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The Road to Credibilitya survey of sustainability reporting in Brazil
A Global ReportersResearch Publication2008
Contents
Foreword
Executive summary
Advisory Group Foreword
Introduction
Conducting the survey
Results Overview
Governance and strategy
Management
Presentation of performance
Accessibility and assurance
Hot topics Business integration
Report credibility
Materiality
Stakeholder engagement
Beyond reports
Conclusions and recommendations
Afterword
Copyright
© 2008 SustainAbility Ltd, FundaçãoBrasileira para o DesenvolvimentoSustentável (FBDS) and the UnitedNations Environment Programme (UNEP).All Rights Reserved. No part of thispublication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic,electrostatic, magnetic tape,photocopying, recording or otherwise,without permission in writing from thecopyright holders.
UNEP disclaimer
Designations employed and thepresentation of material in thispublication do not imply the expression of any opinion whatsoever on the part ofUNEP concerning the legal status of anycountry, territory, city or area or of itsfrontiers or boundaries. Moreover, theviews expressed do not necessarilyrepresent the decision or the stated policyof UNEP nor does citing of trade names orcommercial processes constituteendorsement.
Disclosures
In the interests of full disclosure, we listbelow which sponsors or companiesreferenced in The Road to Credibility are or were clients of SustainAbility and/orFBDS:— Banco Itaú— Banco Real— Natura— Suzano Petroquímica
Quotations
Quotations that appear highlightedthroughout this report were provided bymembers of our Advisory Group, whosenames and affiliations can be found onpage 4.
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Publication details
The Road to Credibility:a survey of sustainabilityreporting in BrazilA Global ReportersResearch PublicationFirst Edition 2008
ISBN978-1-903168-24-0
PublisherSustainAbility Ltd.
Project Team
SustainAbility— Katie Fry Hester, Manager,
Global Reporters Program & Project Coordinator
— Silvia Thompson, Analyst— Jodie Thorpe, Director,
Emerging Economies Program— Philipp Hein, Analyst,
seconded from GTZ
Fundação Brasileira para oDesenvolvimento Sustentável— Clarissa Lins, Executive Director
& Project Coordinator— Fabiana Moreno, Consultant— Iaci Lomonaco, Analyst
WriterJudy Kuszewski
EditorYasmin Crowther
ProofreaderSusannah Wight
DesignerRupert Bassett
The Portuguese version of this report is available for download atwww.sustainability.com/roadtocredibility
Seismic economic and political shifts have shaken global markets and societyduring 2008. In the wake of the creditcrunch and rapid shifts in public opinionon the roles of business and government,companies are re-examining theiractivities and focusing investments where they perceive greatest value. All stakeholders — be they governments,citizens, consumers or NGOs — are re-evaluating which companies they trustand where they will allocate their ownscarce resources. The financial, food andenergy crises, alongside the urgentchallenges of climate change, requireeveryone to pay renewed attention to the strategic and practical management,measurement and communication ofreliable information and actionableinsights for sustainable development.
Changing and challenging times demand a renewed approach, and 2008 marks thestart of a new era for the SustainAbilityand UNEP Global Reporters ResearchProgram. Global Reporters has long sought to foster corporate accountability,transparency and sustainability reporting. High quality disclosure enablesstakeholders to hold companies toaccount and helps companies to identifyrisks and opportunities and to improveperformance management. Increasingly,disclosure can also help attract newpartners to participate in innovativeventures, bringing sustainability solutionsto market.
As a result, we have honed the program to focus on particular sectors, issues andregions, allowing us to address specificchallenges and audiences to advance thecorporate accountability agenda.
The Road to Credibility represents theeighth global, and first national, surveyof corporate sustainability reportingcompleted for Global Reporters. It comesat a time of exponential growth insustainability reporting in Brazil, and weare delighted to be joined in our efforts by the Fundação Brasileira para oDesenvolvimento Sustentável (FBDS).Together, we aim to contribute rigorousanalysis that will stimulate debate andencourage best practice amidstsustainability reporters in Brazil. Our ultimate aim is to promote a sharedview of the corporate responsibility andtransparency agenda in Brazil, and torecognize leaders in the field.
Your feedback will allow us to assess howwell we are meeting these goals. Giventhat we plan future benchmarking rounds,in Brazil and other regions, please tell uswhat you think. We thank our sponsors,supporters and Advisory Group for theirgenerous support.
Sincerely,
Mark LeeCEO, SustainAbility
Israel KlabinChairman, Fundação Brasileira para oDesenvolvimento Sustentável
Sylvie LemmetDirector, UNEP Division of Technology,Industry and Economics
The Road to Credibility
Feedback
Your feedback will help us ensure thisresearch remains challenging and vital inthe future. Praise, criticism, correctionsand suggestions are all welcome at thefollowing:
Katie Fry Hester [email protected]
Clarissa Lins [email protected]
Cornis [email protected]
Foreword
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2The Road to Credibility 2
SustainAbility and FBDS are pleased tointroduce this new survey of best practicesustainability reporting in Brazil.Sustainability reporting is a truly globalphenomenon and Brazil has emerged as a leading hot-spot. Some 80 Braziliancompanies issued sustainability reports in 2006–07, compared to some 18equivalents in mainland China, and 12 inIndia. This is clearly impressive for Braziland an indicator of the seriousness withwhich sustainability is treated by thecorporate sector.
This report aims to provide a practicalsurvey of best practice reporting anddisclosure:
— Introducing a rigorous analysis of ten leading reports in Brazil.
— Encouraging Brazilian reporters to raisetheir game.
— Highlighting what global reporters canlearn from their counterparts in Brazil.
The map so far
Sustainability reporting is a challengingjourney. In the last decade, globalreporting leaders have begun a transitionfrom feel-good public relations reporting,to the best of today’s reports that providesolid evidence for how sustainability isembedded into day-to-day operations,investor relations, brand building and newmarket development. And the journey togreater corporate transparency andaccountability is ongoing.
The Road to Credibility appraises thecurrent state of sustainability reporting in Brazil, in the context of global trendsand best practice, as well as the incrediblegrowth in the number of Braziliansustainability reports being published.Brazilian reporting has been propelled bya series of drivers: Brazilian companies’increased exposure to domestic andinternational capital markets; the launchof sustainability indexes; the efforts of theGlobal Reporting Initiative to encourageuptake; and heightened awareness ofgood corporate governance practices.
Ensuring the credibility of Braziliancompanies’ sustainability reports will beincreasingly important to secure essentialtrust and confidence — of investors,consumers, government and opinion-formers across the world. Without it, therewill be little license to operate, innovateand prosper.
The Top 10
Figure 1
Rank Industry Year
1 Natura Personal care products 2007 54
2 Suzano Petroquímica Chemicals 2006 53
3 Ampla Electric utilities 2007 52
Coelce Electric utilities 2007 52
5 Banco Real Financial services 2007 51
6 Energias do Brasil Electric utilities 2007 47
7 Sabesp Water utilities 2007 46
8 Bunge Food processing 2007 41
Celulose Irani Forestry and paper 2007 41
10 Banco Itaú Financial services 2007 35
Average 47
Score %Company
Executive summary
3The Road to Credibility
In the report that follows, we assess whatBrazilian reporters are doing well, discussweaknesses and advise on ‘hot topics’. Wealso provide practical recommendations tohelp companies identify what needs to bedone to improve performance, to buildcredibility and — in time — to positionBrazilian reporters as trusted trail blazerson the road ahead.
Results
The Road to Credibility has drawn on theranking of ten leading reports fromBrazilian companies, using a standardizedand consistent scoring methodology.
