This is a Time of Experimentation To be Effective Reports Should Evolve to Address a Number of Emerging Issues

This section discusses three key issues reporters in the chemical sector currently face, and suggests specific ways companies can improve their reports:

1. Provision of high-quality, credible information;

2. Expanding the scope of their issues coverage to move beyond Responsible Care reporting; and

3. Employing effective communications mechanisms to reach their target audience.

6.4.4.1 High-Quality, Credible Information. Research confirms that corporate sustainability or responsibility can have an important impact on a company's reputation, and that credibility lies at the core of reputation (see, for example, Ipsos Reid, 2003). Regardless of the form it takes, to be effective in enhancing reputation and in supporting management decision-making, corporate sustainability reporting must therefore be credible - it must provide information that is relevant to the intended audience in a trustworthy manner.

TABLE 6.15. Why is Sustainability Reporting Important?

Business Value

Meet stakeholder expectations

• Demands for performance information

• Build relationships Internal benefits

• Attract/retain high-quality employees

• Staff motivation

• Strengthen systems and data collection

• Board integrated corporate vision Business opportunities

• Licence to operate

• Maintain/access new markets

• Attract investment

• Attract new business partners

Societal Value

Promote transparency

• Increases credibility Enhance corporate accountability

• Public demand

As shown in Table 6.16, reputation can be seen as a function of effective performance and credible communications. To be effective, sustainability reports need to provide high-quality performance information in a way that the intended target audience perceives to be credible. While this may be easier said than done, companies can improve the quality of their sustainability reports through improving their performance information and employing various mechanisms to enhance the credibility of their reports.

Performance Information. On its own, performance information is almost meaningless. Part of the value in publishing a sustainability report is that it allows the company to tell a story about its performance: where it has been, how its performance compares to relevant government standards and sectoral norms, why performance has changed over time, and where it is heading in the future. Many reports fail to provide this important contextual and directional information around their performance data, resulting in a missed opportunity. Surveys of Canadian and international reporting (Stratos, 2001, 2003) suggest that many companies can substantially improve their performance reporting by

• Referencing sectoral or other benchmarks to allow judgments to be made about the adequacy of the performance reported;

• Presenting trend data and explanations for significant changes in performance to enable the reader to develop a reasonable understanding of whether and how performance is improving and how effectively it is being managed;

• Including targets to enable the reader to understand and form an opinion about the company's future intentions;

• Presenting qualitative as well as quantitative data in absolute and normalized formats where appropriate; and

• Restating assumptions for data measurement when corporate structures change.

Credibility Mechanisms. A lack of trust in reported information will prevent stakeholders from reading and using the information contained in sustainability reports and may also lead to a loss of trust in the company. Companies can employ a range of mechanisms to enhance the credibility of their communications, as identified in Table 6.16.

TABLE 6.16. Reputation Equation:

Reputation = Performance + Credible Communications

Performance Information Credibility Mechanisms

TABLE 6.16. Reputation Equation:

Reputation = Performance + Credible Communications

Performance Information Credibility Mechanisms

Absolute and normalized data

Transparency in issue selection

Trend information over time

Balanced reporting of issues

Explanation of changes

Data reliability

Future targets

Verification or assurance

Benchmarks

Transparency in Issue Selection. One of the most significant challenges facing reporting companies is determining what information to include in a sustainability report. There are trade-offs to be made between completeness (an approach encouraged by the GRI) and a focus on the issues that are of greatest importance to a company, its shareholders and other stakeholders, and the audience for whom the report has been prepared. Whatever approach a company uses, transparency of process can enhance the report's credibility.

Reports should provide the reader with information on how the company has assessed the relative importance of the environmental, social, and economic issues and how it has selected the issues to discuss within its report. Readers will be interested to know if and how stakeholder input has been solicited and considered in this assessment, as this may provide an indication of the value the company places on the interests and input of its key stakeholders, particularly if those same stakeholders are the intended audience for the report.

Where companies choose to exclude issues from their reports, the reasons for the exclusion - for example, lack of relevance to their operations - should be stated. A report that fails to address all issues of obvious relevance to the sector will not enhance corporate reputation.

Balanced Reporting. Many sustainability reports appear to overemphasize the good news, skimming over or omitting the bad news. In discussions with stakeholders, many indicate they have more confidence in reports that discuss both the company's achievements and its shortcomings within the reporting period - what can be called "warts and all reporting." A 2003 survey of 56 U.S.-based NGOs revealed that "the most important approach a company can take to improve a report's credibility is to acknowledge noncompliance, poor performance, or significant problems" (Burson-Marsteller, 2003).

While the tendency to emphasize good news is understandable, good news should be accompanied by a candid discussion of shortcomings and challenges. Key areas of the report that should provide a balanced perspective of company achievements, shortfalls, and challenges include:

• The CEO Statement. This statement sets the tone for the report and, as the first section that many read, heavily affects first impressions of the report's credibility. These statements should include a discussion of key performance indicators for the reporting period, identifying strengths and weaknesses in performance. They should also be forward-looking, acknowledging key business and sustainability challenges the company faces, and demonstrating how the company plans to address these challenges.

• Performance Information. A company should report on all issues that are material to the company and its key stakeholders. The report should include meaningful performance indicators for each of these issues, along with a candid discussion of performance relative to targets. Where a company has not achieved a desired result, the report should acknowledge the shortcoming and explain how the company plans to improve its performance in this area.

