Balanced, integrated reporting
The WBCSD has recently published a guide to sustainable development reporting. EBM brings you an abridged version of the practical guidance section
These days a company cannot get away with simply claiming it has embraced the concept of sustainable development. A company should demonstrate its commitment by appraising its situation, determining its strategic objectives, identifying its stakeholders, and clarifying its vision and values. It then needs to define its business case for sustainable development.
A reporting process is part of an overall management system and should lead to improved corporate performance. However, feedback from World Business Council for Sustainable Development members shows that only a few companies start with an integrated approach that includes both management and reporting.
About half of companies start by developing a management process – incorporating sustainable development objectives into management and information systems – and about half by developing a reporting process by communicating with internal and external audiences.
Some companies prefer to be in total control of their sustainable development information and data before they begin communicating externally about their objectives, performance and value creation. Others choose reporting to drive internal transformation or because external pressures are so strong they feel compelled to report before they have built up adequate management processes.
Whatever a company’s starting point, the end result should be an integrated management and reporting process, as this will create real value. Information must be relevant and connected to management systems.
Developing a management process
The management process relies on the following five steps:
- The company should define its overall objectives for sustainable development, based on its specific business case and in line with its vision, values and business objectives.
- During the planning phase, the company should determine which activities are needed to fulfil its overall sustainable development objectives, strategies and policies. Resources should be allocated accordingly.
- The activities needed to implement the operational planning should be integrated into the business plan and carried out. Some companies may choose to have external bodies certify their management systems to ensure that activities are performed in accordance with a given standard – ISO 14001 and SA 8000 for example.
- The follow-up and appraisal of activities should be in line with the company’s stated objectives, targets and key indicators. The purpose of this is to integrate sustainable development activities into the company’s normal operational and management processes. Results should be incorporated into the reporting process.
- During the review and learning phase, a company’s management should ask the following questions: What went right? What went wrong? Where is further action needed? Answers to these questions will help fine-tune the management process in order to achieve sustainable development objectives and targets.
The reporting process comprises five main steps:
- defining the reporting objectives;
- planning the report;
- constructing the report;
- distributing the report; and
- collecting and analysing feedback
During each of these steps, several questions should be considered and the reporting organisation should develop its own answers. Reporting principles must support transparency, credibility and accountability as well as ensure the relevance, reliability and clarity of the information and data.
Step1: Defining the reporting objectives
What is the overall purpose of the report and what are you trying to achieve? Is it meant to stimulate the management process, to communicate achievements or to improve the company’s reputation?
Who is the audience? It is necessary to analyse the position of the company in relation to various stakeholders and target groups in order to select the key ones. The structure and the content of the report should reflect such decisions.
Which issues should be reported on? You should choose a report type based on the most relevant issues for your company. Broad types include corporate social responsibility,
environmental reporting, sustainable development reporting or health, safety and environment. Companies tend to report on areas where they have sound knowledge and the necessary expertise.
How elaborate should the report be? Decide what your ambitions are – from producing a short and simple publication to a sophisticated stand-alone report. In some cases, as the project develops, the end result may be different from the original intent.
How will the report be published? A company may choose to publish the sustainable development report as a stand-alone or to integrate it into the annual financial report. Producing a single report encompassing economic, environmental and social considerations may demonstrate that all three areas are considered holistically by management. On the other hand, integrating a summary of the sustainable development report into the annual financial report may justify the importance that management attaches to sustainability.
Can you use experience from other reporting processes? Annual financial reports have been published for decades. Some countries also have a tradition of social reporting, and many companies have been reporting internally or externally on environmental achievements within their ISO 14001 systems or EMAS registration. Companies should look at existing data gathering, information systems and reporting processes that can be used to minimise additional work.
Which reporting guidelines/codes of conduct should you follow? Sustainable development reporting is a relatively recent practice and there is not yet a clear and widely accepted set of guidelines. You may use the Global Reporting Initiative (GRI) as a baseline, and depending on your
circumstances, utilise other sources such as the GHG Protocol, the Global Compact and SA 8000.
What sustainable development information should you report? A balance must be struck between what information the company is willing or able to provide and what stakeholders want to know. The information stakeholders demand may be categorised into what it is their right to know, what they need to know and what it is interesting for them to know.
What is the right format for reporting? This varies according to the audience. Some stakeholders want a traditional printed report, but companies are experimenting with alternative formats including CD-ROM and the internet. Using various reporting formats and channels allows a company to reach its target audiences in different ways.
Should stakeholders participate in the reporting process? Although still a marginal practice in most companies, there is value in engaging stakeholders in the process of evolving a report, rather than just validating or seeking feedback on the end product. Making stakeholders aware of the questions asked (and the resulting information gathered) at each stage of the process may help to raise their understanding, as well as fulfil the company’s efforts towards transparency.