Scores in the survey range from a high of 54% (Natura) to a low of 35% (Banco Itaú), and they average 47%. This compares with 2006 global surveyresults, when there was a high of 80%(British Telecom), a low of 39% (Telus) and an average of 57%.
The Top 10 Brazilian reports arecharacterized by:
— New and old playersNatura and Banco Real are bothfamiliar on the global sustainabilitystage, while Sabesp and Celulose Iraniare both first-time sustainabilityreporters.
— Diverse sectors and regionsSeveral of the Top 10 are based outsidethe main business centers of Rio and São Paulo; and a wide range of sectors is represented.
— Epic proportionsWith reports in the Top 10 averaging 161 pages, Brazilian reports aresubstantially longer than what we would expect to see globally.
Strengths and weaknesses
The Road to Credibility details manydifferent good practice examples, as well as areas for improvement. Overallstrengths include how companies arearticulating their overall commitment to sustainability, and how sustainabilitycontributes to drivers of growth andsuccess. Finally, it is noteworthy that all of the Top 10 make use of the GRI G3Guidelines and a large majority use someform of external assurance to aidcredibility.
Meanwhile, the weaknesses of the Top 10indicate a need to deepen the strategicvalue of reporting and demonstrate howsustainability is being embeddedthroughout the business. Weaknesses inreporting include the lack of:
— GovernanceBoard level leadership and governancestructures to deliver on sustainabilityaspirations.
— MaterialityMethods to identify and prioritizematerial issues being used to help focusreports on priority topics.
— TargetsSpecific, measurable and comparabletargets (rather than qualitativestatements of intent).
— Balanced contentDiscussing challenges and failures, andsharing bad or problematic news alongwith the good.
— Stakeholder engagementThe voices of stakeholders, such as issueexperts, site neighbors and NGOs.
— Use of websitesUse of online media or othercommunication tools to add value towhat is presented in printed reports.
The road ahead
The landscape of accountability andtransparency is never static, and the next3–5 years will see significant changes,with consequences for reporters aroundthe world. The Brazilian experiencedemonstrates that there is strong demandfor sustainability reporting, but also thatreporting in Brazil is still at an early stage,with some basic groundwork yet to becompleted. At the same time, there isclear evidence of the determination ofBrazilian companies to evolve theirapproach and make their own distinctivemark.
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A good report is one that tells someonesomething he wants to know, in acomprehensive fashion.Professor Celso Lemme
As individuals, we come from differentorganizations and bring a wide spectrumof expertise on corporate responsibilityand sustainability reporting. However, weshare the common belief that corporateaccountability and transparency is acritical tool for harnessing markets todeliver the scale and pace of changenecessary for sustainable development.
We were convened as the Advisory Groupfor The Road to Credibility, and betweenAugust and November 2008 helped theproject team by providing support andinput to key decisions throughout itsresearch, analysis and writing.
Our contributions to this project included:
— Overseeing the selection of the leadingten sustainability reports highlighted inthis survey and ensuring the integrity and robustness of the selection process.
— Sharing our insight with respect to the key themes discussed in the report.
— Providing feedback on the first draft of The Road to Credibility.
We believe The Road to Credibilityhighlights the major challenges andopportunities of the corporateaccountability agenda in Brazil. We strongly encourage report writers and report users to consider and act onthe valuable recommendations set forth in this survey.
Sincerely,
Celso Funcia LemmeChair of the Finance and ManagementControl Department, The COPPEADGraduate School of Business, FederalUniversity of Rio de Janeiro, Brazil
Cristina MontenegroUNEP representative in Brazil
Fábio FeldmannPartner at Fábio Feldmann Consultoresand Executive Secretary of the ForumPaulista on Global Climate Change andBiodiversity
Gláucia TerreoCoordinator of GRI activities in Brazil
João Gilberto Azevedo Executive Manager, Instituto Ethos
4The Road to Credibility
The growth in sustainability reporting is amovement led by companies withinternational presence interested in betterpositioning themselves in external markets.Some follow stringent criteria as laid out bythe Global Reporting Initiative, while othersare still used as a marketing tool.Cristina Montenegro
Advisory Groupforeword
5The Road to Credibility
Sustainability reporting has been achallenging voyage that started a fewdecades ago. In the early days, companiesfrom developed countries focused onenvironmental disclosure, although thissoon evolved to cover social impacts andresponsibilities, particularly relating toneighboring communities and laborstandards in the supply chain. In the lastdecade, global reporting leaders haveworked hard to identify and communicateperformance on material issues, and todemonstrate how sustainability is beingintegrated into their core businessstrategy to deliver against environmental,social and economic expectations. Today‘integration’ is the common cry, withleaders focused on communicating howtheir businesses are seamlessly embeddingsustainability in all they do — fromstrategic risk management to innovation,brand building and new marketdevelopment.
Ensuring report content is relevant andcredible to stakeholders is always essentialto maintain integrity and avoid damagingaccusations of ‘greenwash’ and ‘spin’.Today’s global leaders can be found, forinstance, convening report reviewcommittees for stakeholders to contributetheir views on content before publication.Beyond this, they are also seeking tointegrate the communication of theirsustainability performance into a plethoraof other core communication activities —with investors, consumers, at point-of-sale and even through online socialnetworks. And the journey to greatercorporate transparency and accountabilityis ongoing (see Afterword, page 28).
Today, over 2,500 reports are issuedannually by entities all around the world(Figure 2), including over 80% of theFortune-250.1 Growth in reporting hasremained fairly steady in Europe,Australasia and North America, withdeveloping world reporters makingsignificant inroads in recent years (Figure 4).
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Data for figures 2–4 provided byCorporateRegister.com
6The Road to Credibility
Brazilian reporting has, in many ways, made its own rapid progress along thisroad. Close to 100 Brazilian companiescurrently engage in sustainabilityreporting of some sort (Figure 3), witharound 20 using the GRI Guidelines.2 Thiscompares well against other developingnations, including recent report releasesnumbering some 73 in South Africa, 12 inIndia and 18 in mainland China.3 In Brazil,as in all these locations, there has been arapid increase in reporting activity inrecent years.
The Road to Credibility appraises thecurrent state of sustainability reporting in Brazil, in the context of global trendsand best practice. The report is part of the Global Reporters series, a researchprogram developed and publishedregularly by SustainAbility since 1993.4
This first national survey of best-practicesustainability reporting in Brazil aims to:
— Introduce rigorous analysis of quality ofreporting in Brazil.
— Encourage Brazilian reporters to raisetheir game.
— Highlight what global reporters canlearn from their counterparts in Brazil.
Drivers along the road
A few developments have had particularimpact in putting sustainability andreporting on the Brazilian corporate map:
— A rapid rise in the number of initial public offerings in BrazilBetween 2004 and 2007 the number of Brazilian companies undertaking aninitial public offering (IPO) on the SãoPaulo Stock Exchange (BOVESPA)increased by 150%, with 64 newcompany listings in 2007 alone.5
— New standardsMany IPOs have been listed underBOVESPA’s Novo Mercado scheme,which includes rigorous standards ofcorporate governance and transparency.Brazil also currently serves as the co-chair of the working group behind thedevelopment of the ISO 26000 socialresponsibility standards, which hashelped increase the profile ofsustainability issues in the country.6
— Rise of sustainability indexesThe Índice de SustentabilidadeEmpresarial (ISE) sustainability index,launched in 2005, provides a listing ofup to 40 companies selected to providea benchmark for socially responsibleinvestments (SRI) in Brazil. Companiesin the index must meet a set ofsustainability criteria. In addition,Brazilian companies have been includedin international SRI indexes, forinstance, Aracruz, Banco Itaú, Bradesco,Cemig, Itausa, Petrobras, Usiminas andVCP are all listed on the Dow JonesSustainability Indexes.7
— Involvement of foreign investors in Brazilian companiesAmong the most recent Brazilian IPOs,75% of shares were bought withforeign capital (or in some cases,Brazilian capital abroad).8 Internationalinvestors are often familiar with andsupportive of sustainability reporting,and have increased the motivation for Brazilian companies to issue such reports.
