Chapter 3

How to Report on Sustainability

Large and small companies alike have recognized that more effective management of stakeholder impacts and relationships is critical to success. The question of whether or why they should pay attention to issues of social and environmental responsibility is no longer up for discussion. The challenge is how.

—Epstein (2008a)

U.S. law does not require companies to produce sustainability reports, but increasing numbers of companies are publishing these reports. Although generally accepted accounting and reporting principles for ­sustainability do not exist, corporate sustainability reports are frequently prepared using criteria determined by external organizations or by the company’s internal guidelines. There are guidelines available for companies to use to engage in sustainable development and reporting. The International Federation of Accountants (IFAC) Sustainability Framework, the Global ­Reporting Initiative (GRI), the Integrated Reporting (<IR>) Framework, and Sustainability Accounting Standards Board (SASB) are discussed in this chapter.

IFAC Sustainability Framework

IFAC is a global organization that works to promote high-quality ­practices in the accountancy profession. IFAC members and associates are for the most part national professional accountancy bodies. There are 2.5 million accountants from a variety of specialties such as public practice, ­industry, business, government, and academia represented in IFAC. Its independent standard-setting boards (International Auditing and Assurance Standards Board, International Accounting Education Standards Board, International Ethics Standards Board for Accountants, and International ­Public Sector Accounting Standards Board) issue international standards on education and public sector accounting, ethics, auditing, and assurance.

The members of IFAC have concluded that accountants need to be more active in promoting sustainability as a long-term approach to ­business performance. To support this view and help accountants understand the different aspects of sustainability, the organization has issued its Sustainability Framework 2.0. The organization’s framework for ­sustainable development has three interacting perspectives—business strategy, operational, and reporting.1 The business strategy perspective focuses on a strategic approach such that sustainability is part of the vision and leadership, strategic goals, targets, discussions, and objectives. ­Sustainable development is combined with risk management, ­governance, and accountability. The strategic approach to sustainability is a way to cover all aspects of the organization. Rather than being an addition to the organization, sustainability has to become an integral part of it at all levels.

The operational perspective involves how organizations can meet strategic goals that incorporate sustainable development. This ­perspective covers all areas of performance and change management in pursuit of sustainable development. Because it often takes effort and time for ­organizations to achieve long-term sustainable development, the internal perspective offers guidance in achieving some ways to achieve quick and simple rewards in the short term. Efforts to achieve waste and energy reduction are prime examples of some short-term gains.

The reporting perspective takes the long term into consideration by the incorporation of some systematic issues. It recognizes the importance of improving the flow of relevant information to decision makers who need to make choices regarding the environmental and social dimensions of the business. Incorporating environmental and social aspects into the existing accounting and reporting system becomes an essential step. For example, the establishment of an environmental management accounting system would focus on the environmental impacts and costs of operations.

GRI Sustainability Reporting Guidelines

The reporting guidelines of the GRI are the most widely used voluntary guidelines.2

The GRI is an international independent organization that helps businesses, governments, and other organizations understand and communicate the impact of business on critical ­sustainability issues such as climate change, human rights, corruption and many others.3

This organization began in 1997 with the intention of improving ­sustainability reporting, and the GRI criteria are poised to be the basis for generally accepted reporting standards. The GRI is collaborative in its approach to establishing guidelines. Many groups (businesses, ­accounting regulatory bodies, nonprofit organizations, investor organizations, and trade unions) are involved in creating ones that are globally accepted. In response to feedback from its stakeholders, in 2013, the GRI released the G4 Reporting Framework—its fourth comprehensive set of reporting guidelines. A sustainability report is a report published by a company or organization that describes the economic, environmental, and social impacts caused by its daily activities. The report also discloses the organization’s values and governance model, and connects its strategy and its commitment to a sustainable global economy.

The GRI instituted a governance change in 2015 that separated its standard-setting activities from all other organizational activities. The separate governance structure for standard-setting includes a Global Sustainability Standards Board, a Due Process Oversight Committee, and an Independent Appointments Committee. In addition, an independent public funding base for standards activities was established and is separate from funding of other organizational activities.

GRI sustainability reporting guidelines have two major components—reporting principles and standard disclosures. The reporting principles consist of principles for defining report content and principles for defining report quality. Identifying report content is based on an ­organization’s activities, impacts, and relevant expectations of its stakeholders. In ­determining report content, the principles for guidance include stakeholder inclusiveness, sustainability context, materiality, and completeness. Report quality relies on balance, comparability, accuracy, timeliness, clarity, and reliability.

Defining Report Content

The four components to defining content are stakeholder inclusiveness, sustainability context, materiality, and completeness. To know what is important to stakeholders, stakeholders and their reasonable expectations and interests need to be identified. The process of identifying, contacting, and engaging stakeholders should be documented in order to disclose this information in the report. Sustainability context is a consideration of the organization’s sustainability performance at local, national, and global ­levels. For some organizations that operate within one country, their impacts may be limited to a local or national context. ­Determining ­materiality refers to determining what matters are important in ­achieving an organization’s goals and managing its impact on society; a report should focus on material topics to better inform stakeholders. Both ­internal and external factors play a role in determining if a topic is material. The ­internal factors are based on the organization’s mission and strategy. The external factors are related to how important the topic is to its stakeholders. The last component, completeness, refers to whether the material topics ­covered in the report are sufficient to represent the organization’s economic, environmental, and social effects so that stakeholders can assess its performance. This involves the scope (range of topics), boundary (internal and external), and time (events within reporting period).

Quality

The quality of a report is defined by the attributes of balance, ­comparability, accuracy, timeliness, clarity, and reliability. Balance promotes the reporting of both positive and negative indicators of sustainability so that stakeholders can see the organization’s overall ­performance. Omitting the disclosure of an increase in emissions would harm the credibility of the report. An illustration is a manufacturer of cement that expanded its ­production facilities and increased production without ­incorporating energy efficient processes and equipment; one would expect to see a reported increase in emissions. Omitting the increase from its report would affect stakeholders’ ability to assess the company’s actual ­environmental performance. To be useful to readers interested in performance trends over time and across organizations, the comparability attribute encourages consistent application of reporting presentations. This enables the comparison to benchmarks that are useful for improving performance. Because these reports will be used for decision making, they need to be reasonably accurate and in sufficient detail to assess performance. The threshold of accuracy needed may depend on the type of information and its intended use. For example, while the accuracy of qualitative ­information depends on how it is presented (e.g., detail, clarity, balance), the accuracy of quantitative information depends on measurement techniques and bases for calculation or underlying assumptions for estimates. Timeliness refers to publishing reports on a regular basis so stakeholders can have information with which to make decisions in a timely manner. Dated information loses relevance for current decisions. In addition to timeliness, the report needs to be clear; in other words, it should be understandable and accessible to stakeholders. This involves providing a level of information that is not overburdened with needless detail but at the same time aggregated in a manner that is user-friendly. The last attribute of quality, reliability, refers to whether the information in the report can be evaluated for its materiality and quality. This attribute has important implications for how the information is identified, measured, recorded, compiled, and disclosed. A good question to ask is whether the report can be examined to establish its accuracy.

Standard Disclosures

There are two types of disclosures. They are general standard disclosures and specific standard disclosures. The general disclosures include ­strategy and analysis, organizational profile, identified material aspects and boundaries, stakeholder engagement, report profile, governance, and ethics and ­integrity. The specific disclosures include disclosures on management approach and indicators. Organizations can report at one of two ­levels, which are core and comprehensive. The core level requires general standard disclosures and only one indicator for each material aspect. Organizations just ­beginning to report usually select the core level. The comprehensive level includes more detail in the governance sections of the general ­standard disclosures. In addition, all indicators in a material aspect must be reported. Examples of disclosures from companies that have sustainability reports using the GRI G4 guidelines are presented in the following discussion.

General disclosures are sometimes referred to as the “front” matter. In essence, these general disclosures lay the foundation for what and why specific disclosures are made. Strategy and analysis represent a high-level summary of the organization’s relationship to sustainability. In this summary, the CEO or chairman issues a statement regarding the ­organization’s overall vision and strategy for the short, medium and long terms along with key impacts, risks, and opportunities. For example, in 2013, United Parcel Service (UPS), the world’s largest package delivery company and supply chain management solution provider, published in its sustainability report such a statement from Scott Davis, chairman and chief executive officer. In the statement, he discussed the challenge of meeting the needs of an ever expanding global population into the ­mission and vision of UPS.4 He acknowledged the role that UPS plays in the world economy with its job creation and business facilitation; this is coupled with the need to deliver packages as efficiently as ­possible to lessen the company’s environmental impacts. Because transporting packages is highly dependent on the use of planes and trucks, most of its ­environmental impacts are from greenhouse gas (GHG) emissions. Reducing these emissions is key to the company’s future success. UPS set emission reduction targets and evaluated them with its transportation intensity index, which is a comprehensive measure of its GHG emissions efficiency. Davis also remarked on the company’s contributions to society by revealing the number of employee volunteer hours and assistance with global humanitarian shipments.

The organizational profile provides a description of the organization’s characteristics such as its name, location, legal brands, products or services, supply chain, and the scale of operations. In its 2014 ­sustainability report, MillerCoors, a joint venture of SABMiller plc and Molson Coors ­Brewing Company, disclosed the location of its headquarters in Chicago along with the names and locations of its eight breweries in the United States.5 As part of the organizational profile, MillerCoors describes throughout its report ways in which sustainable supply chain management is an essential part of its operations. To reduce its environmental impacts, the report provided explanations of its ongoing sustainability initiatives with farmers, package manufacturers, and transportation providers. In particular, MillerCoors works with its barley growers to determine and help ­implement best practices for water and soil conservation. To illustrate scale of operations, the company reports to be the second largest beer manufacturer in the United States; earning nearly $8.97 billion in 2013 in total revenues, MillerCoors’ sales accounted for 30 percent of the beer sales in the United States and Puerto Rico.

Disclosures under identified material aspects and boundaries explain how an organization determines the report content and what the ­material aspects are within the boundaries declared for the report. Companies can take numerous approaches in determining report content. For ­example, UPS in its 2013 sustainability report took a ­multifaceted approach. In consultation with Business for Social Responsibility, a nonprofit ­organization specializing in CSR, UPS examined multiple sustainability reporting frameworks and interviewed stakeholder representatives and members of their management committee along with a variety of ­governmental and nongovernmental agencies, investors, and ­academics. As a result, over 50 issues were selected and categorized into broader ­topics such as GHG emissions and climate change. After final consultations and ­categorizations, senior leaders approved a list of material aspects that were disclosed in its sustainability report. Among the top issues were customer privacy, labor relations, energy, emissions and fuel supply, and management of third-party representatives.

