HenkelKeskoNovartis InternationalUnileverRWEBayer

Deutsche TelekomProcter & GambleSwiss ReToyota Motor CorporationBMW GroupTescoAWGDanone GroupSiemens

Aracruz CeluloseSony CorporationTEPCOSuez

Credit Suisse Group

adidas-Salomon

Financial servicesPharmaceuticals

Airport managementIT & telecommmunicationsMiningOil, gas & renewablesOil, gas & renewables

PharmaceuticalsFluid technologyBeverages & leisureChemicalsAutomotiveMiningFinancial Services

PharmaceuticalsIT & telecommunicationsElectronicsBeveragesAgriculture

Water / Electricity utilityOil, gas & renewablesElectricity utilityElectricity utilityElectronicsEnvironmental researchAir transportAir transportAluminium productsAutomotive

Consumer productsFood retail & logisticsPharmaceuticalsConsumer productsElectricity & water utilitiesPharmaceuticals &

chemicalsIT & telecommunicationsConsumer productsFinance and insuranceAutomotiveAutomotiveFood retail & distributionWater utilitiesFood & beveragesIndustrial &

consumer electronicsForest productsElectronicsElectricity utilitiesEnergy, water, waste &

communicationFinance & insurance

Textiles & apparel

UKDenmark

UKUKUKNetherlands / UKUK

USASwedenSouth AfricaGermanyGermanyAustraliaUK

USAUKJapanJapanUSA

UKCanadaCanadaSouth AfricaJapanNew ZealandUKSwedenCanadaUSA

GermanyFinlandSwitzerlandNetherlands / UKGermanyGermany

GermanyUSASwitzerlandJapanGermanyUKUKFranceGermany

BrazilJapanJapanFrance

Switzerland

Germany

12

34567

89

12

14

15161718

202122

26

2829

30

31323435

36

39404142

44

45

4748

49

50

Rank Company Business Sector Country

120118

116114107104103

96959595949491

8988878685

83828181818180807978

777776757372

727272717069686867

66666462

61

57

6160

5958555353

49484848484846

4545444443

42424141414141414040

393939383737

373737363635353534

34343332

31

29

%Score

Figure 12 SustainAbility (Company names in bold featured in the 2000 survey)

24 Trust UsThe Top 50

6.1 The Magnificent Seven

Seven companies achieved scores of over50% in the 2002 survey (see Figure 13above), with six of these companiesidentified as the ‘Magnificent Six’ in the2000 benchmark: The Co-operative Bank(2002 score: 61%), Novo Nordisk (60%),BAA (59%), BT (58%), Shell and BP (bothat 53%). The newcomer to the over-50%bracket is Rio Tinto (55%). While these arethe top performing reporters in the 2002sample, the Virtuosos, they all still have aconsiderable gap to close if they are to goSupersonic (page 9).

6.2 The Glass Ceiling

Although there have been significant shiftsin the areas of coverage in corporatereporting, the overall average score acrossthe Top 50 in 2002 is 42% (83/196),compared with 43% (84/196) in 2000.Report scores at the top have also stayedthe same, with the 2002 top scoringcompany (The Co-operative Bank) scoringexactly the same as the 2000 top scorers(BAA and Novo Nordisk).

The Magnificent Seven Top 50 Reports in each score band

Breakdown of Score / Total Score%

Company

60

61

Score Range%

2002 Survey%

2000 Survey %

50–100 1414

45–50 1414

40–45 2632

35–40 2620

30–35 1816

25–30 24

14 11 25 10

12 9 30 8 59

12 9 30 10

Novo Nordisk

BAA

Co-operativeBank

54

58

13 9 23 9

16 8 20 9 53

13 13 23 9

Rio Tinto

Royal Dutch /Shell Group

13 8 24 8 53BP

BT

Key to Graphs

Breakdown of Score / Total Score%

Description of company operations and SD intentions, including issue identification,stakeholder engagement and the business case.

Internal systems aligned to support SD intentions,as well as efforts to influence external conditionsto support company SD intentions.

Operational performance that directly affect SD impacts, in absolute and relative terms,including economic, social, environmental andmulti-dimensional impacts.

Steps taken to allow readers to form an accuratejudgement around the robustness and reliability of the reporting process itself

Gap between potential and actual scores achieved.

Company

Average Report

Figure 15Figure 13

Figure 14

Context &Commitment

ManagementQuality

Performance

Assurance &Accessibility

Potential

21

Max.%

Max.Pts

18

49

12

4310 8 19 6

40

36

96

24

25Trust UsThe Top 50

The range of scores has not changedsignificantly from 2000 to 2002, with theupper band of report scores totally static(see Figure 15). There has been somemovement in the middle of the sample, with the 2002 survey having slightly morereports scoring in the lower ranges, thoughthe differences are unlikely to be significant.

6.3 Bigger — But Not Necessarily Better

The average size (in pages) of printedreports has increased substantially since2000. Of the printed reports benchmarkedin 2002, the average size was 86 pages,compared with an average of 59 pages in 2000 — a dramatic increase of no lessthan 45%. Figures 16 and 17 show the ratio points scored per page for the top and bottom five ranked reports in ourbenchmark.

Clearly, a higher page count does notnecessarily mean a higher score. If wemeasured reporting efficiency, for example,it is our judgement that Bristol-MyersSquibb and Royal Dutch / Shell Groupwould lead, with BAA significantly behind.

As described in more detail on page 31, the high page count phenomenon appearsat all levels of scoring, including the lowerend, where Suez and TEPCO both producedreports significantly longer than thoseproduced by some of the top-rankedcompanies. Nothing wrong with this, of course, but we expect a push towardsbetter issue identification and coverage of materiality to lead to better focusedreporting.

6.4 North America Leads, Just

While it is difficult to map differencesaccurately between the reportingperformance of different regions with alimited sample, from the 2002 survey it is clear that the North American reportershave improved their performancesignificantly since 2000 and their averagescore (45%) has now surpassed that of their European counterparts (43%). That said, it is interesting that no NorthAmerican report features in the group of reports scoring above 50%, with thehighest scoring North American report,Bristol-Myers Squibb, ranking eighth with 49%.

Where North American reports didparticularly well, however, is in reporting on performance, with an average score of44%, compared with 39% in other regions.Other regional differences were seen in the reporting on the economic dimension.The three non-OECD reporters averaged39% for economic performance, comparedwith the overall average of 25%. SouthAfrican Breweries scored highest in thisarea, with 42%.

Page Length of Top 5 Reports

Page Length of Bottom 5 Reports

% Score per page

Numberof pages

Co-operative Bank 0.6298

Novo Nordisk 0.6888

BAA 0.23263

Royal Dutch / Shell 1.0849

Bristol-Myers Squibb 1.2240

% Score per page

Numberof pages

Sony 0.5462

TEPCO 0.27120

Suez 0.31102

Credit Suisse Group 0.9234

adidas-Salomon 0.6148

Average Scores By Region

Breakdown of Score / Total Score%

Region

41

43

10 7

10 7

9 7

9 7

18 6

21 7 45

10 8 19 6

Europe

North America

World

41

40

20 5

18 6

Non-OECD

Other OECD

Figure 18

Figure 16

Figure 17

26 Trust UsThe Top 50

6.5 GRI Moves Ahead

In 2000, our survey included 11 reports(22%) from GRI pilot-testers. In the 2002Top 50 (Figure 20), by contrast, 60% ofreports are GRI users. In total, 31 —including five of the top seven — Top 50reports identify that they are GRI users,compared with 19 — including Rio Tintoand BP — that do not formally align withthe GRI Guidelines.10

In 2000, the GRI pilot testers were scoringslightly more (5%) than the survey average. In 2002, however, we can see thegap growing between GRI and non-GRIreporters (8%). The biggest point ofdifference is found at the bottom end of the range, where the lowest GRI reportscores significantly better — 17% better —than its non-GRI counterpart.

Over the five categories of the benchmarksurvey, performance reporting is where theGRI reports score higher than non-GRIreports. By contrast, scores for the reportingof multi-dimensional performance (acrossthe TBL) are the same for both sets ofreports, suggesting that while the GRI hasdeveloped a strong set of indicators foreconomic, social and environmentalimpacts, its set of indicators for measuringmulti-dimensional performance may not yetbe well developed or understood.

Figure 20

10 For the purpose of this survey, only companies registered on the GRI website at the time of printing were considered for the GRI sample.

GRI

Breakdown of Score / Total Score%

Survey

55

9 7

10 8

7 5

15 5 36

9 24 9

6112 9 30 10HighestGRI

AverageNon-GRI

HighestNon-GRI

29

45

11 6

20 7

LowestNon-GRI

8 8 4623 7LowestGRI

Non-GRI 2002

GRI 2002

Context &Commitment

ManagementQuality

Performance Assurance &Accessibility

Potential

AverageGRIFigure 19

Table Title

ReportingRegion

AverageScore 2002

%

AverageScore 2000

%

Europe 45 43

North America 38 45

Other OECD 42 40

Non-OECD 41 41

13

6.6 TBL Scorecard

Our analysis of each of the seven majorcategories of reporting criteria in the 2002survey is outlined in Figures 21. Of these,there has been a change in the levels ofscoring between each of the performancecriteria compared with the 2000 benchmarksurvey, with economic (38%) and social(33%) reporting gaining and environmental(44%) reporting dropping.

What do you call yours?

Whatever their length, the labels thatcompanies stick on their environmental,social or sustainability reports are telling.We have seen a huge shift in this area. In the early 1990s, almost all reports were environmental reports of one sort of another. By the late 1990s, growingnumbers of social reports were appearing— and the first sustainability reports weresurfacing, too.

When we reviewed our Top 100 reports for the 2002 survey, we found that 22% were called sustainability reports.These titles came in various blends,however. Conoco, for example, offered aSustainable Growth Report, while BMW’swas called a Sustainable Value Report.Some companies, not surprisingly, seemeddistinctly nervous of the S-word and its implications. For example, The Co-operative Bank’s Partnership Report,Eskom’s Annual Report and simply The Shell Report.

Add up the numbers and these are thestatistics for the 2002 survey sample,shown in descending rank order below:

The remaining 13% is made up of a rangeof titles, some being combinations of theabove categories, while others focus on‘reflections’ or ‘pathways’. Most of thereports that are not labelled with the S-word, however, do include significantinformation on at least two dimensions of the triple bottom line.

Main part of report title

27Trust UsThe Top 50

TBL Scorecard

Total Score%

Category

33

36

42

48

44

ManagementQuality

EconomicPerformance

Context &Commitments

EnvironmentalPerformance

33MultidimensionalPerformance

50Accessibility &Assurance

Social & EthicalPerformance

Figure 21 %

environmental performance

sustainability language

social performance

annual reports

health and safety

corporate citizenship

triple bottom line

41

22

12

4

4

2

2

Panel 02

28 Trust UsThe Top 50

Context & Commitments

Total Score / Reporting Company %

Category

28

80

48

Highest

Lowest

Average

Context & Commitments

Top Scoring Companies Pts%Rank

Royal Dutch / Shell 801

Novo Nordisk 702

BPRio Tinto

653

BTSwiss ReVolkswagen

Aracruz Celulose

Shell

63

32

28

26

255

Management Quality

Total Score / Reporting Company%

Category

19

69

41

Highest

Lowest

Average

Management Quality

Top Scoring Companies Pts%Rank

BT 691

Tesco 612

BASFNovo NordiskUnited Utilities

563

25

22

20

Sony

BT

Figure 22 Figure 24

Figure 23 Figure 25

6.7 Context and Commitments

There are some good descriptions ofcompanies' context and commitmentsamong the 2002 Top 50 reports, as in2000. Scores were high here, with theRoyal Dutch / Shell Group report scoringhighest — with 80% (32 out of a possible40). However, there were also high scoringreports outside of the top seven, with thefinance and insurance cluster reportsscoring highest on average, at 55% (22 points). BAA, the top scoring report in this category in 2000 (with a core of80%), slipped back to 60% in 2002.

A key component of this group of criteriais issue identification across the triplebottom line. In feedback from our analysts,issue identification was weak in the 2002 sample. Poor issue identification isreflected in other areas of a company'sreporting such as management systemsand performance results.

6.8 Management Quality

Management quality is the third highestscoring cluster of criteria, as in 2000, withan average score of 42% (15 out of apossible 36). There has been a very modest2% improvement in reporting comparedwith the 2000 benchmark survey, with thehighest scoring report, BT, reaching 69%(25 points). The two top scoring reports in2000, The Co-operative Bank and BAA,have both dropped out of the top-scoringgroup against this criterion.

29Trust UsThe Top 50

Economic Performance

Total Score / Reporting Company %

Category

8

71

37

Highest

Lowest

Average

Economic Performance

Top Scoring Companies Pts%Rank

BAA

BAA

711

SAB 632

EskomThe Co-operative BankWMC

543

17

15

13

Social & Ethical Performance

Total Score / Reporting Company %

Category

00

67

31

Highest

Lowest

Average

Social & Ethical Performance

Top Scoring Companies Pts%Rank

BT 671

ChiquitaShell

582

BAANovo NordiskThe Co-operative Bank

544

16

14

13

Swiss Re

Swiss Re

BT

Figure 26 Figure 28

Figure 27 Figure 29

6.9 Economic Performance

There has been a substantial increase inthe level of reporting in terms of economicperformance since 2000, especially whenthe top scoring companies are compared.The top scorers are BAA, with 71% (17 outof 24), and South African Breweries with63% (15 points). But the real news is justhow far BAA has come since the 2000survey, when both it and South AfricanBreweries tied at 57%. 11

It is encouraging to see that reporting on economic impacts and performance is improving, with a growing number ofcompanies now reporting well beyond the financial aspects normally covered in annual reports. However, with mostcompanies moving into this area there is still a predominance of basic financialinformation, with little interpretation orlinking to wider economic impacts.

6.10 Social and Ethical Performance

Unlike the 2000 benchmark survey, wherethere were six companies tied at the top of this section, 2002 sees a clear leader —with BT scoring 67% (16 out of 24). The difference between the top scoringreports in 2000 and 2002 is encouraging —a 10% improvement — while the overallaverage score for this area has increasedby 24%, indicating that companies arebeginning to understand and communicatetheir social performance more effectively.This process is likely to have been aided bythe strong set of social indicators includedin the GRI reporting guidelines.

11 It is worth noting that, since we made the biggest methodological changes to the economic criteria, some improved scores may partly reflect those changes rather than substantive changes between the 2000 and 2002 report samples.

30 Trust UsThe Top 50

Environmental Performance

Total Score / Reporting Company %

Category

25

78

46

Highest

Lowest

Average

Environmental Performance

Top Scoring Companies Pts%Rank

The Co-operative Bank

Co-op. Bank

781

Cable & Wireless 752

BAA 723

28

27

26

ITT FlygtScandanavianAirline Systems

644 23

Multidimensional Performance

Total Score / Reporting Company %

Category

00

75

36

Highest

Lowest

Average

Multidimensional Performance

Top Scoring Companies Pts%Rank

ScandanavianAirline Systems

SAS

751

Toyota 672

BASFBristol-Myers SquibbNovo NordiskRicoh Japan

583

9

8

7

Accessibility & Assurance

Total Score / Reporting Company %

Category

25

83

50

Highest

Lowest

Average

Accessibility & Assurance

Top Scoring Companies Pts%Rank

The Co-operative BankNovo Nordisk

831

753 Matsushita ElectricBT

20

18

Rio TintoRoyal Dutch / Shell

715 17

RWE, Danone, adidas-Salomon

adidas-Salomon

Eskom

Co-op Bank

Figure 30 Figure 33

Figure 31 Figure 34

Figure 32 Figure 35

6.11 Environmental Performance

There was a significant decline in thequality of environmental performancereporting, with a drop from a 53% averagescore in 2000 to 44% in 2002. Perhapscoincidentally, this drop is similar to theincrease in scores seen in the economic andsocial performance reporting sections. The Co-operative Bank leads in thissection with 78% (28 of the possible 36points). It is also interesting to see a bank at the top here, instead of one of the manufacturing or extractive companies with heavy environmental impacts, whichhave dominated this area of reporting.

