Reporting for Shared Value: How & Why

Right now, in Trinidad and Tobago a trend is steadily emerging. One by one, companies are attempting to tell the story of how they create value for society. The last two months saw not one, but two, newspaper articles on sustainability reporting by the Association of Chartered Certified Accountants (ACCA), which defined it as ‘an organisational report that gives information about economic, social and governance performance’. Call it what you like, sustainability/CSR reporting, non-financial reporting, or the more recent pre-financial reporting but these are all efforts to communicate this social value creation.

Sustainability reporting may be relatively new to Trinidad and Tobago, but it has been common practice in many parts of the world for more than two decades, in which time it has evolved significantly. Most recently, away from weighty printed reports towards engaging, web-based material typified by shareable infographics, animations and videos. Notably, this shift is occurring in parallel with a greater emphasis on demonstrating the short and long-term outcomes (or impacts) of a company’s sustainability/CSR initiatives. That is, going beyond heart-warming case studies to providing tangible evidence of the social and business value created, and then communicating this in a way that appeals to modern-day stakeholders.

How: Core principles

Despite these changes, there are some core principles that continue to lie at the heart of effective sustainability reporting.

Strategic alignment – Clear explanations of how your sustainability/CSR strategy is aligned to and supports your business’ purpose, vision and strategy. This of course assumes that you have such a strategy in place, and that it aligns to the core business strategy. If this is not the case, then you have identified the most likely barrier to truly impactful sustainability/CSR initiatives, and your first order of business.

Stakeholder engagement and materiality – Demonstrable evidence of how you engaged stakeholders to understand the issues they consider to be most important to them and the company, and how you are responding to their views. If done properly, this engagement exercise should have helped to identify the issues that your sustainability/CSR programme should be focused on, as well as potential social/environmental risks and opportunities for your business.

A value chain approach – No company operates in a vacuum. Good reporting should consider (positive and negative) upstream and downstream impacts, whether economic, social or environmental. For example, supply chain impacts and those associated with the useful life of products.

Performance measurement – As the old adage goes, ‘what isn’t measured’, isn’t managed’. Effective sustainability reporting requires transparent performance data against KPIs and targets which are themselves aligned with the sustainability/CSR strategy. Note, these KPIs should also include metrics on how the business’ bottom line is impacted. The reality however, is that the majority of companies in Trinidad and Tobago have not developed KPIs or performance targets to help them to measure performance and understand the shared value they are creating. In the early stages of measurement, qualitative metrics and commitments have a role to play, but these should be part of a journey towards quantification.

Accountability and governance – Explain your company’s governance structure and how sustainability/CSR features within it. In particular, indicate who is accountable for the success of the sustainability/CSR strategy and how leadership and staff are incentivised to support this success.

Balance – Don’t limit reporting to good news stories, especially if this is in an effort to gloss over areas for improvement. Transparent and balanced reporting will help to build stakeholders’ trust and will demonstrate that you know your businesses strengths and weaknesses. Especially if you indicate how you plan to improve performance (without giving away competitive advantage!).

Why: Benefits of sustainability reporting

So, this all sounds like a lot of work. Why would a company make the effort to report and are the benefits worth the cost? It is a reasonable question.

In terms of cost, the ACCA articles mentioned earlier reference research studies which suggest the cost of sustainability reporting is far less significant than many businesses’ financial reporting, advertising or public relations spend. On the other side of the equation, the benefits of sustainability reporting are both tangible and intangible. Interestingly, a 2011 study by the UK Department for Environment, Food and Rural Affairs (Defra) found that most, but not all of the benefits of sustainability reporting, are generated during the process of planning and developing reports (for example engaging stakeholders, setting performance goals and collecting/analysing data). That is, rather than being the result of the publication and distribution of the report itself. A number of these benefits are considered below.

Improved financial performance and reduced costs – A 2009 study “Does It Pay To Be Good…And Does It Matter? A Meta-Analysis of the Relationship between Corporate Social and Financial Performance,” which considered the results of 200 independent empirical studies, suggests that companies could benefit from increased communication of their sustainability/CSR activities. Indeed, the study indicated positive market reactions to sustainability reporting. The measurement of environmental KPIs such as energy, waste and water can also identify opportunities for cost savings and efficiency gains.

Differentiation, competitive advantage and risk management – It should come as no surprise that activities such as purposeful stakeholder engagement, performance measurement, analysis of social and environmental issues facing a business and its value chain, and effective communication can generate benefits to a company. Good sustainability reporting can boost reputations and brand differentiation. Companies that understand the implications of social/environmental issues can use this information to solve important problems by enhancing and developing new products and services, reach under-served market segments, and identify risks in their supply chains or associated with potential acquisitions.

Meeting stakeholder expectations – Increasingly, companies are being asked to provide credible and reliable information on the issues that matter to their stakeholders. Shareholders in particular, want to know that the money being invested in sustainability/CSR initiatives is well managed and making an impact, even if that impact isn’t yet quantified. Also, an increasing number of multinationals now insist that companies provide sustainability information as part of their supplier pre-qualification and tendering procedures.

Access to capital and markets – Looking for foreign investment in your business? Well, Sustainable, Responsible and Impact Investing (SRI), investment which considers environmental, social and corporate governance (ESG) criteria in investment decisions, has grown significantly in recent years. A 2016 report by USSIF, The Forum for Sustainable and Responsible Investment, found that by the end of 2015, more than one out of every five dollars under professional management in the United States (over $8.72 trillion) was invested according to SRI strategies. Globally, the CDP – formerly the Carbon Disclosure Project – partners with institutional investors with over $100 trillion under management, to request their portfolio companies to report to the CDP on their strategies to mitigate and adapt to climate change, and report on metrics such as carbon emissions and water consumption. The responses are assessed, scored and publicly reported for use by investors and policy makers around the globe.

Reporting is a journey, not a destination

In short, sustainability reporting is now an established (but largely voluntary) part of doing business in many markets across the world. Its emergence in Trinidad and Tobago has been slow but steady and is only likely to increase. International experience has shown that companies that invest the effort in putting a strategic, measurable and credible process in place are likely to benefit the most. Those that don’t, won’t.

To appropriate a common saying, reporting is a journey, not a destination. Where are you on yours?

 

This article was published in the Trinidad & Tobago Express on 4th October 2017.

Leave a Reply

Your email address will not be published. Required fields are marked *