Stakeholder engagement is a summary of the organization’s stakeholder engagement process. Although the GRI G4 standards do not ­prescribe procedures for stakeholder engagement, they recommend that the process be based on systematic or generally accepted approaches. As a consequence, each organization can determine its own process in order to understand its stakeholders’ information needs. Accor, an international hospitality group, and Nestlé, a multinational food and beverage company, illustrate different methods of engagement. Accor operates hotels in over 90 countries with the stated commitment to nurturing fair and equitable stakeholder relations.6 The company described its engagement process as one that is set up to evolve with time. In 2013, it identified its stakeholders with the support of corporate departments to determine the best type of dialogue needed to assess material topics. Based on what it learned in 2013, the company studied its leading stakeholders along with their key issues for inclusion in its 2014 report. The results from its stakeholder study was depicted as a map of major stakeholders and how they share in the financial value created by the company. To illustrate, at the top of the map Accor’s customers (companies, travel ­agencies, individual guests, and groups) were shown as having contributed 90 ­percent of its revenues. Customers’ major issues were listed as satisfaction, ­attentiveness, loyalty, appeal, innovation, and responsible tourism. Nestlé, by ­contrast, has been holding annual stakeholder forums in ­different international ­locations (Geneva, Washington DC, Kuala Lumpur, New Delhi, ­Nairobi) since it began its sustainability reporting in 2007. In 2014, the ­company cohosted one forum with the United Nations Conference on Trade and Development in Switzerland and convened two others in ­London and Jakarta, where representatives from academia, NGOs, industry associations, government, and international bodies attended. Nestlé’s senior management participated in these forums.7

The report profile provides information about the reporting period, cycle, the content index, and assurance. As an example, Nestlé’s 2014 ­sustainability reporting period covered its global operations (wholly owned companies and subsidiaries) for the year ended December 31, 2014. Because organizations can choose the order and style of ­presentation in their reports, the GRI content index is a necessary component that allows readers to find specific indicators. Nestlé put its GRI content index near the end of the report where the company chose to indicate its reporting cycle. Although not required, the GRI recommends external assurance as a means to provide internal and external readers with a level of confidence about the quality of the information provided. GRI G4 guidelines ­stipulate that reporting companies need to indicate whether and what parts of the report have been assured. In its report, Nestlé identifies its external assurance provider as Bureau Veritas, a global nonfinancial audit and certification company, and indicates where the independent assurance statement can be found in its report.

Governance disclosures reflect an organization’s governance ­structures and composition as a means to describe the workings of the highest ­governance body. This includes how the body is created and structured to support the organization’s mission along with how the mission is connected to economic, environmental, and social dimensions. These ­disclosures are an overview of how the governance body sets the ­organization’s mission, values, and strategy. In addition, the body’s competencies and performance evaluation are described along with its role in risk management. Because the report is about the organization’s sustainability, the ­organization needs to disclose the governance body’s role in sustainability reporting and in evaluating economic, environmental, and social performance. ­Remuneration and incentives disclosures focus on policies created to support the aligning of the strategic goals of the organization with the interests of the stakeholders coupled with attracting, motivating, and retaining governing board members, senior executives, and employees. Weyerhaeuser, an international forest products company and producer of softwood lumber, pulp, and paper and packaging products, provided governance disclosures its 2014 sustainability report.8 Details about the organization’s governing board structure, responsibilities, remuneration, and incentives as they relate to sustainability are included in the report and referenced to the company’s proxy statement. Weyerhaeuser also disclosed its ratio (19:1) of highest base salary to median base salary.

Ethics and integrity disclosures are an overview of an organization’s ethics culture. These disclosures describe an organization’s values, principles, standards, and norms in addition to the internal and external mechanisms for addressing unethical or unlawful behavior. In its report, Weyerhaesuer referred to its company code of ethics, which can be accessed on its website. The eighth edition of the code provides standards of conduct that cover international business conduct, intellectual ­property, safety, human rights, anti-trust laws, antibribery laws, and conflicts of interest along with other topics. All employees were reported to have attended regular ethics trainings, and those in specific roles were required to complete a certificate of compliance. Disclosures about mechanisms for addressing unethical or unlawful behavior include avenues for ­seeking advice and reporting issues regarding unethical or unlawful behavior and matters of integrity. In addressing its mechanisms, Weyerhaeuser referred to its Ethics and Business Conduct Charter, which defines the accountabilities, roles, and responsibilities regarding ethics and business conduct in the company. In addition, the company reported providing an ­anonymous hotline administered by an independent third party for employees to seek advice and report relevant matters.

Specific standard disclosures include management approach and specific indicators. Management approach provides information about how an organization identifies, analyzes, and responds to its economic, environmental, and social impacts. Organizations can provide a generic disclosure that covers how an organization manages a wide variety of impacts along with specific discussion of how particular topics (e.g., labor) are managed. UPS’s management approach for each of its material topics was disclosed in great detail throughout the report. For example, to explain how it ­managed labor issues, UPS described who in top management was ­responsible and how various matters were managed. The report revealed that John McDevitt, a member of the management ­committee and senior vice president of human resources and senior vice ­president of human resources and labor relations was charged with the ­responsibility for executing human resources policies and management approach. In addition, specific labor issues were presented to explain the organization’s goals and performance, employee training and awareness, monitoring and follow-up, listening to employees, and external stakeholder feedback.

Specific standard indicators are reported under three categories economic, environmental, and social dimensions, which are further refined into aspects (or topics). Each organization determines the aspects that are material or important to its operations. There are four economic aspects, which are economic performance, market presence, indirect impacts, and procurement practices. The 13 environmental aspects include materials, energy, water, biodiversity, emissions, effluents and waste, products and services, compliance, transport, overall (total environmental expenditures and investments), supplier environmental assessment, and ­environmental grievance mechanisms. The social category is the only one organized by subcategories. In total, there are 48 social aspects organized under the subcategories, which are labor practices and decent work, human rights, society, and product responsibility. Indicators are disclosures or metrics under each aspect.

Economic aspects (economic performance, market presence, indirect impacts, and procurement practices) focus on how an organization affects the economic conditions of its stakeholders and the economic systems at local, national, and global levels. Although information may be compiled from the organization’s audited financial statements, these indicators are not primarily about its financial condition (assets, liabilities, and equities).

The nine economic performance indicators are labeled EC1 through EC9. These include direct economic value generated and distributed (EC1), financial implications and other risks and opportunities for the ­organization’s actitivies due to climate change (EC2), coverage of the organization’s defined benefit plan obligations (EC3), and financial ­assistance received from government (EC4). In its 2013 ­sustainability report, UPS presented its economic performance by reporting that it generated $55.4 billion in revenues and that it distributed $48.4 ­billion, Included in the distributions were $28.6 billion in compensation and benefits for full-time and part-time employees and $4.3 billion in taxes. UPS stated that its main economic risk due to climate change is a ­regulatory one. It expects that worldwide regulations to limit GHG ­emissions will increase for ­companies in the transportation sector; increased ­regulations are expected to result in increased taxes and fees. UPS sees this also as an opportunity to compete more effectively based on their proven ­abilities to manage and mitigate GHG emissions. For full coverage of its ­pension obligations, the company directed readers to its financial statements. Although it did not receive direct financial assistance from the ­government, UPS reported that it participated in public-private partnerships that involved tax incentives.

Market presence indicators cover ratios of standard entry level wage by gender compared to local minimum wage at significant locations of ­operation (EC5) and the proportion of senior management hired from the local community at significant locations of operation (EC6). The ratios of entry level wage to the local minimum are intended to demonstrate how an organization affects the economic well-being of employees and also the competitiveness of the organization’s wages in various regions. Abertis, a Spanish company specializing in the management of toll roads and ­terrestrial and satellite telecommunication infrastructures, reported in its 2014 sustainability report that the ratios between the organization’s minimum salary and the minimum local salary were 151.7 percent for men and 215.5 percent for women.9 The company disclosed also the ratios categorized by its two services, toll roads and telecommunications, and by countries of operations. In Table 3.1, ratios for men and women by country are presented, and in Table 3.2, ratios for men and women by division and location are provided.

Hiring senior executives from local communities helps both local economies and the organization; the local economy is likely to prosper while the organization is likely to better understand the communities in which it operates. Abertis reported that 93 percent of its executives were hired locally in all countries except at its headquarters in Spain where 100 percent were local hires.

Table 3.1 Abertis starting salary to minimum local salary—toll roads10

Country	Men	Women
Brazil	120.1%	123.2%
France	101.4%	101.4%
Spain	159.6%	161.9%
Chile	100.0%	100.0%
Argentina	326.4%	326.4%
Puerto Rico	103.4%	103.4%

Table 3.2 Abertis starting salary to minimum local salary—telecommunications11

Division/location	Men	Women
Terrestrial	199.3%	199.3%
Satellite Spain	210.3%	210.3%
Satellite Brazil	129.0%	129.0%

Indirect economic impacts indicators are based on an ­organization’s development and impact of infrastructure investments and services (EC7) and significant indirect economic impact, including the extent of impacts (EC8). In 2014, Fiat Chrysler Automobiles (FCA), a global auto group that manufactures and sells vehicles, reported that it ­contributed ­approximately €24 million in resources to benefit local ­communities in Europe (45 ­percent), North America (27 percent), Latin ­America (26 ­percent), Asia (1 percent) and others areas (1 percent). These resources supported education, culture and art (53 percent), social ­welfare (22 ­percent), health (19 percent), emergency relief (1 ­percent), and other support (5 percent).12 An example of significant indirect ­economic impact on a community is found in Ball State University’s 2013 report, which states that approximately $95 million spent in the the City of Muncie, Indiana can be attributed to university-associated visitors.13 The procurement practices indicator discloses the proportion of spending on local suppliers at significant locations of operation (EC9). In its 2013 report, UPS stated that 53 percent of all procurement spending goes to local ­suppliers. When fuel is excluded from the mix, it spent 68 percent with local suppliers.

Environmental aspects provide information about the organization’s impacts on living and nonliving natural systems, which includes land, air, water, and ecosystems. Disclosing the quantity and source of an ­organization’s inputs (e.g., materials, energy, water) and outputs (e.g., emissions, effluents, waste) are examples along with how an organization affects biodiversity. Transport and product and service-related impacts, as well as environmental compliance and environmental expenditures, fit into this category.

