CHAPTER 20
Sustainability (CSR or ESG) Reporting
SUSTAINABILITY (CSR OR ESG) REPORTING
There are two main reasons that make sustainability (CSR or ESG) reporting vital. Firstly, all over the world there are sustainable development challenges, and, in order to bring solutions, companies must play a significant role by promoting economic, environmental, and social reporting. On the other hand, corporate scandals resulted in the loss of trust in the businesses, which can be overcome through a more open and clear communication.
CONTEXT OF REPORTS
The reporting process involves seven topics that corporations are interested in. The first one is called financial analysts. The main point of this topic is to find ways to connect the company with the financial world. Many corporations use the sustainability report in order to gain ground and build a stronger profile among financial analysts. Into this sector of the sustainable reporting companies provide the shareholders with information about the money the company spends for expanding, operating, and protecting the environment.
The second topic that sustainability reports incorporate is called Assurance and Verification. This topic includes detailed reporting process by specific companies—called verifiers—that inform the shareholders about the future goals of the company and recommendations in order to accomplish them.
The topic that follows is called Supply Chain reporting and discusses the complexity of cooperating with the suppliers. Nowadays, there is an increasing percent of stakeholders who take into consideration the supply chain. For this reason, companies must be very critical when deciding about the suppliers. Ford Motor Company faced a serious problem when more than 100 people had died in accidents due to problems in the tires of the vehicles—supplied by Firestone. Both customers of Ford Motor Company and Firestone lost their trust in these companies.
The fourth topic that is discussed in the sustainability reports is called Emerging and Transition Economies.
The Economic Bottom Line is the fifth issue that the sustainability reports are communicating about. This topic goes beyond financial accounting and discusses about positive or negative economic social and environmental impacts that companies have on their stakeholders. The whole concept is to go beyond balance sheets into Economic Value Added metrics in order to define clearly their true meaning. For example, Rio Tinto in its sustainability report informs the company's stakeholders of its economic contribution to the local communities.
The topic that follows is called Brands and Reputation. This subject discusses how corporate reporting is related to the reputation, the brand name, and the values of the company. Reputation, brand name, and values of the company are considered to be extremely important in order for a company to be successful. The thing that makes brand name essential is the trust that it carries. For example, Nike, McDonald's, and Coca-Cola are companies that people trust because of their commitment to their values.
The last topic that sustainability reports take into account is about Governance. Corporate Governance discusses how the company's management deals with economic and social issues. Corporate governance is concerned with creating a balance between economic and social goals and between individual and communal goals while encouraging efficient use of resources, accountability according to the interests of individual's corporations, and society.
CHANGES OVER THE YEARS
During the earlier years of the 2000s, only a few dozen companies issued sustainability reports. Furthermore, sustainability reports focused rather exclusively on environmental protection and stewardship. Yet as the years progressed, sustainability reports grew more comprehensive and adopted a holistic approach, investigating social and economic concerns as well following global guidelines such as Global Reporting Initiative (GRI).
Reports issued after the new millennium provide shareholders with much more information and insight into a company's operations. This shift gained traction as companies began to recognize the importance and utility of fostering a socially, economically, and environmentally responsible image for shareholders and stakeholders alike.
The two following case studies are good examples of sustainability reports achieving a high level of completeness and comprehensiveness and reflecting the company's progressiveness and maturity in terms of sustainability issues. They are extracts from Hess and Praxair's sustainability reports (2017 and 2016, respectively) and they are consistent with the GRI guidelines.
HESS CORPORATION 2017 SUSTAINABILITY REPORT
Approach to Reporting
In this report, we provide descriptions of the company's 2017 strategy and performance regarding material economic, environmental, and social issues [1]. Our annual report, Form 10-K filing and proxy statement, detail our financial and governance information and can be found on our website.
Additional sustainability and investor information is available at http://hess.com/investors.