6.12 Multi-dimensional performance

This cluster of criteria 12 also saw a fall in scores, with a 2002 average of 33% (3 out of a possible 12). That said, therewere still some high scoring companies,most notably Scandinavian Airline Systems (SAS) — which scored 75% (9 out of 12).

6.13 Accessibility and Assurance

Along with growing debate aboutaccessibility and assurance, companyperformance has improved in this area.Overall, company scores on average havegone from 43% to 50% of the totalpotential score. Leading this increase in reporting are The Co-operative Bankand Novo Nordisk, both with 83% (20 out of 24). A fuller discussion of thisarea can be found on pages 49–51.

31Trust UsThe Top 50

The ‘Carpet Bombing’ Syndrome

The 2002 results spotlight another trendin reporting — the ‘carpet bombing’approach. Many reporting companiesseem to have resorted to inundatingreaders with information, presumably in the hope that readers will be able tofind what they are looking for. Companieshave begun to bundle together relateddocuments and call them a sustainabilityreport, or are using the web to link theirdocuments to the myriad other corporatepublications such as policy statements,press releases and annual reports.

There are a number of symptoms of thecarpet bombing problem, but the clearestis the growth in report page-length. In the 2000 benchmark survey, forexample, the average size of a report was59 pages; however, in the two years sincethat survey the average has grown to 86 pages, a 45% increase. Despite thislarge increase in quantity there hasunfortunately not been a relative increasein quality, as seen by the static scoresfrom 2000 to 2002. This could be duelargely to the wide range of data variousreporting guidelines suggest. The 2002GRI Guidelines include a total of 97indicators that could be incorporated in asustainability report — although the GRIdoes not suggest that a company includesall the indicators, just the relevant ones.

SustainAbility must share some of theblame for the carpet bombing approach,because our methodology (pages 20–22)also encourages companies to reportacross a broad range of indicators.However, being a ‘carpet bomber’ may besymptomatic of a more fundamentalreporting weakness on the part ofreporters: poor issue identification (page 28).

12 This cluster of criteria contains: environmental and social accounting; product and service impacts; and compliance, fines and liabilities.

32 Trust UsThe Other 50

To ensure that we were able to givesufficient attention to the reports beingbenchmarked, we opted to work on 50 again — as in the 1996 and 2000 surveys.But given the growing number of reports,we also felt it would be appropriate to listthe other reports in our Top 100 selection,even though they were not benchmarked.Where there was space, however, we havedrawn through examples of best practice —and interesting issues — from this secondgroup of reports.

7.1 Regional Reporting

Once again, companies that operate — or have head offices — in Europe featureprominently in this list, with a largercontingent of French and Scandinaviancompanies represented than in the Top 50list. The Other 50 listing also features moreSouthern Hemisphere and Pacific Rimcompanies. Particularly noteworthy is theinaugural report from MTR, Hong Kong’sprovider of public transport, one of thestrongest reports from Asia (outside Japan)published to date.

Reports from developing economies do notfeature strongly on this list, although anotable exception would be the report fromIndian company Tata Steel, which is heavilyshaped by the GRI Guidelines. For furtheranalysis of reporting in the non-OECD worldsee our Hot Topic section on the subject.

Meanwhile, North American reports are still dominated by the traditionally highenvironmental impact companies. So, forexample, we have strong reports fromSunoco and TXU, offering excellentenvironmental performance information, as well as the beginnings of morecomprehensive social reporting.

7.2 Sectors / Clusters

EnergyThe five energy companies in this listreinforce the strong reporting by energycompanies in the Top 50. Of particular noteis Talisman Energy’s detailed report on itsoperations in the Sudan, which have beenhighly controversial.

Life SciencesNovozymes, part of the Novo Group, areone of the many leading first-time reportersin this list. Of particular note in their reportare the challenges issued by variousstakeholders, with an interesting piece fromCIS (one of our Top 50 companies) — furtherillustrating the growing links betweensustainability and the finance and insurancesector.

TransportThe DaimlerChrysler Group’s report followsthe German reporting trend of magazine-style reports, and is high in environmentalcontent and analysis.

IT and TelecommunicationReports from this sector are limited in TheOther 50 listing, though we should mentionthe Telecom Italia GRI-based report, whichrepresents current best practice among theItalian reports we have seen. It also has agood range of social indicators.

Heavy IndustriesThis is a large group of reports — and anumber stand out. SCA Svenska Cellulosarepresents some of the best environmentalreporting we have seen, with extensiveinterpretation of performance. The waterutilities have also reported well, althoughsome could be said to be guilty of thecarpet-bombing syndrome. The Lafargereport makes an excellent beginning (in adifficult sector) in terms of addressing thecore issues the business faces in terms ofsustainable development and laying outtheir emerging strategy.

The Other 50Reporting Companies

7.0

Reports

Food & BeverageWe have seen strong reporting comingfrom this sector, with some excellentreports included in The Other 50. Aholdis a reporter to watch: their current reportis a strong contender in addressing coresustainability issues of this cluster. TheCadbury Schweppes report is intriguing in that it communicate its sustainabilityperformance and management in a veryunusual format, in addition to offeringvaluable information on its supply chainand related impacts.

Finance & InsuranceWestpac Bank is an excellent example ofa report that caters to a wider range ofstakeholders. It stands out from a fieldwhere there is growing activity, but wherea fair number of reporting companies areproducing documents that are highlytechnical and, to put it kindly, not veryengaging on first sight.

The GRIAlthough The Other 50 group does notinclude as many recognised GRI-usercompanies as the Top 50 report, 46% ofthe Other 50 reports are listed as GRIreporters. Many of these companies arealso first-time reporters, which could bewhy they have reported so well first timearound, compared with the early efforts of many of The Top 50.

33Trust UsThe Other 50

Figure 36 Company names in bold featured in the 2000 survey

The Other 50 Companies

ABB GroupAHOLDAnglo AmericanAxel Springer VerlagBalfour BeattyCadbury SchweppesCamelotCarillionCity West WaterConocoDaimlerChryslerDaniscoDegussaDeutsche Lufthansa GroupFord Motor CompanyFortum CorporationHeidelbergIBMING GroupJ SainsburyKLM Royal Dutch AirlinesLafarge

Melbourne WaterMohn MediaNewmont AustraliaNissan Motor CorporationNorske SkogNortel NetworksNovozymesNutreco Holdings NVPremier OilRabobank GroepRenault GroupSasolSvenska Cellulosa SCA Southern Sun GroupMTR CorporationStora EnsoSunoco

Sydney WaterTalisman EnergyTata SteelTelecom Italia GroupTotalFinaElfTXU CorporationVivendi UniversalWärtsilä CorporationWatercare ServicesWestpac BankYasuda Fire and

Marine Insurance Co.

Heavy constructionFood retail & distributionMiningPublishing & mediaHeavy constructionFood & beverageLeisure & gamingHeavy constructionWater utilitiesOil & gasAutomotiveFood & beverageChemicalsAir transportAutomotiveEnergy utilityMedia & publishingIT & technologyFinance & insuranceFood retail & distributionAir transportHeavy construction

& materialsWater utilitiesMedia & publishingMiningAutomotivePulp & paperIT & technologyLife sciencesFoodOil & gas Finance & insuranceAutomotiveOilForest productsLeisurePublic transportPulp & paperPetroleum refining

& marketingWater utilitiesOil & gas Steel manufacturingIT & telecommunicationsOil, gas & renewablesEnergy utilityMedia, mixed utilitiesIndustrial power generatorsWater utilityFinance & insuranceFinance & insurance

SwitzerlandThe NetherlandsUKGermanyUKUKUKUKAustraliaUSAGermanyDenmarkGermanyGermanyUSAFinlandGermanyUSAThe NetherlandsUKNetherlandsFrance

AustraliaGermanyAustraliaJapanNorwayUSADenmarkThe NetherlandsUKThe NetherlandsFranceSouth AfricaSwedenSouth AfricaHong KongFinlandUSA

AustraliaCanadaIndiaItalyFranceUSAFranceFinlandNew ZealandAustraliaJapan

GRI

GRIGRI

GRI

GRI

GRIGRIGRI

GRI

GRIGRI

GRI

GRI

GRI

GRI

GRIGRI

GRI

GRIGRIGRIGRI

Company Business Sector Country GRI

34 Trust Us

‘Everywhere we go, we are asked whether the company should now move to integrate their sustainability reports into their mainstream annual reports — or not.’SustainAbility Analyst

35Trust UsClusters of Risk and Opportunity

The following section focuses on a numberof industry clusters that share both risksand opportunities. In the 2000 survey weasked the question: Which industrial sectorswill come under growing societal pressureover the next decade? The answers from thestakeholders we interviewed were mixed.Some predicted that the ‘Market Gate-keepers’ (e.g. insurers and re-insurers, retail,property, tourism, financial services) wouldbe in the spotlight, while others argued thatthe challenges are generic — so that noindustry would be unaffected.

So who was right? Essentially, it seems both groups were, to a degree. We haveseen growing pressure on such ‘MarketGatekeepers’ as accountants, auditors andverifiers, for example. But, in parallel, wehave seen many other sectors hit by issuessuch as electronic post-consumer wastetake-back requirements, access to drugs andother forms of health care, or nuclear safety.Such issues have affected both what wedubbed the ‘Fast Movers’ (e.g. intellectualproperty, media, pharmaceuticals) and the‘Golden Oldies’ (e.g. agriculture, cement,construction, energy, food, infrastructureprojects, mining, textiles, utilities, water).

8.1 Drivers

For the 2002 survey we drew on theextensive consultation process that fed into the 22 UNEP Industry SustainabilityReports.13 Numerous NGOs, labor groups andother stakeholders took part in an active,facilitated dialogue process. While therewere industry-specific issues that we drawthrough and address for each industrycluster, the UNEP reports also identifiedsome generic gaps and stakeholderconcerns. These included the:

— growing gap between the leading minority of corporate reporters and the global ‘silent majority’;

— problems in the verification of diverse voluntary initiatives;

— lack of consensus on performance indicators;

— missing links between reporting and performance — and between corporate initiatives and public policy frameworks;

— continuing concerns about the transfer of unsustainable technologies to less developed countries.

In the past, agencies like UNEP havelooked to industry sector federations and associations as partners. As the lines between sectors blur, so the role ofgovernments and of multi-sector businessorganisations like the World BusinessCouncil for Sustainable Development(WBCSD) inevitably becomes moreimportant.

8.2 Old and New

To help with the assessment process, wegrouped the benchmarked companies intoeight business clusters — and analysed themfor their strengths and weaknesses, as wellas highlighting key issues identified by theUNEP reports and other industry analyses.

In the 2000 edition of Global Reporters, welooked briefly at the growing distinctionsbetween the ‘Old Economy’ and the ‘NewEconomy’. Despite the subsequent crash intechnology stocks and in the fortunes ofmany New Economy pioneers, many NewEconomy concepts are taking root and willhave major long-term business implications.

In this spirit, we group the eight 2002clusters as follows:

— Old Risk Clusters, including HeavyIndustry (dinosaurs leaving big footprints), Energy (fuelling the old economy — and the new), and Transport(moving people and goods (‘atoms’));

— New Risk Clusters, including ConsumerProducts (the heart-beat of modern economies), Food and Beverage(the nutrition people), Life Sciences(transforming a range of sectors, including pharmaceuticals), IT and Telecommunications (moving the information (‘bits’) that increasingly fuels the economy), and Finance and Insurance (the money people, who ultimately must make market sense of all of this — see pages 38 and 45–48).

In each case, we give a sense of how farreporting has come — and what it wouldtake for reporting companies to ‘gosupersonic’.

Clusters of Risk and Opportunity

8.0

13 For the summary document and each of the 22 reports go to www.uneptie.org/outreach/wssd/sectors/reports.htm

36 Trust UsClusters of Risk and Opportunity

Trust and consumer loyalty are criticallyimportant for this cluster, with mostcompanies aiming to create brands that consumers or customers can easilyrecognize and bond to. Corporate and brandreputations have been dented by a series ofissues, covering such areas as laborpractices, toxicity and supply-chain integrity.On top of all of this, most companies in thiscluster have yet to face up to their biggestissue, the unsustainability of businessmodels based on perpetual growth in theconsumption of their products.

Star companiesGiven the sort of issues that have impactedcompanies in this cluster, it is hardlysurprising that our Stars include a number of international leaders in such areas as life-cycle analysis and reporting.

Let’s start with the high-scorers from Japan.Ricoh Japan (44%) gives a definitive ex-planation of the environmental impact ofkey products, through their product lifecycles, exemplified by a photocopier thatcan erase and reuse photocopy paper! Sony,though it scores lower at 34%, builds on itsstrong environmental reporting in recentyears, with an excellent mapping of itsenvironmental impacts, linked to a clear anddetailed set of environmental performanceindices.

Matsushita Electric Group (41%), anotherelectronics company, adds a further dimen-sion by including a very unusual analysis by an NGO, The Natural Step, that aims tobenchmark the company’s sustainabilityperformance. In Europe, Henkel (39%) andUnilever (38%) are both strong reporters ontheir product ranges. In Henkel’s caseexcellent impact information for each mainproduct line is supplied on the company’swebsite. But, as with others in the cluster,these two companies do not report in muchdepth on the relationship between theirCSR/SD work and their all-important brands.

Generally, reports from this cluster overlookor ignore the economic and socialdimensions of sustainability. The fewexceptions include adidas-Salomon (29%),which provides extensive facility labor data,as well as an interesting rating system forsuppliers (see page 52) — with direct (if stillweak) links to the company’s brands andsupply chain integrity. Siemens (34%),meanwhile, has a useful case study of itsIndian operations, building on its reportingof stakeholder engagement with detailedinformation on the discussions androadshows within Germany.

Going supersonic A number of companies in this cluster havebeen targeted by activist campaigns and byconsumer boycotts.

Increasingly, such companies are using theirreports to begin the process of encouragingCSR performance through supply chains.

There were no particular Corporate Virtuososin this section of our sample. Procter &Gamble (37%), for example, is among thosecompanies that report fairly extensively ontheir work in such areas as life cycleassessment and supply chain management.And Henkel’s Sustainability Report usefullybegins to bridge the gap between the CSRand SD agendas and their brands.

But this cluster still has its fair share ofCorporate Cosmetics. The reports areweighted more towards corporate issuesthan product or brand issues. To join theSupersonics, most Consumer Productscompanies must significantly improve theircoverage of the impacts of their products inuse. Issues of sustainable lifestyles andconsumption are not currently well covered,although Matsushita Electric (which ownsthe National and Panasonic brands)provides a comic-like mapping of ‘a HappySociety in Harmony with the Environment’.

The real challenge for these companies, inaddition to integrating relevant issues intotheir brand-level communication, will be toshow alignment between these issues andtheir extensive corporate political activity.

Cluster 1 Consumer Products

Is it material?Most consumer products go into thetrash. But suppliers of refrigerators,computers and TVs face growing pressureacross the EU to take back and recycletheir products. Who pays?

Consumer Products

Breakdown of Score / Total Score%

Company

448 9

8 7

9 8

7 6

20 7

17 9 41

Ricoh Japan

MatsushitaElectric Group

37

39

18 6

15 7

Proctor &Gamble

8 6 3417 3Siemens

8 4 3417 5Sony

7 5 2911 6adidas-Salomon

Henkel

Figure 37

37Trust UsClusters of Risk and Opportunity

Companies in this cluster face some of the biggest CSR and SD issues of all. Mostnotably, there are the challenges of climatechange, human rights and controversyaround nuclear safety. But the sheer weightof the pressures on these companies alsomeans that a number have emerged asleading reporters and, in some cases,performers.