The 13 environmental aspects are covered by 34 environmental ­indicators labeled EN1 through EN34. Under the materials aspect, ­materials used (EN1) by weight or volume and percentage of recycled input ­materials used (EN2) give information relevant to how well an ­organization is ­conserving materials. This is useful for both external and internal stakeholders. With these indicators, internal ­stakeholders are ­better able to manage material efficiency and sourcing. For Ball ­Corporation, a ­manufacturer of metal packaging for beverages, foods and household products, the quantity of materials used in manufacturing is relevant to its operations.14 Aluminum and steel are the main raw materials in its manufacturing ­operations. In its 2013 report, Ball Corporation stated that it strives to reduce materials used by “lightweighting” containers and increasing processing speeds. Cost of sales was around 81 percent of sales so cost reduction is an important goal. Lightweighting reduces the amount of aluminum needed to produce a container thus saving on raw ­materials used. This is possible through a process call impact extrusion, which forces aluminum slugs into desired shapes by a high impact press. Raw materials used by type and tons are shown in Table 3.3.

Ball reported its recycled metal used for beverage cans manufactured in North America to be 68 percent, which was based on industry averages. The company has an incentive to use recycled metals to reduce its costs and environmental impacts. Virgin aluminum is costly to produce from an energy and environmental perspective; bauxite ore, the main source material of aluminum, is strip-mined and heated in two processes at 300 degrees and 1700 degrees Fahrenheit, respectively.

Table 3.3 Ball Corporation raw materials consumed15

Raw materials consumption (metric tons)	2012	2013
Aluminum	1,124,243	1,068,465
Steel	696,728	694,343
Plastic pellets	10,527	12,909

Energy, another environmental aspect, includes disclosures about energy consumption, energy intensity, and energy reduction. The rationale for this aspect relates to how energy affects costs and reflects risks associated with supply and prices. Energy consumption within the organization (EN3) encompasses reporting how much fuel (renewable and ­nonrenewable) was consumed in addition to amounts of energy ­(electricity, heating, cooling, steam) sold. Energy consumption outside of the organization (EN4) is reporting about upstream (suppliers) and downstream (consumers) consumption; this has relevance as an organization tries to improve the life-cycle performance of its products and services. The energy intensity ratio (EN5) gives a context for the ­organization’s energy efficiency relative to an organization-specific metric. For example, it can be how much energy it takes to produce one unit of product, service, or sales dollar. This enables a normalization of total consumption that can be compared across time or organizations. Energy reduction metrics (EN6) disclose how much energy has been saved by reduction initiatives such as process redesign, operational changes, ­and retrofitting equipment. An ­organization’s costs savings and environmental impact have relevance here. To take this a step further, an organization can monitor its energy efficiency as it specifically relates to reductions in energy requirements of products and services (EN7).

In 2014, Abertis reported its energy impacts by disclosing several ­metrics. Its total energy consumption within the company was 642,509 MWh, which was a 10.3 percent increase from the previous year. ­Electricity and liquid fuels accounted for 97.8 percent of the total energy ­consumption. Although the company was able to measure ­consumption within the organization’s operations, it reported being unable to track the upstream and downstream consumption at the time. Its future plans involved a measurement system under development for ­deployment in 2017 to track energy outside the company. As an example of an ­intensity ratio in its Toll Roads operations, Abertis disclosed its liquid fuel ­consumption in liters (L) by country in relation to average daily traffic (ADT). As seen in Table 3.4, this allows for comparison across years and countries. As a means to reduce fuel consumption, Abertis also disclosed that it launched an application to manage it fleet consumption.

Table 3.4 Abertis liquid fuel consumption by country (L/ADT)16

Country	2013	2014	Change
Brazil	908.5	860.8	−5.3%
France	232.7	229.2	−1.5%
Spain	80.5	81.8	+1.5%
Chile	75.2	81.6	+8.5%
Argentina	5.2	5.1	−1.6%
Puerto Rico	1.3	0.9	−31.7%

Water is an environmental aspect because clean freshwater is a ­natural resource under increasing pressure from population growth and ­changing weather patterns. Monitoring water use by amounts and sources can ­provide information about efficient consumption, cost savings, and disruption risk. Water use includes how much is employed as a raw material in products (e.g., beer), a process (e.g., rinsing) in production, or component of services provided (e.g., hotel shower). Total water withdrawn by source (EN8) reflects volume used from sources such as surface water, ground water, rainwater, municipal water, and waste water. Accor reported consuming 4.5 million cubic meters of water in its hotels for showers, toilets, kitchens, swimming pools, and gardens. When an organization uses a significant amount of water, it may reduce the water table or water available for use along with adversely affecting an ecosystem. As a means to describe the impacts of its water consumption, Accor ­disclosed its water impacts using a water risk analysis system developed by the World Resources Institute. A breakdown of the hotel locations by risk category gives it information to better manage its operations in the highest risk categories. Table 3.5 provides information about where Accor has the most impact.

Table 3.5 Accor water impacts17

Water-stressed levels	Percentage of hotels
Drylands	1%
Very high water stress	17%
High water stress	15%
Moderate to high water stress	20%
Low to moderate water stress	26%
Low water stress	20%
No data	7%

Reporting which specific water sources are significantly affected by the withdrawal of water (EN9) is meant to reflect the scale of an ­organization’s impact. Measuring and reporting the percentage and ­volume of water reused and recycled (EN10) is a means to monitor water conservation and cost reduction. If an organization uses greywater (rainwater or ­wastewater produced by laundry and dishwashing), this could ­contribute not only to the organization’s environmental goals but also to the local and regional goals for water conservation. In its 2014 ­sustainability report, Hormel Foods, a multinational manufacturer and marketer of food and meat products, disclosed that it used 5 billion gallons (19 ­million cubic meters) of water, which were drawn from municipalities (87 percent) and company owned wells (13 percent).18 The company reported that its manufacturing plants in California had been identified by the World Resources Institute Aqueduct Water Risk Atlas as having an overall high risk. ­Hormel also described its water reduction goals and initiatives in California. By installing a reverse osmosis systems, its Swiss American Sausage plants in California saved over a million gallon of water in 2014. In addition, water reduction projects at its Farmer John facility resulted in saving 27.8 million gallons of water, which was a 22 percent reduction from the previous period.

Disclosures on the aspect of biodiversity are aimed at protecting areas of high biodiversity. These disclosures aid organizations with understanding and creating an organizational strategy to lessen their impacts. Organizations that are located on or adjacent to such sites should report (EN11) their locations and the nature of the biodiversity area. To add to this, significant impacts (EN12) caused by the organization’s activities and products or services should be described. If organizations are proactive in their approach to biodiversity, they need to report the habitats they have protected or restored (EN13). In various parts of the world, certain biological species are at more risk from extinction than others. Organizations can also report if their impacts (EN14) are affecting any of the ­species on the International Union for the Conservation of Nature Red List of Threatened Species. This authoritative list provides updated ­scientific information about the status of species in an attempt to reduce species extenction. In its 2013 sustainability report, the ­Indianapolis ­Airport Authority (IAA) presented its impact on ­biodiversity.19 It described its partnership with federal, state, and local agencies to manage 2,000 acres of its property as part of a conservation management area, which is a preservation habitat for the federally endangered ­Indiana bat and a federally protected wetlands. The IAA reported its ­specific actions and plans to protect biodiversity in this conservation area.

Emissions disclosures encompass GHG emissions in addition to ozone-depleting gases such as nitrous oxide (NOx), sulfur oxides (SOx), and others. GHG disclosures are categorized by source, ­intensity and type. There are three scopes (i.e., Scope 1, 2, and 3) or sources defined for GHG accounting and reporting purposes; for each ­organization, ­determining its scopes is based on where it sets its organizational boundaries.20 The sources of emissions can be direct (Scope 1), energy indirect (Scope 2), and other indirect (Scope 3) GHG. Direct GHG (EN15), or Scope 1 emissions are from sources owned or controlled by the organization. Examples are emissions from generating energy (e.g., electricity, heat), ­manufacturing or processing chemicals and materials, and transporting materials, employees, and passengers. In its 2014 ­sustainability report, Dow Chemical, a diversified chemical ­manufacturer, reported total direct GHG to be 26.6 million metric tons.21 Energy indirect GHG (EN16) or Scope 2 emissions are the result of purchasing electricity, heating, ­cooling, and steam from other organizations. For Dow Chemical, Scope 2 ­emissions amounted to 8.1 million metric tons in 2014. Other ­indirect GHG (EN17) or Scope 3 are generated due to the activities of the ­organization but are not from sources owned or controlled by the organization. These emissions come from the activities of its suppliers (upstream) in extracting, producing materials and customers (downstream) in using its products and services. Dow estimated its Scope 3 emissions based on its inputs and outputs and reported them by source and quantity (see Table 3.6).

To establish a context for the organization’s efficiency over time and in comparison other organizations, the GHG intensity indicator (EN18) provides a means to normalize its total emissions. It is calculated when dividing the organization’s absolute emissions by an organization-specific metric such as products produced, services delivered, or sales dollars. For example, Dow Chemical reports its emissions intensity by dividing its GHG emissions in metric tons by metric tons of production resulting in 0.607. To track reductions associated with established targets, ­organizations can report their GHG reductions (EN19). Dow reported reducing its total emissions by 25 percent since 2006.

Table 3.6 Dow Chemical scope 3 emissions estimates (million metric tons)22

Source	2013
Purchased goods	49.2
End-of-life treatment of sold products	21.4
Use of sold products	12.5
Fuel and energy-related activities	8.4
Upstream and downstream activities	6.7
Other	5.6

Emissions of ozone depleting substances (ODS) are commonly used as in refrigerators, airconditioners, fire extinguishers, dry cleaning chemicals, solvents, electronic equipment, and agricultural pesticides. When released to the atmosphere, these substances destroy Earth’s protective ozone layer, which filters harmful UV rays from the sun. The ­Montreal ­Protocol, an international treaty signed in 1987, requires ­eliminating the ­production of ODS over specific time intervals. The ­indicator (EN20) is relevant for organizations that produce or use ODS in processes, products, services, and need to change to new substances to adhere to ­phase-out requirements. Dow Chemical reported emissions of 10 metric tons of chlorofluorocarbons, which is down from over 200 tons in 2005. Air pollutants (EN21) such as nitrous oxides, sulfur oxides, ­particulate matter, and volatile organic compounds have significant adverse effects on the environment. Dow emits these gases and reports these values in separate categories as priority compounds, NOx, SOx, and volatile organic compounds.