Reporting Standards
This report was prepared in accordance with the Core option of the GRI Standards. It was also informed by the Oil and Gas Industry Guidance on Voluntary Sustainability Reporting developed by IPIECA, the American Petroleum Institute, and the International Association of Oil and Gas Producers; the UN Global Compact's (UNGC's) 10 Principles; key environmental, social, and governance (ESG) ratings, including Disclosing the Facts, an investor scorecard developed by As You Sow, Boston Common Asset Management, and the Investor Environmental Health Network; and recommendations from the Task Force on Climate-Related Financial Disclosures.
An index of GRI, IPIECA, and UNGC reporting indicators is available at http://hess.com/gri-index.
Materiality
Consistent with GRI's materiality guidance, we identified and prioritized new and emerging issues important to our stakeholders when developing the content for this report. Through a survey of select industry peers and external stakeholder groups, as well as an annual, document-based assessment of key stakeholder perspectives and Hess' operational and regulatory risks, we identified the 10 most material issues for our company:
- Regulatory Assurance
- Water Management
- Transportation Impacts
- Emergency Preparedness and Response
- Process Safety and Spills
- Community Engagement
- Climate Change and Greenhouse Gas (GHG) Emissions
- Stakeholder Engagement
- Transparency in Business Conduct
- Human Rights and Security
These material issues have informed our environment, health, safety, and social responsibility strategy and helped to define the boundaries of this report. See reporting boundaries for each of these issues at http://hess.com/sustainability/approach-to-reporting/boundaries-for-material-issues.
Boundary Setting
Included within the scope of this report are the principal facilities and assets operated by Hess Corporation and our subsidiaries during calendar year 2017, unless otherwise indicated. Data presented are gross figures from operated facilities, unless specified otherwise. The report includes partial-year data for the following assets that were divested in 2017:
- West Texas, including the Permian Basin enhanced oil recovery assets. Period of data included: January–July 2017.
- Equatorial Guinea, including the Okume and Ceiba production operations. Period of data included: January–November 2017.
- Norway, including the (non-operated) Valhall production operations. Period of data included in GHG equity-share emissions and social investment spend: January–November 2017.
We report GHG emissions on both an operated and equity-share basis in accordance with the GRI G4 Oil and Gas Sector Supplement and the IPIECA Petroleum Industry Guidelines for Reporting GHG Emissions (3rd edition, 2015). We report social investments for our operated assets, joint ventures, and non-operated facilities in which we hold a significant interest. We include contractors in workforce metrics for those contractors whose hours we track.
See our expanded performance data at http://hess.com/sustainability/performance-data/key-sustainability-metrics.
Restatements
We believe our approach to restating data complies with the GRI Standards' principle of comparability and the specific disclosure regarding restatements of information, as well as IPIECA guidance. For GHG emissions, in cases of acquisitions and divestitures and other source ownership and control changes, we adjust our base year emissions if the change exceeds 10% of the original base year emissions total. The exact timing of the adjustment depends on several factors, as described in the Hess GHG Inventory Protocol.
Access the Hess GHG Inventory Protocol at http://hess.com/sustainability/climate-change-energy.
Assurance
In order to evaluate accuracy and reliability, we conduct quality assurance/quality control reviews and validation of both aggregated and facility-level data. Individual numbers in the charts, tables, and text may not precisely sum to the total amounts shown due to rounding. All currency in the report is in US dollars.
This report, including our sustainability data and self-declared GRI “in accordance” status, was assured by ERM Certification and Verification Services (ERM/CVS). This external review helps to ensure consistent and objective data collection and reporting of our sustainability performance.
Requests for Information
For copies of our Environment, Health, and Safety Policy, Social Responsibility Policy, or Human Rights Policy, or for more information regarding our operations, please visit our website at http://hess.com.
We invite your questions, comments, and suggestions regarding this report. To send us your questions or comments, or to request more information or additional copies of this report, please contact: Hess Corporation. You can also send us an email.
JOHNSON & JOHNSON 2017 HEALTH FOR HUMANITY REPORT
About this Report
Johnson & Johnson's 2017 Health for Humanity Report is our 15th annual report on our progress in citizenship and sustainability [2]. Data in this Report cover the period between January 1, 2017 and December 31, 2017, unless otherwise indicated. The Report is also available in online format at http://healthforhumanityreport.jnj.com. It includes an Executive Summary available in five languages.
