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DIRECTIONS MONTHLY SUPPLEMENT OCTOBER/ NOVEMBER 07
TRENDS AND ISSUES IN THE WORLD OF CORPORATE REPORTING
FINDING YOUR OWN PATH SELECTING NON-FINANCIAL KPIS FOR SUSTAINABILITY REPORTING
Directions Monthly October/November 2007
Issue 17
Welcome to Directions Monthly. In this edition we take a look at how companies tackle the issue of finding meaningful and relevant key performance indicators (KPIs) that will help them effectively identify, manage and make progress on their corporate responsibility impacts. At their best these indicators should also help companies find the business opportunities in embedding responsible business practices and the smart companies are defining their own. David McKnight of Ernst & Young gives his insights on some current approaches, and the pluses and minuses of using standards like GRI.
Lucie Harrild
Pavan Athwal
In the world of sustainability reporting, effective measurement is not a question of following the pack, as what is right for one company or marketplace will not necessarily be right for the next. What are examples of good sustainability KPI reporting? Avoiding recent Ernst & Young Corporate Responsibility services clients, I have selected companies from the mining (Anglo American), retail (Waitrose), telecommunications (Vodafone), private equity (3i), oil and gas (ExxonMobil) and beverage (Heineken) sectors to explore what seems to be best practice. Of course this selection omits sectors that include some of the leading reporters, but boundaries have to be set for the sake of brevity.
David McKnight Senior manager Ernst & Young’s Corporate Responsibility Services
So, how do you identify good sustainability KPI reporting? Well, KPIs are meant to help a business define and measure progress towards its goals. In terms of sustainability the lens for defining KPIs is wider, in that companies should report KPIs on those aspects that are most material to the company and its stakeholders. So, how do the reports stack up? Looking first at Anglo American’s 2006 Report to Society, a wide range of KPIs are presented that cover many of the company’s most material issues. These include workforce HIV in Africa and safety, although given Anglo American’s current focus on safety, the addition of leading safety indicators would help stakeholders understand the efforts being made. A range of environmental KPIs are disclosed for each of the operating companies. However, whilst there
is a KPI for the amount of land occupied, there is no indicator on the amount of land disturbed or reinstated each year from their mining operations. Another key issue for the sector is transparency and like other leading mining reports, Anglo American disclose the taxes and royalties paid to each government. A related key issue is demonstrating the benefits to the communities in which they operate. As an indicator of these benefits, Anglo American report an “economic value added” KPI. Further insight to their economic contribution would be gained with the inclusion of a definition or explanation of this indicator. Overall, the leading mining company reports include KPIs across many of the material issues. With the exception of a meaningful land management KPI, Anglo American appears to be right up there with them. To enhance disclosure, the sector next needs to consider KPIs on some of the other sensitive issues such as resettlement, local community health, and the Voluntary Principles on Security and Human Rights.
❝
KPIs are meant to help a business define and measure progress towards its goals.
❞
The Waitrose 2006 CSR Report includes KPIs across a range of sustainability dimensions, including supply chain and transportation. The supply chain KPIs disclosed are based on the findings of supplier risk assessments. Though it is not clear whether this relates to suppliers for own-brand goods or if it also
Directions Monthly October/November 2007
Issue 17
❝
Some companies are already being brave and smart enough to define their own path in non-financial reporting. More need to think for themselves and break out of the pack mentality.
❝
covers other suppliers. Also it would be more meaningful if the findings were categorised by the risk they relate to, eg labour practices, health and safety, etc. A good next step would be to include KPIs on supplier audits. The ‘avoided mileage from back and forward hauling’ indicator presumably helps manage greenhouse gas emissions and the topical ‘food miles’ issue, however a definition would aid clarity. The report also discusses another topical issue, customer health and nutritional information, but unlike some others in the sector, KPIs are not included. Overall, Waitrose discloses KPIs in most of the areas covered by its peers, apart from health and nutrition. One competitor also has a brownfield development metric and another has an employee ethics code KPI. Waitrose may consider that these are not material because of its strategy or ownership structure (employee owned partnership). No one in the sector reports KPIs on the impact of large retailers on local businesses. The 3i report is by far the shortest (7 pages) but this is not necessarily a bad thing. The report covers their approach to employee development, health and safety, environment, and community investment. A performance indicator is included on each aspect and there is a target on their office greenhouse gas footprint. This appears to be 3i’s first report so no comparison is made with previous years’ performance. The report says that corporate responsibility is taken into account in investment decisions but no details or indicators are provided. This is surely of the highest level of interest to stakeholders? The Vodafone 2006 Corporate Responsibility Report includes indicators across the dimensions of CR including revenue distribution, diversity, community investment (voluntary investments and those made under licence conditions), supplier evaluations, investor and opinion former concerns and the results of a MORI survey on mast siting. There are no KPIs on electromagnetic radiation, but the subject is discussed in detail. KPIs are provided on the re-use of handsets in “lower-middle-income countries”. However, an explanation on the ultimate fate of this
equipment at the end of its life would be useful, particularly in countries where there does not appear to be a local operating company (such as Nigeria which receives 43% of re-used phones). Overall, the KPIs disclosed are very similar to those reported by the other European mobile operators indicating that these are what the sector considers most material. The KPIs presented in the ExxonMobil 2006 Corporate Citizenship Report are based on the sector reporting guide from the American Petroleum Institute/International Petroleum Industry Environmental Conservation Association. Consequently the ExxonMobil report includes KPIs that are similar to its peers and cover what the industry consider to be the material issues for which data is readily available. Disclosing KPIs on revenue transparency has been problematic for the international oil companies, but Exxon does disclose total taxes paid to governments (aggregated – not detailed by each country) and refers to reports published under the Extractive Industries Transparency Initiative (EITI) on payments to certain host governments such as Chad. Unlike many of its European peers, it is not Exxon policy to prohibit political contributions, but they do disclose the contributions made in the US (albeit that such disclosure is legally required in other regulatory filings). Exxon also have a gender and US/non-US workforce diversity KPI.