Effluents and waste metrics represent an organization’s impacts on the environment as it discharges water and disposes of waste. Total water discharged (EN22) by quality and destination has relevance for how an organization manages its impacts on the surrounding environment. Unmanaged discharges with substantial chemical or nutrient loads can dramatically affect the quality of the water supply in a local community. Accor presented its effluent impacts by assessing its contribution to marine and freshwater eutrophication, which is excessive nutrients from land runoff and sewage in a body of water. This excess leads to an ­abundance of plant life causing low-oxygen conditions that damage fisheries, biodiversity and amenities. Measurements of nutrient saturation provide ­information on the discharge impacts on water quality. After looking at its life-cycle of operations, Accor measured its nitrogen (4,569 kilograms of nitrogen equivalent) and phosphorous (10,345 ­kilograms of phosphorous equivalent) saturation. The company determined that 78 percent of its marine eutrophication impact was due to farming ­activities involved in supplying its food services while 96 percent of its freshwater eutrophication resulted from on-site consumption of energy supplied from nuclear plants.

The total weight of waste (EN23) by type and disposal method can provide information about how an organization can lower costs and improve efficiency in its operations. To illustrate, Accor Group manages waste over 3,700 hotels; it reported total waste weight disposed in 2013 to be 160,000 tons. Table 3.7 shows the composition of Accor’s waste.

The company reports that approximately 60 percent of waste that is sorted is recycled. In a more detailed breakdown, it categorized waste by hotel type with 7 tons per year for the “budget,” 34 for the “economy,” 69 for the “mid-range,” and 94 for the “luxury, top-end.”

Monitoring the total number and volume of significant spills (EN24) of hazardous materials can help prevent damage to the surrounding area. Hewlett-Packard Company, a multinational information ­technology company, reported in its 2015 sustainability report that it had one ­significant spill of diesel fuel at a UK facility. The company stated that it was able to contain the spill on its property without contaminating areas outside of its property boundaries.

Table 3.7 Accor’s breakdown of 160,000 tons of waste by type23

Type of waste	Percent
Food waste, food oils, fats	50%
Paper, card	20%
Glass	8%
Plastics	5%
Other (scrap metal, crockery, nonrecyclable throwaway items, textiles)	5%
Hazard waste (batteries, printer cartridges, compact fluorescent light bulbs)	3%
Garden waste	3%
Palettes	2%
Metal packaging	1%
Large items	1%

Hazardous waste transportation (EN25) is a concern to many stakeholders because of the potential harm to humans and the ­environment. Proper management of these wastes reduces potential harm and ­liabilities that could come from fines and damaged reputation associated with improper treatment of the waste. In 2014, Dow Chemical generated approximately 610,000 metric tons of hazardous waste, of which 22 ­percent was transported and treated by third parties. To monitor this treatment process, Dow stated that it audits its third party disposal providers.

As organizations discharge their effluents back into bodies of water, the effluents may have significant effects. If this is the case, ­organizations need to identify these impacts (EN26). A major water quality concern for the IAA is the stormwater runoff from the surfaces of the ­Indianapolis ­International Airport. Chemicals for deicing such as propylene ­glycol used on aircraft and sodium acetate used on pavement are applied during the ­winter months. During 2013, IAA reported that it ­discharged 155 ­million gallons of stormwater into the local sewer systems for ­treatment. Its report described the system of collection and measurement of ­stormwater and glycol along with its Stormwater Pollution Prevention Plan that governs its activities.

Reporting the extent of impact mitigation of environmental impacts of products and services (EN27) provides feedback about actions an organization has taken to lessen the negative environmental impacts and improve the positive impacts of its product and service design and ­delivery. Seventh Generation, a natural household products company, set its goals for 2020 to use plant-based not petroleum materials with all products and packaging and to make all products and packaging ­recyclable or biodegradable. In its 2013 report, the company published its 2012 baseline data and goals (see Table 3.8).24

Table 3.8 Seventh Generation products and packaging25

Type	2012 baseline	2020 goals
Recycled content
Overall	35%	100%
Packaging	75%	100%
Renewable materials	63%	100%
Recyclable materials
Overall	41%	100%
Packaging	98%	100%
Biodegradable materials	55%	100%

At the end of the useful life of a product, a company can reclaim it for reuse. Reporting the percentage of products sold and their packaging materials that are reclaimed by category (EN28), an ­organization can ­measure the extent to which its products, components, or ­materials are collected and successfully converted into useful materials for new ­production processes. This is relevant for effective recycling and ­closed-loop production not to mention cost savings. An example is Dell’s closed-loop recycling program described in its 2015 sustainability report.26 It became the first in its industry to offer a desktop made with third party-­certified closed-loop recycled plastics. The closed-loop system starts with U.S. ­customers who recycle their old systems through Dell’s Reconnect consumer recycling partners (Goodwill® locations). After ­collection, the plastics are separated and sorted into different types. Once inspected, they are baled and shipped to China and blended with virgin plastics. Dell reported 35 percent of the plastic raw material mix was recycled-content, which was molded into new parts. For its computer model OptiPlex 3030, the plastic is molded into the stand and back plate of the final computer or monitor. According to Dell, this closed-loop lifecycle generated 11 percent fewer carbon emissions than the equivalent use of virgin plastics. The OptiPlex 3030 was the first Dell product certified by UL Environment to their closed-loop standard, which specifies that at least 10 percent of the final product is made of closed-loop plastics.

To get an indication of how well an organization is complying with laws and regulations, it reports the monetary value of significant fines and total number of nonmonetary sanctions for noncompliance with ­environmental laws and regulations (EN29). Novartis Group, a ­multinational Swiss pharmaceutical company, paid a total of $155, 534 in fines around the world for minor Health, Safety and Environment (HSE) violations in 2013.27 Novartis does not currently report the ­number of nonmonetary sanctions or cases brought through dispute resolution mechanisms for HSE violations. It did report its plan to evaluate the reporting of nonmonetary sanctions and cases brought through dispute resolution mechanisms and to begin reporting on this in 2015.

For some organizations, logistics may be a major component of their environmental footprint. As part of a comprehensive approach to ­planning environmental management strategies, an organization can report its ­significant environmental impacts of transporting ­products and other goods and material for the organization’s operations, and transporting members of the workforce (EN30). The largest direct ­transportation impact identified at Novartis in 2013 was the GHG ­emissions ­associated with the use of passenger cars for sales ­representatives. In 2013, Scope 1 GHG emissions from the use of company-owned or leased ­vehicles totaled 170 kilotons compared to 177 kilotons in 2012. Scope 1 ­emissions included 9 kilotons from the six company owned or leased ­aircrafts. Scope 3 GHG emissions from its global business flights in 2013 totaled an ­estimated 304 kilotons compared to 313 kilotons the ­previous year.

Reporting total environmental protection expenditures and investments by type (EN31) allows an organization to examine its ability to use it resources to improve performance. For Novartis, environmental protection expenditures fell into four categories. Table 3.9 shows specific expenses and amounts.

Table 3.9 Novartis environmental protection expenditures29

Expenditure type	USD millions
Total costs for waste disposal	$60
Total costs for energy	$420
Investments in energy-saving projects	$34
Total costs for water supply and treatment	$59

Organizations are being held accountable for what happens in their supply chains and as such need to formalize their assessments of their suppliers. Organizations can report these assessments with a description of their processes and percentage of new suppliers that were screened using environmental criteria (EN 32). In 2014, Nokia, a Finnish multinational communications and information technology company, stated that it expects all of its suppliers to meet ethical, labor and environmental standards set out in its Supplier Requirements before it will contract with them.28 It conducted in-depth audits of suppliers on labor conditions and environmental management to ensure compliance with its requirements. It reported that in 2014, assessments were conducted with 155 supplier assessments and audits on corporate responsibility. The company spent 104 auditor days conducting in-depth audits at 23 supplier sites in China, India, Iraq, Kenya, Myanmar, and Saudi Arabia. The results indicated 341 instances of noncompliance with 193 related to health and safety.

In order for organizations to be aware of significant and actual ­negative environmental impacts in the supply chain, they can report the number of suppliers subject to environmental impact assessments and the ­negative environmental impacts and actions taken (EN33). In 2014, Nokia reported that it required its suppliers, with the exception of those with very low environmental impacts, to have a documented ­environmental management system in place. Those identified as key suppliers and those with greater impacts were required to have ISO 14001 certification, which the company tracked through audits and assessments. In 2014, 141 of its key suppliers, representing 49 percent of their total procurement dollars responded to the CDP’s requests to disclose ­information regarding their performance on climate impacts.

Effective environmental grievance mechanisms are important for remediating environmental impacts. To assess progress in this area, the number of grievances about environmental impacts filed, addressed, and resolved through formal grievance mechanisms (EN34) can be reported. In 2014, Abengoa, a global biotechnology company producing biofuels and biochemicals and promoting sustainability of raw materials, reported 74 environmental claims were received and that 57 were resolved.30

The social category has four subcategories (i.e., labor practices and decent work, human rights, society, product responsibility) along with aspects and indicators for each. Labor practices indicators are based on internationally acknowledged standards developed by the United Nations (UN), the International Labor Organization (ILO), and the ­Organization for Economic Co-operation and Development (OECD). In addition to labor practices, organizations are being increasing held responsible to respect human rights. The subcategory human rights includes the implementation of processes, incidents of violations, and changes in human rights access, which are based on numerous international standards (UN, ILO, OECD), treaties, and laws. Along with impacts on individuals, organizations have impacts on society and local communities; as such, individuals and communities are entitled to free, prior and informed consultation for consent regarding an organization’s impacts. Product responsibility is how an organization’s products affect stakeholders and in particular customers.

Employees are a major stakeholder in most organizations, which wield considerable control over working conditions, pay, ­opportunities, and ­fairness. External and internal stakeholders hold organizations accountable for their treatment of workers as it affects an organization’s reputation, risks, and costs. Labor practices and decent work include eight aspects and sixteen indicators (LA1-LA16). The aspects include ­employment, labor—management relations, occupational health and safety, training and education, diversity and equal opportunity, equal remuneration for women and men, supplier assessment for labor practices, and labor practices grievance mechanisms. The number of ­indicators for each aspect varies depending on whether there are more concerns in these topics.

There are three indicators under the employment aspect that ­provide information about new hires and turnover, benefits, and parental leave. Turnover information can indicate problems in the workplace (e.g., ­dissatisfaction, discrimination) and greater expenses for recruitment. Information disclosing the total number and rates of new employee hires and employee turnover by age group, gender, and region (LA1) provides details about recruiting practices with regard to age, gender, and talent. In 2014, Abengoa disclosed its employee turnover rates by overall, age, and gender. The company reported that 6.9 percent of the workforce turnovered compared to 4 percent in the prior year. Exit interviews and questionnaires were administered to determine ways to increase retention.

