Corporate sustainability reporting has come a long way in a relatively short time. It wasn't that many years ago that most reports were essentially glossy, happy-talk brochures detailing a company's good, green deeds. Over time, as those reports became more detailed -- and more forthcoming -- the bar rose higher and higher. Today's leading-edge reports cover a wide range of information, including comprehensive details on what a company is doing right, what it's not, and how it plans to do better.
For companies, corporate sustainability reporting can be one of those no-win situations: the more they know about their operations and performance, the more they realize how little they really know -- and how many changes need to happen, including the need to produce better, ever more comprehensive reports. Suffice to say, this doesn't always win points for the good folks who spend countless hours compiling, writing, and rewriting the reports in the first place.
All of this is compounded when it comes to reporting on climate change, which large companies are increasingly expected to do. For both leadership and laggard companies, the pressure is growing to provide detailed breakdowns of their climate emissions -- by facility or business unit and type of gas emitted (there are six major greenhouse gases) and, for some companies, to report emissions produced by upstream suppliers and downstream customers. There are protocols for reporting these things, and the data need to be verified by independent third parties for reports to be considered credible.
So, how are companies doing? Good, but not good enough. That's my interpretation of the findings from two recent reports.
One of those reports, from the Global Reporting Initiative and KPMG's Global Sustainability Services unit (download - PDF), surveys the types of climate change reporting being done by companies. It found that while almost all companies are reporting on climate change, "on closer examination companies reported far more on potential opportunities rather than financial risks for their companies from climate change." In other words, companies are representing the financial impacts of climate change in a much rosier scenario than is likely the case.
To understand the folly of that, consider last fall's Stern Report, which noted that the costs of extreme weather alone could reach 1% of world GDP by the middle of the century, and that the economic disruption could approach those associated with the great wars and the economic depression of the first half of the 20th century. Hardly a rosy scenario.
The GRI/KPMG authors seemed rightfully surprised at companies' optimistic outlook. "A surprising two-thirds of companies reported new business opportunities from climate change, and nearly half of the companies surveyed reported involvement in emissions trading," it noted. A wide range of other business opportunities related to climate change ranged from manufacturing components for low-emission hybrid electric vehicles to selling energy-efficient laundry detergent.
But not much on risks. The GRI/KMPG folks tried to be charitable.
The low rate of reporting on risks from climate change may be because companies see climate change not only as a threat but also as an opportunity for new products, services and trading. Risks could be perceived to be beyond current business planning horizons, or companies may not have identified, explored or quantified risks associated with climate change and may therefore not be in a position to report on risks.
Such rationalization aside, companies seeking to remain competitive will need to view their world through a broader, more realistic lens. Many companies in the GRI/KPMG survey acknowledge that climate concerns could raise energy prices, but that's hardly the only risk. As a spate of earlier reports on the topic have made clear, risks to business from climate change include:
the potential for physical damage due to changing weather patterns, fines and business constraints due to regulatory requirements, legal costs from possible litigation, investment risk from shareholder demands, changes in the competitive landscape as companies adapt to climate change, and possible brand damage if a company develops a reputation as a "climate change villain."
Clearly, companies can do better.
The other report (Download - PDF) comes from the Association of Chartered Certified Accountants and the FTSE Group, the U.K.'s equivalent of Dow Jones. It assesses the performances of 42 U.K. companies seen as leading environmental reporters. It, too, found mixed results, with most companies' reports failing to live up to these evaluators' expectations. Company reports variously had too little quantitative information, provided insufficient context to explain their impacts and trends in their climate emissions, and had inadequate management goals for reducing emissions. Most companies didn't reveal their public policy positions -- whether they were lobbying against climate regulation at the same time they were making public pronouncements about their climate leadership.
Some of this may seem picayune, criticizing companies for being less than perfect rather than commending them for their efforts. But the time for celebrating mediocrity is behind us. Companies need to step up -- to comprehensively report their climate policies, practices, commitments, goals, opportunities, and risks, and do it clearly. The stakes -- for companies and the rest of us -- are too high to accept anything less.
And the benefits to companies of doing so are considerable. Climate emissions, for all intents and purposes, represent inefficiencies, opportunities to improve operations, reduce risks, and save money, not to mention being seen as a leader in the eyes of employees, recruits, customers, and others. In that light, well-done climate reports are hardly an end unto themselves, but the beginning of a continuous improvement cycle -- an opportunity to discover ways not just to be a better corporate citizen, but to be a better business.
| 
| 
| 
| 
| 
Hi Joel:
Good report, thanks. I’d like to point out that corporate risk of any kind arises from the crossing a line of some kind, be it a regulatory one, a social norm, or just common sense. Thus, the problem with mainstream sustainability reporting, in general, is that the lines, or standards of performance, are rarely included. To simply report emissions of GHGs is not to tell anyone about whether they were above or below norms, rules, treaties, or ecological thresholds. So how are we supposed to know whether an organization’s operations were sustainable when all they do is tell us the volume of emissions? The issue here is 'context', or rather the absence of it in mainstream sustainability reporting, including GRI.
It is perhaps worth noting that only the ACCA/FTSE report you discussed acknowledged the issue of context as a factor in their reporting. Still, their use of the term was not quite what I have in mind here. For GHG emissions reporting, for example, the bottom-line issue is did your emissions comply with a mainstream climate change mitigation plan or not? ACCA/FTSE speak in terms of policy context and data context, but not really climate change mitigation context. We know of only one company in the world that is actually reporting its emissions against a standard for returning GHG concentrations to safe levels: Ben & Jerry’s here in Vermont. Anyone wanting to know more about that can contact me for more information.
Regards,
Mark
Posted by: Mark McElroy | August 21, 2007 at 07:00 AM
Great post!
If the economics don't work, recycling efforts won't either.
As our little contribution to make this economics of recycling more appealing,http://LivePaths.com blogs about people and companies that make money selling recycled or reused items, provide green services or help us reduce our dependency on non renewable resources.
Posted by: Luis | August 27, 2007 at 08:11 AM