This Report provides a comprehensive overview of the Company's vision, strategic approach, and performance in the ESG areas relevant to our business. Reporting on other matters specific to financial performance of the Company and its subsidiaries can be found in our 2017 Annual Report.
The content of this Report covers Johnson & Johnson's worldwide operations, including our subsidiaries across three business segments: Consumer, Medical Devices, and Pharmaceutical. Contract manufacturers are excluded from the scope of this Report, unless otherwise noted. There have been no significant changes from our previous reporting period regarding scope, boundaries, or measurement methods applied. From an operational perspective, in June 2017, we completed the largest acquisition in our Company's history, with Actelion becoming part of the Janssen Pharmaceutical Companies of Johnson & Johnson. Pulmonary hypertension is a new therapeutic area that was established within Janssen with the acquisition of Actelion.
The Report has been prepared in accordance with the GRI Standards Core option. Please refer to the GRI Content Index for a complete listing of GRI disclosures included in this Report. Our 2016 Priority Topics Assessment process guided the Report's structure (GRI 102-55).
The Report content is also informed by the UNGC Principles and serves as our annual UNGC Communication on Progress. See the UNGC Index for more information on how we adhere to the 10 UNGC Principles.
This Report includes our annual update on progress against our Health for Humanity 2020 Goals and progress on our commitments to the UN Sustainable Development Goals (UN SDGs). Please see Health for Humanity 2020 Goals Progress Scorecard and UN SDGs Progress Scorecard for more information.
All data in the Report have been subject to various forms of verification and assurance. ERM/CVS conducted independent review and assurance of the following information and data in the report:
- Progress against our Health for Humanity 2020 Goals, and associated data presented in the 2020 Goals Progress Scorecard.
- Progress against UN SDG commitments, and associated data presented in the UN SDG Scorecard.
- Year 2017 global GHG emissions inventory and electricity use generated from renewable energy sources that are also included in our 2018 CDP Climate Change Report.
Click for ERM/CVS independent assurance statements. The financial data and general information about the business in this Report were previously audited for disclosure in our 2017 Annual Report.
We welcome stakeholder feedback on our Report. To share your comments or questions, please contact us at [email protected].
B Corporation
B Corporation Certification, which is administered by the non-profit B Lab, is another certification that is introduced [3]. It assesses the impact of a company, through its products and services, in terms of social and environmental performance, public transparency, and legal responsibility to balance profitability and purpose. With a vision of achieving a culture in which businesses will build a more inclusive and sustainable economy that is driven by the benefit of all stakeholders, and not just shareholders, B Corporation Certification aims to build trust and value for certified companies.
Sustainability in the Supply Chain
In order for a product or service to be considered sustainable, it is not enough for it to be managed properly only by its production company, but throughout its life cycle. Therefore, an extremely important factor is the management of environmental, social, and economic impact, as well as the encouragement of good governance practices, of the supply chain.
The objective of Supply Chain Sustainability is to create, protect, and grow long-term environmental, social, and economic value for all stakeholders involved in bringing products and services to market. Potential business risks are related to cooperation in developing countries where poor quality standards relating to social and cultural aspects as defined in the developed world prevail. These markets may lack a legislative structure to protect human rights and the environment, such as the exclusion of child labor and the reduction of GHG emissions, respectively. Other risks may be related to waste management or non-recycling, as well as to social issues such as bribery and labor conditions of suppliers.
The implementation of a Sustainable Supply Chain allows a form of management of the above risks, as well as achievement of operational efficiency, reducing costs without any negative impact on business. Thus, end products can be considered viable through the supply of raw materials with well-considered social and environmental impacts. Such an example is organic plastics that emit relatively fewer GHGs throughout their lifecycle.