A measure of an organization’s investment in human resources and minimum benefits given to its full-time employees is a good indication of its ability to retain workers. To get such an assessment, an organization can report benefits (e.g., life insurance, health care) provided to full-time employees that are not provided to temporary or part-time employees, by significant locations of operation (LA2). In 2013, UPS offered a range of employee benefits in addition to those for health and wellness. In its U.S. facilities, retirement plans, 401(k) plans, tuition assistance, discounted employee stock purchase plan, paid time off, employee discounts, and relocation programs were provided to nonunion employees with full-time or part-time status. Benefits that were not available to all or some part-time employees include long-term disability coverage, business travel accident insurance, and tuition assistance; availability may depend on location and employee position. In addition, temporary employees and seasonal workers were not considered eligible for UPS benefits while only management employees have access to certain benefits (e.g., relocation programs).

Recruitment and retention of productive employees can be enhanced by an organization’s offer of maternity and paternity leave. To measure how employees by gender are utilizing this benefit, an organization can report by gender return-to-work and retention rates subsequent to ­parental leave (LA3). For UPS in 2013, it disclosed that more than 2,800 UPS employees, of which were 46 percent female, took parental leave. Following parental leave, 99 percent returned to work. As of the time its sustainability report was published in 2014, 97 percent of employees who returned from parental leave were still employed at UPS.

Good labor management relations are key to providing a positive working environment, a low turnover rate, and minimal operational disruptions. As an indication of an organization’s efforts to keep labor relations smooth, it can disclose its minimum notice periods regarding operational changes, including whether these are specified in collective agreements (LA4). UPS reports that its collective bargaining agreements include minimum notice periods regarding operational changes, but these vary by master agreement and according to specific requirements for local chapters of its unions. The example given was 45 days for its U.S. package delivery operations.

Occupational health and safety indicators are relevant to ­evaluating an organization’s approach to worker safety from the perspective of ­establishing policies, reporting injuries and diseases, and formalizing agreements. The percentage of the total workforce represented in formal joint management-worker health and safety committees that help ­monitor and advise on occupational health and safety programs (LA5) gives an indication of how involved the workforce is in health and safety issues. At UPS, the company stated that the ideas for health and safety improvements originated from it Comprehensive Health and Safety ­Process (CHSP) members. Over 3,300 CHSP committees exist in UPS facilities worldwide thus resulting in about 10 percent of the workforce.

To evaluate an organization’s health and safety record, it can report type of injury and rates of injury, occupational diseases, lost days, and absenteeism, and total number of work-related fatalities, by region and by gender (LA6). Abengoa reported these metrics as seen in Table 3.10.

Table 3.10 Abengoa health and safety metrics31

Metrics	2014	2013	2012
Number of work-related accidents requiring medical leave over one day	416	440	502
Lost work days due to accidents	11,731	12,033	8,802
Total absenteeism due to illness (%)	1.15	1.13	1.06
Total absenteeism due to work-related accidents (%)	0.2	0.17	0.19

Organizations may face high risks associated with ­communicable ­diseases (e.g., malaria) by way of facility locations or in work ­positions with high disease (e.g., asbestosis) rates. Protecting workers from ­serious diseases associated with the workplace contributes to better worker ­satisfaction, health, and retention. To assess these risks, ­organizations ­disclose workers with high incidence or high risk of diseases related to their occupation (LA7). Abengoa reported that malaria, cholera, and tuberculosis in particular geographic locations are ones that are the highest risk to its employees. To prevent these diseases, Abengoa disclosed that it vaccinates its employees along with providing medical exams and training to prevent disease contraction. Two other work-related health issues were loss of hearing due to an environment with high noise levels and legionnaire’s disease for those working in its laboratories. In its report, the company detailed its efforts to minimize employees’ risks to both.

An organization’s formal health and safety agreements with trade unions can promote a positive health and safety culture. By disclosing health and safety topics covered in formal agreements with trade unions (LA8), an organization can reveal the involvement of workers in ­creating these agreements. In its report, UPS stated that all of its U.S. collective bargaining agreements have provisions that deal with the health and safety of union employees. These agreements include health and safety committees, hazardous materials handling, vehicle and personal safety equipment, and accidents and reports.

Training and education are a means to maintain and improve workforce skills in addition to providing opportunities for employee advancement. These indicators include reporting the average hours of training per year per employee by gender, and by employee category (LA9). L’Oréal, a French cosmetics and beauty company, disclosed in its 2014 ­sustainability report that 81.7 percent of its employees received at least one training during the year.32 As an integral part of its employee development ­policy at L’Oréal, 64,220 employees, which consisted of 62 percent women, each worker received an average of 24.9 hours of training over the year. The total for the company amounted to 1,599,742 hours.

To be able to plan for skills acquisition to meet changing workplace needs, an organization can evaluate and disclose its programs for skills management and lifelong learning that support the continued employability of employees and assist them in managing career endings (LA10). For example, in its 2013 report, UPS described that its program for skills management involved both continuing education and career evaluation processes. For education, it reported maintaining on-demand offerings provided through its enterprise-wide learning management system. In addition, comprehensive talent management processes were described are part of its annual Quality Performance Review (QPR) process, which included an annual performance review, career development planning, and Administrative and Technical Performance Appraisal (ATPA). Both the QPR and ATPA were used to establish expectations employee ­performance measurement.

Developing human capital within an organization can improve employee satisfaction and skills enhancement. Reporting the ­percentage of employees receiving regular performance and career development reviews, by gender and employee category (LA11) can indicate how an organization manages skill enhancement. In 2013, UPS reported ­providing performance reviews to 94.5 percent of female management ­employees and 95 percent of male management employees. In addition, reviews were given to 83.3 percent of U.S. administrative and technical full-time personnel.

Diversity and equal opportunity metrics reveal information about the composition of the human capital of an organization. To evaluate the entire organization, this metric includes the composition of the governance bodies and breakdown of employees per employee category according to gender, age group, minority group membership, and other indicators of diversity (LA12). For example, approximately 40 percent of the UPS workforce in the United States in 2013, was labeled diverse as defined by the U.S. Equal Employment Opportunity Commission. This includes 21.6 percent African-American, 12.7 percent Hispanic, 2.6 ­percent Asian-American, and 0.6 percent Native American or other. In its management ranks, 32.7 percent of U.S. employees were from diverse ethnic backgrounds. In its European headquarters, its 300 employees represented 30 separate nationalities.

Equal pay is relevant to retaining a qualified workforce, and imbalances threaten an organization’s reputation along with its potential legal standing. To assess this issue, an organization should report its ratio of basic salary and remuneration of women to men by employee category, by significant locations of operation (LA13). In its 2014 sustainability report, Dow Chemical stated that pay equity studies had been conducted over the preceding 20 years and have been updated biannually. The studies examined gender on pay decisions globally and ethnicity in the United States. Three components of compensation were analyzed (base pay, performance award and long-term incentives). The 2014 pay equity study was reported to have found no significant difference in base pay, performance award, or long-term incentives between genders or between U.S. minorities and nonminorities. Pay differences were attributed to performance ratings, job level, education, years of service, time since ­promotion, age or geography or both, and not to gender or ethnicity. In 2014, Dow concluded that global pay planning guidelines were being applied appropriately across the company.

Labor practices in the supply chain that affect safety, wages, and ­working hours can be linked to an organization’s activities, ­products, or services. Negative associations damage the organization’s reputation, which is in its best interest to protect. Potential negative impacts could be prevented or mitigated when contracts are being negotiated. As a means to monitor and manage its supply chain, there are several actions that it can take and report. It can screen and report the percentage of new ­suppliers that were screened using labor practices criteria (LA14) and report significant and potential impacts for labor practices in the supply chain and actions taken (LA15). Dow established a Code of ­Business Conduct, which is applied to all its suppliers including new supplier engagements. The requirements of the Code of Conduct are part of ­supplier contracts to help the company with contract enforceability. These contracts included expectations around legal labor practices, and all new contracted suppliers were reported to be in line with acceptable labor practices. Dow disclosed that there were no reported significant actual and potential negative impacts for labor practices in the supply chain for the year 2014.

Labor disputes are not uncommon occurrences in the workplace and need to be addressed. If unresolved, the disputes can be detrimental to worker productivity and the organization’s reputation. Grievance ­mechanisms provide an opportunity for these disputes to be resolved. The number of grievances about labor practices filed, addressed, and resolved through formal grievance mechanisms (LA16) provides information on the effectiveness of the organization’s mechanism. In 2014, HP revealed it had cases regarding human resources policy and practices to be less 0.2 percent of the total number of employees. These were reported as having been addressed and resolved within 90 days.

In the human rights subcategory, the 10 aspects include investments, nondiscrimination, freedom of association and collective bargaining, child labor, forced or compulsory labor, security practices, indigenous rights, assessment, supplier human rights assessment, and human rights grievance mechanisms. Human rights aspects are based on accepted ­international standards developed by the UN and ILO. There are 12 ­indicators (HR1-HR12) under the 10 aspects.

Organizations are being monitored for their human rights impacts not only for what they produce but also in what they invest. To get a sense of the extent to which human rights are a factor in an ­organization’s ­economic decisions, reporting the total number and percentage of significant investment agreements and contracts that include human rights clauses or that underwent human rights screening (HR1) serves this purpose. To address human rights in its investments, Dow Chemical reported establishing a process for due diligence and implementation phases of mergers, acquisitions and joint venture formations. This included a review of all human rights risks prior to the completion of an acquisition or the formation of a new entity.

How well an organization implements its human rights policies and procedures may depend on whether it trains its workforce in the ­applicable human rights laws and standards. To provide some insight into its ­preparedness, an organization can report total hours of employee ­training on human rights policies or procedures concerning aspects of human rights that are relevant to operations, including the percentage of employees trained (HR2). To ensure that all employees are aware of its policies and procedures, Dow Chemical required all employees to complete its Code of Business Conduct training course to assure they understand how Dow’s Code applies to their jobs and where to obtain guidance for questions and concerns. This requirement was administered by the Office of Ethics and Compliance to new employees within their first 45 to 60 days of employment and scheduled on a subsequent three-year refresher cycle. In 2014, Dow reported that all new employees were required to complete the Code of Business Conduct course.