7The Road to Credibility
— Brazilian companies’ activities in international marketsThe Brazilian business sector includessubsidiaries of multinationals, as wellas Brazilian companies that aremultinationals in their own right, ormajor exporters. These activities haveexposed Brazilian business to some ofthe best international practices, andhave begun to demonstrate the value ofsustainability reporting for the companyand its stakeholders.
— GRI leading the chargeThe Global Reporting Initiative and theG3 Sustainability Reporting Guidelineshave provided significant impetus toreporting in Brazil.9 Crucially, GRImaintains a formal outreach presencein Brazil. In addition, the comparabilityand specificity of the framework, andthe user-friendly guidance available,are widely viewed as having a positiveimpact on awareness and quality ofsustainability reporting in Brazil.
— Role of NGOsRecent years have seen the rise of NGOs or institutes dedicated tofostering corporate responsibility, which has helped raise awarenesssignificantly. Groups such as Ibase,Instituto Ethos and Akatu, amongothers, have been very active inpromoting social responsibility amongBrazilian business.
Not only is there a growth of reporting in Brazil, quality is on the rise as well.Brazilian reports are increasinglyrecognized internationally, with somewinning prominent awards, such as theGRI Readers’ Choice (see page 9).
It is against this positive backdrop thatthis survey has been developed tospotlight leading practice reporting inBrazil today, and to help build capacity to strengthen reporting as a means ofenabling companies to genuinely movetowards more sustainable development.
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Global report output by regionPercentage of reports / yearData © CorporateRegister.com
8The Road to Credibility
The Global Reporters program, of whichthis report is a part, has been built on aconsistent, rigorous and transparentprocess for assessing quality in reporting,applied here to ensure the most completeand professional assessment of theBrazilian reporting market possible. Here is how we conducted the survey.
Report selection
This survey is about best practice, so oneof our challenges was to develop a meansto identify leaders. The first step was todraw up a list of those companies in Brazilthat produce a sustainability report. Weidentified 76 companies engaging in somedegree of sustainability reporting, fromwhich our Top 10 were chosen.10 Wereviewed the 76 identified reports againsta subset of criteria drawn from the GlobalReporters Methodology,11 which gave usan estimate of the report’s potentialquality. The results of this process yieldeda shortlist of 28 reports,12 which were thenforwarded to our Advisory Group for theirguidance in selecting the Top 10.
The decision to select ten reports (rather than 20, 50 or even more) reflectstwo major considerations:
— Ten is sufficient. The number ofcompanies providing comprehensivesustainability reports in Brazil numberfewer than 100 at present. Ten mayseem small, but it’s a full 13% ofknown Brazilian reporters.
— A larger sample would entail the risk ofincluding lower-quality reports.
The benchmarking process
Following selection, the Top 10 werereviewed in detail against the fullassessment methodology. This involves:
— ReadingIn-depth review of reports andmaterials on websites.
— Analysis and scoringDetailed analysis and scoring of reportsagainst each of the 29 benchmarkcriteria (see Figures 5 through 8 for an overview).
— Quality controlPeer review of the analysis.
— FinalizationUpdating of scores and analysis.
Conducting the survey
9The Road to Credibility
Methodology
The Global Reporters report assessmentmethodology, developed over many years,essentially tests how well sustainabilityissues are taken into account in normalbusiness processes. It measures the qualityof reporting, not performance. A summaryof the methodology appears in pages11–12 (Results section).
Independence and credibility
This report has been developed with the highest regard for the independenceand integrity of the report selection,benchmarking and interpretationprocesses; and for readers’ confidencethat this assessment is fair, honest andcan stand up to scrutiny. We developedclear guidelines for report selection. Ourproject Advisory Group has provided uswith oversight and challenge all along theway. Our assessment methodology andselection process are all made transparent.Our sponsors had no role whatsoever inthe survey process or final results.
In such ways, we aim to ensure ourmethods build on the decade-plusexperience of SustainAbility’s GlobalReporters program, strongly informed by expert opinion on good researchpractices. While no such process isperfect, we’re confident that the Top 10 are representative of the best ofBrazilian reporting.
You can read in detail about our efforts to ensure independence andcredibility on our website:www.sustainability.com/roadtocredibility
GRI Readers’ Choice Awards
Some readers will be aware that Braziliancompanies did well in the recent Readers’Choice Awards promulgated by the GlobalReporting Initiative (GRI), and launched inMay 2008. Several Brazilian companies —Banco do Brasil, Banco Real, Natura,Petrobras and Usiminas — won awardsand special mentions, including Petrobrasfor overall Best Report. However, out ofthis group, only Banco Real and Naturamade the Top 10 in this Global Reporterssurvey. The obvious questions are: Why isthere so little overlap between theReaders’ Choice Awards and this survey?And which one is ‘right’?
The Readers’ Choice Awards are notintended to determine the best reports inany objective sense; rather, they highlightthose reports most successful at engagingreaders and meeting their needs. On theother hand, this survey assesses thequality of reporting against a specificmethodology. With different objectivesand methods, they generate differentresults and insights — both valid andvaluable.
It is not clear which companies are leadingthe sustainability agenda. Sometimes thereport is strong in one aspect and weak inothers. Professor Celso Lemme
10The Road to Credibility
The big picture: emerging accountability
The Top 10 range from a high of 54%(Natura) to a low of 35% (Banco Itaú),with an average of 47%. This compareswith the 2006 global survey results,ranging from 80% (BT, Telecommuni-cations, United Kingdom) down to 39%(Telus, Telecommunications, Canada), and an average score of 57%. While theBrazilian Top 10 clearly deserve to beconsidered alongside leading globalsustainability reporters, the gap between their ranking and that of theirinternational peers does need to beacknowledged. Although only a few pointsseparate the top five in Brazil, a widermargin separates the scores at the lowerend of the range.
New players — and old
Both Natura and Banco Real have beencited as sustainability and reportingleaders in the past (and both wereincluded in the 2006 global survey). All the others in the Top 10 are relativelynew faces, largely unknown on theinternational stage. This is exciting andbodes well for Brazilian companies’ abilityto make an impact on global sustainabilityreporting. Indeed, two of the Top 10 —Sabesp and Celulose Irani — are first-timesustainability reporters.
A diverse field
The Top 10 include companies — likeCelulose Irani, Coelce and Energias doBrasil — from outside the main businesscenters of Rio and São Paulo. Five of the Top 10 are Brazilian-controlled, while the other five are subsidiaries ofmultinationals. And even with three of the Top 10 coming from the electricutilities industry, a wide range of businesssectors is represented.13
Strengths and weaknesses
Analysis of the results is detailed on thepages to follow. But we note that the Top10 do best in the Governance and Strategysection of our assessment methodology(Figure 5). Scores weaken in theManagement (Figure 6) and Presentationof Performance (Figure 7) sections, butimprove in the Accessibility and Assurancesection (Figure 8).
Results
The Top 10
Figure 1
Rank Industry Year
1 Natura Personal care products 2007 54
2 Suzano Petroquímica Chemicals 2006 53
3 Ampla Electric utilities 2007 52
Coelce Electric utilities 2007 52
5 Banco Real Financial services 2007 51
6 Energias do Brasil Electric utilities 2007 47
7 Sabesp Water utilities 2007 46
8 Bunge Food processing 2007 41
Celulose Irani Forestry and paper 2007 41
10 Banco Itaú Financial services 2007 35
Average 47
Score %Company
11The Road to Credibility 11
Best of the best . . . or best of a weak field?
