Getting It Done

External Reporting

As discussed under Profile, it is important for companies to communicate honestly and openly about resource effectiveness and sustainability, to satisfy the information needs of their stakeholders, i.e. investors, customers, employees, NGOs and governments.

Companies provide this information in three ways: through strategies and plans, announcement of major initiatives, and updates on performance.

Strategies & Plans
The increasing interest in sustainability has resulted in the launch of a large number of sustainability programs. Initially, these announcements were at least partially PR driven. Today, however, due to the multitude of new plans being unveiled regularly, it is increasingly difficult to be newsworthy. Two companies that still stand out due to the scope and ambition level of the plans they have announced are Marks & Spencer and Unilever. See the table below for a brief description of their sustainability programs.

Examples of sustainability programs

Major Initiatives & Achievements
The second type of statements involves major initiatives, such as large investments in renewables or the launch of ‘green’ products or services, and achievements, e.g. certain certifications, zero-waste facilities, application of clean technologies, reaching emissions reduction targets, etc. Again, these press releases have become so common that companies should not expect a major PR impact from individual announcements. Companies can still differentiate by establishing a series of initiatives & achievements, carefully placed in context of the overall sustainability program.

Companies regularly issue reports on their financial performance; most listed companies do so every quarter. A growing number of companies also publish a sustainability report, usually once a year. In 2011, 48% of S&P 500 companies reported on non-financial KPIs. In some countries, e.g. Denmark, reporting on sustainability performance is mandatory, and other countries are likely to follow suit.

The leading standard for sustainability reporting is the Global Reporting Initiative (GRI). The GRI guidelines consist of principles and disclosure items, and have been implemented by thousands of organizations worldwide. While the GRI has been around for over a decade, newer standards are starting to emerge. For example, an organization called the Climate Disclosure Standards Board has created the Climate Change Reporting Framework, designed to help companies report on the impact of climate change on their financial performance.

Until a few years ago, the standard practice was to publish separate sustainability reports. The current trend is towards integrated reporting: a combination of strategy, governance, financial statements, and information on environmental sustainability and social issues. The purpose of integrated reporting is to enable investors to make better decisions.

An interesting new approach towards integrated reporting, which may be the start of a new trend, takes integrated reporting one step further, by quantifying the environmental impact of companies in financial terms. For example, research by KPMG and Trucost covering 11 key sectors of the economy estimated the cost of environmental ‘externalities’ at ~$850 billion in 2010, equal to ~40% of industry earnings in that year. In a similar fashion, Puma compiled and published the first ‘environmental P&L’, the results of which are summarized below.

Puma environmental cost estimationThe total environmental cost of € 145 million is quite significant compared to Puma’s net earnings of € 202 million. While most of the cost would be borne by suppliers, it is likely that a large part of it would be passed on to Puma. The magnitude of the environmental cost illustrates the enormous potential for competitive advantage through resource effectiveness.