Nondiscrimination policy is a major part of international conventions and social laws and guidelines. Engaging in discrimination based on race, color, sex religion, political opinion, national extraction, or social origin, or other forms of discrimination against internal or external stakeholders is detrimental to society. As a way to monitor how an organization is behaving, the total number of incidents of discrimination and corrective actions taken (HR3) can provide useful information. To illustrate, L’Oréal conducted social audits at its suppliers and subcontractors in 2014, and found that 1.9 percent of the cases of noncompliance identified were related to discrimination issues. All these were practices that could have resulted in discrimination during hiring. As a consequence, the company put corrective action plans in place for major cases with plans to conduct follow-up audits to monitor the progress.

The freedom of association and collective bargaining is considered by many international standards bodies like the UN and ILO to be a ­fundamental right that allows for workers to organize collectively in groups of their choice. Organizations can demonstrate their support of workers’ right to this freedom. To measure this support, organizations report operations and suppliers identified in which the right to ­exercise freedom of association and collective bargaining may be violated or at ­significant risk, and measures taken to support these rights (HR4). According to Dow Chemical’s report, it stated that employees are free to form collective bargaining agreements in all of its operations, and 11 ­percent of employees throughout global operations are involved in collective bargaining agreements.

Supporting the abolition of child labor is socially responsible and is expected of organizations that have significant risks for incidents of child labor. To show their approach to assessing their risks and effective ­implementation of policies, organizations need to report operations and suppliers identified as having significant risk for ­incidents of child labor, and measures taken to contribute to the effective abolition of child labor (HR5). L’Oréal disclosed that during its social audits of its suppliers and subcontractors in 2014 no reports of child labor were identified. However, in its new supplier and subcontractor ­selection process, two cases of child labor with children under 16 were ­uncovered in production sites in Asia. Neither supplier met the other L’Oréal requirements so it chose not to work with the suppliers.

Many international standards bodies like the UN and ILO consider not being forced to work to be a fundamental human right. For organizations at risk, assessing the issue of forced or compulsory labor is part of their risk management. As a way to measure this risk, organizations report operations and suppliers identified as having significant risk for incidents of forced or compulsory labor, and measures to contribute to the elimination of all forms of forced or compulsory labor (HR6). Bloomberg L.P., a privately held financial software, data, and media company, ­disclosed in its 2014 sustainability report that its premium products from Asia and e-waste business had possible exposure to compulsory labor.33 As a consequence, the company reported that it had updated its procurement policies. Additionally, it revealed that comprehensive social audits were performed on its manufacturing partners who produce flat panels, B-Units and keyboards. It concluded that there was no evidence of ­compulsory labor being recorded.

Maintaining appropriate levels of security for an organization’s facilities involves providing appropriate human rights training for security personnel. To reduce the reputational and litigation risks associated with having security personnel, organizations can monitor the percentage of security personnel trained in the organization’s human rights policies or procedures that are relevant to operations (HR7). Dow Chemical stated that it established processes and plans to protect its employees and contractors against abuse or violence. A part of this protection, the ­company employs globally several hundred workers and contractors in its Emergency Services and Security department. Dow security employees as well as contractors were trained as a condition of employment in the ­company’s policies and procedures covering human rights.

Organizations that have operations in or near communities where indigenous peoples reside need to attend to their rights. As part of the organization’s policies, it may establish relations with these communities to understand and protect their rights. Reporting the total number of incidents of violations involving rights of indigenous peoples and actions taken (HR8) will provide an indication of the state of relations. In 2014, Heineken, a Dutch brewing company, disclosed that there were no reported incidents regarding the violation of the rights of indigenous people.34

A periodic assessment of an organization’s human rights responsibility allows for evaluation of its risk to be associated with human rights abuse. A systematic review of its operations provides information about how human rights factors into its decision making. Total number and ­percentage of operations that have been subject to human rights reviews or impact assessments (HR9) gives an indication. Heineken disclosed in its 2014 report that 24 out of 68 Operating Companies performed a gap analysis between the content of the new policy and local practices.

Human rights practices in the supply chain can be linked to an ­organization’s activities, products, or services. Negative associations damage the organization’s reputation, which is in its best interest to protect. Potential negative impacts could be prevented or mitigated when contracts are being negotiated. As a means to monitor and manage its supply chain, it can report the percentage of new suppliers that were screened using human rights criteria (HR10) along with significant actual and ­potential negative human rights impacts in the supply chain and the actions taken (HR11). Heineken disclosed that all of its new suppliers received its Supplier Code, which includes human rights criteria. A refusal to sign or failure to comply with its Supplier Code can end a commercial relationship. Heineken’s important suppliers are assessed and audited on compliance with human rights by Ecovadis, a third party provider of ­sustainability ratings. In 2014, the company ceased business relationships with 176 suppliers because in 139 cases the suppliers were unwilling to sign the Supplier Code and in 37 cases suppliers refused to comply with ­Heineken’s supplier monitoring requirements.

Disputes may arise regarding human rights impacts caused by the organization or by suppliers. Grievance mechanisms provide an opportunity for these disputes to be resolved. Reporting the number of ­grievances about human rights impacts filed, addressed, and resolved through ­formal grievance mechanisms (HR12) can be a way to assess these disputes. ­Volkswagen reported in its 2014 sustainability report that it had a worldwide ombudsman system, which could be used to confidentially report corruption, fraudulent activities, or other serious concerns (such as human rights violations or ethical misconduct) in 10 different languages to two external lawyers.35 In addition, an online channel was reported to be provided to allow for communication with the ombudsmen. In 2014, its report revealed that 51 reports were delivered to the Volkswagen Group’s Anti-Corruption Officer, the Head of Group Internal Audit. In addition, the Anti-Corruption Officer received information on 91 ­additional cases, which had one identified as a possible human rights violation. If breaches of the law or internal regulations are discovered, Volkswagen reported that they are appropriately punished.

The subcategory society has seven aspects, which are local communities, anticorruption, public policy, anticompetitive behavior, compliance, supplier assessments for impacts on society, and grievance mechanisms for impacts on society. There are 11 indicators (SO1–SO11). These aspects and indicators cover impacts that organizations have on society and local communities because community members are considered to have individual and ­collective community rights. These rights are based on UN ­declarations and ILO conventions.

Impacts on people in local communities are relevant to organizations as they plan their operations and assess actual and potential impacts. To better understand these impacts and respond to them, organizations need to engage with the local communities. This can be monitored by reporting the percentage of operations with implemented local ­community ­engagement, impact assessments, and development programs (SO1). Alcoa, one of the world’s largest producers of aluminum, reported its approach to its engagement with local communities in its 2014 sustainability report.36 In this approach, each location of operation completed a dashboard to assess its progress on five key engagement levers (public strategy plan, communications, stakeholder engagement, community partnerships, and employee engagement) with specific attention to its activities around environment, infrastructure, policy, and community relationships. In addition, with the assistance of formal community advisory boards with external community members, NGO leaders, and local officials, company officials met regularly to discuss relevant community matters. Operations with significant actual or potential negative impacts on local communities (SO2) should be disclosed. Alcoa reported in 2014 that its potential impacts to communities include dust from bauxite ­residue found in storage areas at all refineries and noise issues associated with many locations.

Combatting corruption involves a systematic approach with supporting procedures in place. Risk assessments for the potential of corruption are important to system design and the extent to which assessments are being made. In an effort to see the organization-wide implementation of assessments, the total number and percentage of operations assessed for risks related to corruption and the significant risks identified (SO3) can be reported. Aegon, a Dutch diversified insurance company, disclosed its approach to assessing risk of corruption in its acquisitions and ­partnerships.37 As a result of its assessments, it was able to identify risk in Ukraine; due to the security situation, it closed several offices in the country. It also identified India as a country where it faces significant risk of fraud and corruption.

Anticorruption policies are not effective if they are not communicated throughout the organization. A measure of governance members’ and employees’ awareness is the total number and percentage receiving communication and training on anti­corruption policies and procedures (SO4). Ball Corporation provides all employees with its Business Ethics Booklet; to comply with legal requirements, employees certified that they read, understood, and intend to follow the corporate policies. ­Recertification yearly is mandated for all managers and certain other employees.

When corruption occurs, it damages an organization’s reputation and operations. If it does occur, it is important to demonstrate how the organization responds to such incidents by reporting confirmed incidents of corruption and actions taken (SO5). Volkswagen reported that in 2014 the company took action based on findings of investigations against a total of 132 employees across the Volkswagen Group. In cases globally, 72 employees’ contracts were terminated. Because of corruption ­infringements, 16 contracts with business partners were ended.

Contributing to political causes can raise concerns of undue ­influence and corruption. To establish integrity and provide transparency on these contributions, a reporting of the total value of political contributions by country and recipient or beneficiary (SO6) is warranted. American Electric Power (AEP), a major American investor-owned electric utility, disclosed its lobbying and political activity in its 2015 sustainability report.38 It reported that it has five political action committees (PACs) run by ­employees; these included the AEP Committee for Responsible ­Government established for federal candidates and four separate state committees in Michigan, Ohio, Texas and Virginia. In 2014, AEP’s ­federal PAC contributed more than $705,000 to candidates for public office. In addition, AEP spent approximately $6.5 million on internal and external lobbying activities at state and federal levels. A detailed list of recipients and donations was provided as part of its disclosures.

Anticompetitive behavior is detrimental to efficient markets because consumer choice and pricing may be affected. If an organization is involved in legal procedures for this behavior, it should be disclosed with the total number of legal actions for anti­competitive behavior, anti­trust, and monopoly practices and their outcomes (SO7). Volvo, a Swedish multinational manufacturing company, stated in its 2014 sustainability report that there were two investigations into potential corruption in its operations. In addition, there were two other on-going ­noncompliance claims.39 One involved the European Commission, which issued a ­preliminary view that the Volvo Group and several other European truck companies may have violated European competition rules. Although it was early in the proceedings, Volvo made a provision of €400 million to cover the potential liability; consequently, this had a negative impact on its operating income. In the United States, Volvo appealed to the U.S. Supreme Court a $72 million fine imposed by the U.S. EPA pertaining to emission compliance of its diesel engines.

Compliance with laws and regulations establishes an organization’s reputation for operating within legal boundaries. This is important for its reputation as it reduces the financial risks from fines and lost business. The monetary value of significant fines and total number of non­monetary sanctions for non­compliance with laws and regulations (SO8) provides an indication of being able to ensure that operations meet certain performance standards. In 2013, UPS reported that it faced a compliance challenge because illicit online pharmacies had been using its shipping services. The company forfeited $40 million in earnings to the U.S. ­government and agreed to a Non-Prosecution Agreement with the United States Attorney’s Office. The agreement included an Online Pharmacy Compliance Program aimed at preventing online pharmacies from using its services illegally.