Star companiesThe cluster leaders, Royal Dutch / ShellGroup (53%) and BP (53%), may be onepoint apart in actual scores but tie on apercentage basis. These companies generallydo a good job of defining sustainabledevelopment and discussing how it relatesto their current or planned operations.Shell’s latest road map, based on twistingTBL strands progressively working their wayinto the company’s values and systems, is well worth a look. BP lays out a clearpathway for its businesses, focusing on thechallenge of moving ‘beyond petroleum’. It addresses the issue of trust directly,stating that it is fundamental to its riskassessment, assurance, and governance.

United Utilities (42%) is a complexbusiness, straddling water, energy and waste, but its report is easy to read and well structured.

Like many companies wrestling with the CSR and SD agendas, United Utilities isdeveloping a set of business principles onthe basis of a major review of its relevantpolicies.

Suncor Energy (42%) puts a useful — andunusual — stake in the ground as one of thefirst energy companies to discuss emissionsgenerated by their products once in use. It notes that 85% of the greenhouse gasemissions linked to its business are relatedto the consumption of its products, althoughit says little about what it is doing to reduce use-phase emissions.

Eskom’s social reporting (41%) isinteresting, given the way in which theCSR/SD and financial information areintegrated. Information on Eskom’scommunity and development initiatives sits alongside information on revenue,income and insurance, giving a palpablesense that these areas of the business aretaken seriously, too.

Outside the Top 50, there are a couple ofinteresting — if controversial — examples ofregion-specific reporting. Premier Oilreports on its community consultationprocess in Myanmar, raising such issues asdemands for more local production of foodand vocational training.

Talisman Energy focuses on its operations in the Sudan, with a discussion of how the Sudanese government is spending the income earned from oil, includingsuggestions on areas where the governmentshould focus its spending.

Going supersonicSocietal pressures are unlikely to weaken asfar as this cluster is concerned, suggestingthat the current strong level of reporting —including two Virtuosos — will increasesharply. The issues will vary depending onthe nature of the business and the relevantgeographies, but these companies are in thefront line of sustainability reporting. BCHydro’s TBL report (34%) is interestingbecause of its coverage of the company’ssustainability action plan, which is investingin new technology, new products andservices, and a range of employee, environ-mental and social initiatives. This is muchmore than a look in the rear-view mirror.

Some of the most interesting companies towatch are those operating in regulatedmarkets. RWE (37%), for example, notesthat the challenge of integration is key in itsbusiness, given all the mergers, acquisitionsand disposals. Given such trends, futurereporting across all clusters will need to digdeeper into exactly how such integrationprocesses align with CSR and SD priorities —or can be made to do so.

Cluster 2 Energy

Energy

Breakdown of Score / Total Score%

Company

8 10

9 4

12 8

19 5 42

BP

United Utilities

Royal Dutch /Shell Group

41

42

18 3

23 6

Eskom

9 9 3420 3BC Hydro

11 7 3715 4RWE

6 7 3315 5TEPCO

Suncor Energy

16 8 20 9 53

13 8 24 8 53

Figure 38

Is it material?Climate change has huge implications forall forms of energy production, evennuclear. Carbon trading will bring newopportunities — and new risks. Are weready for them?

38 Trust UsClusters of Risk and Opportunity

As the providers of capital and otherservices, financial institutions yieldconsiderable power, both as asset managersand as analysts. While their direct impactsare minimal — mainly in the area of so-called ‘office ecology’ — their indirectimpacts can be huge.

Recent scandals affecting US corporationsand the EU pensions sector, for example,have significantly undermined trust.Reporting is only one of the options in terms of rebuilding that trust, but one that is increasingly popular. Partly driven by thesort of problems that have hit companieslike Cape Industries and ABB, in relation toasbestos and other risks, leading companieshave recognised that environmental liabilityequals financial liability. The question is howfar they will now go in relation to CSR or SD, given their crucial role in acceleratingprogress.

Star companiesOverall leader in the 2002 survey, The Co-operative Bank (61%) is clearly expert onstakeholder engagement performanceindicators, focusing its reporting processeson seven audiences — or ‘partners’.

These are local communities, national and international society, past and futuregenerations of ‘co-operators’, shareholders,customers, staff and their families, andsuppliers. The Bank’s discussion on financialexclusion is a good example of economicimpacts well beyond the traditionalunderstanding.

As part of knowing its business, Swiss Re(37%) provides some of the best reporting to date on environmental risk identification.Its discussion of the key issues, as it seesthem, is interwoven with case studiesfocusing on the ‘product ecology’ ofreinsurance, asset management and internal environmental management.

Given the nature of the business, it is hardly surprising that all of the topcompanies in this cluster are strong onreporting their management systems andprogress. The Co-operative Bank is clearabout its performance relative to previoustargets, and introduces a new set of targetsto drive performance connecting each one to its relevant ‘partners’.

An interesting piece can be found in thereport by CIS (46%) on socially responsibleinvestment (SRI). The report maps SRI on atime line, as well as supplementing thediscussion with consumer research on SRIissues commissioned by the company.

The report also usefully cross-cuts the wider corporate governance agenda. CIS’sresearch on the independence of non-executive directors found that in 22% ofFTSE-100 companies the director could not be regarded as independent.

Nor are ‘reports’ the only way thesecompanies try to get the message across.The Yasuda Fire and Marine InsuranceCompany (Other 50) takes a different tack,with an interactive CD-ROM for childrenthat follows the adventures of a small greenanimal, Chikyo-Go, in helping solve pressingenvironmental issues.

Going supersonicAs a current Virtuoso, The Co-operativeBank is probably closest to going supersonic.But it is worth asking the question of whatsuch companies would need to do to pushthrough into the new era. Although someinstitutions briefly mention the impact oftheir investment and lending decisions, thisaspect remains under-emphasised andunder-reported. The role of investment banksand analysts is hardly addressed, as is eachbank’s own responsibility to push its peers,though The Co-operative Bank is starting tomake inroads.

Cluster 3Finance andInsurance

Energy

Breakdown of Score / Total Score%

Company

13 8

8 8

11 5 37

Co-operativeInsurance

Swiss Re

Co-operativeBank

3110 5Credit Suisse

12 9 30 61

11 10 17 8 46

10

Figure 39

Is it material?How do lenders, insurers and analystscalculate materiality? Are they factoringin climate risks and other liabilities? Willthey simply raise premiums – or will theyhelp clients cut their exposures?

39Trust UsClusters of Risk and Opportunity

This cluster may still be in the early stages ofbuilding trust, but a number of companiesare making real progress in reporting. Onedriver has been the way in which health,environmental and social issues increasinglycross-cut the cluster’s incredibly complexsupply chains. Challenges like animal welfare,intensive farming, mad-cow disease,genetically modified foods, ethical trade and the organics movement have encouragedgrowing uptake of CSR and SD thinking. That said, even the most advanced foodproducers, shippers and retailers are still atan embryonic stage in their reporting, letalone developing and deploying trulysustainable business models.

Star companiesIt’s interesting that the top-scoring companyin this cluster, South African Brewery’s(48%), is from outside the OECD region.Apart from a strong showing in areas likecorporate governance, SAB focuses in on anumber of issues neglected or ignored bymost other companies. So, for example, it looks at joint ventures and franchiseagreements, clearly setting out thecompany’s terms when entering into suchagreements, including corporate citizenshiprequirements. But SAB is careful to point out that in some countries standards ofcorporate behaviour that SAB demands may be seen as one more case of outsiders‘imposing’ their norms.

This cluster’s complex web of suppliers anddistributors suggests that we should seemore of this type of reporting in the future,as companies strive to secure the integrity oftheir supply-chains. One family of tools usedin this area links to life cycle assessment(LCA) — and its reporting of LCA activitiespositions Kirin Breweries (44%) as one ofthe strongest environmental reporters in oursurvey. The company has extended its LCAwork throughout its value chain, alsocovering the social impacts of alcoholismand responsible drinking.

Chiquita (43%) sets new standards withdetailed assessment of its farms in LatinAmerica, using a rigorous set ofenvironmental standards set by the BetterBanana Project, as well as ethical laborstandards in SA8000. Its coverage includessome courageous accounts of weaknessesand failures, some of the most candid andhonest reporting we have seen to date. Thisalso extends to the economic bottom line of the company’s performance, withPresident and CEO Steve Warshaw noting the importance of CSR even when thecompany is in a difficult financial position.‘We’ve already answered the question, ‘Willthey stick with Corporate Responsibilitywhen times get tough?’,’ he says. ‘Indeed,we’ve broken new ground when it may have been hardest to do so.’

Going supersonicWith intense consumer pressure oncompanies to supply accurate information onat least some aspects of product quality andingredient identity, it is striking how fewreports provide truly useful informationabout this trend. Danone (35%) and Danisco(Other 50) both discuss food safety issues atlength, but stop short of discussing whatthey have learned about the nature andmagnitude of the risks involved.

Pushing Virtuoso thinking, Chiquita leads the way with its emphasis on securing itssustainability credentials through its valuechain. Retailers Kesko (39%), Ahold (Other50) and Tesco (35%) are moving in the samedirection, though at different speeds and indifferent ways. But to ‘go supersonic’, suchcompanies need to move well beyond currentreporting and performance. They have such apowerful influence on farming, foodproduction and logistics and their associatedimpacts that leading companies will need tomove beyond reporting to make consumer-friendly links between their brands and keyaspects of their supply chains.

Cluster 4Food and Beverage

Food and Beverage

Breakdown of Score / Total Score%

Company

11 7

10 5

9 7

18 7 43

Kirin Brewery

Chiquita

South AfricanBreweries

38

39

18 4

19 5

Unilever

8 11 3511 5TESCO

11 5 3515 4Danone

Kesko

9 9 22 8 48

7 7 22 8 44

Figure 40

Is it material?Issues like mad cow disease, intensivefarming practices and geneticallymodified crops impose massive costs onmodern food chains. What's next on themenu?

40 Trust UsClusters of Risk and Opportunity

It would be easy to label these industries as big-footprint dinosaurs, and some are, but external pressures are driving intenseevolution in key areas. Some of thesecompanies provide critical infrastructure insuch areas as water and waste, includingAWG and Suez. Cross-cutting issues includepublic safety, climate change, the socialimpacts of development and site closures,and — in the case of a company like AracruzCelulose (35%) — genetically modifiedorganisms.

Star companiesAs a result of such pressures, similarly to theenergy cluster, leaders are developing theirreporting processes in innovative ways. It’sinteresting, for example, that the top scoreris Rio Tinto (55%), whose environmentalreputation a few years back could only bedescribed as ragged. Recently, a number ofcompanies came together to form the GlobalMining Initiative (GMI), with a new Mining,Minerals and Sustainable Development(MMSD) analytical framework used to definecontributions the sector can make. Some of this comes through in Rio Tinto’s massive(perhaps slightly overwhelming) website.This discusses social issue managementsystems, with extensive and integratedreporting of indicators. There is alsoinformation on community five-year plans,with links to demographic projections, needs assessments and site tours.

Australian mining companies are stronglocal community reporters, with WMC(48%) and Newmont Australia (Other 50)among the leaders. Newmont addresses each of its operations in separatedocuments, including indicators such asindigenous employment and gender balancefor each of their operations. Bundledtogether, this makes for a comprehensiveoverview of the company’s TBL impacts.

Anglo American (Other 50) provides adetailed discussion of corporate socialinvestment that extends well beyondcorporate philanthropy. Of particular interestare its investments in small- and medium-sized enterprises (SMEs), with figures ontransactions with companies with at least40% black shareholding, as well as itsinitiative Zimele — focusing on blackempowerment. Alcan’s report (41%) isnotable for its section on the business case for SD and for its emphasis on the‘sustainability mindset’. Companies withchemical businesses appear in severalclusters, including Consumer Products andLife Sciences, but BASF (48%) is the world’slargest chemical company — hence itsinclusion here. The company moves wellbeyond where most Responsible Caresignatory companies were even a few years back. Its report reflects a strongunderstanding of industrial ecology althoughits three volumes are a heavy read.

Among water companies, SydneyWater (Other 50) and Watercare ServicesLimited (Other 50) both give policy specific indicators, with Sydney Water’s 12 objectives and ‘ecological footprint’providing a clear indication of progress. A first-time reporter, Suez also sets itself a number of ambitious goals and policytargets.

Going supersonicWith one company, Rio Tinto, movingtowards Virtuoso reporting here, BASF,ITT Flygt (48%) and WMC are closing in.That said, this is a cluster with much workstill to do. Only half the companies had ahalf-way decent discussion of climatechange in general, let alone their strategiesfor tackling the challenge.

No one can predict the future, but we’ve gotour eye on companies like AWG and Suez.The 2001 AWG Sustainable DevelopmentReport features a fascinating treatment ofthe company’s ‘sustainability cost ofoperations’. This links to overall operatingcosts, profits and dividends — with thenegative impact on profits increasing from8.1% in 1999 to 11.9% in 2001, partlybecause of the need to use more energy toclean up the environment. An example oftruly integrated thinking.

Cluster 5Heavy Industry

Heavy Industry

Breakdown of Score / Total Score%

Company

10 8

12 4

9 7

24 6 48

BASF

WMC

Rio Tinto

35

41

12 7

16 6

AWG

6 4 3520 4AracruzCelulose

6 5 3217 4Suez

Alcan

13 9 24 9 55

9 10 23 6 48

Figure 41

4811 7 24 6ITT Flygt

Is it material?This is a cluster ‘rich’ in liabilities. Howmany companies saw the asbestosavalanche coming? What else are we —and financial markets — missing orchoosing to ignore?

41Trust UsClusters of Risk and Opportunity

It is often argued that this sector, despiterecent problems, holds enormous potentialfor decoupling economic growth fromnatural resource use and environmentalimpacts. But it, too, has its dark clouds.Among the more obvious impacts are thosestemming from ubiquitous mobile phonetowers and from electromagnetic fields.

These technologies certainly have much tooffer to emerging and transition economies— enabling them to leapfrog westerntechnology in areas like communication andeducation. But the rapid development of theunderlying technologies has already createdconcern about the ‘digital divide’ within andbetween countries. Like the ‘access tohealth’ agenda, access to information andcomputer resources is going to challengethis cluster in the very near future.

Star companiesThere may not be many companies in thiscluster in our 2002 sample, but they includesome outstanding examples of sustainabilityreporting. Strikingly, these companies are all strong in reporting their influence on the industry, on supply chains and on publicpolicy — areas that are generally not wellreported by other sectors. BT (58%) is aleader in supply-chain reporting, withextensive information on selection processesand agreements, as well as links to itssupplier diversity program.

Telecom Italia (Other 50) also providessubstantial coverage of its supplier relation-ships, including a clear statement that itdoes not require suppliers to adopt specificsafety, quality or environmental policiesapart from those required by law. Not quitewhat we might want to hear, but honest.

Nortel Networks (Other 50) has some of the more integrated environmental reportingin this area, with an interesting applicationof life-cycle analysis of its products, rightthrough to end of life. The website directsreaders to the European Directive on Waste from Electrical and ElectronicEquipment. Telecom Italia is also strong on environmental indicators, although with little in the way of interpretation. Their information on transport is thorough,with numerous indicators on type of fleetand fuel consumption.

Cable & Wireless (46%) and BT bothscore particularly well on the basis of their coverage of governance structures,commitments and management policies.Cable & Wireless reports numerous socialcommitments and management systems,including strategies for the ‘digital divide’,with detailed information on its communityinvestment programs and communityinitiatives — all extensively linked to thecompany’s website.

These companies, not surprisingly, are alsosome of the best internet reporters around.