During the selection of the Top 10, ourAdvisory Group expressed a general senseof disappointment with the majority ofBrazilian reports. The group challengedreporters to improve their transparencyand strengthen their commitment andintegrity.14
It is our hope that this survey — throughthe best practice examples cited — canhelp illuminate how reporters can do justthat. This section highlights ten of thebest sustainability reports in Brazil, withexamples illustrating what others canlearn from them, as well as where futureimprovement is still needed.
Global Reporters methodology
1 Governance and strategy (11 criteria) Assesses (1) how well a companyexplains its activities and theirassociated economic, social andenvironmental impacts, (2) governanceof sustainability performance and (3) integration of sustainability intobusiness strategy.
2 Management(9 criteria) Evaluates how well a company reportson implementation processes. The focushere is the extent to which reportingdemonstrates (1) alignment betweeninternal systems and declaredintentions, and (2) influence of thecompany on external stakeholders andmarket conditions.
3 Presentation of performance(5 criteria) Designed to assess how well a reporter explains its performance on material issues.
4 Accessibility and assurance (4 criteria) Assesses a reporter’s efforts to givereaders confidence in reportedinformation, as well as how wellpresentation and design aidcomprehension and use.
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Global reporters scoring system
Each criterion is assigned from 0 to 4points, based on the following method:
0 = NothingNo information, or insufficient to suggestthe company understands or takes thiscriterion seriously.
1 = SketchyReport suggests at least some recognitionof the criterion, and attempts to present it in a serious way, but does not address it in a systematic fashion.
2 = SystematicCoverage suggests a serious approach and attempt to present the informationsystematically, but does not reflect full or complete development or applicabilityacross the company, across divisions or issues.
3 = ExtensiveCoverage is serious and systematic andnot suffering from major gaps in coverage,presentation or interpretation; but is notexplicitly or fully linked to core businessdecision-making.
4 = IntegratedReporting is serious and systematic andextensive, and evidence shows how it is linked to general business decision-making and core processes to improvesustainability effectiveness.
Scores are sequential, so for a report to merit a particular score, it must alsohave achieved the requirements of thelower score.
12The Road to Credibility
PerformanceAverage scores
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Accessibility and assuranceAverage scores
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13The Road to Credibility
ResultsGovernance and strategy
The first and largest section of ourassessment methodology tests reportingon governance and strategy, and howthese take account of sustainability issues.It describes the role of boards andcompany leadership, values and principles,issue identification, risk and opportunity,market shaping and a host of otheractivities. In essence, this section tests forthe sustainability issues a company iswilling to be held accountable for, as wellas the company’s intentions to address the issues.
It is one of the areas in which our Top 10score well, with an average 51% acrossthe 11 criteria. Suzano Petroquímica andAmpla each score over 60% in thissection. Ampla and Coelce score a rare 4points for reporting on values, principlesand policies.
Both reports clearly describe thecompanies’ seven commitments tosustainable development, which are thefoundation for their sustainability policyand state their overarching sense ofaccountability in relation to businessconduct, shareholders, society, consumers,employees, environment, innovation and creativity.15
The Top 10 are quite accomplished interms of reporting on their businessstrategy and sustainable developmentvision. In some cases, this has a lot to dowith their basic business. For example, theutilities reporters Ampla, Coelce, Energiasdo Brasil and Sabesp are in the business ofproviding essential services to Braziliancitizens, and have government-imposedservice provision mandates that putsustainability issues squarely on thebusiness agenda.
Governance and strategySection average and top scores %
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14The Road to Credibility
Suzano Petroquímica provides some goodexamples of the company’s search forpetroleum alternatives as raw material inthe production of biodegradable polymers,as well as detailing new productionprocesses and the use of nanotechnologyto reduce impacts. The report alsodescribes investments in raising awarenessof biodegradable plastics, and ininitiatives to increase recycling and helpdevelop new markets for recycledproducts.
However, half of the top 10 receive zeropoints on sustainable developmentimplementation challenges: how well areporter describes the challenges, trade-offs and barriers to achieving sustainabledevelopment. The near-total absence oftransparency on implementationchallenges means that readers will likelyconclude that the reports present anuneven picture of progress towardsustainability. For reporting to mature inBrazil — and for readers to take reportsseriously — treatment of the trade-offsand failures must improve in the future.16
Scores for governance responsibilities andstructure are also low, with an average ofjust 1.6 points. In many cases, companiessimply failed to maintain informationfrom past reports about these issues. With corporate governance climbing upthe Brazilian corporate agenda, we areconfident it will make its way moreconsistently into future sustainabilityreports. Suzano Petroquímica scores arespectable 3 points, with a detaileddescription of overall corporategovernance structure and responsibilitiesfor sustainability, emphasizing theimportance of building trust andtransparency with stakeholders andshareholders. It is also notable for clearlyexplaining the role of its SupervisoryBoard in ensuring the uptake ofsustainability issues via the developmentof guidelines for committees and workinggroups, among a range of otherinitiatives.17
The 2008 crisis around financial marketstability makes it likely that the nextdecade will bring increased regulation,with boards subject to tighter controls.Among the issues requiring increasedattention, sustainability is likely to have amore prominent place in the boardroom.Emerging best practice, highlighted by theConference Board of Canada, includestools such as a board ‘CSR road map’ andthe integration of sustainability intomission, values, risk and strategyprocesses.18
Companies that understand reporting as anaccountability tool are training internalstaff and involving top management in theprocess, preparing themselves as a companyto take charge of quality reporting. João Gilberto Azevedo
15The Road to Credibility
ResultsManagement
The management section of ourmethodology examines programs andprocedures across a range of internalpractices, from personnel issues to publicpolicy. In summary, it looks at how well a reporter discusses the approach toimplementing vision and strategy. Overall, our Top 10 score significantly lesswell here than they do in the governanceand strategy section, with an averagescore of 44%.
Natura emerges as the clear leader, with a score of 56% across this section, andBanco Real, Bunge, Coelce and SuzanoPetroquímica a somewhat distant second,tied at 47%. Natura stands out in severalareas:
— Management proceduresNatura details their managementsystems for health and safety, productquality, greenhouse gas emissions andpackaging, among others.
— Value chain managementThere is a clear emphasis on ensuringquality among suppliers and in rawmaterial procurement. This includestheir ‘Qlicar’ system of evaluating,certifying and monitoring suppliers oneconomic, social and environmentalaspects. Furthermore, its ‘BioQlicar’approach aims to improve capacity incommunities (many of which arelocated in the Amazon) to providequality raw materials to Natura, whilemaintaining biodiversity.
— Public policyOne positive set of developmentsincludes the creation of relationshipprinciples that guide Natura’s conductin governmental affairs, and which arescheduled for launch in 2008 alongwith its policies on anti-corruption,bribery and lobbying.
Those who know Brazilian business culturewill not be surprised to see that the topaverage score (2.5) was for socialinvestment. Ampla manages a full 4-pointscore for its clear demonstration of thelinks between its social investmentactivities and its material issues, such asenergy efficiency, safety, citizenship andethics. While the focus on socialinvestment is understandable, given itshistory in Brazil, it leaves a whole range of management aspects considerably lesswell developed, including public policyand regulatory affairs, investor relationsand value chain management. None of the Top 10 report any sort of systematic,principles-based approach to lobbying,even though many of them are visible andactive on the policy stage.
