Ample evidence suggests confidence in the private sector in the post-financial crisis era is tempered – and at times definitively low. A brief scan of the current landscape shows: the US Supreme Court agreed at the end of 2010 to hear an appeal against Wal-Mart in the biggest employment discrimination case in the nation’s history; on-going public action in the UK against multinationals including Vodafone, Acadia Group and Boots in response to their aggressive tax avoidance policies; and, in the background, WikiLeaks, rumored to be ready to release information about a powerful US-based bank later this year, which could further erode corporate credibility. Meanwhile, the Edelman Trust Barometer reveals that trust in US and British business fell between 2010 and 2011. Just 46 percent (down from 54 percent) of polled Americans say that they trust US companies to do what is right. Similarly, only 44 percent of UK-based respondents placed trust in British business (down from 49 percent). Is improved disclosure – specifically, better sustainability reporting – a way to reverse the trend?
Jane Diplock, Chairwoman of the International Organisation of Securities Commissions, recently asserted that “… how companies report, how they tell us about the risk in their company, both financial and non-financial, is the solution” to rebuilding trust. This is in line with the message SustainAbility has long promoted, especially via our Engaging Stakeholders program, that corporate sustainability disclosure is the best means of enabling stakeholders to hold companies to account and support the identification of value creation opportunities.
In our recent joint study Reporting Change: Readers & Reporters Survey 2010, SustainAbility, KPMG and Futerra ask the beguilingly simple question: “Why [should companies] report on sustainability?” The report finds that the threat of regulation is no longer as important a driver – and, perhaps surprisingly, neither is reputation. Instead, performance-based reporting is touted as the primary reason companies should create sustainability reports by corporate reporters (65 percent) and report users (75 percent).
The Reporting Change findings suggest that performance-based reporting responds to stakeholder desires for “robust data clearly showing progress over time on specific issues, a proven track record of actions to achieve goals, and…a clear link between sustainability and business strategy”. The report also says that stakeholders demand data to back performance claims, essentially withholding trust unless they see quantitative evidence of impact.
What performance-based reporting does not address is a company’s forward strategy – that is, reporting as a means to discuss future challenges and to invite others to co-create solutions. SustainAbility holds that the best reports mix numbers, stories and learning.
One of the strongest arguments in favor of disclosure lies in the value creation opportunities that may emerge for companies willing to take a thoughtful look at their current and potential sustainability initiatives. A prime example of a company realizing, then better articulating, profoundly positive impact is UPS Logistics Technologies.
Since 1983 UPS has helped thousands of companies optimize their logistics – but it wasn’t until 2006 when the company revaluated their sustainability programs that they started to understand and report on the benefits of their solutions. By 2009 UPS was able to highlight with confidence that they had helped save 186 million gallons of fuel from 2006 – 2009, translating into 1.1 billion miles not driven and 1.9 million metric-tons CO2 saved. At least in this arena, UPS has grabbed the brass ring, proving it can run aspects of its customers’ businesses far more efficiently than they could themselves – ‘We Love Logistics” indeed!
Companies in emerging markets are also seeing the benefits of reporting sustainability performance. Brazil has led the world in sustainability reporting growth, with the number of registrations on the GRI Reports List more than doubling in the past 3 years. In tandem, 81 percent of Brazilian participants in the Edelman Trust Barometer responded that they believed Brazilian business will do what is right, a 19 percent rise between 2010 and 2011. While no causal relationships can be inferred between these two trends, might increased and improved sustainability reporting be making a difference in how Brazilian companies are perceived?
Evidence that Brazilian reporting is improving (and perhaps driving a shift in perception) emerges from the Road to Credibility 2010 Survey on Brazilian sustainability reporting published by SustainAbility and partner FBDS in October 2010. The report pointed to Brazilian companies’ strong disclosure on governance and strategy, issue identification, and company values. By drilling into such accountability basics, Brazilian companies communicate that they are engaged, have a vision and the internal support to achieve that vision, and are listening to stakeholders.
That Brazilian business saw such a rise public trust highlights its conditional nature. It is based upon what a company does and how honestly it talks about what it does. Interestingly, unlike trust in business generally, trust in reporting remains high, with the Reporting Change report claiming 90 percent of readers do not see sustainability reports as greenwash. In a world where trust is so tenuous, companies not pursuing sustainability reporting are missing a crucial and effective opportunity to build and/or repair confidence in their businesses.
Written by Alicia Ayers and Mark Lee, SustainAbility. SustainAbility is a think tank and strategy consultancy working to inspire transformative business leadership on the sustainability agenda.
Tags: Alicia Ayars, co2, Edelman Trust Barometer, fuel, GRI Reports List, Mark Lee, performance-based reporting, Reporting Change: Readers & Reporters Survey 2010, Road to Credibility 2010, sustainability, sustainability reporting