Accountability For Sustainability

Summary (INDIVIDUAL)

·      Integrate cross-cutting ideas/themes

·      Provide highlights of content derived discussion posts

·      Include relevant points from course content that addresses discussion questions and helps clarify the discussion in class

·      Body has main topic sentences with supporting facts and explanations

·      Address questions and concerns that derived from class discussions

Format:

·      Introduction to preview what we learned

·      Body contains paragraphs with topics sentences and supporting statements that addresses the five requirements outlined above.

·      Conclusion contains synthesis of weekly topic with relevant ENMT concepts and discussion of any emergent themes

·      Citations and references to readings and information sources in APA format

Chapter 4 – Accounting for Sustainability:

https://www.saylor.org/site/textbooks/The%20Sustainable%20Business%2

0Case%20Book.pdf

Note that you are only to read Chapter 4!

Accountability for Sustainability

Overview

LEARNING OBJECTIVES

1. Discuss business and organizational accountability.

2. List the factors that are influencing an increase in interest and activity in business accountability.

Accountability is a concept in corporate governance that is the acknowledgement of responsibility by an

organization for actions, decisions, products, and policies that it undertakes.

A customer of a business expects that a product manufactured and sold by a business has been designed, tested, and produced so that it is safe to use. An investor in a business expects that the managers of the company are working to maximize shareholder return and to not be wasteful of corporate resources.

The federal government expects that a business pays its taxes properly and promptly. These are all examples

of the expectations that stakeholders have of businesses to act in a responsible manner.

Rising stakeholder expectations are motivating organizations to consider the impacts of their actions in a

broad, transparent, and systematic manner. Businesses are a major actor in modern society, and

stakeholders expect that businesses be a positive contributor to societal well-being. Stakeholders want

companies to be more than purveyors of a product or a service; they expect them to fulfill a more positive

societal role.

Consumers are showing increasing concern for the environmental and societal impacts of the products

and services they purchase. [1] Many investors are starting to use a company’s performance in

sustainability as an indicator of business value and of management strength. A recent example of

increased investor sustainability accountability expectations is when twenty-four institutional investors

wrote to thirty of the world’s largest stock exchanges asking that they address

inadequate sustainability reporting by companies.[2]

“Shooting the Elephant”

There are numerous examples of companies’ social or environmental actions affecting consumer

purchasing behavior both positively and negatively. In March 2011, Bob Parsons, the CEO of GoDaddy, the world’s largest provider of web hosting and domain name registrations, posted a video of him shooting an elephant in Zimbabwe, Africa, on the Internet. The video showed the elephant being killed

and local villagers stripping flesh from the carcass of the dead elephant to a score of rock band AC/DC’s

“Hells Bells.” While Parsons claimed the elephant was destroying the villagers’ crops and that he was

actually, providing a service to the local African community, his actions—and specifically the callous way

that he documented his actions—spurred outrage from customers with many cancelling their accounts as a result. This is an example of how the social conduct of the CEO of a company carried over to the brand image of the company and resulted in a loss in revenue.

Video 1

Elephant Hunt Video

Follow the link to view the video:

Sidebar

“Ethical Jewelry”

In June 2011, Jewelers’ Circular Keystone (JCK), the jewelry industry’s leading trade publication, reported

on the results of a survey that found 78 percent of consumers said they cared about sustainability and 60

percent of consumers said they were willing to pay a premium for “ethical jewelry.” Rebecca Foerster, the

US vice president at Rio Tinto Diamonds, stated, “This generation that is up and coming is more

concerned about where the products they are buying come from, and they are becoming activists about

it.” [3] Consumer demand for ethical jewelry is increasing sales for products, such as recycled gold and

conflict-free-certified diamonds.

“Conflict” diamonds, also known as “blood” diamonds, are defined by the United Nations as those that

originate from areas controlled by forces opposed to legitimate and internationally recognized

governments. Angola and Sierra Leone in Africa are examples of two countries that are sources of conflict

diamonds. Diamonds have often been used by rebel forces in these countries to finance arms purchases

and other illegal activities. Conflict-free diamonds do not look any different from conflict diamonds but

have proof of origination showing that were produced in more peaceful regions of the world.

Sidebar

“Ethical Jewelry”

In June 2011, Jewelers’ Circular Keystone (JCK), the jewelry industry’s leading trade publication, reported

on the results of a survey that found 78 percent of consumers said they cared about sustainability and 60

percent of consumers said they were willing to pay a premium for “ethical jewelry.” Rebecca Foerster, the

US vice president at Rio Tinto Diamonds, stated, “This generation that is up and coming is more

concerned about where the products they are buying come from, and they are becoming activists about

it.” [3] Consumer demand for ethical jewelry is increasing sales for products, such as recycled gold and

conflict-free-certified diamonds.

“Conflict” diamonds, also known as “blood” diamonds, are defined by the United Nations as those that

originate from areas controlled by forces opposed to legitimate and internationally recognized

governments. Angola and Sierra Leone in Africa are examples of two countries that are sources of conflict

diamonds. Diamonds have often been used by rebel forces in these countries to finance arms purchases

and other illegal activities. Conflict-free diamonds do not look any different from conflict diamonds but

have proof of origination showing that were produced in more peaceful regions of the world. Ethical jewelry is an example of how consumer concern for sustainable products is transforming the

offerings from the jewelry industry. By customers “voting” with their purchases they are supporting

conflict-free diamonds, which helps reduce a source of funding available to rebel forces with the

expectation that this will either shorten wars or prevent their occurrence.

Organizations also need to prepare for anticipated regulation and new government measures related to

environmental and social impact. Governments continue to pass legislation to change or end business

practices that are harmful to the environment, consumers, or employees. Governments also provide

programs and incentives to support voluntary efforts by business to improve their impacts on the

community and the environment. The role of government in driving sustainability in businesses is

discussed in detail in Chapter 3 “Government, Public Policy, and Sustainable Business”.