Sustainability Reports and Impact Investments
As described, sustainability reporting has exploded over the past decade. While there are a variety of reasons for the growing popularity of sustainability reporting, such as the improvement or maintenance of a desirable public image, these documents also serve to attract and persuade investors. First, investors concern themselves with sustainability reports because the publication of an annual report reflects a strong and organized managerial structure. The United Kingdom's news outlet, The Guardian, explains, “The non-publication of a report, or the absence of published policies, targets and performance data, is increasingly likely to be taken as evidence that the company does not recognize social and environmental issues as management priorities, thereby raising wider questions about the quality of the company's risk systems and processes” [4]. This is especially true for Fortune 500 companies. In short, a business that exhibits sound and effective management strategies appears much more attractive to potential investors.
Changes in the values of individual investors have also contributed to the recent explosion of sustainability reporting. As investors grow more sensitive to social and environmental issues, sustainability performance indicators will have a greater impact on investment decisions. Naturally, this is a generalized statement as not all investors concern themselves with social and environmental issues. Nevertheless, the growing public sensitivity to these topics appears to be influencing investment decisions. An increasing number of investors are making commitments to integrate consideration of social and environmental issues into their investment decision-making processes and better quality environmental and social performance data are increasingly available. It is therefore to be hoped that we will, over time, see investors paying greater attention to companies' corporate responsibility performance [5].
Sustainability reports not only record important advancements in corporate environmental and social strategies, but also foster a competitive environment where companies are compelled to match the significant benchmarks of others. This concept is important for investors as increased competition may accelerate financial performance. Companies that choose to enter this competitive realm stand to gain, while those that neglect sustainability reporting may be left behind.
Sustainability and ESG Ratings
Despite debate, it is clear that many investors do consider sustainability performance when they choose to invest. Issues of corporate governance, social welfare, and environmental development hold a key role in investor decisions. This is due to the desire of investors to maximize the value of their shares and, at the same time, the social welfare by investing in companies that respect and follow international standards and take into account the requirements and needs of stakeholders. It is no coincidence that investment in socially and environmentally responsible businesses has grown significantly over the past 10 years, particularly in Europe and North America. It is, also, noteworthy that, as a whole, UN PRI signatories represent US$70 trillion of investment funds.
Socially responsible investing (SRI) takes into account the environmental impact, social impact, and the impact of corporate governance (ESG) [6]. However, a socially responsible investment is not just a way for investors to feel satisfied, but it can both lead to better financial results and reduce the risk of business. Many CEOs of international businesses and large organizations have, for example, decided to comply with the Paris Agreement on Climate Change.
Why is this happening? According to Harvard Business Review [7], socially responsible companies show greater profitability and better return on equity than their competitors. Another reason is that a long-term strategy based on the principles of sustainability can ensure the continuity and growth of the company.
It is not just a trend, it is a new investment strategy that is gaining more and more ground, especially over the last 20 years—for the millennial generation, it is almost a prerequisite. According to Bloomberg, about 84% of the millennials are interested in socially responsible investments and this figure is expected to rise as the demand for responsible products grows steadily. In more traditional economics, Deutsche Bank recently made an analysis of more than 2000 empirical studies since 1970 [8] and found that 90% of studies indicate that socially responsible investment had far better returns than non-socially responsible investment.
In addition, good ESG performance has been associated with good financial results and limited business risk. For this reason, as demonstrated by the recent Eurosif SRI Market Study, the ESG criteria are taken into account 60% more than two years ago.
Globally, some of the most important ESG ratings linked to the stock markets are the Dow Jones Sustainability Index (DJSI), the FTSE4Good Index, the MSCI ESG Index, and the CDP, while the United Nations Responsible Investment Initiative (UN PRI) is considered important too. For example, the development of the DJSI is one of the most notable manifestations of significant changes in the ways global investment organizations value and incorporate sustainability metrics. In order to allow investors to make more informed market decisions on sustainability performance, Dow Jones launched the DJSI in 1999. Today, there are many DJSI licenses held by asset managers; these licenses manage more than US$8 billion [9] worldwide. According to Dow Jones, the utility of this index is twofold; “The DJSI enable investors to integrate sustainability considerations into their portfolios while providing an effective engagement platform for encouraging companies to adopt sustainable best practices” [10].