❝
The important ones to stakeholders are KPIs on the issues that are most material to the business.
❞
However, unlike some of their peers, Exxon do not disclose KPIs on breaches of their ethical behaviour requirements or environmental and safety fines paid. Exxon do include some metrics concerning their workforce malaria and HIV programmes in Africa, but these are not to the same level of detail as in the Anglo American report. The Heineken 2006 Sustainability Report presents KPIs on safety and environmental
performance including accident rates, water consumption, effluent, emissions to air, and packaging. There are no metrics on supply chain environmental impacts such as transport, or biodiversity and sustainable agriculture. There are no KPIs on social investment, health and wellness, responsible drinking, marketing and consumer education. Additional metrics are provided in the GRI G3 Index and data sheet on the web, including senior management diversity, workforce turnover, political contributions and a survey of operating companies on the consideration of human rights in supplier selection. The data sheet does not include year-on-year performance comparison or targets. I also couldn’t help noticing that there were no cases of discrimination reported in a company with over 55,000 employees. Overall then, which is the best of this bunch? The KPIs and boundaries in all of the reports are for the most part reasonably clear. The distinguishing factor and probably the important ones to stakeholders are KPIs on the issues that are most material to the business. Therefore the best one has to be Anglo American – it presents indicators on key issues such as HIV, taxes and royalties paid to each government, and economic value added (although the latter needs further explanation). What is the future of KPI reporting? Currently, it appears that in some cases reporters are collating information specifically for reporting and complying with GRI. A more pragmatic approach to applying GRI is to use the company’s materiality process to determine what metrics to report. Indicators on material issues are also more likely to be used in managing the business. Currently metrics also tend to be output/lagging metrics (emissions, incidents, etc) with some input/leading indicators (eg, community investment). Engagement with business leaders and investors would be enhanced with indicators on outcomes – linked to key factors such as brand and strategy. Some companies are already being brave and smart enough to define their own path in non-financial reporting. More need to think for themselves and break out of the pack mentality.
ABOUT US SALTERBAXTER ADVISE COMPANIES ON STRATEGY, BRANDING, CORPORATE COMMUNICATIONS AND DESIGN. Our clients are extremely varied and include FTSE 100 companies; some of the world’s most exclusive brands; independent, entrepreneurial businesses; world leading educational establishments; law firms; private equity firms and media companies. We name companies, re-invent companies, and re-position companies. We help companies communicate with shareholders and advise them on how to address corporate responsibility. We launch, brand and re-brand. A key area of our expertise is corporate reporting and we advise leading UK and European organisations on strategy and design for their financial and CR communications programmes. We currently work with 11 of the UK FTSE 100. Contact: Lucie Harrild [email protected] Tel: +44 (0)20 7229 5720
Pavan Athwal [email protected] Tel: +44 (0)20 7229 5720
Directions Monthly supplements our main Directions report. This report is published each year and is now regarded as the UK’s most comprehensive analysis of the trends and issues in CR communications. If you want a copy of the full Directions Annual Survey and Report, call us on the number below or email [email protected]
202 Kensington Church Street London W8 4DP Tel +44 (0)20 7229 5720 Fax +44 (0)20 7229 5721 www.salterbaxter.com
This supplement is printed on Think Bright and is supplied by Howard Smith. It is an FSC (Forest Stewardship Council) certified material and is 100% recyclable. www.hspg.com Printed by CTD, an ISO 14001 certified and FSC accredited company. TT-COC-2142 ©1996 Forest Stewardship Council A.C www.ctdprinters.com
TRENDS AND ISSUES IN THE WORLD OF CORPORATE REPORTING
FINDING YOUR OWN PATH SELECTING NON-FINANCIAL KPIS FOR SUSTAINABILITY REPORTING
Directions Monthly October/November 2007
Issue 17
Welcome to Directions Monthly. In this edition we take a look at how companies tackle the issue of finding meaningful and relevant key performance indicators (KPIs) that will help them effectively identify, manage and make progress on their corporate responsibility impacts. At their best these indicators should also help companies find the business opportunities in embedding responsible business practices and the smart companies are defining their own. David McKnight of Ernst & Young gives his insights on some current approaches, and the pluses and minuses of using standards like GRI.