The response by many businesses has been an increase in transparency on the reporting of the economic,

ecological, and social impacts of their activities. This allows for credibility and operational integrity in a

company’s business activities. Businesses need to clearly communicate the positive and measurable

impact that they have on all the stakeholders impacted by their operations.

Triple bottom line (TBL) reporting, also known as sustainability reporting, has emerged as the primary

vehicle to communicate this information from businesses to stakeholders. This type of reporting goes

beyond profit (financial) information and discloses the planet (environmental) and people (social) impact

of a business. Sustainability reporting is a tool to communicate to society the actions a company is

undertaking to fulfill its broad responsibilities to society.

A goal of sustainability reporting at the society level is to identify uneconomic

growth. Uneconomic growth is a concept from human welfare economics and is economic growth that

results in a decline in the quality of life. Only measuring financial activity would not identify uneconomic

growth, but with the inclusion of social and environmental performance, stakeholders have a better

indication of the quality of economic activity.

Quite often sustainability reporting is driven not only by external stakeholder forces but by the internal

core values of the companies. Some companies are founded by social entrepreneurs who want to

incorporate aspects of social change or environmental stewardship into their business operations.

Sustainability reporting provides a way of documenting efforts by these organizations and communicating

that to customers and other stakeholders. Some companies hope that by publicly disclosing successes and

failures related to their sustainability initiatives that they can provide lessons learned to help other

companies become more sustainable.

Businesses are facing new risks that need to be managed and this is leading them to actively manage their sustainability profile. Resource depletion, increased toxicity, and climate change are all examples of risks that can decrease profitability through either increased cost or decreased revenue. Sustainability

reporting can help a company measure and quantify its economic risk associated with different

environmental or social threats that may be overlooked in traditional financial reporting. At the same

time, all of these factors provide for new business opportunities, and the companies that can successfully

manage their businesses from a sustainability perspective can build competitive advantage, mitigate risk,

and capitalize on innovation.

Currently, larger-size companies, such as Ford, are leading efforts in sustainability reporting as they have

greater financial resources available to cover the additional costs of sustainability reporting. It can be

challenging for smaller companies to replicate the efforts of the largest and most resourceful companies.

These larger company efforts in sustainability reporting, which are the focus of this chapter, provide

examples of the types of information that could be useful for businesses of all sizes to report on and

provide details about processes that business of all sizes can establish in sustainability reporting.

Side Bar

Rocky Mountain Flatbread

Rocky Mountain Flatbread is owned by Dominic and Suzanne Fielden, who “care deeply

about…community, food and celebration.” The Canadian-based business operates two carbon neutral

restaurants and a pizza wholesale business, which distributes to over two hundred health and grocery

stores throughout western Canada. Their company exists to generate a profit but also to create positive

societal change. They engage in a wide variety of sustainability activities, including partnering with local

schools on healthy cooking classes, using Canadian-grown ingredients, and fueling their clay oven with

salvage wood or fallen timber. They have taken a simplified approach to sustainability reporting and have

calculated a carbon footprint and keep track of some key metrics. For example, 90 percent of their food

ingredients are produced locally, and they compost 100 percent of their food. [4] They have found the right

balance of tracking information to help inform progress on sustainability goals without hindering

business operations. Public reporting of their sustainability efforts includes videos on YouTube

(http://www.youtube.com/watch?v=8PSIPWavu0o) and sustainabilitytv.com, Facebook, and a page on

their website called “Going Green.”

KEY TAKEAWAYS

• Accountability is the acknowledgement of responsibility by an organization for actions, decisions,

products, and policies that it undertakes.

• Stakeholders expect that businesses will act in a responsible manner.

• Sustainability is a business philosophy in which a company considers its accountability for its social

and ecological impacts.

• Triple bottom line, also called sustainability reporting, is a mechanism to communicate accountability

activities to stakeholders.

• Larger-size companies are leading efforts in sustainability reporting as they have greater financial

resources available to cover the costs of sustainability reporting.

4.1 Sustainability Reporting

LEARNING OBJECTIVES

1. Discuss the value of sustainability reporting.

2. Explain the phrase “You can only manage what you measure.”

3. Identify the core areas that are part of sustainability reporting.

4. Explain radical transparency and how it pertains to sustainability.

How do an organization and its stakeholders know how “sustainable” it is? This is not an easy

question to answer. As all human activity have economic, social, and ecological impact, it is very

difficult to determine whether the sum of the total impact of all activities of a company makes it

“sustainable” or “unsustainable.” A more useful approach is to consider an organization’s actions on

a continuum with a goal of continuous improvement in decreasing its negative overall societal impact

and improving its positive overall societal impact. Any change in any organization can be challenging

to implement, and viewing business operations from a triple bottom line perspective—especially in

organizations that typically have been only financially focused—can be extremely challenging.

Progressive and small changes when approaching sustainability often will be a more effective

strategy than implementing more widespread changes.

There is an axiom in business that “you can only manage what you measure.” Measurement is at the

core of performance-based management. This statement is true whether the business is a small sole

proprietorship or a large multinational company. In order for any organization to understand its

current status and progress on its business activities, it is essential that it has clearly defined

business metrics that can be collected, analyzed, evaluated, and acted upon.

Businesses have traditionally focused on their performance on financial and accounting information.

It is only in recent years that the business community has shifted to additional metrics—in terms of

environmental and societal impact—to assess their business performance. Over the past decade,

sustainability reporting has been increasingly adopted by corporations worldwide. In 2008, nearly

80 percent of the largest 250 companies worldwide issued some form of reporting that incorporated

environmental or societal impact; this is up over 50 percent from 2005. [1]

Sidebar

Sustainability reporting continues to become more mainstream in the corporate world. In June 2011,

global consulting and accounting firm Deloitte expanded its sustainability service offerings by acquiring

DOMANI Sustainability Consulting, LLC, and ClearCarbon Consulting, Inc. Large accounting firms are

recognizing the business opportunity to shift from single bottom line accounting to triple bottom line

accounting.