Overall, the articulation of managementapproach is too often a missedopportunity. Readers need a clearunderstanding of the actions companiestake to implement their sustainabilitycommitments. In response, reportersshould showcase some of what they dobest: steering internal operations to meettheir strategic goals.
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16The Road to Credibility
ResultsPresentation ofperformance
Our assessment of how well reportsinformed readers on a company’sperformance produced the lowest averagescores, at just 41% across the Top 10. To some extent, this aligns with our earlierobservation that reporters have been more successful at setting the scene (for example through statements ofvalues, strategy and intentions) than atdemonstrating how their intentions arebeing translated into practice.
For the most part, the Top 10 discusssustainability performance through use of the indicators in the GRI Guidelines.Coelce topped the group, with a score of60% for presenting good performanceindicators related to their identifiedmaterial issues, explaining technicalindicators, and providing usefulinterpretation of their performance andcomparison with other electricity utilities.
However, most of the Top 10 — like otherreporters in Brazil — do not providesufficient information around theirindicators to really enable readers tounderstand and evaluate performance.Often reports fail to give sufficientcontext to their performance data, fallingshort in taking steps to: explain theassumptions that lie behind assertions;benchmark against industry or regionalnorms; provide references to ecologicalcarrying capacity; or link to sector ornational and international goals.
Nor do reporters provide an evaluation ofhow they see their own performance — oran explanation of why their performanceis at the level reported, rather than betteror worse.
Discussion of target setting is also animportant aspect of performancereporting, and here again Coelce manageda score of 3 for reporting their numerousquantitative goals, relating to virtually all of their material issues. For example,Coelce has defined five specific andmeasurable targets on customersatisfaction alone. But the Top 10 ingeneral did poorly here, with an averagescore of just 1.5. Most of the targetspresented in Top 10 reports werequalitative and generalized, such as‘expand our client base in microcreditoperations’ (Banco Real), ‘assessproduction processes to identifyopportunities to reduce energyconsumption’ (Suzano Petroquímica) or ‘search for new opportunities toimprove customer service andrelationships with regulatory agencies’(Banco Itaú). Very few set clear targetswhich can be compared against othersand checked over time.
In a broader sense, this flags up the needfor reporters to pay far more seriousattention to reporting on performance. It is never enough to stake a claim onsustainability practice in a general,conceptual way. A report must providereaders with the specific and crediblemeans to understand actual performanceand results achieved.
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17The Road to Credibility
ResultsAccessibility andassurance
In addition to the content of reportsthemselves, there are many ways reporterscan aid readers’ comprehension and make reports — and varied forms ofcommunication — more useful andtrusted. This is critical when dealing withthe complex nature and broad coverage of information typically found insustainability reports.
This section of our assessment is one ofthe better ones for the Top 10, with anaverage score of 51%. Many of the basicsof good reporting are well covered, forexample all of the Top 10 report using theG3 GRI Guidelines. Natura led the Top 10in this area, with a score of 62.5%.
The use of external assurance is animportant indicator of reporters’recognition of the need for crediblereporting. Seven of the Top 10 include anexternal verification statement. Four ofthe Top 10 — Bunge, Celulose Irani, Itaúand Natura — make some reference to theAA1000 Assurance Standard.19 Three of theTop 10 (Banco Real, Bunge and Itaú)include various stakeholders’ assessmentsof their reports, although not alwayspresented in much detail.
Readers often find sustainabilityinformation complex and voluminous, soaccessibility of information becomes animportant reporting principle, to aidreaders’ comprehension and ability to usereports. For example, the use of websitesto augment printed reports is increasinglywidespread around the world.
However, among the Top 10, this is notcommon, and represents an opportunityfor Brazilian reporters to make theirinformation more user-friendly.
Exceptions include Banco Real, which has a dedicated sustainability section on its website, containing, for example,information on how sustainability isintegrated into the bank’s products andservices, as well as a publicly availabledatabase of sustainability practices(Espaço Real de Práticas de Sustent-abilidade).20 Natura also providesadditional information on its website for particular stakeholder groups, such as consumers, suppliers, employees and others. In both cases, additionalinformation on the web is clearly markedin the printed report, enabling readers toknow what else is available, should theywant to know more.
Various audiences have different concerns,preferences and ways of relating tosustainability information, and so it makessense for reporters to use terms thatreaders understand and to provide acontext that makes sense. While theaccessibility of the sustainability reportand website is important, leadingcompanies are also seeking tocommunicate their sustainabilityperformance through a variety of otheruser-friendly channels. See page 24 for an overview of how they are reachinginvestors, customers and supply chainpartners through more targetedcommunication.
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18The Road to Credibility
Hot TopicBusiness integration
Businesses are deeply focused on theircore activities and doing what they do best. For this reason, action onsustainability issues is best achieved by its integration into the core business.Integration requires embeddingsustainability considerations in strategy,business goals, key performance indicatorsand all other elements of managementand communication.
One of the simplest tests of integration is the number of full 4-point scores across the report assessment, because‘integration’ is what the highest scoreessentially ranks (see page 12 for adiscussion of how this is done). Amongthe Top 10, there are only six full 4-pointscores (out of a total possible of 290).Ampla achieves two of these. Of theothers, Banco Real, Coelce, Energias doBrasil and Suzano Petroquímica eachachieve one 4-point score.
By comparison, the Top 10 score better on the criterion business strategy andsustainable development vision, whichtests their articulation of how they seesustainability affecting their business in future. Banco Real and SuzanoPetroquímica each score top marks here:
— Suzano’s report describes its ‘Vision2015’, covering profitability, growth and sustainability. This positionssustainability and corporate governanceas the overall guiding principles instrategic planning and externalpositioning. It also shows how thecompany seeks to influence suppliers,clients and employees in achieving this strategy.
— Banco Real’s description of its‘Sustainability and Innovation Checklist’provides a set of 24 questions related to social, environmental and economicaspects that are intended to guide thecreation of more sustainable newproducts.
The challenge for most of the Top 10 is to go beyond their discussion ofsustainability in terms of values andvisions, and begin to demonstrate how it is being practically integrated intobusiness activities in both the immediateand longer term.
In time, strategic sustainability integrationwill separate the leaders from the pack.The connection between sustainabilityperformance and market success becomesfar more visible when companies start toleverage their sustainability performancein communication with their consumersand investors. For global examples,consider BT, whose report discusses indetail how sustainability issues and drivershelp them develop new business. GE’sEcomagination program also sets clearand rigorous business goals for productswith sustainability credentials.
Within the Top 10, we see someinteresting attempts to connectsustainability with customer influence and market shaping; for example Natura’sefforts to understand customers’ attitudesto the brand, and Ampla’s campaigns to raise awareness on issues such asconscientious energy consumption andthe negative impacts of energy theft.However, combining annual reports andsustainability reports into a singledocument — as most of the Top 10 do —appears to be the only effort that mostcompanies currently make to bringsustainability issues into communicationswith investors. This is a missedopportunity to raise awareness aboutsustainability issues with those who have great ability to act upon it.A great effort is underway to demonstrate
for top management how strategic asustainability report can be and thepotential it represents inside and outsidecompanies. Fabio Feldmann
19The Road to Credibility
Hot TopicReport credibility
Companies need to work hard to ensurereaders take their sustainability reportsseriously. Readers want credible reportingthat reflects real commitment tosustainability. This was highlighted in theGRI Readers’ Survey conducted alongsidethe Readers’ Choice Awards and releasedin May 2008.21 There were 893 readerswho participated from Brazil, one of thelargest single-country turnouts. Theresults show what Brazilian readersbelieve contribute most to a report’scredibility (Figure 17).
