Satisfied stakeholders: corporate social responsibility reporting is on the rise, but reporting...

Triple bottom line (TBL), or corporate social responsibility (CSR) reporting, is gradually becoming a more common reporting model. This is clearly demonstrated in Building Confidence: Corporate Sustainability Reporting in Canada, the most recent study of Canadian firms currently publishing some

The report is the second of its kind and was published by Stratos, a corporate sustainability consulting company, in November 2003. Only 57 reporters were identified in the company's first study in 2001. Since then, the number of CSR reporters has risen to 100 companies. Currently, 60% of companies on the TSX Composite Index now report some sustainability performance information, with 22% producing stand-alone sustainability or integrated annual reports for 2001 or 2002. This is up from 10% in 2000.

Julie Pezzack, a consultant with Stratos and one of the key contributors to the study, notes that a lot of companies and industries have substantially improved their reporting practices during that time as well. "The oil and gas industry is strong in this area, and the quality of reporting in the forestry industry has improved dramatically since our last report," she says. "Reporting is an iterative process and evolves over time. Companies are realizing that corporate responsibility can add value to their business and needs to be managed and communicated to their stakeholders."

The challenge for companies that are new to the idea of reporting on a triple bottom line is where to start--what to report and how to do so. There's no magic formula for such a process, but there are a few guideposts to consider along the way.

Balanced reporting

The Global Reporting Initiative (GRI) released its most recent Sustainability Reporting Guidelines in 2002, after two years of consultations with a variety of interest groups, and testing by a number of corporations. The GRI's mission is to develop and disseminate globally applicable sustainability reporting guidelines for voluntary use by organizations reporting on a triple bottom line. The 2002 Guidelines, which include 50 core indicators, are the foundation on which many companies build their CSR reports.

But the GRI isn't considered a panacea by anyone. Susan Todd, principal of Solstice Consulting in Vancouver, a sustainability auditing and consulting firm, notes that it simply creates a base standard.

"Some organizations are struggling with the idea of reporting on all 50 core indicators," she notes. "However, the issues are so complex and the interests so varied, that to streamline reporting standards further would be difficult."

Allan Willis, an independent consultant who collaborated with Stratos on their report, is also involved with the evolving GRI standards and attended a meeting in New York City in January, during which GRI users weighed in on its effectiveness thus far.

"One of the main points they made was that they don't want anymore indicators," he notes. "Instead, they are looking for guidance and protocols around the indicators that already exist."

Todd stresses that reporting has to be reflective of the company and its stake-holders. "You have to balance the demands of comparability and relevance in any CSR report," she says.

This is something that is stressed in Building Confidence as well. "One of the key issues is that companies shouldn't be reporting for reporting's sake," says Pezzack. "Companies need to use the reporting process to drive performance in their operations by providing timely, relevant information to improve decision making. The issues reported need to make sense for the business and its stakeholders."

AccountAbility, an international professional institute that develops assurance and accountability management tools and standards, has created an assurance standard for CSR reporting that can help companies determine whether everything of importance is included in their final report. It's called the AA1000 Assurance Standard and, although it's used mostly by CSR report auditors, it addresses the essential points with which a company should be concerned.

"GRI is a content standard. It's about comparability," notes Todd. "AA1000 is a process standard. It's about making the reporting process relevant to organizations and stakeholders. So the GRI and AA1000 complement each other nicely."

The AA1000 standard addresses three key issues:

   Materiality: does the sustainability report cover all areas of
   performance that stakeholders need to judge the organization's
   sustainability performance?
   Completeness: is the information complete and accurate enough to
   assess and understand the organization's performance in all these
   areas?
   Responsiveness: has the organization responded coherently and
   consistently to stakeholders' concerns and interests?

The critical message is that stakeholders have to be involved at every stage of the reporting process, "to create a sense of openness and also to understand what information really matters to the stakeholders," says Todd. "A report that covers all elements of the GRI standards but doesn't address the key issues stakeholders want to hear about isn't useful."

Setting parameters

Determining what stakeholders want isn't as difficult to establish as one might think. "A lot of the forums in which you can gather this information already exist," notes Todd. Market research, employee engagement surveys and similar venues all offer an opportunity to get critical feedback. Companies can simply add a couple of questions to these to gauge what environmental and social issues are critical for stakeholders."

If you create this dialogue, Todd believes that it will lead to better communication. "You will start to hear from stakeholders if something goes wrong," she says.

Vancouver City Savings Credit Union (VanCity), for instance, is an innovative financial services provider that is currently working on its fourth externally verified CSR report. The company used stakeholder consultation (primarily surveys and focus groups) to help determine what they were going to report. Indicators were also developed based on VanCity's social and environmental policies and commitments and best practices.

"We asked our stakeholders what was important to them, and then created indicators based on that feedback," notes Joanne Westwood, social audit manager at VanCity. The company also carefully chose which stakeholders it would approach for feedback.

"For our last report, we limited our consultation to staff, members (customers) and community leaders," says Westwood. "We didn't have the resources to go beyond that, and we felt that these are the stakeholders that are most important to our business. However, we may look at expanding our consultations in the future."

It's certainly necessary to keep this dialogue lively and relevant. If a company's stakeholders want to see specific information about each different operation of a large industrial concern, for instance, it may be worthwhile to have some mechanism to ensure that material issues are covered--perhaps an NGO panel or a panel of other expert stakeholders. "This assurance improves the report and boosts a company's credibility," notes Todd.