Chris Park, principal at Deloitte Consulting, LLP, and national leader of Deloitte’s sustainability services

group, said Deloitte’s “focus is on working with clients to further embed sustainability into everything

they do, helping companies drive growth and innovation, mitigate risk, reduce cost and improve brand—

using energy, water, resources and emissions as levers for creating value.” [2]

Sustainability reporting is for the most part a voluntary activity with two main goals currently:

1. Documentation and assessment of an organization’s environmental and social impact

2. Communication of a company’s sustainability efforts and progress to stakeholders

Sustainability reporting typically focuses on comparing performance in the current year to the

previous year and comparing it to specific goals and targets. It can also include a longer-term focus

and comparisons to other companies in similar industries and in the same geographic areas.

Sustainability reporting is also referred to as “triple bottom line” reporting, meaning that it takes into

account not only the financial bottom line of a company but also the environmental and social “bottom lines” for a company. Sustainability reporting reflects the interrelated progress of a

company in the three areas—also referred to as people, planet, and profit.

For businesses to understand and improve corporate sustainability performance, organizations need

accurate carbon, energy, toxics, waste, and other sustainability data. While traditional business

financial statements—such as balance sheets and net income statements—may help a business

determine if it is financially sustainable (an important part of business sustainability), they are alone

inadequate in measuring a company’s environmental and social progress.

Just as there are accounting standards, such as generally acceptable accounting principles (GAAP), to

provide organizations with a common “language” of reporting financial information, there are also

standards and processes that have been developed for organizations to measure and communicate

their position and progress on sustainability.

One of the most important aspects of sustainability reporting is the communication of the

information so that it can be evaluated by stakeholders. For most businesses, the most visible form of

sustainability information communication is in their annual corporate sustainability report. This has

become an increasingly common document released by major companies and is typically featured on

their websites. Many companies will have a section of their website specifically dedicated to

highlighting their initiatives and outcomes relating to sustainability. Sustainability information can

be included on consumer packaging or other marketing pieces to help brand the sustainability efforts

of the company and assist consumer choice.

Sidebar

Coca-Cola’s Sustainability Efforts

Coca-Cola Enterprises’ 2009/2010 Sustainability Review report provides an example of an annual

sustainability report. It discusses goals and performance for areas including beverage benefits, active

healthy living, community, energy efficiency and climate protection, sustainable packaging, water

stewardship, and workplace. These areas encompass economic, ecological, and social performance in a

way that fits and is meaningful to Coca-Cola’s business and strategy. The report is available online at

http://www.thecoca-colacompany.com/citizenship.

While metrics are important, quantitative information is only one aspect of sustainability reporting; what

is also important is qualitative information that provides context for a company’s sustainability efforts and discussion of how sustainability integrates into an organization’s short-term and long-term mission

and business activities.

Sustainability reporting can be challenging. Sustainability efforts can be difficult for organizations for

reasons including

• lack of internal expertise and understanding of sustainability,

• dispersed and difficult to access or incomplete data,

• the need to coordinate across various functional units within an organization, and

• lack of a clear vision and management strategy in regards to sustainability.

Information systems, labor, and other organizational resources must be devoted to measuring and

analyzing sustainability information. In addition, sustainability is a complex topic and reporting on

specific economic, ecological, and social metrics that are quantifiable may not be sufficient to give a full

picture of a company’s “true” societal impact.

One of the greatest challenges for businesses is the actual collection, compilation, and validation of data

necessary for sustainability reporting. Businesses need to collect information in an accurate and timely

manner and business processes must be in place to compile and analyze collected sustainability data.

But even if an organization has the best data collection systems in place and a robust and accurate

sustainability reporting process, organizations must also act on that information—that is, use the

information to inform and influence subsequent actions. This leads to the next major challenge, which is

integrating the information collected and analyzed into the management decision-making process. It is

not beneficial to produce a great sustainability report and then stick it on a shelf or a website. A business

must be able to “sense” its external environment through effective data acquisition and reports, and it

must be able to learn from what it perceives from that information to improve its practices using that

information.

Radical Transparency

Radical transparency is an emerging concept that complements sustainability and represents a departure

from the current business environment that—while slowly becoming increasingly more transparent—still relies heavily on closed decision making and limited disclosure of business activities and the

consequences of those activities.

Radical transparency is a voluntary transparency that exceeds what is required by law or regulation and

involves providing a clear picture to the public of “the good, the bad, and the ugly” about the company.

Sustainability reporting is one component of radical transparency as it allows a more public and honest

view of the company. Radical transparency is based on the concept that the truth is far easier to sustain

than hidden information or a lie. The belief is that customers and other stakeholders will want to engage

and support organizations that are built on full disclosure.

Radical transparency has been supported by the rise of social media, including Facebook, Twitter, blogs,

and other forms of Internet-based communication that expose the truth and that can provide a low-cost

way to reach a global audience with information.

Sidebar

Kashi Controversy

In April 2012, Kashi, a brand of cereal owned by Kellogg’s, learned the importance of transparency with

its customer base. The cereal markets its products as natural and healthy. But customers felt betrayed

when they learned that genetically modified soy was being used in the product but was not disclosed by

Kashi. Social media, including Facebook and Twitter, allowed customers to immediately and with great

impact express their outrage as many of Kashi’s customers believe genetically modified food products are

not healthy. Kashi’s callous initial response did little to appease customers as David Desouza, Kashi’s

general manager, stated they had done nothing wrong as “the FDA has chosen not to regulate the term

‘natural.’” [3] The rise of social media has allowed anyone to gain the attention of the world and highlights

the companies to be aware of potential “firestorms” that can arise from customers posts; however, had

Kashi been transparent about their use of this product and engaged their customers on their products—

through social media and open dialog—they could have not only avoided alienating their customers but

also built better relationships and trust with their customers.