This DJSI offers further evidence to support the positive relationship between sustainability and financial performance. Dow Jones explains, “A quantitative analysis of the historical sustainability information compiled by SAM over the years, and upon which the DJSI are based, reveals that an investment strategy that selects sustainability leaders and avoids sustainability laggards contributes to superior long-term investment results with improved risk/return profiles” [10]. Such evidence serves to further accelerate the incorporation of sustainability performance into investment decisions and management systems and bodes well for the future of sustainable progress.
CASE STUDY: MARKS AND SPENCER PLAN A REPORT 2018, PLAN A 2025 AND OUR STRATEGY—HELPING TO MAKE M&S SPECIAL AGAIN
Transformation Timeframe
Starting Afresh In November 2017, we launched a new plan to accelerate the transformation of our business with the aim of making M&S special again through sustainable, profitable growth that delivers value for customers, colleagues, shareholders, communities, and planet alike [11]. We have always recognized that our sustainability activities have to be central to how we do business. We have to make sure that Plan A 2025 is aligned with our Business Transformation Plan. We are in the process of ensuring that Plan A is aligned with this new corporate strategy.
Step One: Restoring the Basics Over the next 12–18 months, we want to build on the legacy of over 10 years of Plan A progress. We want our customers to choose M&S products and services because they are informed about the healthier and more sustainable options we offer. We need our colleagues to be fully involved in developing and promoting the business. And we need to find ways for our operations and supply chains to become even more efficient.
Customers:
- Bringing Plan A product attributes to life. Showcasing the M&S difference of how we source our products.
- A bigger role for Plan A in communication. Both in how we market our brands and drive innovation to meet the needs of our customers.
- Building trust. Reducing risks through robust governance, systems, compliance, and partnerships.
Colleagues:
- Using Plan A for even greater engagement. To build our relationships with the communities around us and contribute to the development of an inclusive business able to attract the best talent.
Efficiency:
- Driving down costs by cutting waste. Through focusing on energy and food waste.
- Reducing risks and increasing productivity. By working with suppliers to address the challenges of plastic waste, packaging, and climate change.
Step Two: Shaping the Future These are actions, which we are already piloting and testing today, ready to roll out in two to three years' time. Together, they will represent the next step to a more digital, technology-enabled business that reflects and values customers' lifestyles. This will be a phase where we take newly founded innovations, efficiencies, and loyalties to create a business for the future.
Customers:
- Plan A attracts new customers. By providing evidence of a contemporary and ethical brand, appealing to a wide range of new and existing customers.
- Transparency. Demonstration of our ethical and environmental standards in action, visible to all.
Colleagues:
- An engaged, skilled, and inclusive workforce. Scaling-up our activities on transforming communities and meeting new benchmarks of equality in the workplace.
Efficiency:
- Leaner supply chains and franchises. Supplier Sustainability Scorecards being extended to all supply chains and efficiency benchmarks to key franchises.
- Sustainably designed products. Designed to give the best customer experience and with the least social and environmental impact.
Step Three: Making M&S Special By 2022, our Plan A 2025 commitments will be a platform of excellence, providing an M&S difference to all our products and services. This will inspire the development of new products and services. As well as addressing today's risks, we want to evolve an approach which automatically responds to any new emerging social and environmental challenges.
Customers:
- Plan A allows us to move into new markets. New products and services meeting the social and environmental needs of our customers.
- Engagement. Engaged customers, clear about the steps they can take to make a positive difference.
Colleagues:
- An employer of choice. Regarded for our values, skills, and innovation.
Efficiency:
- Zero waste, carbon neutral supply chains. Suppliers and business partners adopt M&S's zero waste, carbon neutral culture.
- Sustainable products. Products that exceed customers' expectations while also creating a fairer and sustainable world.