A number of reporting challenges arise when trying to find the right balance in a CSR report. For instance, Building Confidence refers to a couple of companies that, since 2000, have expanded the scope of their CSR reports, but in doing so have lost some of the specificity regarding their operations.

"Two years ago, Talisman was only reporting on its Sudanese operations," notes Pezzack. "Now they are reporting on all of their operations. They may not have the information management systems in some locations to gather all of the relevant data to maintain the same level of reporting, but as companies identify these gaps, systems evolve to capture the relevant information."

B.C. Hydro is another company that has altered its reporting method. "They now produce one report that integrates full financial and broader sustainability information and data," says Pezzack. "This is challenging, as it requires trade-offs on the amount of information that can be included in one report."

Changing the parameters isn't a problem, notes Pezzack, as long as companies are clear about why they aren't reporting on certain issues. VanCity experienced this as it further developed its CSR report to conform to the GRI Guidelines.

"In our second report, we piloted the GRI Guidelines and reported on the indicators that were relevant to VanCity as a financial institution," says Westwood. "Now, we are planning to report in accordance with GRI (which requires reporting on all of the elements and indicators in the Guidelines). If there are areas that aren't relevant or material, we will clearly state this as a reason why this particular information isn't included."

Audits and alternatives

The completeness and rigour of the information and figures supplied in CSR reports is an important issue for companies to consider, according to Building Confidence. A small number of Canadian companies use some form of third party audit or assurance process to verify the information in their reports. According to a 2002 KPMG study, only 10.5% of CSR reports in Canada were audited, compared to 27% globally.

"The most critical of readers are worried about issues being left out entirely," notes Todd, who, along with her work at Solstice, is director of The Accountability Project (TAP), a new Canadian initiative aimed at enhancing CSR reporting through use of the AA1000 standard. "If you do leave critical information out and the stakeholders know it, it shoots your credibility to pieces. Even if the information is negative or demonstrates where you've failed in an initiative, as long as it's there it increases the credibility of the report."

But there remains an under-capacity on the auditing side--a dearth of professionals with the accounting knowledge combined with the environmental knowledge to do a thorough audit. And, as Pezzack points out, a third party audit can be very costly. Some companies, she notes, verify their reports every second year as a cost-saving measure.

"Alternatively, some companies create a stakeholder advisory panel, to review the report and comment on coverage of the relevant issues," she says.

Again, what is stressed is the importance of communication. "Reporting on both the positive and negative aspects of a company's performance is important to demonstrate credibility. Other aspects of quality reporting include presenting trend data over multiple years and explaining changes in performance. Showing that the company is setting targets for itself, and that management is willing to hold itself accountable for future performance improvements, is also considered best practice."

Report designs

A recent worldwide stakeholder survey on non-financial measures by ECC Kohtes Klewes, called Shared Values, noted that despite the valuable information in many CSR reports, few of the shareholders, investors, employees and consumers actually read the reports thoroughly, despite the fact that they are the primary stakeholders.

Todd suggests that this is not as important as one would expect. "Stakeholders get a certain amount of comfort from knowing a report is there, and therefore must be credible," she says. "Readers rely on experts to digest the reports for them, just as they do with financial reports."

However, some CSR reporters are trying to adapt their reports to reach a wider audience.

"Effective communication of our reports to employees and members has been a key challenge for us," says Westwood. "We're currently working on an enhanced communication strategy. We're trying to design the report so that it's shorter, and we're using our Web site to provide more detail. At the same time, we plan to promote the report in our branches and internally, through presentations to employees."

Other companies have altered their reports to include chapters geared toward specific stakeholders as well. And with the use of the Internet, any detailed drill down of information in shorter reports can be supplied online.

Integrating value

The challenge of CSR reporting is really taking the first step. From there, the process will evolve with the organization.

"The first step is to pull people together within your organization and determine where you have information and where you need additional information," says Pezzack. "People are often amazed to find out what information is available to report on immediately. These pieces form the building blocks to what the company will report in the future."

Some companies will start with one division or one stakeholder group and develop the concept further in succeeding years. VanCity, for instance, organized its first report by stakeholder groups. For its third report it used its recently created Statement of Values and Commitments as a framework. This statement, which guides business decisions and strategies at VanCity, was created in consultation with members, staff and community leaders to ensure it was relevant to key stakeholders.

This consultative process continues to pay dividends, and demonstrates the value that CSR reporting offers.

"We've found that our commitment to CSR and corporate accountability is a way to differentiate ourselves from big banks, and it helps attract and retain members as well as employees," says Westwood. "It helps us identify potential risks in our business and keeps us aware of stakeholder concerns. We've seen continuous improvement on the triple bottom line, and have integrated our social audit with our business planning processes. The social audit is built into our executive performance partnership agreement, which means we have accountability for our commitments throughout the organization."

CSR reporting is not yet, and may never be, an exact science, but the process continues to offer companies new perspectives on their operations, their staff and their stakeholders.

To view the report Building Confidence visit www.stratos-sts.com. For information about The Accountability Project and related workshops and seminars, please visit www.theaccountabilityproject.ca. To view a Web-based sustainability reporting toolkit, created by Canada's Federal Government in consultation with Stratos, visit www.sustainabilityreporting.ca. For information about VanCity's CSR report visit www.vancity.com.

Robert Colman is editor-in-chief of CMA Management Magazine.