Sidebar

Seventh Generation’s List

In contrast to Kashi’s failure to be transparent, Seventh Generation provides an example of how being

transparent can build customer relationships. Jeffrey Hollender, cofounder of Seventh Generation, posted a list on the company’s website several years ago of all the things that were wrong with their products and how they fell short of what the company’s mission, which is to “restore the environment, inspire conscious

consumption and create a just and equitable world.” The list included packaging that compromised their

values and use of certain less-desirable ingredients because they were unable to use preferable

alternatives.

Jeff’s sales manager was concerned that this level of transparency would be exploited by their competitors

leading to a loss in market share and revenue. In fact, competitors did provide their customers with the

list of Seventh Generation’s shortcomings. However, competitors’ customers did not use this information

against Seventh Generation, but instead they asked Seventh Generation’s competitors to now share their

own list. Most competitors were not willing to do this. This level of radical transparency resulted in

Seventh Generation’s customer loyalty becoming even stronger. The bottom line, according to Hollender,

is that “you can’t judge your own level of sustainability or responsibility, you can only be judged by

others.”[4]

Businesses have become increasingly more sophisticated in their aspirations and approaches to

sustainability—including an embrace of greater transparency—which has translated into tools and

sustainability evaluation methods that continue to improve and expand over time. The remainder of this

chapter will provide examples of and insights on various metrics, frameworks, and processes of

sustainability reporting.

KEY TAKEAWAYS

• Sustainability reporting is increasing at businesses throughout the world.

• Sustainability reports on the triple bottom line of people, planet, and profit.

• Global climate change, stakeholder requirements, corporate values, economic risks, and government

regulations are all factors driving the increase in sustainability reporting.

• Traditional financial metrics are insufficient in addressing sustainability challenges and opportunities;

ecological and social metrics are also necessary.

• Radical transparency is an emerging trend in which organizations publicly display the positives and

negatives of their companies.

4.2 Sustainability Reporting Process

LEARNING OBJECTIVES

1. Identify the four steps in the sustainability reporting process.

2. Describe what sustainable performance indicators are and be able to provide examples of them.

3. Discuss the organizational resources necessary for sustainability reporting.

4. Provide examples of tools and techniques used in sustainability reporting.

The process for sustainability reporting is similar to all performance-based business management

processes. It involves the same steps, including goal setting, measurement, analysis, and action, but

differs in the type of information collected. As with any business initiative, it is essential that

management be supportive—in this case of sustainability—and that management provides the

necessary financial, technical, and human resources to support each step of the process. The success

of sustainability reporting depends on the commitment of the senior management in the

organization.

Information technology is a major consideration in sustainability reporting. Businesses should be

prepared to effectively manage the large amount of information related to sustainability and need to

have information systems that can help to integrate sustainability information into their existing

corporate reporting systems. These information systems must be designed to communicate

performance metrics to decision makers throughout the organization. Large corporate software

vendors, such as SAP and Oracle, which provide traditional business software, have integrated

sustainability modules that help businesses with measuring their social and environmental

performance data. In addition, a variety of custom software applications are available to assist

businesses with measuring their environmental and social impact.

Define Performance Goals and Metrics

The first step is to define the sustainability goals of the company. This is an important action and should

guide the rest of the process. While sustainability reporting is meant to be broad and comprehensive to

provide a full “360 degree” view of the company or documentation of the complete ecological and societal

impact of a company, it must be bound at a level that is pragmatic and appropriately focused for a

company. Typically resource limitations will require a company to take a phased in approach where it

focuses on the areas of higher impact and importance and gradually expands to areas of lower impact and

importance. Organizations should put their resources into collecting the information that is most relevant

to their sustainability efforts.

The company should have an overall vision of why it wants to integrate sustainability efforts into its

business operations. Is the goal of the company to “change the world”? Or is it more simply to document

the company’s progress on environmental and social impacts? Is the audience for the reporting internal,

external, or both? A company will need to evaluate whether its focus is on continuous improvement in its

own individual actions or if it is measuring its performance relative to a broader target, such as a

reduction in greenhouse gas (GHG) emissions.

The next step is to develop key performance indicators (KPIs) that will be used to measure progress

toward those goals. A key performance indicator is a performance measure from operational data that is

used by organizations to track a particular activity.

There are different methods for establishing KPIs, but one typical method is the SMART criteria. In

SMART, a measure has a specific business purpose and is measurable, achievable, and relevant to the

success of the organization and can be measured over a specific period of time.

Companies need to take into account their financial, human, and information technology resources when

selecting KPIs. Data collection cost must be factored into performance metric selection. This includes the

availability of data and cost to integrate into existing information systems and existing business processes.

For some metrics, the business cost may be too high to justify the changes necessary to collect the data

required.

In sustainability reporting, a KPI is referred to as a sustainable performance indicator (SPI). SPIs are used

as a tool to measure a company’s sustainability performance and to monitor and report on future

progress. SPIs can be further categorized into the three areas covering either the economic, ecological, or

social aspects of sustainability.

Table 4.1 Categories of Sustainable Performance Indicators

SPI Type Types of Information

Economic performance indicator —- Company turnover, profit, quantity of products sold, and market share

Social performance indicator—- Labor practices, human rights, diversity, philanthropy, wages, and benefits

Ecological performance indicator—– GHG emissions, water usage, resource depletion, waste generated, pollutants

released, biodiversity, and land use

For example, a company may select annual net income, annual workplace accidents, and annual water

usage as SPIs. Annual net income is an economic performance indicator to measure the financial progress

of the company. Annual workplace accidents are a social performance indicator to measure a company’s

progress in providing a safe work environment for its employees. Annual water usage is an ecological

performance indicator to record the progress a company is making in reducing water usage as a way of

protecting the environment.

Goal and SPI selection can become overwhelming to an organization given the wide reach of sustainability

reporting; fortunately, there are well-developed resources available on sustainability goals and metrics. Companies do not need to “reinvent the wheel” in regards to performance indicator selection. Common

sustainability frameworks are available (discussed later in the chapter) that can help companies choose

important SPIs. Companies can also contract with consultants who specialize in sustainability reporting to assist with prioritization and goal establishment.

