Exploring Current Trends in Corporate Sustainability Reporting

by Natalia Krylova

  External - Identify all the stakeholders that are in any way affected by your operations or those that could have an impact on your business. Classify them into appropriate stakeholders groups. Organize events, calls, meetings, round table discussions to engage in dialogue with the identified stakeholders. A good practice could be in the form of a questionnaire sent out to the stakeholders taking part in the materiality assessment process. The questionnaire may be publicly available on the company's corporate website providing an opportunity for any interested party to give feedback.

  External Stakeholders: Academia, Scientists, Journalists, NGOs, Communities affected by the company's operations, Experts in Sustainability, Sustainability Consultants, Consumers, Suppliers (across the entire supply chain), Economists, Philosophers etc.

  Prioritization

  Choose the most relevant risks and opportunities for your business and for stakeholders from the overall list of issues. Map out the issues into material/less material categories indicating the levels of materiality. Provide evidence of stakeholder engagement, either in the form of interviews or 'stakeholder quotes' and ideas expressed during the engagement. It would add value to repeat this process at the beginning stages of the initial materiality assessment. Whilst incorporating the feedback generated through various means of stakeholder engagement, review the responses and discuss these internally at the Sustainability Committee's meetings and discussions.

  Validation

  Determine the significance of the identified sustainability issues using appropriate criteria and thresholds that are credible, clear and understandable as well as replicable, defensible and assurable (Lubin and Esty, 2010).

  Materiality Matrix

  Develop a materiality matrix. Describe the results of the prioritization and validation steps.

  Review

  On a regular basis review the issues and their level of materiality taking into account the global and market trends as well as the regulations that could affect your operations. What can be observed in some cases is companies develop a comprehensive materiality assessment process that is not updated, claiming that the issues have not changed and all things remain the same. The materiality assessment process as well as the identified issues should be reviewed by an external in order to ensure credibility and transparency. Materiality assessment is an ongoing process.

  Integrate

  The materiality process (as well as the sustainability strategy) should be integrated across the entire organization - all employees should be aware of materiality and contribute to its development and review.

  Kaizen

  Continuously improve and review the process in place. By integrating the sustainability strategy and through identification of relevant material issues, the company will gradually reinvent itself as a lean enterprise. The determination of material issues will change over time as issues mature, as various global trends affect the company's operations and the overall understanding of sustainability improves.

  * Please refer to the AccountAbility Standard, GRI4 Guidelines on Sustainability Reporting as well as the IIRC Framework for more detailed description of materiality assessment.

  Waste

  The starting point is to define the value stream of the products and identify the necessary steps in terms of 'lean thinking'. Customers pull the product from the producer as products are genuinely desired and needed, which ultimately leads to absolute consumer satisfaction. With the input from the entire workforce, the company should establish the most efficient ways of production and eliminate the leakage points. With the input from external stakeholders, consumers further perfect the process of new thinking.

  From the Japanese advancement in manufacturing it can be drawn that lean production, focusing on the value of the product as well as on the eradication of 'muda' (Japanese for waste) at each step of production ensures the company operates at most efficient levels. The Toyota example proves that success is guaranteed if the company introduces the continuous improvement approach focusing on elimination of any steps in production that are useless, costly and time-consuming. It should be noted that Japanese companies tend to use the ISO Management Systems Standards that explicitly define the steps of continuous improvement or the PDCA cycle (i.e. Plan-Do-Check-Act). A trend may be observed among Japanese companies to obtain external certification of their management systems that have been established on the basis of ISO 9000 and ISO 14000 Management System Standards developed by ISO Annex 2.

  Developing Innovative Business Models

  As mentioned earlier the company's business model should be reviewed with a particular focus on sustainability. "The company should find novel ways of delivering and capturing value" (Lubin and Esty, 2010). Innovative business model would take into account technology to improve monitoring across the entire value and supply chains, innovative design of products and elimination of leakage points. Integral to the business model should be the consideration of the circular economy and ways in which the company can become part of it.

  Avoidance

  Reduce wastage of resources and do more with less is the principle of lean thinking. Identify the 'leakage points' in production and integrate such an approach that would drastically reduce any activity, resource use, time spent that does not create value. Avoidance is the first step to sound waste management - if there is no waste then there is no need to manage it.

  View Compliance as an Opportunity

  A company should ensure that the compliance with norms is approached as an opportunity for innovation. (Lubin and Esty, 2010) It is important to be able to anticipate new regulations and perhaps have an influence as well. For example, companies from the Auto sector are proof that collaboration can be mutually beneficial to the company, people and planet.