Our Advisory Group clearly identified themain factors they believe undermine thecredibility of Brazilian reports in general:
— Reflection of true leadershipcommitmentThe Advisory Group felt thatsustainability reports tend to lack thevoice of top management and directors,and so fail to communicate leadershipunderstanding and commitment. A discussion of how top managementviews the challenges, and howsustainability aligns with the corebusiness, will help address this short-fall.
— Opinions of stakeholdersThe voices of stakeholders, especiallycritical ones, are notably absent frommost Brazilian sustainability reports.This means that readers are given aone-sided view of issues andperformance. Experts, neighbors, NGOsand others can inject a dose of realityinto reports, as well as helping todemonstrate that the company isserious about addressing concerns.
— Balanced contentIn general, Brazilian reports emphasizethe good news and bury the bad news,or even leave it out altogether. Readerswill tend to discount a report altogetherif it doesn’t sufficiently reflect thechallenges of sustainability. It isessential that identification of materialissues should include those that presentchallenges and dilemmas. In addition,discussion of performance should takecare to acknowledge and explainfailures and targets missed.
— QuantificationReports often lack hard indicators and targets, relying instead on theimpressionistic presentation of issues.Readers view this sort of analysis as‘spin’ rather than transparentdisclosure. Reports should be certain to include specific, measurableindicators and targets, to enable a real understanding of performance.
The use of quantifiable indicators providescredibility: it allows for comparability anddemonstrates that a company is reallycommitted to sustainable development. Cristina Montenegro
20The Road to Credibility
A few areas of good practice — evenexcellence — emerge from the Top 10nonetheless:
— Celulose Irani’s CEO letter frames their approach to sustainability inambitious, clear and inspiring terms:‘The dilemma between sustainabilityand competitiveness is false; it is partof a near-sighted and outdated visionof business activities. The privatesector’s pursuit of profit and the publicsector’s interests in social justice andenvironmental preservation areabsolutely compatible.’ Our analystswere impressed with the impliedchallenge to industry expressed in thestatement, and its impact on theseriousness of the company’s report.
— Energias do Brasil includes stakeholders’voices, such as brief statements fromemployees, contractors, socialinvestment partners and beneficiariesabout their general experience of thecompany, particularly its socialinvestment programs.
— Banco Real and Natura both discusschallenges in ways that are sound andsubstantive.
If a report takes readers’ needs seriously,and works to address them using some ofthe practices mentioned above, readerswill want to use them to develop strategyand engage on issues that affect us all. If it doesn’t do that — and readers canclearly see when it doesn’t — it won’t beconsidered credible, no matter what elsemight be good about it.
Companies are still reluctant to openlypresent their dilemmas in reports, especiallywhen they are derived from their products,services and business models. Everystakeholder knows that the company haschallenges and dilemmas to face and notfinding them in the report takes thecredibility out of it. João Gilberto Azevedo
What contributes most to reportcredibility? % Brazilian respondents
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21The Road to Credibility
Hot topicMateriality
Sustainability reports typically cover a lot of ground. Given that potentialimpacts of reporters’ activities range fromemployee engagement to climate change,reporting breadth goes with the territory.But reporters generally cannot covereverything and still present a readable,user-friendly report, so choices have to be made as to what is most important for the reporter and for the reader. Thisassessment is commonly referred to asmateriality.
Materiality is one of the commonbuzzwords in the sustainability-reportingworld. However, most Brazilian reportsdon’t reflect a sophisticated treatment ofthis concept. Most reports default toputting high emphasis on communityinvestment activities, rather thanidentifying and talking about those issuesthat are of greatest strategic importancefor the company. And there is also atendency to report altogether too muchinformation, with our Top 10 coming in ata forest-unfriendly average 161 pages.
Materiality on the map
Our Top 10 do indeed recognize the issue of materiality and, for the most part, their reports are careful to provideinformation on the most important social,environmental and economic issues. While the Top 10 generally describe theirprocesses for selecting and prioritizingissues, they are at different stages on thelearning curve. Some might report theirmateriality processes, but don’t actuallyidentify what they consider to be theirmost important priority issues. Othersinclude a discussion of materiality andpriority issues, but also retain significantnon-material information in their reports.
Ampla, Coelce, Energias do Brasil and Natura score well on the issueidentification and prioritization criterion.Each of these companies’ reports providesa good description of the process used toidentify material issues, following the GRIG3 Guidelines. Three of these reportsinclude a ‘materiality matrix’, which helpsto describe the importance of issues tostakeholders against their importance tothe company. Even so, some reportersattach a fairly high priority to too manyissues, which somewhat defeats thepurpose of a materiality assessment(Figure 20).
MaterialityScore per page of report
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22The Road to Credibility
Less is more
It is understandable that reporters would want to ensure their readers haveall the information that interests them.But a sustainability report overburdenedwith information actually impedesunderstanding, rather than enabling it.The best reporters globally will zero in on just a very few significant issues, oftenno more than four or five. A good exampleof global best practice is Ford MotorCompany, whose materiality matrixemphasizes just five issues.22
A good materiality process will improveinternal ability to manage issues, reflect a solid, rational approach to managementand responsibility, and give stakeholdersconfidence in a company’s clarity andprofessionalism. It will also greatlyimprove reports in the short term.
Figure 20
Materiality matrix
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Adapted from the CoelceMateriality Matrix 2007
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A ‘checklist approach’ drains away theimportance of a report . . . It can becomesuperficial and runs the risk of excludingsome very important issues. Fabio Feldmann
23The Road to Credibility
Hot topic Stakeholderengagement
Stakeholder engagement is definitely on the corporate agenda in Brazil. Nearlyall of the Top 10 discuss their efforts toreach out to different stakeholders onsustainability issues or the quality of their reporting. However, there aresignificant missed opportunities to expandstakeholder engagement as a means ofcreating value to the business.
Ampla, Bunge and Coelce all achievescores of 3 points for reporting onstakeholder engagement. Ampla andCoelce both provide detailed stakeholdermaps against key issues, and explain their companies’ different approaches to engagement. Bunge’s report uses astakeholder panel to assist in identifyingmaterial issues for the report; in addition, extensive outreach to farmers,breadmakers, customers, employees and government is reflected.
Outside the Top 10, Souza Cruz (asubsidiary of British American Tobacco)includes heavily detailed and extensivestakeholder engagement, which coversmore than a quarter of its entire report.Stakeholder concerns are discussedalongside specific commitments of thecompany to address them. However, thelack of representation of stakeholderswith a public health background results in a troublingly low emphasis on thehealth impacts of smoking.
The experiences of companies around theworld over many years have crystallized arange of principles of good stakeholderengagement: 23
— Engage on issues that matterMake sure engagement aligns withidentified material issues to add valueto the business.
— Engage the right stakeholdersReports should reflect an inclusive,diverse and challenging set ofstakeholders with expertise, influenceand willingness to engage the company.
— Provide adequate resourcesA report will be more relevant tostakeholders if it reflects a deep andstrategic dialogue process, with directsenior involvement, rather than apassive survey. Devote adequateresources (time, money and people) to ensure success.
— Show actionDemonstrate how engagement has beenused to drive actions and commitments,not just as a means to justify pastperformance or decisions.
While current reporting typically reflectsstakeholder engagement to servereputation and risk management purposes,the future will likely see far greaterbusiness value derived from engagingstakeholders in ways that enable them to contribute new sources of intelligence,insight, innovation and marketdevelopment. Mining such rich resourcesfrom stakeholder groups will requirecareful, new forms of outreach, with due care given to issues of intellectualproperty.
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24The Road to Credibility
Hot topicBeyond reports
The reality is that today’s sustainabilityreports, despite all their strengths, areoften unsuccessful in reaching theirintended audience. A niche group of‘professional stakeholders’ (includingconsultants, the socially responsibleinvestment community and a handful of peers or competitors) may read themcover-to-cover — but very fewmainstream investors, customers,employees or neighbors ever will.