SPIs can be used in determining the projects that a business undertakes. Under traditional business

finance, a project—such as the purchase of a new piece of equipment—would be considered using financial

measures, such as payback or return on investment. SPIs can be used to calculate a sustainable return on

investment (SROI). SROI determines the full value of a project by assigning monetary values to

environmental and social indicators. This allows for the calculation of full costs and benefits of a project to

be evaluated and may result in approving projects that would fail traditional financial tests or in not

moving forward with projects even though their traditional financial measures would support the project.

Measure Performance

Once SPIs are established and business processes are modified to allow for the necessary data to be

captured and recorded, the process of measurement begins. Data needs to be collected, validated for

accuracy, and stored (typically using database technology or computer spreadsheets). Data collection

processes must be straightforward and data must be collected systematically and consistently. Sometimes multiple data sources may be required to offset limitations in any one source of data.

In this phase, it is important to assign responsibility of data collection to ensure that it is being collected

correctly. This includes quality control to ensure that data are accurate. For example, errors in

measurement devices or communication can lead to false data being collected. As the popular saying goes, “Garbage in, garbage out,” which means that that the quality of the analysis is only as accurate or

insightful as the quality of the information analyzed.

Evaluate Performance

The goal of the evaluation phase is to convert raw data into useful performance information and

knowledge so that organizations can make informed decisions. Key components of the evaluation phase

are data compilation, data analysis, and communication. The evaluation phase includes organizing,

synthesizing, and aggregating data. Data analysis is then performed to provide insight by converting data

facts into useful knowledge. This includes calculation of SPIs. Analysis of data is required before performance can be interpreted. Reporting and communication, a component of performance evaluation,

is the dissemination of information to stakeholders in a form that they can understand results and their

implications and realize what actions are needed.

Data Analysis

Data analysis can include a variety of techniques including database-driven reporting, spreadsheet

analysis, and statistical tests. A business analyst is typically involved in managing this aspect of the

sustainable reporting process, and they require both business and technical skills to perform their job.

Often the data analysis involves looking for trends when analyzing SPIs. It can also include comparing

performance with a goal or standard or to competitors or peers? This typically involves comparing a

performance measure to a baseline.

While there are many different tools and techniques that can be applied to analyze data and SPIs, two that

have specific relevance to sustainability reporting are normalization and benchmarking.

Normalization

Normalization is the process of removing the impact of factors that may influence direct comparison of

SPIs. For example, weather impacts the energy use of a building and varies from year to year. Frequently, an annual energy use SPI will be normalized for weather (e.g., controlled for the coldness of a winter season) to allow for relevant comparison of energy use from one year to the next.

Another frequent application of normalization for companies is to document GHG emissions on the basis

of unit of output rather than an absolute number. Growing companies with increasing activities may have rising absolute GHG emissions, even as they are successfully taking actions to reduce their environmental impact on a per unit or consumption basis. Normalizing GHG emissions for output, such as pounds of CO2 per unit produced, can highlight the impact of companies efforts to reduce energy that otherwise would be masked by just considering absolute emissions. Other examples of factors that can be normalized for include the occupancy level in a hotel, volume of sales at a retail location, square feet of a building, or number of employees at an office.

Benchmarking

One useful strategy to use in analyzing sustainability performance is to compare SPIs with those of other

organizations. This can help an organization gauge the potential and success of its sustainability efforts

relative to other companies in their industry and peer organizations. In the process of benchmarking, the

best firms in a company’s industry or industries with similar business processes are targeted, and the

company then compares its own results and processes with the results and processes of the targeted

organizations. This provides insight into how well the organization compares to an industry’s top

performers and can provide insight into the business processes and practices that explain why these firms

are the “best.” Benchmarking can also include assessing an organization’s relative position to that of other

organizations. Is an SPI below average, average, or above average? For example, a company may use

benchmarking to see how its GHG emissions compare with those of other companies in its industry. If a

company’s emissions are above average, it would indicate that they have the potential to reduce their

emissions. The business benefit is that—as GHG emissions are linked to energy usage—the company has

potential cost savings by implementing measures to reduce its energy consumption.

Reporting and Communication

The final step in the evaluation process is communicating analyzed information so that stakeholders can

understand and learn how a company is performing in relation to its sustainability efforts. The

information communicated is different depending on the target audience for the information.

Management would look for information in a different format than would an investor, consumer, or other

stakeholder.

Communication outside of the company through company websites, annual sustainability reports, and

other forms of disclosure about organizations environmental and social performance has become

standard business practice. There is no universal method of external communication of sustainability

performance, although many standards do exist. The trend in sustainability reporting has been moving toward standardized reporting using frameworks, such as the Global Reporting Initiative (GRI) or the

Greenhouse Gas Protocol (GHG Protocol), discussed later in this chapter. Standards allow for meaningful

comparisons between sustainability information reported by different organizations.

Reporting should include a meaningful assessment of environmental and social risks as well as an analysis

of past sustainability performance and an outlook for the future. Reports should communicate

performance both quantitatively and qualitatively and should communicate sustainability information in

a way that represents a complete and accurate picture of the organization. While not required, it is

common for information reported to be independently verified. Independent verification and standards

assist with accountability, as public reporting is typically voluntary and helps reduce the potential for

organizations to misuse sustainability reporting, such as for “green washing.”

Corporate Annual Sustainability Report

The corporate annual sustainability report has become a common way for businesses to report out annual

progress on sustainability initiatives. Companies may not always call this document an annual

sustainability report; it could also be called a corporate social responsibility report, corporate

responsibility report, global responsibility report, or many other variants, but they all represent an annual

report that discusses the ecological, economic, and social impacts of the company. While each company’s

annual sustainability report are different and tailored to the organization, there are often several key

common features in a sustainability report.