Negative impacts on society can be mitigated with due diligence. Because organizations are often held accountable for their own actions along with those of their suppliers, it is important to initiate procedures to structure agreements and contracts to prevent negative impacts. A measure of an organization’s due diligence is the percentage of new ­suppliers that were screened using criteria for impacts on society (SO9). In its 2014 sustainability report, Bloomberg reported that 50 percent of its new suppliers were screened. In addition to screenings, disclosure of ­significant actual and potential negative impacts on society in the ­supply chain and actions taken (SO10) can inform stakeholders of an organization’s awareness and actions. Bloomberg disclosed that its premium products produced in Asia and e-waste operations were spotted as having potential for child labor issues; as a result, it updated its procurement policies. It conducted e-waste audits for each new scrapper being evaluated for a contract.

Disputes may arise regarding impacts on society caused by the organization or by suppliers. Grievance mechanisms provide an opportunity for these disputes to be resolved and to mitigate the impacts on society. Disclosing the number of grievances about impacts on society filed, addressed, and resolved through formal grievance mechanisms (SO11) can be a way to assess these disputes. Through its social impacts grievance mechanism, Natura, a Brazilian cosmetics company, in 2014 recorded 837 contacts for grievances from suppliers, supplier communities, Natura Consultants, and consumers.40 According to its report, all cases were addressed and resolved.

There are five aspects under the subcategory product responsibility. These are intended to reveal the impacts of an organization’s products and services as they affect customers in particular. They are customer health and safety, product and service labeling, marketing communications, customer privacy, and compliance. There are nine indicators labeled PR1–PR9.

Products and services are expected to not represent a health or safety risk. To contend with how an organization systematically addresses product and service health and safety across the life cycle, disclosing the ­percentage of significant product and service categories for which health and safety impacts are assessed for improvement (PR1) achieves this. L’Oréal reports that in order to meet the international regulations ­involving the assessment of the safety of cosmetic products and their ingredients, it complies with the requirements of Regulation (EC) No.1223/2009 and the ­European REACH regulation (Regulation (EC) No. 1907/2006). In addition, it has a procedure for systematically ­assessing all products placed on the market worldwide, which includes regions with few or ­nonexistent regulations.

Noncompliance with laws and regulations governing product safety indicates problems with quality control systems. Revealing the total ­number of incidents of non­compliance with regulations and voluntary codes concerning the health and safety impacts of products and services during their life cycle, by type of outcomes (PR2) gives an indication of the associated actual and potential financial risks from fines and reputation. In 2014, Danone, a multinational food products corporation, ­disclosed that 33 incidents related to food safety were recorded.41 Eight were classified as crisis situations where the company’s crisis management can involve blocking, withdrawing or recall of products in some cases if there is a material or direct risk for consumer’s health.

Product and service labeling with respect to sustainability impacts is linked directly to certain national regulations and codes. To disclose information about addressing a product’s adherence to sustainability impact, the type of product and service information required by the organization’s procedures for product and service information and labeling, and percentage of significant product and service categories subject to such information requirements (PR3) addresses this. In its 2013 report, Ball Corporation stated that because its packaging products are sold to consumer and household goods companies, procedures for product and service information and labeling are done by companies that ­determine product information and labeling for the end user. In addition as part of this disclosure, it described its aerospace division as supplying advanced-technology products and services to governmental and commercial customers.

Noncompliance with laws and regulations governing product ­labeling may indicate problems with quality control systems. Revealing the total number of incidents of noncompliance with regulations and voluntary codes concerning product and service information and labeling, by type of outcomes (PR4) gives an indication of the associated actual and ­potential financial risks from fines and reputation. L’Oréal reported its product labeling came under scrutiny from officials in several countries (e.g., India, Indonesia, Germany, Italy, Lebanon, Switzerland, France, and ­Brazil) regarding information made available to consumers on ­product labels. Examples of the labeling issues involved were font size, the ­information consistency, the language used, packaging dates, lack of regulatory ­information, and problems with list of ingredients. The company reported that all issues were addressed and changes made when ­appropriate. Fines were levied in three cases. Products in several other countries (e.g., Costa Rica and Paraguay) were denied entry by ­authorities because of labels that had no translation; the company subsequently ­modified the labels. In Italy, in response to distributors’ questions on the labels of certain products, L’Oréal made changes where it deemed appropriate. In its procedures of self-regulation, L’Oréal withdrew ­voluntarily products with noncompliant labeling (i.e., list of ingredients) in the United States and Kurdistan.

Customer satisfaction is key to measuring an organization’s sensitivity to its customers and long-term organization success. The results of surveys measuring customer satisfaction (PR5) can provide how well the ­organization is addressing the needs and preferences of its customers. In 2014, Dow Chemical reported that its overall customer satisfaction, which measures the percent of customers who scored their satisfaction either 4 (Somewhat Satisfied), 5 (Satisfied) or 6 (Very Satisfied) was 89 percent.

Under the marketing communications aspect, the sale of banned or disputed products (PR6) may cause concern for stakeholders. Some ­products may be legal in some countries but not in others as well as ­products that are considered controversial due to social mores. Dow Chemical disclosed that it sells several compounds that have been banned in other applications or in other regions. Dow responded to this indicator with a description of how it conducts comprehensive risk assessments to validate that such products can be used without harm to people and the environment. It reported that such cases are due to a different use pattern or lack of infrastructure to manage waste or wastewater. Dow also acknowledges that it sells products that are disputed. For these products, Dow provides hazard and use or exposure information to support a comprehensive risk assessment to validate the intended uses. In some circumstances, it voluntarily discontinued selling products into certain applications or into certain countries because of questions of user’s ability to implement product stewardship programs.

The second indicator under marketing communications is the total number of incidents of non­compliance with regulations and voluntary codes concerning marketing communications, including advertising, promotion, and sponsorship, by type of outcomes (PR7). Noncompliance with laws and regulations governing product safety can indicate problems with quality control systems or problematic implementation. Disclosing this information gives an indication of the associated actual and potential financial risks from fines and reputation. Natura disclosed that it complied with guidelines from Conar, a self-regulatory body, and the codes of conduct of Brazilian advertising, consumer defense, and direct selling associations. In 2013, the company reported that it had no ­notifications of violations of laws or voluntary codes related to marketing ­communications, including advertising, promotion and sponsorship.

Customer privacy has become essential to maintaining customer ­loyalty and satisfaction. Direct financial impacts from fines along with loss of customer confidence and sales are significant consequences. ­Disclosing the total number of substantiated complaints regarding breaches of ­customer privacy and losses of customer data (PR8) can signal that internal management systems are inadequate or its implementation is faulty. UPS reported that it had not experienced any breaches of customer data privacy that are required disclosure in its financial reports.

Noncompliance with laws and regulations governing product safety can indicate problems with quality control systems or problematic implementation of controls. Disclosing the monetary value of significant fines for non­compliance with laws and regulations concerning the ­provision and use of products and services (PR9) gives an indication of the ­associated actual and potential financial risks from fines and reputation. Abengoa stated that during 2014, there were no reports of either fines or sanctions or noncompliance with regulations involving product and service provision and use.

Companies Reporting With GRI

The GRI Reporting Framework is one of the leading standards for ­sustainability reporting.42 Among the world’s largest 250 corporations, 93 percent report on their sustainability performance and 82 percent of these use GRI’s Standards.43 Over 19,600 GRI reports are recorded in the GRI database of reporting organizations. Many more GRI reports may be published but not listed in the database because organizations submit their reports voluntarily. In the database, information about these ­organizations can be sorted by date of report, organization name, report title (with web link), publication year, GRI Guidelines used (G2, G3, G4), adherence level, assurance level, country and region of world of ­headquarters, membership in the Organisation for Economic Co-­operation and Development (OECD), sector, and organization Web site (if available).

The <IR> Framework

In 2010, the International Integrated Reportng Council (IIRC) was ­created to develop a reporting framework that communicates to ­providers of capital about how an organization creates value over time.44 It is a global group consisting of investors, regulators, companies, NGOs, standard setters, and the accounting profession. Among the framework’s objectives is the enhancement of accountability and stewardship of six capitals, which are financial, manufactured, intellectual, human, social and relationship, and natural, along with the explanation of their interdependencies. A fundamental assumption of this framework is that an ­organization affects and is affected by the external environment as it ­creates value over the short, medium, and long terms; the material value created by an ­organization’s relationships, activities, and interactions should be in their report. Companies such as Aegon, AEP, Danone, and Natura, which used the GRI G4 guidelines, are engaging in integrated reporting. A list of other companies using the <IR> framework is posted on the IIRC website.

The six capitals are intended only as a guide for organizations to ­identify what capitals it uses or affects. Financial capital, which represents funds from debt, equity, investment, or operations, is what is available for organizations to use in their normal course of producing goods or providing services. Manufactured capital represents produced physical objects such as buildings, equipment, and infrastructure that can be used to provide services or produce goods for sale. While manufactured capital refers to tangible items, intellectual capital includes ­intangibles such as patents, copyrights, software, rights and licenses. This also covers organizational knowledge, systems, procedures, and protocols. Human capital is what people bring to the organization in the way of their ­capabilities, competencies, and experience along with their ­incentives to innovate. This incorporates more than their knowledge but how they interact with the organization’s strategy, governance, ethics, and processes. Social and relationship capital consists of norms, values, stakeholder relationships, and reputation. Natural capital is all renewable and nonrenewable ­environmental resources and processes that are necessary to an ­organization’s prosperity. These are air, water, land, minerals, and forests. From a systems perspective, natural capital includes biodiversity and the health of ecosystems. The framework acknowledges that not all capitals are relevant to all organizations nor will they be organized in the same categories.

The framework is principles-based and does not specify key performance indicators, measurement methods, or individual disclosures. Based on an application of the guiding principles, the preparer decides ­material issues and disclosure measurement and method. This allows for ­flexibility to accommodate differences in organizations’ purposes, sizes, and ­circumstances. However, in order to be considered in accordance with the framework, there are some specific requirements. The “report should be a designated, identifiable communication.”45 It can be a separate report or included with another report as long as it is distinct and accessible. A statement from those in charge of governance of an organization should acknowledge their responsibility to ensure the integrity of the report, their collective work in the preparation and presentation of the report, and the report’s adherence to the framework.