Fortunately, a sustainability report is not an end in itself. A reporting processcan serve as a de facto managementsystem, enabling continuous improvement.It can assist in strategy and goal setting(as publication prompts decisions anddiscourages backsliding), generatebusiness intelligence (by highlighting key trends and encouraging internal silo-busting) and increase staff morale(through awareness, pride, action,learning). This process is incrediblyvaluable, but it rarely results in a greatcommunication tool.
Communication channels
The communication goal of a reportingprocess should be to provide differentstakeholders with the information theyneed to make good choices — and this can involve a host of other tools andprocesses. A more varied and specificapproach to communicating withstakeholders — using sustainabilityinformation — will have a greater impactthan is currently possible. This meansembedding sustainability information into other forms of engagement with avariety of audiences.
This is a trend we first identified in detail in 2006, when we forecast thatsustainability information will increasinglybe used to inform annual reports, tenderdocuments for suppliers, customercommunications, point-of-saleinformation, investor briefings, brandingand myriad other outlets. Figure 22explores how this transition might play out over time, and the types ofcommunication channels most fruitful for increased sustainability content.
Integration of sustainability intocommunication channels
Figure 22
EmployeesIntranetSustainability reportInternal magazineWhistleblowingCode of ethics
IndustrySustainability reportPurchasing guidelineIndustry association
InvestorsWebsiteAnnual reportPress releaseRoadshow
NGOsSustainability reportFace-to-face meeting
GovernmentSustainability reportRegulated disclosure
Community and SocietyNewsletterLocal press articlePublic hearing
Supply ChainTender documentAnnual reportSupplier meetingMagazineCampaign
CustomersCustomer serviceAdvertisingProduct labelling
Core data sete.g. GRI
25
Brazilian reports provide useful examplesof how to reach specific stakeholdergroups with the right information. For example:
— CustomersBanco Real undertook a mediacampaign to raise awareness among itscustomers of responsible use of credit.Natura introduced an ‘environmentaltable’ on its packaging in 2007,modeled on nutritional data providedon food products, with three indicatorsreferring to the product and three tothe packaging.
— GovernmentSabesp established a departmentfocused on relationships with municipalgovernments, which directs a programof meetings involving nearly all the municipal governments within the state.
— SuppliersUsina São Manoel, a sugar ethanolproducer, requires its suppliers to signup to the company’s code of conduct,including such issues as child labor inthe supply chain and the impact ofmechanization in harvesting.
Radical transparency
Looking to the experience of internationalsustainability reporters, today’stechnology is enabling the disseminationof sustainability information much moreeffectively, improving stakeholders’ accessto more detailed analysis and data. This isan area where global best practice seemsto be pointing to a fundamental shift inthe way people access and use knowledge.
Web 2.0 technology and online socialnetworking are growing dramatically, with implications and opportunities forsustainability reporting. Timberland nowpublishes its quarterly sustainabilityupdates on the social networking siteJustMeans.24 The unprecedented success of‘My Starbucks Idea’, with its mixture oftraditional business and sustainabilityissues, heralds a new era of onlineengagement and reporting.25
Greater value-chain transparency isanother area where we are beginning tosee signals of increased disclosure. Forexample, SEDEX (the Supplier Ethical DataExchange) improves access to informationfor buyers and suppliers as well asfacilitating effective audit processes.26
At the other end of the value chain, wepredict users will soon see new toolsempowering consumers at the point ofpurchase. Technology that combinesmobile phones, barcode scanners, searchengines and melded public and privatedatabases on safety, health,environmental, social and ethicalperformance may not be far away.
As experimentation with multiplecommunication channels and technologyadvancements unfold, they willdramatically change the reportinglandscape. See page 28 for a glimpse into our crystal ball.
The Road to Credibility
Our 2008 survey reveals much progress,but a fair way still to travel for Brazilianreporters to close the gap withinternational leaders. For reports tobecome more powerful for companies andmore valuable for the readers, some basic— and not so basic — rules of goodpractice need to be understood andembedded.
Throughout this report we havehighlighted good practices and spot-lighted needs for future development.Here we have collected thoserecommendations for practical uptake by reporters, in Brazil and elsewhere.
Governance and strategy
Discuss how sustainability isincorporated in corporate governanceExplain the structures and processes thatensure responsibility and accountabilityfor the delivery of sustainability vision andtargets, from the highest board level,throughout the company.
Link sustainability to business strategyPresent your company’s business strategyas it really is, and as your company reallyuses it. This is the basis for all the actionsyou take as a company, and it shouldprovide the basis for understanding howsustainability fits with — and ideally helpsto drive — your core business.
Quantify the business caseProfit, loss, cost savings, access to capital,market share, brand value, reputation,investments in innovation and riskmitigation, and speed of operations — all these and more can be affected by your sustainability strategy and actions. A specific, quantifiable understanding ofthem will improve your report for keystakeholders, particularly investors.
Report challenges, failures and dilemmasStakeholders already know these exist,and basic credibility demands a thorough,transparent and honest treatment of theweaknesses, challenges and hurdles toimplementing your sustainability vision. If a report fails to mention the obviousdifficulties, stakeholders will wonder what else a report might be hiding.
Management
Management procedures are importantMake sure readers understand the specificprocesses by which the company seeks toimplement sustainability commitments,and the steps taken to institutionalizethem. For example, the approach to healthand safety, environmental performance,bribery and corruption, labor practices,brand strategy, consumer marketing,learning and knowledge management, and investor relations are all relevant and useful for audiences interested in business.
26The Road to Credibility
Sustainability reporting serves to promotechange: an enormous number of companieswill be necessary to prove that things haveactually changed. There are still very fewreporters in Brazil. Gláucia Terreo
Conclusions andrecommendations
Sustainability in the value chainBig companies are part of complex valuechains and webs, from raw materials andsuppliers through to production, use andend-of-life phases, and have significantimpact on the sustainability performanceof the entire web. Leading reportersinclude information on steps taken toaddress impacts through their value chain,to inform and influence the actions ofsuppliers, customers and others.
Public policy on the radarGovernment affairs activities areincreasingly important for improvingcapacity to make a difference insustainability. Future reports shouldexpressly declare any principles, intentionsand specific activities aimed atinfluencing public policy.
Presentation of performance
Quantify and contextualiseThe quantification of impacts, such as comparable, consistent indicators,benchmarks and targets helps to buildclarity and accountability. Work hard tomake the intangible more tangible bybeing specific about challenges, clearlyexplaining risks and opportunities and thebusiness case for pursuing sustainablepractices and reporting.
Provide accessible, comparable dataPresent performance data in a clear,comparable form, using reliable indicators.Give historical and segmented informationwherever possible and provide benchmarkdata to put performance into context.
Set real targetsTargets are among the most importantindicators of commitment, as well ascritical tools to manage performance, somake sure they are quantified and clear —and include them in reports, link them toresults achieved, and revisit them overtime. Good targets are specific,measurable and meaningful. Whereverpossible, they should refer to the actualenvironmental, social or economic impactsof the company’s activities, rather thansimpler (but less meaningful) targets like money spent.
Include stakeholder voicesIf a report is a one-dimensionalstatement, it won’t have the positiveimpact it might have on readers. Invitestakeholders — whether governmentagencies, experts, NGOs or neighbors — to provide comments in the report aboutthe company’s sustainability strategy or performance.