Key common features of an annual sustainability report include the following:

Executive introduction. A statement from the CEO or other prominent officials at the

company discussing the importance of sustainability for their company and discussing how

sustainability integrates into their organization.

• Performance summary. A summary of goals, SPIs, and key events related to sustainability

over the past year. Many sustainability reports base their presentation of information on the Global

Reporting Initiative (GRI).

• Detailed sections. These sections provide more in-depth discussion of areas of sustainability

highlighted in the performance summary. At a minimum, reports will typically discuss economic,

environmental, and social impacts. But there may be dedicated sections for specific areas, such as the

supply chain or corporate governance.

Eco-Labels

Eco-labels are a form of communication to consumers of an organization’s products or services. Ecolabels provide an indicator of the sustainability of a product or service to the customer. Eco-labels are typically voluntary, although there are some government required eco-labeling programs. For example, in the United States, the EPA requires new cars to be sold with an environmental label listing the fuel economy of the vehicle and many appliances in the United States are required to display yellow

Energy Guide labels estimating annual energy use and cost. Many other countries, such as the European

Union, also have mandatory eco-labeling requirements.

Registry

Registries are organizations that allow companies, government agencies, and other organizations to

report sustainability information. Reporting to registries can be voluntary or mandatory depending on the

laws applying to the organization; however, at this time, most registries are voluntary. Typically registries

have involved environmental reporting, specifically GHG emissions, but registries can be a way for

companies to report both social and environmental performance measures. Examples of GHG registries

include the Climate Registry, CRC Energy Efficiency Scheme, Climate Disclosure Project (CDP), National Greenhouse and Energy Reporting System (NGER), and Electronic Greenhouse Gas Reporting Tool (eGGRT).

To participate in a registry, an organization must join the registry. Some registries are free while others

charge a fee to be a member. Registries provide guidelines about the type of information that they collect

and protocols for data submission. Some registries require that the information submitted by an

organization be independently verified by a third party. Registries may also provide the opportunity for

companies to benchmark their SPIs with those of other companies that are using the registry. Registries

can include some form of award or recognition program. Registries range from small to large in terms of

membership, and some have relatively simple reporting requirements while others have more

sophisticated reporting requirements.

An example of a small-scale voluntary program is Maryland’s Green Registry. The Maryland Green

Registry provides recognition—such as listing on the registry’s website, window decals, and leadership

awards—to Maryland companies who document five of their environmental practices and submit at least

one SPI to the registry.

An example of a large-scale voluntary program is the Carbon Disclosure Project (CDP). The Carbon

Disclosure Project is an independent not-for-profit organization holding the largest database of primary

corporate climate change information in the world with over three thousand organizations in sixty

different countries around the world. Organizations utilizing this registry measure and disclose their

greenhouse gas emissions, water management, and climate change strategies through CDP so that they

can set reduction targets and make performance improvements. Data submitted to this project is made

available for use by a wide audience including institutional investors, corporations, policymakers and

their advisors, public sector organizations, government bodies, academics, and the public. [3] This program

does not have any form of recognition awards but is meant to drive organizational excellence through

benchmarking and reporting best practices.

Manage Performance

The final step of sustainability reporting is action and this is executed by management. Management

should be prepared to react to sustainability performance with all the basic management functions:

planning, organizing, controlling, and leading.

Management should review sustainable performance information routinely. The frequency of the reviews

depends on the organization and its ability to act on information learned through sustainability reporting.

Management is the final step in the sustainability reporting process, if management does not react and

change based on the insight provided by the sustainability reporting, there is little value to the entire

process. The reporting process is a cycle and the management phase then proceeds back into the first step

of defining goals and establishing SPIs. Management activity allows an organization to continually

improve on its sustainability performance.

KEY TAKEAWAYS

• Sustainability reporting is based on performance-based management and is a cycle to promote

continuous improvement.

• There are four steps in the sustainability reporting process: (1) define performance goals and metrics,

(2) measure performance, (3) evaluate performance, and (4) manage performance.

• Companies need to take into account their financial, human, and information technology resources

when selecting SPIs. Management must be supportive of integrating sustainability reporting into business

operations and be prepared to act on information learned from the reporting.

• SPIs are used as a tool to measure a company’s sustainability performance and to monitor and report

on future progress. SPIs are categorized into economic, ecological, and social.

• Annual reports, eco-labels, benchmarking, and balanced score cards are examples of tools and

techniques used in sustainability reporting.

4.3 Sustainability Reporting Guidelines and Frameworks

LEARNING OBJECTIVES

1. Discuss the features of the Global Reporting Initiative (GRI) G3 reporting framework.

2. Understand how more than one reporting framework may help inform the reporting of sustainability

efforts by an organization.

Voluntary frameworks or guidelines have emerged to help businesses determine how to report on

their sustainability performance. These tools provide structure that can help businesses get started

with sustainability reporting or help businesses that are already reporting on sustainable

performance improve or expand their reporting.

There are many different sustainability reporting guidelines and frameworks for businesses to

choose among. The Global Reporting Initiative (GRI) is one of the most common and encompasses

the three spheres of sustainability: economic, environmental, and social. In this section, the GRI G3

Sustainability Guidelines will be discussed in greatest detail to help the reader understand the type of

information in a reporting framework.

Global Reporting Initiative

The Global Reporting Initiative (GRI) was started in 1997 by the NGO the Coalition of Environmentally

Responsible Economies (Ceres) and today collaborates as an independent entity with the United Nations

Environmental Program and the UN Secretary General’s Global Compact. Ceres developed the Global Reporting Initiative to help companies report sustainability performance in a similar way as financial

information. The GRI provides a consistent way for companies to voluntarily measure and report progress on

economic, ecological, and social performance of their businesses. In 2009, 1,400 GRI based reports were

registered by reporting entities. GRI first released the guidelines in 2000, and the current version, G3, was published in 2006. The framework is continuously improved as knowledge of sustainability issues evolves and the priorities of reporters and report users change. In March 2011, GRI released the G3.1 guidelines

(https://www.globalreporting.org/reporting/guidelines-online/G31Online/Pages/default.aspx), which is

an update and revision to the G3 guidelines.

