Sustainability Reporting Part and CSR

The notion of "Triple Bottom Line" (TBL) Reporting has received increased attention in recent years from non-governmental organizations, management, consultants, and investors seeking to invest in socially-responsible companies. Over half of the global Fortune 500 companies and almost half of S&P's 100 companies issue TBL reports. Investors use them and their own measurements for valuing companies.

Accountability for environmental, social and economic impacts of a company is increasingly part of every manager's job. TBL is an important part of disclosure and enhances transparency of financial reporting. TBL is consistent with the broad stakeholder perspective of corporate social responsibility that includes shareholders, creditors, employees, the community, the environment, government, and society in general. TBL's mission is to disseminate knowledge to engender and catalyze TBL practices.

Triple bottom line reporting is also known as “people, planet, profit” or “the three pillars.” TBL describes the scope of reporting in three broad areas affecting society: economic including financial reporting, ecological including the environment, and social including social responsibility. The Global Reporting Initiative (GRI) has embraced and promoted the TBL concept for use in the corporate world. The GRI is a network-based organization that pioneered the world’s most widely used sustainability reporting framework. The framework sets out principles and Key Performance Indicators (KPI) that organizations can use to measure and report their economic, environmental, and social performance.

Once an organization has analyzed its mission, identified all its stakeholders, and defined its goals, it needs a way to measure progress toward those goals. KPIs are quantifiable measurements, agreed to beforehand, that reflect the critical success factors of an organization. They differ depending on the organization. Here are some examples:

• A business may have as one of its KPIs the percentage of its income that comes from repeat customers.
• A school may focus its KPI on graduation rates of its students.
• A Customer Service Department may have as one of its Key Performance Indicators, in line with overall company KPIs, percentage of customer calls answered in the first minute.
• A Key Performance Indicator for a social service organization might be number of clients assisted during the year.

Sustainability reporting is the practice of measuring, disclosing, and being accountable to internal and external stakeholders for organizational performance towards the goal of sustainable development. A sustainability report should provide a balanced and reasonable representation of the sustainability performance of a reporting organization to include both positive and negative contributions.

Sustainability reports based on the GRI Reporting Framework discloses outcomes and results that occurred within the reporting period in the context of the organization’s commitments, strategic policies, and management decision making. Reports tend to be used for benchmarking and assessing sustainability performance with respect to laws, norms, codes, performance standards, and voluntary initiatives. Its usefulness includes demonstrating how the organization influences and is influenced by expectations about sustainable development and for comparing performance within an organization and between different organizations over time.

GRI has identified six key qualities for external assurance of reports. The external assurance should: (1) be conducted by groups or individuals external to the organization who are demonstrably competent in both the subject matter and assurance practices; (2) be implemented in a manner that is systematic, documented, evidence-based, and is characterized by defined procedures; (3) assess whether the report provides a reasonable and balanced presentation of performance, taking into consideration the veracity of the data in a report as well as the overall selection of content; (4) utilize groups or individuals to conduct the assurance who are not unduly limited by their relationship with the organization or its stakeholders to reach and publish an independent and impartial conclusion on the report; (5) assess the extent to which the report preparer has applied the GRI Reporting Framework in the course of reaching its conclusions; and (6) result in an opinion or set of conclusions that is publicly available in written form, and a statement from the assurance provider on their relationship to the report preparer.

Can TBL really help a company to become more socially and environmentally conscious, with possible benefits for a company both economically and financially, or is a passing fad? One element of the equation – social reporting – has benefited some companies in the past. Nike became attentive to its social responsibilities after the western world was outraged to learn of the sweatshop working conditions at supplier factories in the 1990s. These seemed endemic in developing nations and included using forced child labor in squalid working conditions and excessive hours worked. Faced with sharp criticism and consumer resistance over its offshore manufacturing practices, Nike sat down face-to-face with its critics. The result of that dialogue was Nike’s commitment to the Global Alliance for Workers and Communities. 

Nike was not alone but it had an extremely recognizable brand using offshore manufacturing and became one of the major fall guys. Even though such practices might be condoned by foreign governments and rationalized as providing a standard of living that otherwise would not be available to a significant portion of the population, Nike learned that it was wrong based on the broader ethical perspective that its U.S. policies require a minimum working age of 18 and restricted working hours.

Nike chose to be a good corporate citizen and apply its values to international practices. Don’t get me wrong about Nike. It continues to have challenges in the developing world including recent reports that in Tianjin China, 300 workers at Longfa Shoe Factory claimed they are under the age of 18 and were supplied with fake identification papers showing earlier birthdates. While the legal working age in China is 16, Nike’s code of conduct states that its contractors do not “employ any person below the age of 18 to produce footwear.” Spokesmen for Nike and for Longfa Shoe Factory denied the allegation and said hiring underage workers would violate company policies.

The problem for companies like Nike that operate in many developing countries is improvements in working conditions are not always welcome. Suppliers want to see the direct benefits to their bottom lines. Without that, many aren’t willing to take any risks. Consequently, persuading suppliers to improve working conditions isn’t easy.

Finally, customers want to pay as little as possible for their Nike athletic shoes. By paying attention to its CSR including worker health and safety, Nike risks losing market share to not-so-socially conscious companies. Still, it is a concession Nike must make to advance good business practices around the world.

Blog posted by Steven Mintz, aka Ethics Sage, on March 16, 2012