Accessibility and assurance
Make better use of websitesWebsites can add enormous value beyondthe information typically contained insustainability reports, so use them toreach out to specific stakeholder groups,to provide detailed or technical data that’snot relevant to a general reportingaudience, or to provide local-levelinformation where communities canbenefit. Websites can also act as arepository of basic information that doesnot change frequently — such assustainability governance structure orpolicies — which it may be less desirableto repeat in a printed report.
Explain what you don’t reportA good materiality process will not onlyhighlight the most important issues thatrose to the surface, but also clarify whatisn’t reported and why.
Report what mattersA great sustainability report isn’t bloatedwith too much information, nor does it ignore issues of great significance. Use the best tools available — such as amateriality matrix — and don’t be afraidto leave out topics that aren’t useful tothe majority of stakeholders. Issues thatare relevant, but not highly material, canalso appear on the website or in specialistforms for those who need them.
Beyond reportsIntegrate sustainability information intothe array of mainstream and specialistcommunications and engagement toolsalready in use with consumers, investors,suppliers, business partners, NGOs,governments and special interest groups,in order to make sustainability come tolife for real users.
27The Road to Credibility
28The Road to Credibility
At its heart, ‘accountability is theacknowledgment and assumption ofresponsibility for actions, products,decisions, and policies . . . encompassingthe obligation to report, explain and beanswerable for resulting consequences’. 27
In the sustainability context, corporateaccountability includes responsibility forthe environmental, social and economicimpacts on stakeholders (individuals or groups) that are affected by acompany’s activities.
Corporate reporting is a major lever forcorporate accountability. Thus the keyquestion is: ‘Has sustainability reportingdriven increased corporate accountability,resulting in meaningful change?’Excluding the few reporting leaders whohave risen to the top of our surveys overthe years, the answer (we fear) is: ‘Yes, but the reporting field leaves a lot to bedesired.’ The three major criticisms ofsustainability reporting that we hear are:(1) reports are not read; (2) their primarypurpose is reputation management (andthus they lack credibility); and (3) theymay help drive strategy and performance,but it should be the other way around.
With this rather bleak diagnosis of thecurrent reporting field, what can weexpect looking three to five years into the future? Will report writers beunemployed? Absolutely not — but wepredict their jobs will be very different.Looking into our crystal ball, we see afuture where the management ofsustainability performance is morestrategic and valuable — and distinct from— the process of communicating progressexternally. Specifically for sustainabilityleaders of the future:
1 Business and sustainability strategy willbe seamlessly integrated, part of thecorporate DNA.
2 Management of sustainability will be subsumed into the strategicmanagement processes — because it is too important to be left on thesidelines. Thus comprehensive trackingof multiple sustainability indicators will require an internal managementsystem, not a yearly data-collectionprocess.
3 Sustainability reporting will beembedded into mainstreamcommunications channels, an implicitattribute of products, branding,contracts, etc. Technology will continueto drive a wave of ‘radical transparency’empowering dialogue betweencompanies and individuals (see page 25).
4 Stand-alone, explicit sustainabilityreports will either disappear ordramatically shrink in size. Where theysurvive, they will focus on the ‘real-time’ intersection of business strategyand material sustainability issues.
Pulling back to the present, what does this future trajectory imply for aspiringsustainability reporters in Brazil? The Top10 in this survey have proven that theycan compete with international reportingleaders — many in a comparatively shortperiod of time. Most of the reportingchallenges they still face apply to bothtraditional sustainability reports as well as the future trajectory outlined above.Integration of business and sustainabilitystrategy, focus on material issues,credibility and real leadership — all ofthese are fundamental goals andprocesses, which should be reflected insustainability reports today and in theinternal management and externalcommunication channels of tomorrow. So for those Brazilian companies aspiringto lead the sustainability agenda in thenext three to five years, this futuretrajectory presents a massive opportunityfor continued growth — as well as thepotential to leapfrog ahead ofinternational best practice.
AfterwordThe future ofaccountability
CorporateRegister.com
CorporateRegister.com is the globalcorporate responsibility (CR) resourceswebsite. It hosts the world’s mostcomprehensive directory of CR andsustainability reports, profiling over19,000 reports worldwide. With an archive stretching back to 1990 it isindispensable for anyone working in thefield of CR and sustainability reporting.Working with some of the leadingorganisations in corporate responsibility,CorporateRegister.com hosts severalofficial reporting registers. Further sitefeatures include a fully searchabledirectory of over 5,000 organisations(‘reporting partners’) actively involved inCR reporting. CorporateRegister.comdeveloped the world’s first annual globalonline CR reporting awards, the CRRA(see www.reporting-awards.com).
[email protected]+44 20 7014 3366
Ethos Institute
Ethos Institute of Business and SocialResponsibility is a public interest civilsociety organization created with themission of mobilizing, encouraging andhelping companies manage their businessesin a socially responsible way, making thempartners in the building of a sustainableand fair society. Its more than 1,400member-companies from different sectorsand sizes have, as their chief characteristic,an interest in establishing ethical standardsof relationship with personnel, clients,suppliers, shareholders, the government, thecommunity and the environment. Conceivedby entrepreneurs and executives from theprivate sector, Ethos Institute is a nucleusfor organization of knowledge, exchange ofexperiences and development of tools tohelp companies analyze their managementpractices and deepen their commitment to social responsibility and sustainabledevelopment. Ethos Institute is nowadaysan international reference on this subject,and develops projects in partnership withseveral organizations all over the world.
[email protected]+55 11 3616 7575
19 www.accountability21.net The AA1000 Assurance Standard wasupdated and relaunched in 2008.
20 www.bancoreal.com.br/index_internas.htm?sturl=/bancodepraticas/default.aspx
21 Count Me In: The Readers’ Take onSustainability Reporting, KPMG andSustainAbility, 2008.
22 www.ford.com/aboutford/microsites/sustainability-report-2006-07/impactsmaterialitymatrix.htm
23 Excerpted from Principles and Practicesfor Successful Stakeholder Engagement,SustainAbility, 2007.
24 www.justmeans.com25 http://mystarbucksidea.force.com/
ideahome26 www.sedex.co.uk27 Excerpt from Wikipedia definition of
‘accountability’, October 2008.
Notes
1 KPMG International Survey of CorporateResponsibility Reporting 2008.
2 www.corporateregister.com3 Data on South Africa and India provided
by CorporateRegister.com. Data onChina from Study of SustainabilityReporting in China: A Journey toDiscover Values, SynTao, 2007.
4 www.sustainability.com/globalreporters5 www.bovespa.com.br/principal.asp6 www.iso.org/sr7 www.sustainability-indexes.com8 www.bovespa.com.br/principal.asp9 www.globalreporting.org10 www.sustainability.com/
roadtocredibility11 The criteria were: Issue identification
and prioritization; Values, principles andpolicies; Governance responsibilitiesand structure; Management procedures;Stakeholder engagement; Measuringsustainable development performance;Target setting; and Assurance andReporting standards. Furtherinformation on these and the rest ofthe assessment methodology can befound at www.sustainability.com/methodology
12 The shortlist was intended to number25 reports, but this was expanded to 28to account for a handful of tie scores.
13 The five subsidiaries are Ampla, BancoReal, Bunge, Coelce and Energias doBrasil.
14 Further discussion of the AdvisoryGroup’s general opinions andrecommendations can be found in thesection on report credibility (pages19–20).
15 As both Ampla and Coelce are ownedby Spanish utility company ENDESA,their parallel reporting is somewhat lesssurprising.
16 This issue is explored further in thesection on report credibility (pages19–20).
17 It is recognized that some of thisactivity may not be relevant in thefuture, given the recent change in thecompany’s ownership.
18 The Role of the Board of Directors inCorporate Social Responsibility,Conference Board of Canada, June2008.
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