The G3.1 guidelines provide seventy-nine performance indicators. Fifty of these indicators are “core” and twenty-nine are “additional.”

4.4 Certification

LEARNING OBJECTIVES

1. Discuss the role of certification in relation to sustainability reporting.

2. Understand why businesses are pursuing certifications such as Leadership in Energy and

Environmental Design (LEED).

Certification is an important and growing component of sustainability reporting and corporate

accountability. Certification is the process by which individual facilities and organizations undergo

assessment by a third-party auditor. If the facility meets the requirements set out in the standard or

code, it can earn a certificate attesting to its compliance.

Many organizations are providing certifications of products to provide an indicator to customers that

a product or service meets minimum requirements in regards to its sustainability impact. Quite

often, it can be very difficult for a customer to understand the differences in conditions that occurred

in producing a product, such as a t-shirt. A certification can provide a tangible way for consumers to

discern products that were produced with lower societal impact, such as

through SA8000 organizations, versus products that were produced at a sweatshop. The quality and

appearance may or may not be similar.

Certification can help purchasing agents of companies select a supply chain that uses sustainable

practices. An example of this could be Fair trade. Fair trade certifies that suppliers for agricultural

products—such as coffee beans (see Chapter 9 “Case: Brewing a Better World: Sustainable Supply

Chain Management at Green Mountain Coffee Roasters, Inc.”) and cacao—pay farmers a “fair”

amount for their product and have met specific environmental and labor standards.

4.5 Life Cycle Management and Sustainability

LEARNING OBJECTIVES

1. Describe life cycle management.

2. Discuss the phases of a product life cycle.

3. Understand the role that life cycle assessment can have in sustainability reporting.

4. Discuss the key considerations in carbon and water footprint analysis.

5. Explain the benefits of assessing the supply chain for sustainability

Sustainability involves taking a holistic perspective to understand the true short-term and long-term

impacts of a business activity. Life cycle thinking has emerged as a useful tool in sustainability to

consider the total impacts of an activity, product, or service from its origin to its end. This differs

from conventional business practices in which the focus has traditionally been on more immediate

factors, such as cost, quality, and availability in the supply chain. Life cycle thinking still takes into

account these factors but considers them over a product’s lifetime. While conventional business

practices have given limited consideration to disposal costs, life cycle thinking considers the impacts

of disposal to be an important part of the overall process of product or service provision.

Life cycle thinking in a business context considers business activities using a “cradle to grave”

perspective. Cradle to grave starts by considering the impacts of raw material extraction and other

inputs. It considers transportation of inputs to the organization and the impacts of the

transformation process into a useful product or service that occur at the organization. It then

considers transportation from the organization through the use of the product or service up to the

ultimate disposal. Each step in the life cycle features a specific focus on inputs and outputs, such as

raw materials and waste.

Life cycle thinking came into attention in the 1960s, when life-cycle-based accounting was first used

to account for environmental emissions and economic costs associated with various energy

technologies over their life cycle. Life cycle thinking has evolved as a sophisticated method for

businesses to consider their environmental and social impacts.

Life Cycle Management

The management philosophy that integrates a comprehensive life cycle approach for organizations in

managing their value chain is called life cycle management (LCM). A value chain is the connected

activities that an organization undertakes in providing a product or service, with each interconnected

activity adding value. LCM is a systematic progress of organizing, analyzing, and managing of

sustainability impacts throughout the entire life cycle of a product, process, or activity. LCM can occur at

the product or service level or at the entire company level. For example, a company may be interested in

managing the life cycle of one of its products to improve sustainability, or it may take a more

comprehensive look at the portfolio of activities that it engages in as part of a more far-reaching approach

to sustainability. One of the key benefits of life cycle management is that it can alert management to

potential “hot spots,” or areas that may be ecologically or socially problematic.

Phases of a Life Cycle

The following figure illustrates three key phases in a life cycle. Cradle is the resource extraction or impacts

of elements that serve as inputs to the process. Throughout the business activity or process, there are

inputs and outputs, including water, energy, emissions, and waste. Upon completion of the activity, the

finished output of the activity is at the gate. The gate is the defining point when a business output activity

is completed and it moves beyond the organization to the next step in its life cycle. For example, the gate

at a factory that produces tablet PCs is when the manufactured tablet is boxed and ready to be shipped

from the factory. Between the gate and up until the grave is the active use phase of the output of the

organization, with the grave being the ultimate disposal of the output.

Two terms that are associated with the life cycle are upstream and downstream processes. Upstream

refers to activities occurring before the organization (supply chain) and downstream refers to activities

occurring after the organization (product distribution and product use and disposal). Upstream and

downstream can also be in reference to a specific point in the life cycle. For example, a company might be

interested in the impacts of all activities “upstream” of a specific supplier. While business life cycles

frequently are focused on products or tangible goods, it can also apply to services. Life cycle management does not need to consider the entire life cycle, but instead, it can consider discrete

phases or parts. This depends on the needs of the organization. Sometimes, the greatest opportunities for reducing environmental or social impacts may exist outside a company’s own operations and in its supply chain, in which case, life cycle management would focus on its supply chain. Or the assembly of a product might be quite complex, and life cycle management is focused on one specific part of the assembly process.

Different types of life cycle management include the following:

• Cradle to grave includes the whole product life cycle from beginning to disposal.

• Cradle to gate focuses on the phase from input extraction through the organization output, but

not downstream impact.

• Cradle to cradle specifically focuses on the end-of-life step being recycling. This type of life cycle

management is becoming more in focus where considerable attention is paid in designing products so

that they can become part of another beneficial use and not be disposed of as waste.