<IR> Guiding Principles

Seven guiding principles specify the content and presentation of an ­integrated report and are required components. These include strategic focus and future orientation, connectivity of information, stakeholder relationships, materiality, conciseness, reliability and completeness, and consistency and comparability. Strategic focus and future orientation stipulate how an organization can create value in the short, medium and long term and its use of and effects on the capitals relevant to its operations. As an example, this could include a discussion of significant risks, opportunities and dependencies stemming from its business model and market position. Connectivity requires a holistic illustration of value ­creating factors and how they are combined, interrelated, and dependent. The principle of stakeholder relationships describes an organization’s relationships based on nature and quality and how those relationships addresses the stakeholders’ needs. Materiality represents matters that are significant to an organization over the short, medium, and long terms. Conciseness ­indicates that the report needs to be concise. Reliability and completeness speak to the need to report both positive and negative significant matters, which are free of material errors. Consistency and comparability refer to presenting information in a consistent manner over time to allow comparisons within the organization and across other organizations.

<IR> Content Elements

There are eight required content elements in an integrated report. These are organizational overview and external environment, governance, ­business model, risks and opportunities, strategy and resource ­allocation, performance, outlook, and basis of preparation and presentation, and general reporting guidance. These elements are framed in the form of questions. The organizational overview and external environment ask what an organization does and what the circumstances of operation are. To set the stage for why an organization exists, an organization’s mission and vision along with its culture, ethics, and values need to be described. The principal activities and markets, ownership and operating structure, competitive landscape and market positioning are among the items that explain what it does and under what conditions. Quantitative information such total revenues, employees, and countries of operation inform stakeholders in this category about the size of the organization’s impact and where.

Governance is how the governance structure supports the organization’s ability to create value in the short, medium, and long terms. This would include information about its leadership structure such as skills and diversity along with decision processes, ethics, innovation, ­remuneration and incentives. Additional factors from the external environment such as the legal, commercial, social environmental and political context should be included.

Business model poses questions about the organization’s inputs, business activities, outputs, and outcomes as they relate to creating value. The inputs should be key ones and how they relate to the capitals. Key business activities need to be described and can include ways that the organization differentiates itself; examples are product differentiation, market segmentation, delivery channels and marketing. Outputs are not only an organization’s major products and services but also by-products and waste, which could be emissions. Major outcomes involve internal (e.g., revenue, reputation, employee morale) and external ones (e.g., tax payments, customer satisfaction, brand loyalty). Positive and negative ­outcomes should be included. Positive ones are those that create value such as a net increase in the capitals while negative ones decrease value such as a net decrease in the capitals.

Sustainability Accounting Standards Board

The SASB is a U.S. nonprofit organization established in 2012 to develop and distribute industry relevant accounting standards involving ­material sustainability topics.46 The sustainability accounting standards are intended for use by publicly listed corporations in the United States for the benefit of investors and the public. Standards are developed in three phases, which are preparation, development, and finalization. Preparation, which is led by SASB, starts the process. Development, the ­second phase, includes involvement by a multistakeholder industry working group. Finalization, the last phase, takes feedback from the public and a review by SASB’s independent Standards Council. To provide transparency to the process, SASB allows access to a summary of feedback received during the public comment period and industry working groups, along with SASB’s response to feedback received.

These standards are designed for disclosure in mandatory filings to the Securities and Exchange Commission (SEC), such as the Form 10-K and 20-F. As with many other reporting standards, SASB ­developed them with specific principles, which include the qualities of being ­relevant (tied to ­performance), useful (information for decision ­making), ­applicable ­(specific to industries), cost-effective (cost within reason), ­comparable (benchmarking among peers), complete (sufficient to understand), ­directional (clarity about changes), and verifiable (confirmable with ­evidence). In establishing the standards, 10 sectors (health care, ­financials, technology and communications, nonrenewable resources, ­transportation, services, resource transformation, consumption, and renewable resources and alternative energy) were targeted for ­development. Each of the 10 sectors includes specific industries with detailed metrics for each industry. Table 3.11 provides the sectors and industries covered.

Table 3.11 SASB sectors and industries47

Sectors/release date	Industries
Health Care/July 31, 2013	Biotechnology; Pharmaceuticals; Medical Equipment and Supplies; Health Care Delivery; Health Care ­Distributors; Managed Care
Financials/February 25, 2014	Commercial Banks; Investment Banking and ­Brokerage; Asset Management and Custody ­Activities; Consumer Finance; Mortgage Finance; Security and Commodity Exchanges; Insurance
Technology and ­Communications/April 2, 2014	Electronic Manufacturing Services and Original Design Manufacturing; Software and IT Services; Hardware; Semiconductors; Telecommunications; Internet Media and Services
Nonrenewable Resources/June 25, 2014	Oil and Gas—Exploration and Production; Oil and Gas—Midstream; Oil and Gas—Refining and ­Marketing; Oil and Gas—Services; Coal ­Operations; Iron and Steel Producers; Metals and Mining; ­Construction Materials
Transportation/September 24, 2014	Automobiles; Auto Parts; Car Rental and ­Leasing; ­Airlines; Air Freight and Logistics; Marine ­Transportation; Rail Transportation; Road ­Transportation
Services/December 17, 2014	Education; Professional Services; Hotels and Lodging; Casinos and Gaming; Restaurants; Leisure Facilities; Cruise Lines; Advertising and Marketing; Media ­Production and Distribution; Cable and Satellite
Resource Transformation/March 25, 2015	Chemicals; Aerospace and Defense; Electrical and Electronic Equipment; Industrial Machinery and Goods; Containers and Packaging
Consumption I/June 30, 2015	Agricultural Products; Meat, Poultry and Dairy; Processed Foods; Nonalcoholic Beverages; ­Alcoholic Beverages; Tobacco; Household and Personal ­Products
Consumption II/September 2015	Multiline and Specialty Retailers and Distributors; Food Retailers and Distributors; Drug Retailers and Convenience Stores; E-Commerce; Apparel, ­Accessories and Footwear; Building Products and Furnishings; Appliance Manufacturing; Toys and Sporting Goods
Renewable Resources and Alternative Energy/­December 2015	Biofuels; Solar Energy; Wind Energy; Fuel Cells and Industrial Batteries; Forestry and Logging; Pulp and Paper Products
Infrastructure/March 2016	Electric Utilities; Gas Utilities; Water Utilities; Waste Management; Engineering and Construction Services; Home Builders; Real Estate Owners, ­Developers and Investment Trusts; Real Estate Services

One set of released standards is for commercial banks in the ­financials sector. SASB defines commercial banks as those that accept deposits and make loans to individuals and corporations and can also provide loans for infrastructure, real estate, and other projects. Material sustainability topics for commercial banks are: Financial Inclusion and Capacity ­Building, Systemic Risk Management, Customer Privacy and Data Security, Management of the Legal and Regulatory Environment, Integration of ­Environmental, Social, and Governance Risk Factors in Credit Risk ­Analysis. The accounting metrics, category and unit of measure are provided in the standards (see Table 3.12).

Table 3.12 Commercial banks sustainable accounting standard48

Material topic	Accounting metric	Category	Unit of measure
Financial inclusion and capacity building	Percentage of new accounts held by 1st time account holders	Quantitative	Percentage
	Percentage of total ­domestic loans for ­underserved and under banked ­business segments	Quantitative	Percentage
	Number of participants in financial literacy initiatives for unbanked, underbanked or, ­underserved customers	Quantitative	Number (#)
	Loan to deposit ratio for: (1) overal domestic lending, (2) underserved and underbanked business segments	Quantitative	Ratio in U.S. dollars ($)
	Loan default rates for: (1) Overall domestic lending (2) underserved and ­underbanked business segments	Quantitative	Ratio in U.S. dollars ($)
	Discussion of management approach to identifying and addressing vulnerabilities and threats to data security	Discussion and Analysis
Management of the legal and ­regulatory environment	Amount of legal and ­regulatory fines and settlements associated with financial industry ­regulation and ­percentage that resulted from ­whistleblowing actions	Quantitative	U.S. dollars ($) Percentage (%)
	Number of inquiries, complaints, or issues received by the legal and compliance office through an internal monitoring or reporting system, and percentage that were substantiated	Quantitative	Number (#) Percentage (%)
Systemic risk management	Results of stress tests under adverse economic scenarios, including the following measures (actual and projection): (1) loan losses; (2) losses, revenue, and net income before taxes; (3) Tier 1 common capital ratio; (4) Tier 1 capital ratio; (5) total ­risk-based capital ratio; (6) Tier 1 leverage ratio	Quantitative	U.S. dollars ($), Ratio in U.S. dollars ($)
	Basel III Liquidity ­Coverage Ratio (LCR)	Quantitative	Ratio in U.S. dollars ($)
	Skewness and kurtosis of trading revenue	Quantitative
	Net exposure to written credit derivatives	Quantitative	U.S. dollars ($)
	Level 3 assets: (1) total value and (2) percentage of total assets	Quantitative	U.S. dollars ($) Percentage (%)
Integration of ­environmental, social, and ­governance risk factors in credit risk analysis	Discussion of how environmental, social, and governance (ESG) factors are integrated into the lending process	Discussion and Analysis
	Discussion of credit risk to the loan portfolio presented by climate change, natural resource constraints, human rights concerns, or other broad sustainability trends	Discussion and Analysis
	Amount and percentage of lending and project finance that employs: (1) Integration of ESG factors (2) Sustainability themed lending or finance (3) Screening (exclusionary, inclusionary, or benchmarked) (4) Impact or community lending or finance	Quantitative	U.S. dollars ($) Percentage (%)
	Total loans to companies in the following sectors/industries: Energy/Oil and Gas, Material/Basic Materials, Industrials, and Utilities	Quantitative	U.S. dollars ($)

Sustainability Frameworks Compared

The three frameworks getting the most attention are complementary and are compared in the following table (Table 3.13).

Table 3.13 Sustainability frameworks compared49

	GRI	IIRC	SASB
Type of guidance provided	Guidance	Framework	Standards
Scope	General	General	Industry specific
Scale	International	International	United States
Target audience	All stakeholders	Investors	Investors
Target disclosure	Voluntary	Voluntary	Mandatory filing
Target reporters	Public and private companies	Public ­companies traded on ­international exchanges	Public companies traded on U.S. exchanges
Definition of materiality	Information that “may reasonably be considered ­important for reflecting the ­organization’s economic, ­environmental and social impacts, or influencing the decisions of stakeholders.” (GRI definition)	“A matter is material if it is of such relevance and ­importance that it could ­substantively influence the ­assessments of providers of financial capital with regard to the ­organization’s ability to create value over the short, medium and long term.” (IIRC ­definition)	Information is ­material if “a ­substantial ­likelihood that the disclosure of the omitted fact would have been viewed by the ­reasonable investor as having significantly altered the ‘total mix’ of the information made available.” (U.S. Supreme Court definition, TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976) and Basic v. ­Levinson, 485 U.S. 224 (1988))