  Identify all the materials used in production and their waste streams

  Re-organise and streamline the pure materials flows - identify within your company what are the materials used for production; what are the rare earth materials used in your business and how can you ensure their most efficient use.

  Increase the material productivity

  The inner circle - minimizing material use vis-?-vis linear production system; the tighter the circle the more efficient it is. Circling longer - maximizing the number of consecutive cycles. Cascaded use - diversifying reuse across the value chain. Pure units - uncontaminated material streams increase collection and redistribution efficiency while maintaining quality (Circular Economy Report, 2013).

  Making Value Chains Sustainable

  In order to manage waste effectively, the value stream of each product should be explicitly defined. Such practice would then simplify the identification process of waste from various steps of the value chain. Once the value chain steps are identified, efficiency can then be increased at each step. It is also where life-cycle assessment comes into place - it is strongly encouraged that the company implements such analysis for all its products.

  Example 14: Value Chain

  Source: Carlsberg Report.

  Design Sustainable Products

  Companies are encouraged to focus on innovation and on designing new sustainable products or redesigning existing ones to make them more eco-friendly (Lubin and Esty, 2010). Designing products that will not generate any waste after they go out of use should be the ultimate goal for the company. It is important to note here, that 'built-in obsolescence' approach should be eradicated and avoided in the future.

  Example 15: Innovation

  Source: Adidas Report.

  Introduce sound monitoring systems and measuring mechanisms

  Implement measuring systems; review the existing processes on monitoring, data gathering and tracking. Ensure credible, verifiable and comparable data. Obtain external verification and certification for your waste management mechanisms and practices.

  Targets

  Key to success is defining appropriate, measurable, specific targets on waste reduction and elimination.
For example, NIKE has defined a zero-waste target that it is set to achieve by 2025; other companies often mention the zero waste to landfill target as well as other targets on waste reduction. It is important to note that appropriate key performance indicators should be developed to be able to track the progress of achievement of the targets on waste.

  Reuse-Recycle-Recover

  Identify how within your company reuse-recycle-recover is implemented or can be improved.

  Example 16: Reuse-Recycle

  Source: Toyota report.

  Waste disposal (Landfill, Incinerator, Compost)

  Identify the current waste disposal types within your company. Introduce monitoring mechanisms to track and measure this waste.

  How much money is saved when waste is reduced?

  It is vital for any business to realize the profitability of sustainability. For example, the cost of remanufacturing mobile phones could be reduced by 50% per device if the industry made handsets that were easier to take apart, improved the reverse cycle, and offered incentives to return devices that are no longer needed. (Circular Economy Report, 2014)

  Focus on integrating 'lean production' by producing more with less. The concepts of circular economy, cradle-o-cradle, life-cycle analysis and such should be incorporated into the entity's corporate philosophy and considered in the sustainability strategy going forward. Such approach may indeed cause a restructuring of the company entailing an 'expensive' activity if/when the company is to embark on the mission of redefining value. However, leading the way now will be beneficial in the future. Each organization should implement 'lean thinking' through the use of the five principles - specify value by specific product, identify the value stream for each product, make value flow without interruptions, let the customer pull value from the producer and pursue perfection (Jones and Womack, 2010)

  Regulations on waste can have a strong positive effect on waste reduction. Proof to this is the Law passed by Angela Merkel in 1997 'Technical Instructions on Waste from Human Settlements' (WME, 1995), since then Germany has been exemplary in terms of waste management and in particular through its efficient recycling system. In Europe they have passed EU legislation (16) on waste that outlines the obligatory ways of handling waste for all the EU Member States. North America and Europe have tried disposal fees, and found that as fees increase, waste generation decreases. For example, in the city of Lausanne (Canton Vaud, Switzerland), 'household waste must be disposed of in the official white bags subject to fee' encouraging people to pay more attention to what and how much they throw away. Switzerland, where no municipal waste has been sent to landfills since the law was passed in 2000 (17), is a good example of sound waste handling that other countries should follow.

  Governments and ideally companies should raise awareness on waste and encourage consumers to become environmentally conscious. By implementing such schemes as taking back the product after it's use (H&M), the consumer is motivated to dispose well of the product and at the same time keep it in the technical mass cycle. (McDonough and Braungart, 2010) Consequently, the product can then be recycled and its recovered materials reused for various purposes.

  Education is an important factor at play in terms of waste management and sustainable development in general. Arguably, it is essential to introduce such subjects at school at an early age to raise new generations with the primary notion of 'respect nature'.