Going supersonicWhile these companies score relatively wellcompared with the rest of the Top 50, thereare real Virtuoso practices in the form of BT. This strong performance mainly reflectscoverage of a broad range of policies andmanagement systems across the triplebottom line. Overall, however, these com-panies are weak on indicator developmentand interpretation. IBM (Other 50), forexample, is one of the outstanding com-panies in North America in terms of itsreporting of community initiatives,14 yet itsreport is unclear how it tracks progress inthis area. Like other clusters, the IT andtelecommunications cluster has to expandits economic focus beyond philanthropy andsupplier arrangements to wider economicimpacts of the business. After ten years ofskyrocketing growth, these companies facean increasingly crowded market and theprospect of further consolidation. If thiscluster does hold some of the keys todecoupling economic growth from resourceuse then, at least on the basis of the latestreports, these companies have some way to go before their reports fully reflect thispotential.

Cluster 6IT &Telecommunications

IT & Telecom

Breakdown of Score / Total Score%

Company

9 7 16 4 36

Cable &Wireless

DeutscheTelecom

BT Group 13 13 23 9 58

10 10 20 6 46

Figure 42

14 As voted by Business Ethics www.business-ethics.com/

Is it material?Is sustainability all upside for this cluster,with providers seen as white knights? Or are there unseen downside risks? How will their CSR initiatives surviveongoing financial crisis in the sector?

42 Trust UsClusters of Risk and Opportunity

Healthcare and crop science are the two keystrands of this cluster, linked by the familyof technologies and techniques known asbiotechnology — which look set to radicallychange how our food is produced and howillnesses are detected, treated andprevented. But many of these technologiesare controversial, raising a host of ethical,social, environmental and economic issues.

Particularly controversial in the agriculturalsector has been the introduction ofgenetically modified (GM) crop plants and products around the world. One early casualty of this controversy was apioneering environmental and sustainabilityreporter, Monsanto.

Companies, NGOs and governments are embroiled in vigorous debate about who owns the rights to newly inventedorganisms and newly discoveredcompounds. In the face of all theseproblems have been a series of market jolts calling into question the entirebusiness model used by the pharmaceuticalsector in particular. Share prices havetumbled as patent protection runs out onmajor drugs and delays in the developmentor approval of new ‘blockbuster’ productsthreatened to turn a ‘defensive’ sector intoa highly speculative investment.

Star companiesThis cluster has some of the best reports in the benchmark survey. Novo Nordisk’sreport (60%) sets new standards bydiscussing issues at the core of the accessto pharmaceuticals debate — including itsLEAD initiative, based on the World HealthOrganisation’s priorities for access to health.

Bristol-Myers Squibb (49%) and BaxterInternational (45%) are also pressing hard— the latter, for example, with an unusualinterview with its chief financial officer(CFO) on the process of selecting an auditor.There is also a candid discussion of fatalitiescaused through manufacturing error andcaps put on executive bonuses as aconsequence of the fatalities.

Integration is the key with Novartis (39%).Although the company provides a separatesocial responsibility report, the level ofcontent and integration in its annual reportis some of the best we have seen so far. Thereport is also a leader in terms of discussingthe core social issues considered indeveloping the company’s managementstrategies — and, like Novo Nordisk, arange of access to health issues, in both thedeveloped and developing world.

Going supersonicWith Virtuoso Novo Nordisk and twocompanies (Bristol-Myers Squibb andBaxter International) pushing theboundaries, the Life Sciences cluster isdoing well. But, while access to healthcarehas been identified as a core issue, it isoften hard to gauge the progress of thesecompanies towards improved access —typically reported as case studies. Bristol-Myers Squibb, for example, has a shortpiece on the importance of access to health,along with various initiatives it is involvedin, including the Joint United NationsProgramme on HIV/AIDS. Novo Nordisk,Novartis and Bayer (37%) are all skilled atincluding thought-provoking pieces byoutside experts. These may not always add agreat deal by way of assurance, but theycertainly add interest.

We have yet to see discussion around howcore business strategies are shaped, norhave we seen a lucid evaluation of thedifferent sustainability options this clustercould move towards. But a good sense ofemergent trajectories can be had: Baxter,for example, has sections on corporategovernance and integrity in financialreporting; Bayer on the voluntarywithdrawal of a cholesterol drug; Bristol-Myers Squibb on supplier diversity;Novartis on issues around global brands;and Novo Nordisk on the ‘right to health’.

Cluster 7Life Sciences

Life Sciences

Breakdown of Score / Total Score%

Company

8 8

12 6

9 4

23 6 45

Bristol-MyersSquibb

BaxterInternational

Novo Nordisk

37

39

18 6

15 6

Bayer

Novartis

14 11 25 10 60

11 8 22 8 49

Figure 43

15 UNEP, Industry as a Partner for SustainableDevelopment: Automotive, 2002.

16 UNEP, Industry as a Partner for Sustainable Development: Aviation, 2002.

Is it material?This cluster produces great reports, buthow well do they know the really big,long-term risks? Are they insured — orinsurable? What potential cripplingliabilities lurk in the sector’s future?

43Trust UsClusters of Risk and Opportunity

Companies in this cluster share a number ofcommon dilemmas. One is how to cut theirimpacts on global climate change and theenvironment, while at the same time pro-viding the essential transport links that theworld’s economy demands. In addition thereare major concerns around issues like safetyand the security of the millions of jobs thatare dependent on services connected to thetransport industry. In Japan alone, for ex-ample, car manufacturing accounts for 10%of the total workforce,15 whereas EU airtransport accounts for about 1% of GDP.16

Star companiesWith the potential for major impacts rightacross the TBL agenda, it is no surprise tofind that stakeholder engagement featureshighly in all of these reports. BAA (59%)presents an extensive system of stakeholderengagement, not only through its prolificreports for each business unit, but alsothrough briefing and policy documents onissues ranging from sustainabledevelopment through to aircraft noise. The key reason for this intense activity: BAA builds and operates airports, whichmakes for uncomfortable neighbors.

Toyota’s report (37%) maps out some waysin which the transport cluster might movetowards environmental accounting, with aset of eco-efficiency measures based onrevenue per unit of environmental impact.

It also extends this to the cost benefits to customers in terms of fuel efficiency.General Motors, meanwhile, provides anhonest rendering of some of their majorpublic policy positions.

Climate change figures highly in all of thesereports. Not surprisingly, the automotivemanufacturers are increasingly approachingthis issue from alternative fuel strategies.DaimlerChrysler (Other 50), for example, isamong those featuring hydrogen-poweredcars and buses, or low emission/high fuelefficiency engines. BMW (36%) profiles itsSustainable Mobility initiative, with thecaption ‘The energy of the future will comefrom water and sunlight’. In the meantime,Volkswagen (48%) is clear on the efficiencypoint: it aims to produce cars that cantravel 100km on a single liter of fuel.

On the airlines front, Scandinavian AirlineSystems (41%) make an important linkbetween their capital investment in theirnew fleet and lowered emissions targets, aswell as discussing the knock-on effects ofSeptember 11th and related reductions inrevenues and profits. British Airways (41%)and Deutsche Lufthansa (Other 50) bothdiscuss the environmental impacts oftourism in a reasonably in-depth manner.

Lufthansa includes a number of challengingessays, one titled ‘Good-bye idyll?’,exploring the main environmental impactsof mass tourism. British Airways reports onits initiatives to reduce the environmentalperformance of the tourism industry,including environmental reviews of hotels.

Going supersonicThis cluster produced one real Virtuoso,BAA. However, most companies still seem to be avoiding wider issues around theirbusiness models. Congestion is a topic thatcompanies either fail to mention entirely or, if they do mention it, they tend to linkthe issue to the importance of low emissionvehicles — and then get back to theircomfort zones. Strategies to tacklecongestion, both on the ground and in the air, merit much increased reporting and action.

With growing pressures from governmentsto reduce greenhouse gas emissions, as wellas free up the economic value trapped incongestion on city streets, such companieshave a long haul ahead of them in terms ofoutlining and delivering not just sustainabletransport technologies, but sustainabletransport, mobility and access systems.17

Cluster 8Transport

Transport

Breakdown of Score / Total Score%

Company

9 6

7 6

11 8

20 6 41

Volkswagen

British Airways

BAA

40

41

17 4

21 7

General Motors

7 8 3715 7Toyota

8 6 3618 4BMW

ScandinavianAirline Systems

12 9 30 8 59

13 8 19 8 48

Figure 44

Is it material?This cluster faces some significant SDchallenges and opportunities in not onlyresponding to but actively creating newmarkets — what does the competitivelandscape look like?

17 Driving Sustainability: Can the Auto Sector Deliver Sustainable Mobility?,SustainAbility and UNEP, 2001.

44 Trust UsHot Topics

So what should we be interested in — orworrying about — on the basis of the latestreports? In the 2000 work we identifiedeight hot topics: CEO perspectives; thebusiness case; standards and guidelines; the non-OECD world; key performanceindicators; verification and assurance;public policy; and internet, intranets andextranets. That was up from 1997, when we looked at four hot topics (impacts;indicators; verification; and benchmarking).This time we focus in on seven topics that cut across the reporting sectors and clusters:

1 Financial AnalystsHow do corporate reporters seek to engage the financial world?

2 Verification & AssuranceThe GRI will drive market demand, but how can real value be added?

3 Supply ChainsAs value webs globalize, how can they be made transparent?

4 Emerging EconomiesWho is reporting on — and in — less developed regions?

5 Economic Bottom LineBeyond financial accounting, what economic information do we want?

6 Brands & ReputationHow does reporting link to corporate and brand reputation and value?

7 GovernanceWhat are the appropriate roles for boards and top executives?

Hot Topics

9.0

‘ If sustainability issues are to becomemore prominent concerns for mainstream investors, company managers and directors, there will need to be a stronger basis of economic evidence linking sustainability to company performance and valuation.’ George DallasStandard & Poor’s

45Trust UsHot Topics

The $64,000 question, as they used toput it before inflation took hold, is whatdo the financial analysts make of all thisdisclosure and reporting?

We addressed this question in 1996 inEngaging Stakeholders, focusing on therating agencies, SRI funds and the StockExchange of Thailand. We found that asmall number of organizations were startingto build environmental criteria into theirstock screening processes — and a slightlylarger number were looking at corporateenvironmental reporting as a proxy both for performance and for quality ofmanagement. But what progress has there been since?

To find out, we reviewed the Top 50 reportsin the 2002 survey. As context, and to put it bluntly, most of these reports are not yetwritten with financial analysts, shareholdersor other financial actors in mind.

Paradoxically, however, while analysts stillsee most of the information reported asfailing their financial materiality tests,18

some reports now contain a potentialgoldmine of information which switched-onanalysts are beginning to turn intocompetitive ratings and future marketassessments.

There are three general phenomena we havenoted, which indicate where sustainabilityreporters are moving to meet financialaudiences’ needs:

— shifting language to take account of newly recognized connections between sustainability issues and financial performance;

— affiliation with well-known analyst recommendations or ratings;

— cross-linking sustainability with more mainstream notions of ‘good business practice’.

Values merge with value

Although the language used in most reportsis not yet truly tuned to financial marketneeds, it is beginning to pick up on financialconcerns, such as risk management.Deutsche Telekom makes the link betweenCSR and SD on the one hand and riskmanagement on the other, with acomprehensive risk management systemthat includes ‘potential environmentaldamage just as much as the Company’simage in society’.

Another good example is that by SCASvenska Cellulosa, the Sweden-basedinternational forestry, packaging andhygiene products company. In itsEnvironmental Report 2001, it notes thatSCA’s objective is ‘to create value for itsshareholders. It achieves this objective by combining profitability and growth with its corporate responsibility towardsenvironmental and social issues, andadopting a low risk strategy in these keyareas.’ In its case, SCA argues, ‘shareholdervalue is inextricably linked to corporate,social and environmental responsibility.’

Another example, Camelot (Other 50), the operator of the UK national lottery, is highly unusual in that it only has fourshareholders, all other companies. Thismade it easy to poll shareholders on whatthey thought of sustainability. All expectedthe company to strike a reasonable balancebetween return on capital employed and the needs of other stakeholders.

‘One could take a moral view and reach the conclusion that it is necessary to divert resources to address needs of otherstakeholders,’ said one shareholder.

Hot Topic 1Financial Analysts

18 Financial Accounting Standards Board (FASB) Statement of Financial Accounting Concepts No.2, Qualitative Characteristics of Accounting Information defines materiality as: ‘the magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgement of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.’

‘However, a more powerful argument is that it is in everyone’s best interest to dosince it will maximise long-term returns.’The shareholders were interested in creatingsustainable value by ‘investing in strongbrands’ — and saw TBL investment as key tobuilding and maintaining the integrity ofthe brand.

Corporate reporters are increasingly usingwords like ‘holistic’ and phrases like‘sustainable growth’. Take Suncor, theCanadian oil sands company, for example.Its CEO, Rick George, talks of pursuing‘parallel paths to value creation’. One path, he says, ‘leads to the responsibledevelopment of hydrocarbon resources, such as oil sands and natural gas’, with over half of Canada’s crude oil productionexpected to be from oil sands by 2007. ‘The second path,’ he continues, ‘involvesdeveloping alternative and renewablesources of energy.’ Thus, the company’ssustainability strategy is directly linked tolong-term shareholder value — tellingly, at least for mainstream financial analysts,the company’s common share price rose170% between 1996 and 2000.

One reason why analysts should be payingattention is that most of these reports arestill being produced by companies withmajor risk profiles — ABB, for example,whose asbestos liabilities re-emerged with a roar in late 2002. Indeed, very few of theTop 50 reporting companies have businessmodels that are automatically aligned withSD principles. Possible exceptions includeAWG, Manaaki Whenua LandcareResearch, Suez and United Utilities.

Wearing analysts like medals

Some companies say explicitly that they areusing their sustainability reporting to raisetheir profile among financial analysts. Suez, in addition to trying to giveshareholders an adequate return, also triesto use its reporting to increase its share’svisibility. They are clearly pleased with theirlisting in such indexes as ASPI and DowJones STOXX Sustainability Index.Similarly, SCA notes that it now appears inthe Dow Jones Sustainability Group Index,the Dow Jones STOXX Sustainability Indexand the FTSE4Good Index. It also reportsthat the New York-based strategic valueadvisory firm Innovest recently awardedSCA an AAA rating.

Frequently, it would seem, reportingcompanies wear financial analysts likecampaign medals. Just as NGOs engaging in corporate stakeholder processes are often seen as trophies, so increasingly arefinancial analysts — particularly mainstreamanalysts.

Companies like Danone and Henkel list —and in some cases explain — the latestanalyst sustainability assessments of theirbusinesses. Inevitably, the same SRI fundnames tend to pop up time and again, butwhat is interesting about Henkel’s listingfrom 1994 to present (Figure 45) is thatthere has been a shift from environmentaloutfits like the Hamburg EnvironmentInstitute through to somewhat moremainstream financial institutions like theDJSI, UBS, Bank Sarasin and FTSE4Good.

Some reports feature individual analysts. So, for example, SAM sustainability analystGabriela Grab is featured in Danone’sreport. Her main challenge is that Danone’sco-operation with suppliers in driving downenvironmental impacts remains ‘limited’. But her commentary has little to say onwhat this means for shareholder value.

Breaking out of the silos

This third trend has to do with linkingwhat’s considered ‘good business practice’with sustainability issues — such as cost, a very substantial concern for many of the Top 50. Indeed, even among thosecompanies that believe that eco-efficiencymakes financial sense, there is a concernthat the pressures are growing. ‘There is nodanger of us running out of environmentalissues to address in industry,’ says ProfessorEdward Krubasik, a member of the SiemensManaging Board. In 2001, for example,Siemens spent almost 75 million on theenvironment, using strict definitions ofwhat qualified, including 61 million inoperating costs and 13 million in capitalspending. These figures compare with 2001net sales of 87 billion, net income of over

2 billion and R&D expenses of 6.7billion.