What is the reporting business entity? What are the reporting boundaries? You may choose to report on company sites only, or to include other companies in which you have majority participation. You may even decide to include your suppliers and customers. In the future, the reporting scope may broaden, which will require a great deal of background research to ensure that reporting is not misleading or illegal.
What accounting principles should you follow when disclosing information and data? Principles must support transparency and ensure the relevance and reliability of the reported information and data. In order to develop a clear and credible report, companies should develop their accounting principles, based on recommendations from appropriate institutions, and follow them when collecting, aggregating and disclosing their sustainable development information.
Step 2: Planning the report
Who is responsible for the report? There are a number of steps in producing a report: defining the general content and structure; gathering relevant information and data; writing the report; and selecting the illustrations (pictures, graphs, etc).
Will you use outside suppliers? Who is going to write, lay out and print the report? Are you planning to translate it? There are various possibilities, but these decisions need to be made at an early stage of the planning phase.
Will the report have a general theme? Once objectives have been clarified, a general theme can be chosen, if appropriate. The report structure, including headings and sections, can then be planned.
How should you report on the value created by sustainable development? Value creation can be described in terms of increased financial value, decreased levels of risk and enhanced image and brand name. It is usually easier to provide a qualitative description than a quantitative evaluation. Yet, attempting to assess how much sustainable development contributes to brand value can back up the qualitative description.
What sustainable development data should be measured, collected, analysed and reported? Each company has to make decisions on what data to collect and how to report it. This may require the development of new internal management processes and must be well planned, as fine-tuning usually takes several years.
Where is sustainable development data collected? Existing information systems may provide some data. The more mature the system, the more reliable and rigorous this data tends to be. You may, however, have to develop dedicated systems, which can be expensive and time-consuming.
How do you ensure data quality and internal controls? The first step is to ensure that processes are in place to collect and measure sustainable development data. Internal auditors should also perform controls.
Who is going to validate the report? Validation of the information, data and conclusions presented in the report can be long and painful if responsibilities are not clearly established beforehand. In most companies, the report has to be approved by top management. Mentioning this approval process in the report enhances its credibility.
Will a third party assess the report? Whatever form of assessment is chosen, it normally benefits from being planned well in advance of the publication of the report.
Step 3: Constructing the report
How should you structure the report? This should be determined after carefully defining the objective of the report and ensuring that the information and message you want to convey are in line with your company’s overall
communications strategy, as well as evaluating stakeholder expectations and their information requests. A reporting approach should be used, both to build an overall theme and continuously improve the report structure.
How should you manage stakeholder expectations, demands and viewpoints? The views of stakeholders should be listened to, communicated and as appropriate commented upon in the report. Stakeholders may demand specific statements and data on how the company is dealing with a certain issue.
How should you collect, aggregate and analyse data? The earlier the data can be aggregated, the more time can be spent analysing the company’s performance. This analysis must be an integral part of the management process and should be managed on an on-going basis.
How should you make sustainable development information easy to understand? Publishing a set of sustainable development information that covers all aspects of the company’s activities is not enough. The balance should be struck between a highly technical report and an easy-to-read, appealing report, depending on the audience.
How is external assurance of the report carried out? The integrity and performance of corporate management are a pre-requisite to building trust among stakeholders. A typical engagement will cover sub-components of the report and/or of the process of preparing the report. The key factors to consider when selecting an assessor are independence competence and responsibility.
Step 4: Distributing the report
Who should you send the report to? This is normally decided at the beginning when the audience of the report is selected. Compile distribution lists at both corporate and local levels. Companies may also wish to distribute the sustainable development report with the annual report to increase its standing.
How should you launch the report? In addition to sending out the report, there are several channels a company can use: annual general meetings; websites; press releases; press briefings; emailing; and advertising. Another effective way to promote the report is to enclose a summary insert in
Step 5: Collecting and analysing feedback
How should you collect feedback? Feedback from internal sources is as important as feedback received from external sources and can be collected and fed into the next year’s reporting process. Ways to collect feedback include reply cards, local workshops or meetings with important stakeholder groups and external bodies that rate sustainable development reports.
How should you use feedback to improve the reporting process? All the feedback should be summarised and analysed to serve as input for the next reporting process and to set new goals. The team responsible for developing the report should meet to discuss the pros and cons of the process to guide future sustainable development activities.
What can you learn from the independent assurance providers? Assurance providers usually give feedback both on the report content and the reporting process. Information can often be found in the so-called ‘management letter’ submitted by the assurance providers to the company.
Normally, a dialogue between the company and the assurance provider can provide input on how the business can improve both its reporting process and the way it collects, manages and analyses sustainable development information and data.
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