Lucie Harrild
Pavan Athwal
In the world of sustainability reporting, effective measurement is not a question of following the pack, as what is right for one company or marketplace will not necessarily be right for the next. What are examples of good sustainability KPI reporting? Avoiding recent Ernst & Young Corporate Responsibility services clients, I have selected companies from the mining (Anglo American), retail (Waitrose), telecommunications (Vodafone), private equity (3i), oil and gas (ExxonMobil) and beverage (Heineken) sectors to explore what seems to be best practice. Of course this selection omits sectors that include some of the leading reporters, but boundaries have to be set for the sake of brevity.
David McKnight Senior manager Ernst & Young’s Corporate Responsibility Services
So, how do you identify good sustainability KPI reporting? Well, KPIs are meant to help a business define and measure progress towards its goals. In terms of sustainability the lens for defining KPIs is wider, in that companies should report KPIs on those aspects that are most material to the company and its stakeholders. So, how do the reports stack up? Looking first at Anglo American’s 2006 Report to Society, a wide range of KPIs are presented that cover many of the company’s most material issues. These include workforce HIV in Africa and safety, although given Anglo American’s current focus on safety, the addition of leading safety indicators would help stakeholders understand the efforts being made. A range of environmental KPIs are disclosed for each of the operating companies. However, whilst there
is a KPI for the amount of land occupied, there is no indicator on the amount of land disturbed or reinstated each year from their mining operations. Another key issue for the sector is transparency and like other leading mining reports, Anglo American disclose the taxes and royalties paid to each government. A related key issue is demonstrating the benefits to the communities in which they operate. As an indicator of these benefits, Anglo American report an “economic value added” KPI. Further insight to their economic contribution would be gained with the inclusion of a definition or explanation of this indicator. Overall, the leading mining company reports include KPIs across many of the material issues. With the exception of a meaningful land management KPI, Anglo American appears to be right up there with them. To enhance disclosure, the sector next needs to consider KPIs on some of the other sensitive issues such as resettlement, local community health, and the Voluntary Principles on Security and Human Rights.
❝
KPIs are meant to help a business define and measure progress towards its goals.
❞
The Waitrose 2006 CSR Report includes KPIs across a range of sustainability dimensions, including supply chain and transportation. The supply chain KPIs disclosed are based on the findings of supplier risk assessments. Though it is not clear whether this relates to suppliers for own-brand goods or if it also
Directions Monthly October/November 2007
Issue 17
❝
Some companies are already being brave and smart enough to define their own path in non-financial reporting. More need to think for themselves and break out of the pack mentality.
❝
covers other suppliers. Also it would be more meaningful if the findings were categorised by the risk they relate to, eg labour practices, health and safety, etc. A good next step would be to include KPIs on supplier audits. The ‘avoided mileage from back and forward hauling’ indicator presumably helps manage greenhouse gas emissions and the topical ‘food miles’ issue, however a definition would aid clarity. The report also discusses another topical issue, customer health and nutritional information, but unlike some others in the sector, KPIs are not included. Overall, Waitrose discloses KPIs in most of the areas covered by its peers, apart from health and nutrition. One competitor also has a brownfield development metric and another has an employee ethics code KPI. Waitrose may consider that these are not material because of its strategy or ownership structure (employee owned partnership). No one in the sector reports KPIs on the impact of large retailers on local businesses. The 3i report is by far the shortest (7 pages) but this is not necessarily a bad thing. The report covers their approach to employee development, health and safety, environment, and community investment. A performance indicator is included on each aspect and there is a target on their office greenhouse gas footprint. This appears to be 3i’s first report so no comparison is made with previous years’ performance. The report says that corporate responsibility is taken into account in investment decisions but no details or indicators are provided. This is surely of the highest level of interest to stakeholders? The Vodafone 2006 Corporate Responsibility Report includes indicators across the dimensions of CR including revenue distribution, diversity, community investment (voluntary investments and those made under licence conditions), supplier evaluations, investor and opinion former concerns and the results of a MORI survey on mast siting. There are no KPIs on electromagnetic radiation, but the subject is discussed in detail. KPIs are provided on the re-use of handsets in “lower-middle-income countries”. However, an explanation on the ultimate fate of this
equipment at the end of its life would be useful, particularly in countries where there does not appear to be a local operating company (such as Nigeria which receives 43% of re-used phones). Overall, the KPIs disclosed are very similar to those reported by the other European mobile operators indicating that these are what the sector considers most material. The KPIs presented in the ExxonMobil 2006 Corporate Citizenship Report are based on the sector reporting guide from the American Petroleum Institute/International Petroleum Industry Environmental Conservation Association. Consequently the ExxonMobil report includes KPIs that are similar to its peers and cover what the industry consider to be the material issues for which data is readily available. Disclosing KPIs on revenue transparency has been problematic for the international oil companies, but Exxon does disclose total taxes paid to governments (aggregated – not detailed by each country) and refers to reports published under the Extractive Industries Transparency Initiative (EITI) on payments to certain host governments such as Chad. Unlike many of its European peers, it is not Exxon policy to prohibit political contributions, but they do disclose the contributions made in the US (albeit that such disclosure is legally required in other regulatory filings). Exxon also have a gender and US/non-US workforce diversity KPI.