And BT notes its own experience incommunicating issues with material coststo shareholders is not always as straight-forward as it may seem. Some of thecompany’s most significant SD risks — even those that carry major costs — don’t measure up to a traditionalunderstanding of materiality.

46 Trust UsHot Topics

Rating

Eco ranking of the chemicalindustry

Ranking environment reports

Social and environmental company ratings

Sustainability Index

Eco performance rating

Sustainability profile

Organization

Hamburg Environment Institute, Hamburg

Capital/Institute for EcologicalEconomy Research, Cologne/Berlin

Institute for Market, Environment,Society, Hannover

Dow Jones/SAM, Princeton/Zurich

UBS,Zurich

Bank Sarasin, Basel

Published sustainability profiles

Year

1994, 1996,1999

1994, 1996,1998, 2000

1997

1995, 2000, 2001

1999, 2001

2000

Figure 45 Source: Henkel Sustainability Report 2001

Take the example of energy cost savings:BT’s entire annual energy bill, on the orderof £100 million, is not of a magnitude greatenough to influence an analyst’s opinion. At least, not all by itself.

Perhaps the strongest information onenvironmental costs and savings comesfrom the Japanese companies, such as Kirin, Matsushita and Ricoh Japan, wheregovernment-backed guidelines producedetailed, comparable data.

Another interesting report in this area isthat from UK water company AWG, whichamong other things contains a preliminaryset of environmental accounts. The accountsseek to identify and put a value on the mostsignificant environmental impacts caused by AWG’s operations (see Figure 46) — and what the impact on AWG’s profitswould be if these externalities were to beinternalized. And, interestingly, the potentialnegative impact on profits increased from8.1% in 1999 to 11.9% in 2001, because of the growing use of energy derived fromfossil fuels, some of which was linked tohigher water and waste treatmentrequirements.

The notion of integration is on the rise.General Motors’ report, for example, talksof aiming for a ‘sustainable balance’. Visitwww.gmability.com, the company’s website,and you are told: ‘Integrating sustainabilityinto our business strategy and day-to-daydecisions is an ongoing process at GM.’

Others are also beginning to seesustainability as fundamentally a businesschallenge. According to Credit SuisseChairman and CEO Lukas Mühlemann,introducing his company’s 2001environmental-into-sustainability report,‘the principle of sustainability is increasinglybeing recognized as a cornerstone of everybusiness activity.’

The focus at Credit Suisse, as it will be atother companies, is increasingly on thelinks between sustainability performanceand value creation. ‘The market value ofbusinesses is no longer determined solelyby traditional financial data’, we are told,‘but also by intangible factors such asbrands, reputation, intellectual capital, risk management, codes of conduct, theinclusion of stakeholders, and customerloyalty.’

An important new report 19 from ratingagency Standard and Poor’s may be anindicator of where things are headed: In its survey of transparency and disclosurepractices of over 1,500 companies, S&Pfound a direct correlation betweendisclosure and both market risk and marketvaluation — the beginnings of abreakthrough?

It remains a real challenge to capture thevalue added by all these factors, but CreditSuisse is exploring ways forward in suchareas of its business as retail banking,insurance, investment banking and assetmanagement. Similarly, The Co-operativeBank reports an estimated 20% of itsbusiness which it calculates it owes directlyto its reputation for corporate responsibility.The next step is to actively engagecompanies in relation to their TBLperformance. CIS, for example, also has aResponsible Shareholding Unit that engagesthe companies in which CIS is invested.Watch this space.

47Trust UsHot Topics

Impact on profits (compared to post-taxprofits as originally reported)

1999%

8.1

2000%

9.5

2001%

11.9

TurnoverSustainability cost of operationsTotal other operating costs (as reported)Revised operating profitRevised profit on ordinary activities after taxDividendsRevised movement in reserves

AWG summary accounts for years 1999–2001

743,100(15,550)(419,400)

308,150177,050

(326,000)(148,950)

731,500(16,100)(431,700)

283,700153,100

(148,900)4,200

694,600(16,400)(429,400)

248,800121,500

(124,200)(2,700)

1999£,000

2000£,000

2001£,000

provisional

Figure 46 Source: AWG

19 Sandeep A. Patel and George Dallas, Transparency and Disclosure: Overview of Methodology and Study Results — United States, Standard & Poor’s, 2002.

Perspective: Standard & Poor’s

How will the growing overlap betweenCSR, sustainable development andcorporate governance agendas play out?We talk to George Dallas, ManagingDirector and Global Practice Leader inStandard & Poor’s governance servicesunit.

Is S&P interested in TBL performance?This has not been a direct area of focus atStandard & Poor’s, though we recognizethere is merit in addressing this issue fromthe perspective of non-financialstakeholders. We are exploring the broaderdimensions of sustainability and corporatesocial responsibility with regard either toincorporate these areas into our existinganalytical processes or to developing newanalytical and information services. Within the context of ‘traditional’ corporategovernance analysis, sustainability issuescan be linked to the overarching principle of responsibility.

Or to put it another way?An implicit premise of sustainabledevelopment is that companies embracingthese principles have a more credible claim to longevity and, perhaps, are lessvulnerable to litigation, operationaldisruption or loss of brand and reputationvalue.

So it’s a done deal?Not at all. A real challenge in adopting this sort of approach in the mainstreaminvestment world is the lack of strongempirical evidence. Moreover, the longevitydimension of sustainable development posesa potentially problematic timeframe gap.The timeframe of many investors is notablyshorter than that of those who focus onsustainability. Bridging this gap intimeframes will be key.

Where does reporting fit in?More robust reporting on sustainability will certainly help guide those investorswho actively follow a social responsibilityagenda. But it should also help thoseinvestors, managers, and directors who arecurrently sitting on the fence to developtheir views about sustainability andcorporate social responsibility.

What can S&P bring to the party?We have developed a proprietary data setcomparing transparency and disclosurepractices among 1,600 companies globally,and offer customized research servicesrelating to governance issues in individualcompanies and countries. The main area offocus, however, is in providing corporategovernance scores (a rating analysis) forcompanies to be used both as an analyticaltool for investors and as an independentthird party assessment for companymanagers and directors interested in betterunderstanding and improving theircorporate governance practices.

Our approach to incorporating sustainabledevelopment as an information servicewould likely focus on these issues as a riskfactor from the perspective of a‘mainstream’ investor. It is likely that wewould avoid trying to make qualitativeassessments of a company’s ‘socialresponsibility’ per se. Particularly in a global context, given very different culturalnorms, it is difficult, if not impossible, to do this analysis objectively.

It may be more appropriate to focus first on the quality of the country’s laws andregulations relating to social andenvironmental issues, as well as itsenforcement at the macro level, beforeunduly penalizing companies that are in technical compliance with prevailinglocal law.

Therefore, we would likely frame company-specific analytics to focus more on how acompany’s policies and actions in the social,community and environmental areas eitherpose fundamental risks — or can berecognized more positively as being wellmanaged. This could involve interpretingsustainability as a contingent liability wherestandards are lacking or as a type ofintangible asset where standards are strong.

Next steps?At present, the so-called ‘specialist’ investorbase in corporate social responsibility issmall, as measured by funds undermanagement. Though this area is growingrapidly, and dedicated CSR groups areforming in many investment managementfirms, it is likely to remain small in absoluteterms relative to so-called ‘mainstream’investors without a specific socialresponsibility agenda. If sustainability issuesare to become more prominent concerns formainstream investors, company managersand directors, there will need to be astronger basis of economic evidence linkingsustainability to company performance andvaluation.

The stage is set for more empirical work in this area to validate — or invalidate —claims that sustainability is a meaningfularea of investor focus. A starting point isenhancing levels of transparency anddisclosure about a company’s practicesrelating to sustainability issues. More robustreporting on corporate social responsibilityis increasingly on the political andlegislative agenda, particularly in WesternEurope. From a research perspective thisshould allow for more empirical studies totest for relationships between a company’ssustainability profile and its financialstability, longevity and performance interms of value creation.

48 Trust UsHot Topics

George Dallas

This topic is the only one to be carried over from our 2000 survey, and indeed has been on the radar screen for years. Why the enduring interest? Well,interestingly, although we believe mosttraditional verification statements appliedto corporate sustainability reporting addlittle value in terms of increased trust ormanagement insight, the current state ofreporting opens up tremendous need forassociated assurance processes. And in light of the recent disastrous corporatescandals, it is absolutely clear what asignificant role external verification plays in helping to maintain stability andfunctional accountability in the markets.

The corporate response to this emergingneed has been intense, with 68% (34) of our Top 50 using some form of externalassurance, up from 50% two years ago. This figure is likely to increase even furtherin the future, as more companies come to terms with their readers’ needs forconfidence in the reporting process.

Along with the rise of nationally mandatedreporting (such as in France) and the GRIguidelines (which make specific reference to verification) comes the question: Shouldwe or shouldn’t we? Even if we do verify,does verification increase trust?

The answer, at present, is complex. Externalassurance processes can help increase trust,but not by themselves, and only undercertain circumstances.

The focus of debate has begun to shiftrecently. As outlined in Figure 47, the majorhistorical concerns are still with us, butseem to be taking a back seat to different,perhaps more urgent needs.

It is important to note that the onlystandard for sustainability assurance — the AA1000 series 20 — takes account of, and links together, all these concerns. The AA1000 Assurance Standard GuidingPrinciples were launched in June 2002, and weave together:

— Assurance Principles (completeness, materiality, responsive-ness, accountability, and evidence)

— Assurance Aspects

— Requirements of Assurance Statements

— Assurance Provider Standards.

In a recent survey of 80 companies,environmental consultants (and verifiers)ERM have taken some of this thinking further by enquiring what companies lookfor in a verifier, and offer three differentobjectives: 21

Confirmation SeekersA large percentage of companies considerthe most important audience for assuranceto be their shareholders and stock analysts.The result is that these companies expectverification to provide straightforwardvalidation of the reliability of reportedinformation — and that, for the most part,big-brand accountancy firms are the onesto do it.

Active LearnersA second significant group of companiesseek assurance that provides in-depthadvice on management issues and systems,from which they can develop theirprocesses, and credibility with experts in the field. They tend to look toward specialistenvironmental and social consultancies,whom they consider to have significantenvironmental and social management and audit skills, as well as a favourableperception among expert commentators.

49Trust UsHot Topics

Hot Topic 2Assurance andVerification

Shifting debate on external assurance

Historical concerns

Development ofagreed standardsand procedures for sustainabilityverification

Credentials ofverifiers

New concerns

Relationship ofassurance to sustainabilityperformance

Operationaltransparency in verification

Figure 47

20 Available on www.accountability.org.uk21 ERM, Report Verification, 2002.

Crowd PleasersA smaller group of companies consider theirmain audience to be the general public andretail customers. These companies tend togo with NGOs or celebrity endorsements of their reports or reputations.

We took a look at the assurance describedin our Top 50, and found examples of allthree of these types of assurance, plus anumber of ‘combined’ processes, includingmore than one verifier, using more than one type of process. The results arepresented in Figure 48.

The surprise is that while the big nameaccountants and consultants are the mostpopular verifiers by a long shot, theyproduce the lowest average scores. WhereNGOs are used, especially in collaborationwith a specialist or big-name firm, theirresults are highest by far. In only one casewas assurance provided solely by an NGO —Matsushita Electric Group’s approach wasverified by The Natural Step — and theresult was a full 4-point score, one of only five reports to score full marks onVerification & Assurance (the others areBAA, BT, Rio Tinto and Chiquita).

Why the low scores?

A deeper examination of assurancestatements raises more questions thananswers. An obvious weakness in ourapproach is that we can only evaluate asmuch or as little as a company says aboutits verification — which means that theremay be cases in which the underlyingprocesses and company responses are muchmore robust than can be ascertained fromthe statements provided.

ERM’s analysis of the different approachesused by the three different types of verifiersstates that financial accountants’ assurancestatements: are neutral (do not expressopinion), present no recommendations,focus on accuracy and reliability of data (insimilar fashion in each statement), includedetailed disclaimers, and are uniform instyle and structure, with a large proportiondedicated to scope and methodology.

Our analysis largely concurs with thisdescription. In most (but not all) cases, thismeans that while the verification processmay be covered in detail, the actual resultsand company response are not.

This leaves a reader unable to evaluate thecredibility of the process, relying solely onthe credentials of the verifier — and, in thecase of these big-name firms, auditors’credentials have taken a beating recently.

On the other hand, environmental or socialspecialist consultancies’ statements,according to ERM’s survey: ‘Express opinionon strengths and weaknesses of systems and processes, draw conclusions about thereports’ scope, present recommendations,and are less uniform in methodology andstyle.’ Companies in our Top 50 using thisapproach tend to provide more informationabout what lies beneath their opinions —why they have confidence or lackconfidence in a company’s report orsustainability processes.

But the statements that as a group lead the pack, those provided by NGOs, go asignificant step further by providing a view on the company’s performance onsustainability management. Especially whenthese appear alongside a statement on thereliability of information or the company’sstrengths and weaknesses, their relevance is boosted significantly.

50 Trust UsHot Topics

Assurers in the Top 50

Traditional Accountants

Deloitte & Touche (Tohmatsu) 22 6PricewaterhouseCoopers 5KPMG 4Andersen (Asahi & Co.) 23 2Societe General de

Surveillance International 2Bureau Veritas Quality International 1Ernst & Young 1Lloyd’s Register Quality Assurance Ltd. 1Mazars & Guerard 1Nkonki Sizwe Ntsaluba 1

Total assurance engagements 24

Average benchmark score 2.0

Specialist Consultancies

Arthur D Little 2CSR Network 2ERM 2Simon Zadek 2Independent external panels 1Casella Stanger 1The Corporate Citizenship Company 1Enviros Aspinwall 1Ethics etc… 1Synergy 1Tonkin & Taylor 1URS Europe 1

Total assurance engagements 16

Average benchmark score 2.6

NGOs

The Natural Step 2Business in the Community 1Centre for Tomorrow’s Company 1Prince of Wales International

Business Leaders’ Forum 1Rainforest Alliance 1

Total assurance engagements 6

Average benchmark score 3.5

Figure 48

What to watch for

From our perspective, the mix of assurancecurrently in use will likely continue for some time into the future. Especially whilesociety debates corporate accountabilityreforms, including disclosure requirementson corporate social responsibility issues,there is likely to remain some demand for the confirmation-seekers’ approach. But we see significant scope for thoseassurers that provide increased transparencyin verification, as well as analysis ofsustainability performance, to expandconsiderably.

The role that performance certification plays — as in the Rainforest Alliance’s BetterBanana Project (in Chiquita’s report) or theAA1000 Accountability Standard — seemsset to increase. One thing for companies tokeep in mind in all cases is that they oughtto be providing a response to their verifiers’statements — indicating what theythemselves consider to be their mainchallenges and how they plan to takeverifiers’ concerns and suggestions on board to increase the reliability of futurereporting.

51Trust UsHot Topics

Good Practice Assurance in the Top 50

Company

BAA

BT

Rio Tinto

Chiquita

MatsushitaElectric Group

TheCo-operativeBank

Novo Nordisk

Shell

BP

SAB

Volkswagen

CIS

British Airways

Sony

Verifier

Casella-Stanger

LRQAIndependent

Advisory Panel

IBLFSynergy

Rainforest AllianceSGS ICS, Inc.

The Natural Step

Ethics etc…Centre for Tomorrow’s

CompanyBusiness in the

CommunityThe Natural Step

Simon ZadekDeloitte & Touche

KPMGPricewaterhouse-

Coopers

Ernst & Young

Corporate Citizenship Company

KPMG

Simon ZadekKPMG

csr network

Pricewaterhouse-Coopers

Notes

Extremely detailed discussion of report, reportingprocess, performance indicators, progress againsttargets, goals and recommendations; obser-vations and recommendations for the future.