  Ultimately it is about realizing the business potential of effective waste management and strive for achieving circular economy. Money saved, costs reduced and revenues increased! By implementing sound quality management systems, lean thinking philosophy and the cradle-to-cradle concept, the company would ensure its long-term existence. The circular economy concept fosters wealth and employment generation against the backdrop of resource constraints - more value from each unit of resource than traditional 'take-make-dispose' model.

  Conclusion

  The trend to become sustainable, ecologically conscious and socially responsible may be observed not just among the companies from this analysis but in the society at large. From the multitude of reports that urge humanity to integrate sustainable lifestyles and ways of production, it can be concluded that we have now reached the limits of irresponsible short-term focused growth.

  Champions need to change the mindset and mentality of societies., with education as the key driving of sustainability change in the future. Not just integrating sustainability as a subject at schools but also through raising awareness of customers and employees. The thinking of CEOs, employees and the society should integrate 'respect for nature' as an ultimate basis for existence. More studies, similar to this research, should be performed identifying best practice companies and sharing their approach to sustainability within the sector.

  Sustainability reporting is a tool that more companies should use. The process of reporting in itself is a catalyst for organizational change, contributing to accumulation of knowledge, identification of new risks and opportunities, questing of the processes and management practices leading to establishment of more efficient structures and mechanisms. As often assumed 'what gets measured gets managed' - by monitoring, measuring and setting appropriate targets companies can improve their overall performance not at the expense of nature and society. Despite the lack of transparency in reports, it is nonetheless a positive development that increasingly more companies now produce NFR reports and the trend is bound to continue in the future.

  In order to get sustainability reporting to meet its objectives, i.e. to provide a true and fair view of companies efforts towards sustainability, reports have to be well structured and reflect impactful issues with regard to enterprise performance and society in general. Therefore, one of key criteria that should drive improvements of reporting is materiality. By focusing reporting on materiality analysis, the company improves its overall operations in a responsible manner. By addressing the key social, environmental and economic risks and opportunities whilst taking into account the global and market trends, companies can improve efficiency throughout their entire value chains. As can be observed in the performed analysis those companies that have implemented a solid materiality assessment process demonstrate greater focus on sustainability-related issues and produce a better report.

  Arguably, one of most material issues in the context of sustainable development is waste management and its related reporting. By identifying the major sources of waste through the principle of lean thinking, companies can review their supply chains to foster efficiency of operations. Through innovative design, 'cradle-to-cradle' type of products can be created that reduce the use of new materials and allow for their continuous reuse. As evident from the analysis, Auto sector being the top performer demonstrates that through peer-to-peer joined effort more efficient solutions to common sector specific challenges can be identified. Collaboration between companies is strongly encouraged in the virtue of achieving the circular economy globally.

  Many companies are making efforts to report on sustainability and are looking for guidance. Various frameworks and guidelines on sustainability reporting exist today. However, competition between these institutions further complicates the process of reporting for the companies - confused they find it difficult to choose from the plethora of guidelines. Harmonization of the frameworks is encouraged as this would facilitate business. Organisations that develop these frameworks have a vested interest in their own success, but should focus on how they can work together to achieve greater results in terms of high quality and comparability of sustainable reports in aim of advancing global sustainability.

  Through law enforcements and regulations, the nature of these frameworks can be changed from voluntary to obligatory. The analysis carried out for this research shows that enforcement of these regulations by governments further improves sustainability reporting as companies are being held accountable for the quality of their operations and subsequent reporting.

  Producing a well-structured rep
ort that is exceptionally focused on the material issues to the company and its stakeholders would, ideally, imply that the company has integrated the 'sustainability philosophy' across its entire organization and is driving positive change through long-term value creation. In this regard, it will be only logical that integrated reports, just as was the case with the financial reports, will become common practice in the future. Furthermore, reporting on the challenges it has faced, addressing allegations and negative media reported in the news would enhance the transparency of information disclosed and the credibility of the company. External verification, related institutional mechanisms and expertise should be in place and would provide credibility to the information disclosed.

  Redefining today's business models, value stream, and life cycle of the product would lead to creation of jobs ensuring sustainable economic growth of countries struggling from the financial crisis. The company would need a workforce to implement the newly defined mechanisms.

  It is clear that more work is to be done but increasingly more companies are on the right path. By identifying best practices, through the use of recommendations and best practice examples, reporting can be used as a tool to improve performance. Once the company realizes the infinite benefits of 'sustainable way of thinking', it would create value to investors demanding expansion of sustainable investment opportunities, consumers demanding innovative products and the environment almost at its limit of sponsoring the industrialist growth!

  Bibliography