❝
The important ones to stakeholders are KPIs on the issues that are most material to the business.
❞
However, unlike some of their peers, Exxon do not disclose KPIs on breaches of their ethical behaviour requirements or environmental and safety fines paid. Exxon do include some metrics concerning their workforce malaria and HIV programmes in Africa, but these are not to the same level of detail as in the Anglo American report. The Heineken 2006 Sustainability Report presents KPIs on safety and environmental
performance including accident rates, water consumption, effluent, emissions to air, and packaging. There are no metrics on supply chain environmental impacts such as transport, or biodiversity and sustainable agriculture. There are no KPIs on social investment, health and wellness, responsible drinking, marketing and consumer education. Additional metrics are provided in the GRI G3 Index and data sheet on the web, including senior management diversity, workforce turnover, political contributions and a survey of operating companies on the consideration of human rights in supplier selection. The data sheet does not include year-on-year performance comparison or targets. I also couldn’t help noticing that there were no cases of discrimination reported in a company with over 55,000 employees. Overall then, which is the best of this bunch? The KPIs and boundaries in all of the reports are for the most part reasonably clear. The distinguishing factor and probably the important ones to stakeholders are KPIs on the issues that are most material to the business. Therefore the best one has to be Anglo American – it presents indicators on key issues such as HIV, taxes and royalties paid to each government, and economic value added (although the latter needs further explanation). What is the future of KPI reporting? Currently, it appears that in some cases reporters are collating information specifically for reporting and complying with GRI. A more pragmatic approach to applying GRI is to use the company’s materiality process to determine what metrics to report. Indicators on material issues are also more likely to be used in managing the business. Currently metrics also tend to be output/lagging metrics (emissions, incidents, etc) with some input/leading indicators (eg, community investment). Engagement with business leaders and investors would be enhanced with indicators on outcomes – linked to key factors such as brand and strategy. Some companies are already being brave and smart enough to define their own path in non-financial reporting. More need to think for themselves and break out of the pack mentality.
ABOUT US SALTERBAXTER ADVISE COMPANIES ON STRATEGY, BRANDING, CORPORATE COMMUNICATIONS AND DESIGN. Our clients are extremely varied and include FTSE 100 companies; some of the world’s most exclusive brands; independent, entrepreneurial businesses; world leading educational establishments; law firms; private equity firms and media companies. We name companies, re-invent companies, and re-position companies. We help companies communicate with shareholders and advise them on how to address corporate responsibility. We launch, brand and re-brand. A key area of our expertise is corporate reporting and we advise leading UK and European organisations on strategy and design for their financial and CR communications programmes. We currently work with 11 of the UK FTSE 100. Contact: Lucie Harrild [email protected] Tel: +44 (0)20 7229 5720
Pavan Athwal [email protected] Tel: +44 (0)20 7229 5720
Directions Monthly supplements our main Directions report. This report is published each year and is now regarded as the UK’s most comprehensive analysis of the trends and issues in CR communications. If you want a copy of the full Directions Annual Survey and Report, call us on the number below or email [email protected]
202 Kensington Church Street London W8 4DP Tel +44 (0)20 7229 5720 Fax +44 (0)20 7229 5721 www.salterbaxter.com
This supplement is printed on Think Bright and is supplied by Howard Smith. It is an FSC (Forest Stewardship Council) certified material and is 100% recyclable. www.hspg.com Printed by CTD, an ISO 14001 certified and FSC accredited company. TT-COC-2142 ©1996 Forest Stewardship Council A.C www.ctdprinters.com
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