Double approach including traditional focus oninformation accuracy and reliability alongside anexternal panel’s discussion of the substance andimplications of the report’s content.

Detailed statement of findings against a range ofkey SD issues and good reporting practice.

Two separate processes to certify performanceagainst specific standards: the RainforestAlliance’s Better Banana Project and SA8000supply chain labor standard. Compliance isspelled out in detail throughout the report, alongwith areas of concern and company response.

Reports on TNS review of policies and progress onsustainability parameters — with benchmarkingand commentary.

Four statements in total comprising: auditors’review of data, management & dialogue efforts,including use of GRI, AA1000 and SIGMA; expertopinions on the Bank’s performance in deliveringvalue, social responsibility, and ecologicalsustainability.

Assurance covers completeness and relevance,underlying learning and capacity development;data collection procedures and internal controls;and robustness of online data collection tool(CATCH).

Joint verification statement assigns symbols todata indicating the type and degree of assuranceprovided.

Fairly detailed analysis of information reliabilityand relevance, plus observations andrecommendations.

Focuses on acceptability of performance trendsand implementation.

What’s notable is the company’s helpfuldiscussion of the assurance process and whatassurance means to them.

Lengthy assessment of general progress andachievement of AA1000.

Includes accuracy, completeness and commentaryand recommendations on environmentalprogramme.

While the verification approach is traditional,there are very detailed results included.

Figure 49

22 In several cases, assurance was provided by Deloitte and Touche, in several cases by Deloitte Touche Tohmatsu, all part of the same global firm.

23 In one case, assurance was provided by Andersen, and in one by Andersen Asahi & Co., part of the same global firm.

What’s the issue?

Gone — or going — are the days of the‘vertically integrated’ company, those thatsupply their own parts or services. Todaymost companies depend on complex supplychains for the components, ingredients,services, even the labor they need tofunction. Increasingly, many of thesecompanies’ major sustainability impactsare directly associated with the supplychain — and are becoming bigger targets for stakeholder concerns. When issues arise, they can pose serious challenges to the company.

Take the case of Ford Motor Company,whose Explorer vehicles were found to haveserious defects in combination with theFirestone tires supplied. When it emergedthat over 100 people had died in accidentscaused when these tires’ treads separated,many began asking why neither Ford norFirestone had sounded the alarm bellsearlier. Inadequate information appeared to be the culprit, and a huge loss of trustwas the result.

There are now companies who rely socompletely on suppliers that they ‘own’virtually nothing but their brands —including footwear and apparelmanufacturers adidas-Salomon and Nike.These companies, and Nike in particular,have come under sustained attack in recentyears over labor conditions among overseassuppliers, which include reports of sexualabuse and harassment, involuntaryovertime, child labor, lack of protectionagainst chemical hazards, and the list goeson. When these issues were first raised, thecompanies tended to brush them aside assomeone else’s problem — until the strengthof criticism threatened to underminemainstream sales.

For increasing numbers of companies, it willbecome essential that they:

— fully comprehend the triple bottom line impacts associated with suppliers;

— can trace the origins of components and ingredients;

— ensure that social responsibility efforts pull right through to the finished product.

Who’s taking the lead?

Among the Top 50, only a few companiesshow real leadership in supply chain SDreporting. Of these, only BT turns in a trueVirtuoso performance scoring full marks forits detailed, extensive coverage of supplychain efforts, including supplier awards,diversity and ethical purchasing — includingcompelling discussion of their businessmotivation. The company’s performanceinformation links to supplier web pages,demonstrating logical links and a realconnection to normal business objectives.

The other companies making a strongshowing in this category have little incommon, but each has important stories to tell:

The Co-operative Bank, for example,provides information not just on its ethicaland ecological supplier and productscreening, but on those suppliers’ own viewson how the bank treats them, and the levelof awareness of the bank’s ethical andecological policies among suppliers. Detailson supply chain screening include suppliersand products accepted and rejected as aresult of the bank’s policies — and thereasons why.

52 Trust UsHot Topics

Hot Topic 3 Supply ChainReporting

‘Tesco is indirectly the biggest customer of UK agriculture.’TescoCorporate Social Responsibility Review 2001/02

BMW lists its environmental specificationsto suppliers, including resource use,recyclability, materials and componentsubstances, and emissions. In addition, thecompany also details its efforts to maintainenvironmental performance among itsdownstream dealers and vehiclemaintenance operations.

In addition to detailing its involvement invarious ethical supply schemes, such as theEthical Trading Initiative, Forest StewardshipCouncil, Marine Stewardship Council andorganic designations, Tesco includes auseful case study on ‘How our supply chainworks’. The issues of production, primary,secondary and tertiary processing, andwhere they affect Tesco’s products, areexplained for a lay audience without over-simplification.

adidas-Salomon, while achieving a weakoverall score, shows tremendous seriousnessabout its supply chain labor issues — towhich nearly its entire report is dedicated.The report details its supply chain Standardsof Engagement (covering forced labor, childlabor, discrimination, wages and benefits,hours of work, freedom of association andcollective bargaining, disciplinary practices,health and safety, environmentalrequirements, and community involvement).Crucially, it also provides extensive data onfactory audits against these standardsconducted under the auspices of the FairLabour Association (Figure 50). Progress andproblems — including major non-compliance issues — are clearly identified,alongside compelling case studies andlessons learned.

And what of Ford’s response to theFirestone debacle? In its latest CorporateCitizenship Report, the company includesa candid discussion of the failures andchallenges the fiasco presented, and lessonslearned. One result has been thedevelopment of an ‘Early Warning System’which constantly scans tire performancedata for ‘faint signals of potential safetyproblems’. More companies should adoptthis model, hopefully ahead of majorproblems surfacing.

Next Steps

For customers, regulators and otherstakeholders to have trust in the ethics ofa company and its products, the level ofmystery around the origins of products mustdecrease. Government requirements, such asa proposed EU ban on ‘conflict diamonds’,will increasingly depend on secured identity— a process that requires huge amounts ofdata generation and analysis. As the high-tech processes that support this becomeever more extensive, reporting should bepushed out closer to consumers, perhapsthrough point-of-sale labelling or onlinetracking, enabling more intelligentcomparisons and better decision-making.

53Trust UsHot Topics

adidas-Salomon supplier scoring system

Following an audit, each factory is ratedand an action plan is written. The fivegrades of our scoring system are:

�����Numerous severe non-compliance issues.The factory has been given notice thatbusiness will be terminated unless there isimmediate improvement.

�����Some non-compliance issues and thefactory is responding to the action planslowly or with reluctance. The factory ismonitored regularly.

�����Minor non-compliance issues, and thefactory is responding to the action planpositively.

�����Generally, no non-compliance issues, andthere are some best practices in place,confirmed in documentation.

�����No non-compliance issues and all of thefactory’s management system andpractices are in place confirmed indocumentation.

Figure 50 Source: adidas-Salomon

The aim of Trust Us has been to assess thestate of sustainability reporting ‘globally’.Yet it is obviously a concern that only aboutone-fifth of the reports analysed come fromthe emerging and transition economies ofAsia, Africa, Eastern Europe and LatinAmerica — despite these regionsrepresenting four-fifths of the globalpopulation.

This imbalance derives in part from thesmaller numbers of companies in emergingeconomies as yet reporting onenvironmental, social and economicimpacts. It also stems from our focus onbenchmarking sustainability reports —excluding many examples of interestingreports from outside the OECD region thatfocused solely on environmental or socialissues.

In interviews with major reportingcompanies from emerging economies wefound that most of them report primarilybecause it is in line with their values andprinciples of accountability andtransparency. They also noted that reportinghelps drive performance. Simply stated,measuring social and environmentalimpacts helps in managing them.

Finally, reporting allows the company tocommunicate both externally and internally,with the internal audience seen as ofparticular importance. Sincerecommunication of a company’ssustainability actions, we were told, canlead to greater employee motivation,retention and attraction. Very similarconclusions, in short, to those reached inthe early days of OECD region reporting.

Although reporting can also buildopportunities for greater externalstakeholder engagement and enhancedreputation, external pressure for companiesto report is much weaker in most emergingeconomies than in the OECD.

One of the companies we interviewedmentioned that while there was a good dealof interest shown in their report from theirindustry peers and employees, civil societyorganisations did not even acknowledgetheir efforts — leaving the company feelinglet down by this group of stakeholders,usually the most vociferous.

By way of context, KPMG conducted asurvey of environmental and socialreporting in South Africa in 2000 24 andconcluded that a small portion of largecompanies publish CSR reports. It also notedthat stakeholders ‘have an equalresponsibility to make their informationneeds known and to help define what‘sustainability’ means in a developingcountry context.’ There is considerably lesspressure from domestic investors forreporting by companies in emergingeconomies. However, many of thesecompanies do feel such pressure throughtheir listing on stock markets in Europe orNorth America, or via evaluations byinternational socially responsible funds.

It seems that few governments in emergingeconomies are encouraging companies toreport. However, there are exceptions. InSouth Africa, for example, the King Reporton Corporate Governance asked companiesto report on their social and environmentalefforts. This has helped bring corporatesustainability into mainstream governanceand paved the way for more corporatereporting in the future.

Often, social and economic developmentconcerns overshadow environmental issuesin developing countries simply because ofthe sheer urgency of human needs. This isreflected, for example, by Brazil’s adoptionof the Balanço Social (Social Balance) — anannual social audit which is currentlyproduced by 150 companies (as of March2002).

In Central and Eastern Europe, meanwhile,there is greater attention on theenvironmental bottom line — possibly dueto the current focus on complying withdemanding European Union environmentalstandards.

Like many in the OECD world, emergingeconomy companies often list resourceconstraints — both time and money — as amajor reason for not reporting. We weretold, for example, that just for externalverification of data from three plants it cost a company based in Latin America$300,000. Companies also feel that thereare currently no reporting guidelines thatbest meet their needs and provide guidancefor first time reporters. Even the GRIGuidelines are felt to be too overwhelmingfor companies, especially those stillgrappling with their basic triple bottom line impacts.

We found several examples of best practiceamongst emerging economy companies. This includes SAB (now SAB Miller), whichis setting new standards in reportinginternationally, especially on the economicbottom line. Grupo Nueva in Costa Rica hasalso published separate reports for its threemajor businesses in Latin America, as wellas an umbrella report covering the wholegroup.

There is a trend towards non-OECD basedsubsidiaries publishing their ownsustainability reports. This forms a basis forlocal engagement and creates a betterunderstanding of impacts in their ownspecific community and environment. Some examples include Ford in India, BMWand SmithKline Beecham in South Africa,and UDV in Poland. Another interestinginitiative is the Corporate SustainabilityReport produced by the Brazilian Council on Sustainable Development, coveringcompanies as diverse as Amanco Brasiland Aracruz Celulose through to Varigand White Martins.

54 Trust UsHot Topics

Hot Topic 4Emerging andTransition Economies

‘We have not received any feedback from shareholders or financial institutions.However, some banks have started talking about sustainability.’R P SharmaTata Steel

55Trust UsSubheading

When it comes to reporting on theeconomic bottom line, the ‘Cosmetics’rule. Corporate philanthropy and blandbalance sheets are the norm, with littleexploration of the deeper economicdimensions that shape a company’soperations, let alone its wider economicimpacts.

While it is encouraging to see a slightimprovement in reporting of the economicbottom line in the latest reports, companyreporting on wider economic impacts is stillvery crude — reflecting an overridingassumption that economics equals finance.Economic reporting is about externalities,positive and negative, that a company hason its environment and stakeholders, ofwhich traditional financial information ismerely a subset.

A clear indicator of this confusion is whatmany of the ‘carpet bombers’ are currentlyoffering: annual financial reports bundledwith environmental or social statementsinto ‘sustainability’ packages. The inclusionof financial information is indeed importantin sustainability reporting (to convey a realsense of the company’s financial health andprospects) but is not the end of the story.

As one example, Watercare Servicesincludes its annual report with itssustainability report and refers to it underan ‘economic’ designation. But the reportdoes little to link the financial figures to the other dimensions of its performance. As a result, it is hard to get a sense for what Watercare considers the economicdimension to mean.

Eskom takes a rather more integratedapproach, with its social and environmentalperformance peppered throughout itsannual report — a tentative step in the right direction.

However, as our analyst noted: ‘In generalthere is simply not enough integration ofinformation — despite the integration ofindicators and of reports.’

Alcan’s report offers a good start towardgreater integration, with an interesting setof indicators that go well beyond balancesheets into Economic Value Added metrics,all with clear explanation of their relevanceand true meaning.

While we found no real Virtuosos ineconomic reporting across our variouscriteria, there are some excellent examplesof emerging best practice from the Top 50reports. Our methodology particularlyhighlights economic issue identification,and impacts on various stakeholders.

Economic issue identification

Perhaps not surprisingly, but not helpfully,the reporting of generally negative impactsis avoided by most, if not all, of the 100reporting companies that we looked at. On the basis of what you read in thesereports, you might be likely to conclude that these companies are pretty uniformly‘net value added’ when it comes to theircontributions to national and localeconomies.

The picture might look rather different ifsome of these companies began to look atthe downsides, too. Examples of such areaswould include the economic impact of theclosure of plants, competition with localbusinesses, community over-reliance or the ‘curse of oil’ phenomenon.25 Anotherarea of reporting that is currently highlycontroversial, but which would add realvalue, is spotlighted by the ‘Publish WhatYou Pay’ campaign, whose NGO-basedbackers argue for disclosure of payments to governments by natural resourcescompanies.

Hot Topic 5 The EconomicBottom Line

Rio Tinto: Total economic contribution in 2001

4% Interest

9% Dividends

12% Taxation/Royalties

13% Wages

22% Reinvested in the business

40% Payments to suppliers

Figure 51 Source: www.riotinto.com

24 KPMG and University of Pretoria, 2000Survey of Environmental and Social Reports in South Africa, 2000.

25 Also known as ‘Dutch Disease’: a phenomenon where the development of oil resources radically skews and potentially weakens developing world economies.

56 Trust UsHot Topics

Investments — tangible and intangible

Companies have only occasionally begun toreport on their capital and R&D investment,and specific identification of intangibleinvestments — such as brands andknowledge — is even rarer.

That said, Novo Nordisk has some of thebest reporting on R&D that we have seen,with indicators on R&D spend, as well as the priorities behind their R&D focus andbudgets. Suez also includes an insightfuldiscussion of the importance of innovationto the company, its business and theenvironment.

When it comes to investment reporting,however, Eskom’s report stands out as theleader. As well as comprehensive R&Dinformation, the report clearly highlightscapital investment, re-structuring, as wellas investment in associates and jointventures.

Economic impacts on investors

Recent company failures have underscoredcompanies’ potential for wealth creation —and destruction. There is very little reportingon this aspect of a company’s performancebeyond share price graphs. We see growingnumbers of companies spotlighting wherethey have been included in SRI indices,although without detailed discussion thisfact is not particularly useful. While RioTinto’s discussion does not break anyground, it does outline a sustainabilityroadmap for investors. It also spells out the business case for SRI to an unusual level of detail. And BAA is one of the rarecompanies that discusses its own pensionfunds — noting that investment decisionsnow take account of SRI factors.

One of the better examples in this area isChiquita, whose report provides theinvestors’ picture in great detail — includingimpacts of its current Chapter 11bankruptcy filing — and its forwardplanning.

Economic impacts on employees

This dimension of economic impactreporting is clearly the strongest overall,and indeed there has been real progresssince the 2000 survey. Companies arebeginning to report on such areas as wages,training opportunities and employee shareschemes — although it is hard to find clearlinks between these dimensions ofperformance and a company’s mainstreamfinancial reporting.

