How forward-thinking organizations are leveraging CSR reporting to uncover new opportunities.
Like many consumers, I’ve come to expect my beef burritos grass fed, my morning coffee responsibly sourced, and my household items verified eco-friendly.
Sustainability – that all-encompassing banner for best practices – has become so pervasive it’s now hard to find products not advertised accordingly. Which got me thinking as we wrapped up CSR reporting season last month: how many brands that I follow employ CSR reporting to measure sustainability across their lines of business?
My curiosity led me to dialogue with several industry experts. Most revealed that a growing number of firms are not only embracing CSR reporting, but rather leveraging the practice to open up valuable new lines of communication with their stakeholders.
“There’s been a really interesting evolution as people see sustainability as value creation and a means to open up new markets,” Morgan said.
Guy Morgan, director of advisory services at Business for Social Responsibility, which manages a network of more than 250 multinational companies dedicated to sustainable business practices, has seen CSR reporting evolve from a pure public relations strategy to a sophisticated reporting mechanism.
“When CSR was first getting started it was attached to the communications function because people understood there could be a reputational benefit,” Morgan explained. “There’s been a really interesting evolution as people see sustainability as value creation and a means to open up new markets.”
The evolution includes new frameworks, more commonly referred to as integrated reporting, that are being developed to focus on how organizations draw the connection between sustainability performance and financial performance, according to Kristen Lang, senior manager, corporate programs at Ceres. (Ceres is a nonprofit organization advocating for sustainability leadership.)
“Leading companies are shifting the sustainability conversation from a risk-based assessment to how it can be a competitive advantage, and that’s what investors need to see,” Lang said.
Ceres, which in 2014 assessed more than 600 of the largest, publicly-traded companies in the U.S., reports that roughly half now produce a sustainability report. Relative to integrated reporting, Ceres has seen an increase from 39 percent in 2012 to 48 percent in 2014 of companies disclosing sustainability risks and opportunities to investors through financial filings, according to Lang.
“To maximize their positive impact on the social and environmental systems in which they operate, companies must develop coherent CSR strategies,” writes Rangan, Chase and Karim.
Leading the push for integrated reporting is the International Integrated Reporting Council (IIRC), which manages the Corporate Reporting Dialogue, an initiative to provide consistency between corporate reporting frameworks.
In a post on IIRC’s website, Jonathan Labrey, the organization’s chief strategy officer, argues that integrated reporting is “the guarantor of the future relevance of corporate reporting and is the umbilical cord that connects a business to capital market decision-making, economic progress and social wellbeing.”
Through extensive research with more than 140 managers responsible for their firms’ CSR strategies, V. Kasturi Rangan – the Malcolm P. McNair Professor of Marketing at Harvard Business School and a cofounder and cochair of the HBS Social Enterprise Initiative – found that well-managed companies have tightly focused CSR programs aligned with their company’s purpose and values.
“To maximize their positive impact on the social and environmental systems in which they operate, companies must develop coherent CSR strategies,” writes Rangan, Lisa Chase, a research associate at HBS, and Sohel Karim, cofounder and managing director of Socient Associates, in January’s Harvard Business Review.
Pointing to the critical importance of reporting, “aligning CSR programs must begin with an inventory and audit of existing initiatives,” they advise.
For companies starting out in the space, the key challenge is what to measure and how to measure it credibly.
Determining what to measure, taking stock of those activities, and then having it all independently verified is what a company like Hess Corporation has been reporting for nearly two decades. A long-term Inc Design client, the company just published its 18th annual sustainability report in accordance with the Global Reporting Initiative (GRI) G.3.1. sustainability reporting principles and guidance. For the seventh consecutive year, Hess Corporation’s Report has a self-declared GRI A+ application level that has been third-party assured by the ERM Certification and Verification Services.
The strong commitment to CSR reporting at Hess has benefitted the company across its entire business and keeps it in constant dialogue with its audience amid increasing interest in sustainable business practices by constituents which include governments, investors, consumers and other key stakeholders.
Among consumer brands, Lang points to Unilever as a prime example of a company that has found balance among its CSR efforts and is reaping the rewards. Unilever has been reporting on its sustainability performance since 1996.
“Unilever has established aggressive targets across key areas including GHG emissions, water use, waste disposal and human rights protections, among others–recognizing that these goals will be met by 2020 all while the business itself continues to grow,” Lang said. “They have identified strategies that put a heavy focus on products with an emphasis on sustainability and in 2014 these products grew at twice the rate of their other products.”
For companies starting out in the space, the key challenge is what to measure and how to measure it credibly. Morgan advises that companies involve their stakeholders early in the process and provide a clear and concise explanation of reporting against strategy.
“If companies are looking at reporting as a checkbox exercise to market the fact that they’re a good enterprise, then [CSR Reports] are probably not worth it,” Morgan said. “But if they’re looking at reporting as a method of strategy, a strategy that will help them understand megatrends like climate change and so on, stakeholder expectations, and what competitors are doing, then why not build a report out about it?”
“Companies that embrace transparency and candor are having the more productive conversations with stakeholders about how they can become better,” Lang said.
Rangan, Chase and Karim advise that companies develop CSR programs and reporting specific to the leadership, strategy and operations of their company.
“It’s neither practical nor logical for all companies to engage in the same types of CSR, since CSR programs are driven by diverse factors including the industry and societal environments in which businesses operate and the motivations of the people who staff, run, and govern each company,” they write. “For example, although a manufacturing company may have rich opportunities to reduce its environmental impact, a financial services company may be hard-pressed to do so – but it may be vastly more successful in the social sphere, with significant initiatives supporting financial inclusion and literacy.”
In addition to stakeholder engagement and focused reporting, the most successful companies are going one step further in their CSR reporting and including feedback from their stakeholders, as well as responses to that feedback, according to Lang.
“We see disclosure as a starting off point for a two-way conversation between companies and stakeholders,” Lang said. “Companies that embrace transparency and candor are having the more productive conversations with stakeholders about how they can become better.”
Morgan agrees, and sees the innovation within CSR reporting as a hugely exciting opportunity as well as a calling to a higher purpose.
“It’s a theme that seems to be resonating and goes back to that central construct, what is the role of business in society?”
These various points of view left me intrigued and eager to see where CSR reporting goes from here. As I continue to have these conversations, I’ll share them with you here on Blinc and of course I’m always interested to hear your point of view.
In the meantime, one thing is clear: CSR reporting is a discipline brimming with opportunity and a bright future.