STARS Framework Measuring sustainability performance is an important process that is now being carried out by various entities and not just by businesses. One such set is the academic sector, for which a targeted framework has been created, known as STARS [12]. The Sustainability Tracking, Assessment and Rating System (STARS) is aimed at colleges and universities in order to help them determine their sustainability strategy in a transparent and self-reporting way. In particular, in addition to providing a framework for sustainability practices and facilitating the exchange of information, a common set of measurements has been developed with the broad involvement of the university community to make meaningful comparisons between institutions over time. At the same time, through participation in the STARS, each organization can earn points for sustainability discrimination (STARS Bronze, Silver, Gold, or Platinum, STARS Reporter). Thus, incentives for continual improvement can be achieved in this area.
Issues for Learning and Discussion
- Is Social Enterprise or B Corporation a legal entity for mission-driven businesses that provide a higher level of legal protection, accountability, and transparency than existing for-profit entities?
- Which is the top driver of Supply Chain Sustainability?
- Are companies becoming increasingly exposed to risks across their supply chain due to disruption resulting from climate change, due to reputational damage or due to both?
- Is the comparison, over time of key sustainability data, or comparison between different companies one of the objectives of the Sustainability?
REFERENCES
- 1. Hess Corporation. 2017. Hess Corporation 2017 corporate sustainability report. Available at http://www.hess.com/sustainability/sustainability-reports/sustainability-report-2017.
- 2. Johnson & Johnson. 2017. 2017 health for humanity report. Available at https://www.jnj.com/_document/2017-health-for-humanity-report-executive-summary?id=00000163-cfbc-d110-a7eb-cfffb3e00000. Accessed 2019 Oct 28.
- 3. Certified B Corporation. About B Corps. Available at https://bcorporation.net/about-b-corps.
- 4. Sullivan R. Should companies produce corporate responsibility reports?. The Guardian; March 2011. Available at www.guardian.co.uk/sustainable-business/blog/corporate-responsibility-reports. Accessed 2019 May.
- 5. Sullivan R. What do investors want to know about corporate responsibility. The Guardian; March 2011. Available at www.guardian.co.uk/sustainable-business/investors-corporate-responsibility?INTCMP=SRCH. Accessed 2019 May.
- 6. Available at http://www.kathimerini.gr/1009283/article/oikonomia/ellhnikh-oikonomia/n-aylwnas-giati-kerdizoyn-thn-empistosynh-twn-ependytwn-oi-koinwnika-ypey8ynes-ependyseis. Accessed 2019 May.
- 7. Harvard Business Review. 2019. Yes, sustainability can be a strategy. Available at https://hbr.org/2019/02/yes-sustainability-can-be-a-strategy.
- 8. Deutsche Bank. 2018. Deutsche Bank integrates ESG data in company research as demand for responsible investment solutions accelerates. Available at https://www.db.com/newsroom_news/2018/deutsche-bank-integrates-esg-data-in-company-research-as-demand-for-responsible-investment-solutions-accelerates-en-11573.htm.
- 9. Abu Alnasr AA. Why we need sustainability reporting. World Finance; October 2011. Available at http://unepinquiry.org/wp-content/uploads/2018/10/Green_Digital_Finance:Mapping_in_Switzerland_and_Beyond.pdf. Accessed 2018 Sep.
- 10. Dow Jones. 2012. DJSI brochure. Available at http://www.sustainability-index.com/djsi_pdf/publications/DJSI_Brochure_2012.pdf.
- 11. Marks and Spencer. 2018. Marks and Spencer Plan A report 2018. Available at https://corporate.marksandspencer.com/annual-report-2018/mands_plan_a_2018.pdf.
- 12. STARS a program of aashe. 2019. About STARS. Available at https://stars.aashe.org/about-stars.
- 13. David Kiron, Nina Kruschwitz, Knut Haanaes, Ingrid von Streng Velken. Sustainability nears a tipping point. MIT Sloan Management Review, pp. 69–74; January 2012. Available at http://www.greenprof.org/wp-content/uploads/2011/12/Sustainability-Nears-a-Tipping-Point_-MIT-Sloan_Dec.-2011.pdf. Accessed 2019 May.