The leader in this area of reporting is The Co-operative Bank, which offersinformation ranging from detailed coverageof staff salaries to a survey of staff attitudestowards their salaries. Chiquita’s reportoutlines the many economic benefits thatemployees enjoy, including housingsubsidies, scholarships and wageassessments. Suncor, meanwhile, providesan excellent example of simple employeebenefit indicators reported throughout thecompany’s operations.

Economic impacts on governments

Despite companies’ enormous impacts onthe governments in countries where theyoperate, reporting in this area usuallyamounts to nothing more than anaggregation of taxes paid. The reluctance toreport in any detail on taxes, tax-breaks,subsidies, royalties and a company’scontribution to GDP could indicatereluctance to report the ‘real’ incentivescompanies have to operate in particularregions or countries.

A small number of companies are beginningto develop strong indicators. BAA is theleader, with detailed information on thecontributions that the company makes tothe UK government through taxes andemployment. SAB also gives a usefulbreakdown of the types of taxes it pays togovernments, as well as identifying wherediscussions on tax assessments are underway.

Economic impacts on communities

Some reporting companies have woken up to the fact that reporting on localphilanthropy is not necessarily the bestindicator of the economic impacts theyhave on local communities. As well asreporting on its contribution togovernments, Rio Tinto gives a detailed andinteresting breakdown of its economiccontributions to local communities, as wellas useful links to the initiatives it has inplace to support local development (Figure51). Suncor Energy provides a most unusualindicator of community economic impact by estimating a knock-on effect of theirbusiness of 2-3 indirect jobs for every jobthey provide.

BAA, again, is an excellent reporter of theemployment and other supply-chain relatedeconomic benefits of its airports but, likevirtually all other companies, fails to saymuch on any negative economic impacts of its operations. And Siemens provides aninteresting special section on the economicimpacts of its Indian manufacturing plant.The focus here is on the economicbetterment of the local community, as wellas on education and training.

Danone and Bristol-Myers Squibb bothdemonstrate a degree of understanding inthis area, by focusing on their supply chains— with particular emphasis on localsuppliers. In the case of Bristol-MyersSquibb, there is interesting emphasis onfemale-owned companies.

Where next?

Economic impacts — both positive andnegative — are widely recognized asintimately linked with environmental andsocial impacts. The latest crop of reportsindicate a growing sense in the businessworld that balanced coverage of this areawill be increasingly important. But reportingon this area is best labelled as ‘work inprogress’.

56

57Trust UsHot Topics

The No. 1 reason why companies report is to protect and build their corporatereputations. But where do brands fit in?

When business leaders are asked where theysee the greatest benefits from social andenvironmental performance reporting,improved stakeholder relations comes wayahead of enhancing reputation (Figure 52).But these days, for many companies, theseare one and the same thing.

The current crop of sustainability reportshas plenty to say on the subject ofcorporate reputation. Says British Airways:‘An increasing proportion of corporate value is locked in reputation and worth to all stakeholders, including employees,customers, the communities in which weoperate, as well as shareholders.’ But it’sharder to find insightful discussion of thelinks to the world of brands.

And this is strange, since the sense thatbrands were becoming a more importantpart of the CSR and SD debate has beenaround for a while. ‘The next big thing inbrands is corporate social responsibility,’ asThe Economist put it in its 8 September2001 edition. Which is just as well, becausein a consumer society companies trying topromote CSR and SD will succeed or fail onthe basis of the extent to which they canbuild these concepts into their corporateand brand communications.

The obvious next question is: Should wereally expect reporting companies to reflecton such connections — or should it be leftto brand experts and academics? If we areto sell sustainability, we believe, the answerto the first part of the question must be yes.Brands are incredibly emotional things; theintangible embodiment of a company’svalues. Their power lies in trust.

Under the Golden Arches

Some companies are starting to reflect anunderstanding of the links between CSR orSD and their brands. Take adidas-Salomon.By reporting, says Herbert Hainer, thecompany’s Chairman and CEO, ‘we wantedto show our commitment to applying thevalues of our brands — authenticity,inspiration, commitment, and honesty — in our partnerships with the factories thatmake our products, and in ourmanufacturing process.’

It’s true, too, that some of the world’sbiggest brands are themselves beginning to report, including Coca-Cola, McDonald’sand Nike. Their reasons for doing so areindicated by Jack Greenberg, McDonald’sChairman and CEO, when he says that thecompany recognizes that ‘the Golden Archesmay represent something different in manyparts of the world, so we understand thatcustomers and neighbors alike may havequestions about who we are and what werepresent.’ McDonald’s, he says in thecompany’s first social responsibility report,‘is addressing legitimate questions,including ones about globalization, nutritionand the environment. Our brand,’ he notes,‘can sometimes be used as a symbol forthese kinds of issues.’

And so that’s the defensive business case for brand-level reporting in a nutshell.McDonald’s touches on the question of howsuch issues feed into the company’s ‘brandpromise’, but the overwhelming majority ofthe companies in our 2002 Top 50 and theOther 50 are surprisingly mute on thesubject.

Hot Topic 6 Brands andReputation

Greatest benefit for companies reporting on social and environmental performance

4% Other

2% Avoid regulation

12% Enhance reputation

15% Protect social license

30% Improve management of SD

37% Improve stakeholder relations

Figure 52 Source: Environics International 2002

58 Trust UsHot Topics

But perhaps there’s a good explanation.Just as companies are increasingly aware ofthe need to bridge the divides betweeninternal departments covering differentaspects of the agenda, maybe a key part of the challenge for corporate reporters willbe to bridge the divide between thosedepartments and those responsible for thesoul of the company, the brand.

Sustainability on wheels?

Some companies, like BMW, would have usbelieve that the divide is already prettymuch bridged. ‘Some of the things thatmake the BMW Group one of the world’sleading car manufacturers,’ they say, ‘are theimage of the MINI and BMW brand names,as well as the company’s practical approachto sustainability.’

It feels a little far-fetched to link suchbrands (associated with fashion, luxury andpower) so closely with sustainability.Perhaps this is simply a question of time:the links may well become clearer as suchcompanies roll out product lines withradically improved environmental and social footprints.

And BMW isn’t the only car companyheaded in this direction. Listen toVolkswagen: ‘Through its multi-marquestrategy and product development strategy,’the company’s latest report says,‘Volkswagen is constantly expanding itsportfolio by adding high qualitytechnological products including highlyecologically efficient and economicalvehicles and thereby helping to increasethe value of the marque and exploit existing market and earnings potentials.’DaimlerChrysler, too, talks of sustainablemobility (or what they call ‘future-proofmobility’) as part and parcel of its ‘future-oriented corporate strategy’.

But probably the closest any of the carcompanies gets to the trust aspects ofreputation is Ford. As mentioned in oursection on Supply Chain Reporting (page52–53), the company goes into some depthon the controversy that raged around itsExplorer vehicles when it became clear thattheir tires were failing at an alarming rate.Soon, no doubt, the whole saga of theFirestone tire recall will rank alongside theJohnson & Johnson Tylenol recall and thePerrier bulldozing of bottles of water afterthe discovery of benzene contamination.But, again, Ford’s discussion of thecontroversy doesn’t really get into the gutsof the issue as it most affects the company,in respect of the links between brands,loyalty, trust, and triple bottom lineperformance.

Responsible parents

Even where brands are key, the links with SD are minimal. Take the example of theconsumer products companies in our survey(detailed on page 36). Their businessdemands a strong emotional connectionwith the consumer, and their sustainabilityreporting shows a sophisticatedunderstanding of this issue — and yet theconnection to TBL values and performanceremains weak. One hallmark of this trend isfor the parent companies of major brands toreport, while the brands themselves remainrelatively silent. Read Procter & Gamble’sreport, for example, and you will find thatthe consummate marketing company rarely,if at all, links its TBL activities directly withindividual brands.

Interestingly, however, Procter & Gamble isone of the companies working on newlanguage designed to capture the CSR andSD agendas, yet also (hopefully) appeal toconsumers. They prefer to talk of quality of life.

‘People relate to the idea of a “better qualityof life” at an emotional level,’ says GeorgeCarpenter, the company’s Director ofCorporate Sustainable Development. It’salmost as though such companies don’twant rock the boat by fiddling with whatbrands do best — seducing consumers —with little or no reference to worryingsocial, environmental or ethical issues.

Some of the most interesting reportingcomes from such global brands which haveto straddle very different cultures andpriorities. Explains Nobuyuki Idei, Chairmanand CEO of Sony, the company ‘must gain athorough understanding of different regionsand cultures that will serve as a basis forconducting its operations and taking aleadership role in actively addressingenvironmental issues’.

In the end, though, it’s probably no accidentthat The Co-operative Bank leads in the2002 results. Its CEO, Mervyn Pedelty, notesin its 2001 Partnership Report that CSR isbuilt into the bank’s market position as ‘amodern bank that goes about its business inan ethical manner’ — and in its customerproposition: ‘Customer led, ethically guided’.The alignment of brand, reputation andreporting is clear, both to the bank and to its stakeholders. A model for others to follow.

58

59Trust UsHot Topics

Corporate governance has rocketed upthe political priority list. So how is thisagenda being covered in the best CSR and sustainability reports?

In Engaging Stakeholders, published in1996, we forecast ten transitions, one ofwhich was from focus on public relations to a new focus on corporate governance.Some limited progress had been made bythe time of our 2000 Global Reporterssurvey, in the sense that we could coversome interesting CEO forewords, but mostof the 2000 reports still had very little tosay on corporate governance.

By the 2002 crop of reports, however, that position had changed significantly.With major corporate scandals raisingfundamental questions over the waycompanies are organized and whoseinterests they serve, this progress is timely.Nineteen of the Top 50 scored 3, and onescored a full 4 — South African Breweries.

SD goes mainstream?

SAB provides an excellent overview of itsgovernance and accountability processes.‘Corporate governance is essentially aboutefficient, honest, responsible andaccountable leadership,’ it explains. ‘As suchit makes sense from a corporate perspectivethat governance is the lead agent — notonly in consolidating aspects of corporatecitizenship, corporate social responsibilityand sustainable development — but also inintegrating these agendas into mainstreambusiness activities.’

This last issue — ensuring that SD agendasare absorbed into and supported by acompany’s normal business activities — is why strong board leadership is so key.Which is why it is so surprising (anddisappointing) to see BP’s report include the specific disclaimer that its report is not‘subject to review by the board of directorsor its committees’. For a company with arelatively sophisticated understanding ofthe SD agenda, such a statement amountsto a complete disavowal by BP’s board forthis, the company’s key public statement onsustainable development.

Apart from this very disturbing message, BP turns in an otherwise respectableperformance on governance reporting. In addition to clear listings of who’s who in terms of board and board committeemembers, there are clear, short statementson such areas as the Board’s governancepolicies (adopted in 1997), board —executive relationships, Board processes andcompliance with the Combined Code onCorporate Governance of the London StockExchange. Specific linkages to the CSR andSD agendas, however, are not as clear asthey might be.

Perhaps the existence of theaforementioned Combined Code is onereason why a number of UK companiesmake a good appearance in this area,including BT and BAA. BT’s new mainstrategy committee, the ManagementCouncil, is made up of business andfunctional leaders from across the Group.The main focus areas include ethics andvalues, CSR, human resources, pensions,technology, branding, and health & safety.The Council also provides advice on criticalareas such as regulation, media relations,public policy, and public affairs.Interestingly, BT mentions that ‘social,ethical and environmental matters havebeen incorporated into the Directors’induction programme’.

Hot Topic 7Governance

Management Process and Responsibilities

Board

Group Executive

Public Policy Forum

Risk / Environment Management Forums

Businesses

Group policy

Strategy and reporting

Policy and performance management

Evaluation, risk and environmental management systems

Business objectives, targets and action plans Audi

t an

d re

view

Figure 53 Source: United Utilities

Discussion in BAA’s report includes theBoard’s structure, appointment process and remuneration. Auditing and riskmanagement are given a fair amount ofspace, and the ways in which the Boardmeets the requirements of the CombinedCode on Corporate Governance of theLondon Stock Exchange are well explained.In addition, there are sections on health,safety and environment, and on socialresponsibility, sustainable development, and business ethics.

United Utilities features its public policy and risk management forums, itsenvironmental management panel, and theindependent CSR review that was underway across the Company at the time ofreporting (see Figure 53). CIS, meanwhile,includes a clear explanation of how thecompany’s values and accountability agendaalign with business strategy.

In addition, there is a statement containingdetails of the social, ethical, andenvironmental risks identified in line withguidelines produced by the Association ofBritish Insurers (ABI). Lastly, Cable &Wireless includes coverage of directors andboard committees, with unusually openinformation on the company’s stance onpublic policy issues — which it actively triesto influence around the world.

World-class best practice

It’s not only UK companies that make thegrade here, though. ‘Corporate governance,’says Baxter International in its 2001report, ‘provides an essential framework forthe board of directors, management andshareholders to define, measure and balancecritical performance measures that gobeyond the company’s financial bottom line,making sure the corporation is conductingitself in a manner that meets shareholderapproval.’

Interestingly, the company’s chairman and CEO is the only inside director on theBaxter Board. There is a timely section onintegrity in financial reporting.

And South Africa’s Eskom also provides aleading example. After a clear mapping ofthe people involved in South Africa’sElectricity Council and in Eskom’s regulatedbusiness, Eskom offers a further six pageson corporate governance. Stakeholderrelations are spotlighted, as is the fact that the company ‘strives to align withinternational sustainability initiatives such as the Global Reporting Initiative’. The Eskom eye is on world-class bestpractice.

Swiss Re offers an interesting discussion ofthe ways in which its environmental,corporate governance and risk managementguidelines are converging — with its top-level sustainability committee chaired bythe Chief Risk Officer (CRO).

60 Trust UsHot Topics

60

Financial Markets

In 2000, getting themessage across tofinancial analysts,institutions and marketswas emerging as a keychallenge. By 2002, little progress had beenmade, nor had therebeen a great response to the important need of meaningful linksbetween TBL reportingand mainstream annualreports.

Governance

‘As the sustainabledevelopment agendabegins to encompass theglobal and corporategovernance agendas,’ weargued in 2000, some ofthe professionals drivingthe voluntary reportingtrend ‘can findthemselves a bit out oftheir depth.’ By 2002,however, a number ofreporting companies hadmade real progress inrelation to corporategovernance.

Emerging Economies

The 2000 message wassimple: reports wereweak on what they weredoing on issues relatedto operations andmarketing in emergingeconomies of the South and the oldCommunist bloc. By 2002, there had been some limitedimprovement, but noVirtuoso performances.

Assurance

In 2000 we saw thebeginnings of a surge in verification andassurance, but not quiteof the magnitude of2002. With reportingheading down the GRIroute there has been aboom in various forms of assurance. Whetherthis is money well spent remains to beseen.

2002

2004

Amplify Weak Signals

We concluded in 2000that companies need towork out how to scanthe horizon for emergingrisks — and opportun-ities. Did any companiesin 2000 predict thecollapse of the NewEconomy stocks? Not many. By 2002, afew companies —particularly airlines —were talking about theimpacts of September11th, but this was akinto looking in the rear-view mirror.

The challenge remains.No one underestimatesthe challenge, but unless these links arewell made, and soon,there is a risk that some forms of reportingcould wither on the vine.

After the events of 2002,corporate governancecan only become moreprominent. More isneeded on the agendasand dilemmas SDCouncils and boardcommittees face indriving a company’s CSR and SD agendas.

If globalizationcontinues, this is an area of reporting thatcan only become morepressing. By 2004 expect most companiesto be taking a seriouslook back down theirsupply chains and tryingto work out how toallow key stakeholdersto do so too.