Carbon Footprint

One of the key drivers for sustainability reporting relates to greenhouse gas emissions reporting. A

popular and specific application of life cycle management is to calculate a carbon footprint. A carbon

footprint measures all greenhouse gas (GHG) emissions associated with the life cycle of a product, service,

or business operation, including carbon dioxide, methane, and nitrous oxide.

To help organizations, standards have emerged to assist with the complexities of calculating carbon

footprints. As carbon footprints involve the complex interaction of organizations, supply chains, retail

activities, and consumers, there is often imperfect data and uncertainty in the total emissions impacts of a business activity. These standards help provide organizations with a consistent way of reporting and

addressing common problem areas, such as the double counting of emissions and system boundaries.

Organizations are calculating their carbon footprints to

• forecast future emissions,

• provide data for allowances management to allow organizations to manage voluntary or

mandatory emissions trading programs,

• provide data for carbon offsets and clean energy projects,

• provide sustainability information to their stakeholders, including customers,

• provide carbon registration and reporting (such as for the Carbon Disclosure Project).

Greenhouse Gas Protocol

The Greenhouse Gas Protocol (GHG Protocol) Corporate Standard is the most widely used international

accounting tool for government and business leaders to understand, quantify, and manage greenhouse

gas emissions. This standard was developed by the World Resources Institute and the World Business

Council for Sustainable Development, whose working committee includes the World Wildlife Fund, the United Nations, Ford, BP, PricewaterhouseCoopers, the US EPA, and other organizations. The standard

was originally released in 2001, with a revised version released in 2004.

The GHG Protocol Corporate Standard focuses on the accounting and reporting of emissions. Entities

using this accounting system include the European Emissions Trading program and California’s voluntary Climate Action Registry Protocol. The GHG Protocol Corporate Standard considers three different scopes. Scope one consists of direct

emissions from an organization’s operations. An example of scope one would be emissions from fuel

consumed to heat a building. Scope two emissions are emissions from energy purchased by the

organization that are generated outside of the organization. Typically, this would be the emissions from

power plants for the electricity used by an organization. Scope three emissions are emissions from sources

outside of the organization but related to an organization’s business activities. Supplier emissions and

emissions related to transportation not directly owned by the organization would fall under scope three

emissions.

Another common application of life cycle management is to calculate a water footprint. The water

footprint is an indicator of water use that looks at both direct and indirect water use. A product or

corporate water footprint is the first step toward identifying the processes and activities, which

significantly influence an organization’s water use. The water footprint of a product (good or service) is

the volume of fresh water used to produce the product, summed over the various steps of the value chain.

The water footprint of a business consists of its direct water use for producing, manufacturing, and

supporting activities plus its indirect water use—that is, the water used in the business’s supply chain. [4]

As freshwater becomes an increasingly scarce resource—especially in some parts of the world—companies

that are able to understand, measure, and manage their water footprints and water scarcity risks can gain

competitive advantage over those organizations that do not.

A water footprint has three components:

1. Green water footprint. Use of rainwater stored in the soil as moisture.

2. Blue water footprint. Use of surface and ground water.

3. Grey water footprint. Use of freshwater required to absorb pollutants based on water quality standards.

Sustainable Supply Chain Assessment

Assessing the sustainability performance of an organization’s supply chain is an essential part of life cycle

management and can be instrumental in strategy and managing long-term business risks and

opportunities. Supply chain assessment can provide a comprehensive view of risk associated with specific

suppliers. A supplier may have low pricing but highly irresponsible environmental or labor practices. An

organization’s reputation and brand can be damaged by poor performers in its supply chain. By evaluating risks—such as low eco-efficiency or poor social practices in the supply chain—organizations can identify “hot spots” and opportunities for process improvements and cost savings. Supply chain assessment can be challenging. While large companies may have the economic clout to

mandate suppliers to provide information about their business practices, smaller companies may

experience difficulty with supplier compliance. There also is the risk of overburdening the relationship

with an organization’s suppliers if the information required is too high or onerous.

Supplier questionnaires are one of the most common forms of supply chain assessment. Third-party certification can be another useful component in supply chain assessment. An example of certification for use in supply chain assessment is Fair Trade Certification.

4.6 Conclusion

Sustainability reporting builds on existing business management tools and concepts and applies

them in a broader context in response to a complex and highly interactive social, environmental, and

economic environment. It builds on conventional business management techniques—such as keyperformance indicators—but applies them with a focus on triple bottom line and life cycle

management. It requires a sophisticated approach of integrating nonfinancial, sustainable

performance measures into the traditional reporting of an organization.

The challenge of sustainability for business organizations is to extract value from sustainability

reporting so that it constructively guides and transforms their business operations. Sustainability

reporting without strategic purpose may result in information that is nice to know; costly to obtain;

and of little benefit to the company, the environment, or society.

Sustainability reporting in the hands of a proactive organization that learns, adapts, and

continuously improves can give a competitive advantage in dealing with the challenging environment

that businesses face. Sustainability reporting allows companies to identify business risks or “hot

spots” that were previously undetected and also to alert management to business opportunities

related to new markets, products, and services.

While sustainability reporting is still maturing, there is considerable guidance and expertise

available to help guide management in incorporating sustainable practices into their organizations.

The tools, frameworks, and guidelines discussed in this chapter can assist a company in its

progression to sustainability.

The resources needed to implement aspects of sustainability reporting can be significant. Therefore

many of the concepts in this chapter are most relevant for medium and large businesses and can be

particularly challenging to smaller organizations. Many of the tools and processes discussed in this

chapter are geared toward small, incremental change as a part of continuous improvement. All

businesses, small or large, new or mature, can implement aspects of sustainability reporting into

their organization to achieve improved operating results while minimizing negative societal impacts

and emphasizing positive societal impacts.

Reference

Saylor. (2018). The Sustainable Business Case Book. Umuc.edu. Retrieved from: https://resources.saylor.org/wwwresources/archived/site/textbooks/The%20Sustainable%20Business%20Case%20Book.pdf

 

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