Expect the innovationand experimentation tocontinue, but it wouldbe helpful to hear moreof company experiencesand insights into howassurance can behandled more efficientlyand effectively — andmore on the links tobuilding trust.

Business must cast itsstakeholder andintelligence gatheringnets much wider.Stakeholder processeshelp amplify weaksignals, but what othermethods and tools arereporting companiesusing or developing? Let us know.

How do 2002’s results align with those projected in 2000 — and what can we expect for 2004?

Figure 54

61Trust UsHot Topics

Labels

In 2000 we saw SDlanguage on the rise,helped by initiativessuch as the GRI. Withthe World Summit onSustainable Develop-ment (WSSD) as abackground to 2002, itis no surprise to see thistrend continued.

Standards

We concluded in 2000 that standardshelp drive voluntaryreporting, but thatmultiple standardscomplicatebenchmarking. Now, in 2002, we have seen a convergence inreporting styles aroundthe high profile GRIGuidelines.

Public Policy

While companies areproducing interesting,seductive and engagingsustainability reports,many are lobbyingagainst the regulatoryor market changesneeded to take thingsto the next stage. In2002 we see some earlyexamples of morecoverage in this area.

Virtual Reporting

We said it in 2000: ‘The long-term trend is towards real-time, online reporting.’ In our2001 report we concluded that the internet: (1) providestremendous opportunities forcreative, interactive trans-parency; (2) represents the bestavailable tool for sustainabilityreporting through the ability tohyperlink different issues andbusiness units; and, yet (3),very few companies so far useit to anything like its fullpotential. That said, there hasbeen real progress from acrossthe Top 50.

Performance

In 2000 we argued that‘as companies makeever-more stretchingpromises about theirintent in thesustainability arena,there is a danger thattheir ambitions will losetouch with their real-world performance’.

The GRI is likely tocontinue this trend, but mainstreaming ofreporting (‘annualreports’ instead ofseparate sustainabilityand financial reports)will drive the languageaway from ‘corporatesocial responsibility’towards mainstreambusiness languages.

A major task for thecoming years will be to drive convergencetowards performance-based standards in keyareas of CSR. Expectindustry federationsand organisations suchas the ISEA, SocialAccountabilityInternational and theWBCSD to take thelead, alongside alliancesof socially responsibleinvestment (SRI) fundsand mainstreamfinancial institutions.

Timely, regular, open,honest, and consistentreporting of acompany’s public policypositions — includingmemberships of keyindustry federationsand those federations’positions on issues ofthe moment — will becritically important indeveloping long-termtrust. Expect theVirtuosos to take thelead by 2004.

Virtual reporting won’treplace print, but thecombination of the twois potentially verypowerful. Expectconsiderable variety ascompanies continue toexperiment withdisclosure methods.

As the low-hangingfruit is picked, so thechallenges of drivingchange in the areas ofCSR and SD becomeprogressively tougherfor companies. Virtuosoreporters will becovering issues such asorganizational learning,joint ventures andemployee incentives insome detail by 2002 —not simply in casestudies.

By far the most common reporting practicehere is to describe structures and lines ofaccountability for various issues — boardcommittees, policy-setting bodies, auditingand oversight structures. A whole raft ofcompanies provide helpful organigramsdescribing how responsibility and oversightis set up — some quite general and somevery detailed — including for example RicohJapan and TEPCO. The latter’s report nextyear will be especially interesting, in light ofthe nuclear safety allegations that haverocked TEPCO.

Other companies worth noting here includeBASF, Bristol-Myers Squibb, Henkel,Matsushita Electronics, Novo Nordisk,Rio Tinto, Tesco and Toyota.

Where next?

Current hot issues in corporate governanceinclude misleading accounting and lack ofdirector independence. Corporategovernance reform offers a majoropportunity for advancing the SD agenda,but you wouldn’t guess it even from thebest of the Top 50 reports.

They offer growing — and often useful —coverage of the regulatory and otherframeworks within which they operate.There is some coverage of how boards arestructured and operated. A few companiesdiscuss these agendas directly in thegovernance sections of their reports, butmost do not. Some talk about SD Councilsor board committees. But few provide anynarrative on how these bodies tackleparticular issues. A gap to be bridged in thenext round of reporting.

62 Trust UsConclusions and Recommendations

Two new priorities from 2002

In what follows, we identify a much evolvedreporting agenda — one that doesn’tintroduce entirely new concepts, but stillrepresents a major change in emphasis formost reporters. Resisting the temptation tostack ever-increasing numbers of prioritiesand objectives onto already over-crowdedcorporate agendas, we want to focus on justtwo priorities that emerge forcefully fromthe 2002 survey: materiality andintegration.

1 Materiality

The carpet bombing syndrome, which is also— according to the Wall Street Journal —now appearing in mainstream financialreporting, underscores the need for a newpush in relation to the closely linked areasof issue identification (page 28) andmateriality.

Reporting more information is, of course,not a bad thing in itself and, in fact,stretching the reporting boundaries to covernew issues and new aspects of companyoperations not previously treated has been a major priority for many stakeholders formany years. But lo and behold, sometimeswe get what we ask for: in light of today’sgrowth in the sheer volume of information,we are at a point where it is critical to asksome intelligent questions: What issues orperformance areas are truly important? Are these the same in all cases? Therelevance of sustainability reporting willdecrease if companies continue to fail tomake this evaluation.

We ourselves share a significant proportionof the blame for the current state of affairs.High-profile efforts such as these GlobalReporters surveys are guilty of activelyrewarding carpet bombing.

Our current assessment methodology doesnot and cannot make distinctions betweendifferent industries, geographies orstakeholder needs. Up to a point, ourmethodology produces a higher score indirect relation to coverage of more and moreissues, more and more pages. At the sametime, the GRI Guidelines are expanding,also without sufficient guidance as to theirappropriateness in different situations.Overall, this state of affairs will, we believe,actually start to hold back, rather thanenhance, companies’ ability to providetruly useful, functional accountability anddialogue with stakeholders, if we cannotfind a way to actively build in asophisticated treatment of materiality.

Similarly, the way in which a companyidentifies its key sustainability issues and impacts is absolutely central toaccountability and trust. Without clear issueidentification — and ideally, stakeholderinvolvement in this process — readerscannot evaluate the nature, extent andseriousness of a company’s SD priorities.

One emerging trend is for the datareported by companies to be used by NGOsand other stakeholders, though notnecessarily in the ways that reportingcompanies expected. For example, the anti-smoking organisation ASH recentlydeconstructed British American Tobacco’sfirst social responsibility report, published in2002. The ASH website 26 offers a series ofextraordinary performance metrics surelynever intended by BAT. These include profitper death and number of ordinary sharesper death.

We would hope to see more companiesexplaining how they have used stakeholderengagement to refine their strategicpriorities. This needn’t always involve major,high profile stakeholder events — indeed,industry federations and umbrella groupslike the WBCSD have a central role to playin crystallizing the agenda for theirmembers, large and small.

62

Conclusions andRecommendations

10

‘Sustainability issues, management programs and performance trends must be actively integrated into normal business operations. The most important of these, we believe, have to do with governance and brands.’

63Trust UsConclusions and Recommendations

But this challenge is not only to reporters —it is also to readers and users ofinformation. If a process of consolidation is not to result in a descent back into non-comparable, self-defined companyreporting, readers and users will need torespond, challenge, and — crucially — act on the more narrowly defined, materialscope of information that results.

2 Integration

The current crop of reports shows acontinuing — and ultimately unacceptable— siloing of sustainability issues. Theplateau in scores — the glass ceiling — canonly be broken with companies showingevidence of how each of the sustainabilityissues, management programs, andperformance trends is directly and activelyintegrated into normal business operations.The most important of these, we believe,have to do with governance and brands.

We believe that the next phase of thedebate will increasingly focus on thehighest-order manifestations of corporatesustainability thinking, that is Integrationand Incubation. 27

For the past decade, SustainAbility has beenan active player in a wider movement thathas been trying to get business to accountfor, report on and manage a wider range ofImpacts, summed up in the TBL concept.Parallel developments focused on theInternalization of a growing range ofexternalities and on Inclusion as a basicprinciple of new forms of stakeholderengagement.

The Integration and Incubation challengeswe now face, and the opportunity spacesnow emerging, are indicated in Figure 55. To date, our focus has largely been onBalance Sheets, that is on accounting,reporting and the ways in which financialmarkets might value and reward TBLprogress. This has been one part of abroader process by which the CSR and SDagendas begin to overlap with the globaland corporate governance agendas. The nextstage will be to actively and successfullyengage a growing number of corporateBoards, to trigger the strategic investmentsnecessary.

But the really big challenges of the nextdecade or two will have less to do withquestions of how we report better, or governcompanies better, and more to do with howwe use and change market mechanisms todefine, develop and deliver sustainablebusiness solutions. This will involve morework in the area of Brands, to build newconversations with customers andconsumers. And, more fundamentally still, we need to build the next decade’sequivalent of the 1960s space race to evolvenew, more sustainable Business Models.

The key question here is: How can we createenough value and wealth to meet the needsof 9-10 billion people, while protecting thevalues embedded in the CSR and SDagendas? It seems likely that the continuousimprovement model of future sustainability,as embodied by most corporate reporters, is simply incapable of getting us there.

Having read the latest crop of corporatesustainability reports, we have a reasonablesense of some of the questions that willneed to be answered. As far as the GlobalReporters agenda is concerned, they relateto Boards, Brands and Business Models.These, then, are the main areas where wewill be focusing a growing proportion of our own efforts.

26 www.ash.org.uk/index/php?navstate=&getpage=/html/./conduct/html/reporttosocietysum.html

27 John Elkington, The Chrysalis Economy, Capstone, Oxford, 2001.

The 4Bs of Integration and Incubation

Tomorrow

Today

Governance

Boards

BalanceSheets

Markets

BusinessModels

Brands

Figure 55

Publication Details

Trust Us: The Global Reporters 2002 Surveyof Corporate Sustainability ReportingFirst Edition 2002 ISBN 1-903168-06-6

Copyright 2002 SustainAbility Ltd and theUnited Nations Environment Programme(UNEP). All Rights Reserved. No part of thispublication may be reproduced, stored in aretrieval system or transmitted in any formor by any means: electronic, electrostatic,magnetic tap, photocopying, recording orotherwise, without permission in writingfrom the copyright holders. Designationsemployed and the presentation of materialin this publication do not imply theexpression of any opinion whatsoever onthe part of UNEP concerning the legalstatus of any country, territory, city or areaor of its frontiers or boundaries. Moreover,the views expressed do not necessarilyrepresent the decision or the stated policyof UNEP nor does citing of trade names orcommercial processes constituteendorsement.

Resources available atwww.sustainability.com/trust-us

Methodology

For the first time, SustainAbility’sbenchmarking methodology is available onour website. It is not meant to be a de factoset of reporting guidelines; instead, it is atool for individuals interested in assessingthe content of corporate sustainabilityreports against a model of stakeholderaccountability. For the full methodology and ongoing discussion area see:www.sustainability.com/trust-us/methodology

Report Library

In selecting the Top 50 reports and theOther 50 reports, we contacted hundreds of companies regarding their reportingactivities, as well as publicizing our call forreports across our network, including NGOs,business networks, and experts in this field.No such exercise is perfect and complete;among other things, any report not publiclyavailable before our deadline of 1 July 2002 was not considered admissible. We received many reports that under othercircumstances might just as well have been included in the Top 50 or Other 50 —congratulations to these companies on theirefforts. A full list of the reports that wegathered for consideration by our selectioncommittee, including those from emergingeconomies, is available on our website site:www.sustainability.com/trust-us/2002library

For transparency, we have indicated whichof those reports are from SustainAbility’sclient and Engaging Stakeholdersparticipant groups.

SustainAbility Publications

Trust Us: The Global Reporters 2002 Surveyof Corporate Sustainability Reporting ispart of the Engaging Stakeholders seriesof publications. It follows on from reports addressing the business case forsustainability, the automotive, oil, lifesciences, and media sectors, as wellinternet-based reporting. For a full list ofthe Engaging Stakeholders publications, aswell as other SustainAbility publications,please refer to our website.

SustainAbility publications are listed atwww.sustainability.com/publications

Trust Us64

Appendix

Acknowledgements

We are extremely grateful to theorganizations and companies that havehelped to define the corporate sustainabilityaccounting and reporting agenda, withoutwhich this survey would have been a verydifferent exercise.

We would like to thank the members of theSustainAbility Faculty and wider Networkfor their feedback and advice. Specialthanks to Rachel Jackson of the Associationof Chartered Certified Accountants (ACCA)for her contributions. Most especially, wewould like to thank our EngagingStakeholders participant companies, andJacqueline Aloisi de Larderel of UNEP, alongwith colleagues Nancy Bennet and Cornisvan der Lugt, for their guidance andsupport.

Any remaining errors of fact or judgementare ours. If you detect any, please let usknow.

Methodology DevelopmentShelly FennellJudy KuszewskiNick RobinsonJan Scherer

Report BenchmarkingSeb BeloeOliver Dudok van HeelJeff EriksonShelly FennellKatie Fry HesterRachel JacksonJudy KuszewskiTzipora LubarrTomoo MachibaFrancesca MüllerTell MünzingKavita Prakash-ManiJan SchererFrances ScottNick RobinsonJodie ThorpePeter Zollinger

Contributing WritersOliver Dudok van HeelJohn ElkingtonJeff EriksonKatie Fry HesterJudy KuszewskiGeoff LyeTell MünzingKavita Prakash-ManiNick RobinsonJan SchererJodie ThorpePeter Zollinger

IntervieweesAndrea AguiarMark BatemanMaria Emilia CorreaVilma FecesErin KreisMark LeeVinay Piparsania Alison Ramsden Sarah SevernR P Sharma, Alan WillisSimon Zadek

Royal Dutch / Shell Group ScenariosFran Monks

Review TeamFranceska van DijkAndrea Spencer-Cooke

Proof ReadingSusannah Wight

Producer / EditorNick Robinson

Information DesignRupert BassettT +44 (0)7958 629 290

Photography

Cover Nathan Bilow / Getty Images01 AP 200231 J B Pierme / Still Pictures36 V Lenguzin / UNEP / Still Pictures37 N Matoff / Still Pictures38 P Frischmuth / UNEP / Still Pictures39 J Wark / Still Pictures40 D Juntawansup / UNEP / Still Pictures41 K Andrews / Still Pictures42 J Schytte / Still Pictures43 S Noorant / Still Pictures

PrinterThe Beacon PressT+44 (0)1825 768611Printed using their environmentalprint technology. Registered to ISO 14001 and EMAS.

PaperPrinted on 100gsm Revive Silk 75% de-inkpost-consumer waste and 25% mill broke.

Web DesignLynne Elvinswww.a420.com

PublisherSustainAbility Ltd11-13 KnightsbridgeLondon SW1X 7LYUnited KingdomT +44 (0)20 7245 1116F +44 (0)20 7245 1117www.sustainability.com

Trust UsEngaging Stakeholders Participants

Astra ZenecaAbbottLaboratories

BASF Bayer The Body Shop BP Bristol-MyersSquibbCompany

Canon

CIS Insurance Credit Suisse DaimlerChrysler

The DowChemicalCompany

DeutscheTelekom

ESAB GeneralMotors

ITT Flygt

McDonalds Mirant Novartis Novo Group Rohm and Haas

Sony South AfricanBreweries

Swiss Re

TEPCO TXU Europe Visteon Volkswagen

SustainAbility Ltd11–13 KnightsbridgeLondon SW1X 7LYUnited KingdomT +44 (0)20 7245 1116F +44 (0)20 7245 1117www.sustainability.com

United Nations Environment Programme — Technology,Industry and Economics Division39—43 Quai André Citroën 75739 Paris Cedex 15 FranceT +33 (0)1 4437 1450F +44 (0)1 4437 1474www.unepie.org