• Discussion of Key Challenges. In addition to providing a review of historical and current performance, sustainability reports should be forward-looking. They should identify key challenges and opportunities facing the company, and discuss how the company is positioning itself to respond to them. Major issues of relevance to the sector should not be overlooked or glossed over. For example, reports from the chemicals sector should acknowledge and discuss the company's position relative to emerging debates such as those surrounding endocrine-disrupting hormones and the use of chlorine as a feedstock. The Dow Chemical Company's report includes discussion of a number of debates and dilemmas, including vinyl, animal welfare, and biotechnology.

Data Reliability. Stratos' 2003 benchmark survey of sustainability reporting in Canada found that the majority of reports reviewed in the chemical sector -indeed, in all sectors - presented performance data with little to no discussion on data quality and reliability. At a minimum, reports should explain how the company obtains and compiles its data, and the limitations and uncertainties associated with the data and the compilation process. Knowledgeable readers understand that there are challenges associated with collecting and aggregating data from multiple sources. It would be refreshing to see more reporters acknowledge these challenges and describe how they are addressing them.

In particular, reports could be strengthened by providing the reader with information on:

• How the data and information contained in the report have been collected and rolled up;

• The methods used to estimate, monitor, or measure performance and associated confidence levels;

• Significant changes in measurement or estimation methods from previous years and if and how historical data have been restated to ensure data comparability;

• Significant changes in the scope of the reporting organization and if and how historical data have been modified or restated to enable data comparability; and

• Steps the company has taken to enhance the reliability, accuracy, and comparability of reported data and information.

Verification and Assurance. A small but growing number of reporters are experimenting with verification and assurance mechanisms in an effort to provide independent assurance about the reliability, accuracy, and completeness of their reports. These assurance mechanisms can be broadly grouped into three categories (Stratos, 2003):

• Testimonials. Those that include some form of statement from community members that attests to the company's record in a particular area.

• Assurance on data and information accuracy and management. Those that provide assurance related to the accuracy of reported data and information and the reliability of underlying data collection, compilation and management processes.

• Assurance on completeness, relevance and accuracy. Those that provide an opinion on the completeness, relevance, and accuracy of all information presented in the report.

The key test of effectiveness is whether any of these assurance mechanisms enhance the perceived credibility and reliability of reported information in the eyes of a particular stakeholder group. Additional work needs to be done in this area to determine which of these mechanisms meets the needs of different target audiences, including internal and external audiences. At this stage, companies may benefit most by focusing their efforts on pointed discussions and engagement with key stakeholder groups to understand current "trust barriers" and to identify what companies can do to increase their stakeholders' level of trust and confidence in reported data and information - and in the company itself.

6.4.4.2 Moving Beyond Responsible Care Reporting. Many of the reports produced by the chemical sector have been prepared in line with Responsible Care principles and codes. In a 2001 benchmark survey of sustainability reporting in Canada, Stratos found that most chemical company reports emulate the Responsible Care focus on ensuring that products are produced in a safe and environmentally appropriate manner: "The leading reports [from the chemicals sector] provide good information on environmental performance related to manufacturing, building community awareness, emergency response, and efforts to ensure the safe transportation of their products." This study also found that few chemical company reports cover material and energy inputs as thoroughly as environmental emissions. However, here has been a slight improvement in this area based on findings from the 2003 study. More fundamentally, few chemical company reports venture beyond safety and environmental production performance and community outreach to discuss the full range of social issues relevant to their operations in communities and to their businesses more broadly. For example, not many reports discuss the company's positions on the important ongoing public debates that may determine the social and environmental acceptability of some of their existing products. The willingness of chemical companies to address and report on emerging debates such as those surrounding biotechnology, endocrine-disrupting hormones, and the use of chlorine as a feedstock is seen as an important litmus test of their stated commitment to openness and accountability.

Chemical companies can strengthen their sustainability performance and reporting by actively managing and publishing information related to a broader range of environmental, social, and economic impacts. For example, companies could provide information on:

• How they address sustainability considerations in the selection and design of new products;

• The company' positions on important ongoing public debates that may determine the social and environmental acceptability of some of their existing products;

• Their work with suppliers and customers to influence their environmental and/ or social practices and performance;

• The company's economic impact on local and regional economies, including through provision of jobs, payment of taxes, and purchase of goods and services;

• Information on their customer satisfaction program, including indicators;

• Information on their employee relations and workplace practices; and

• Information on their corporate governance structure and business ethics and integrity practices.

6.4.4.3 Effective Communications that Reach Target Audiences. Companies can provide sustainability information to stakeholders in a number of ways. For example, they can incorporate it into their annual report, provide a stand-alone sustainability report, include it on the company's website, or distribute focused reports to specific target audiences through magazine or newspaper advertisements, inserts, CD-ROMs, or newsletters. Although most reporting companies continue to produce paper-based sustainability reports on an annual basis, a growing number are providing electronic and web-based versions of their reports or are supplementing the information included in paper reports with online information. This development is occurring worldwide. In 2003, over 1200 reports were provided in electronic format - HTML and PDF (2004 ACCA and CorporateRegister.com report).

As companies gain experience with hybrid and electronic reporting, we are seeing a number of innovative practices that harness the abilities of web-based communication. Examples of such innovative approaches from within and outside the chemical sector include:

• Novo Nordisk and others provide interactive graphs that enable the reader to customize the presentation of data to suit their needs. The user can view company-wide or facility-specific data, selecting the performance indicators and years of greatest interest to them. DSM's electronic report provides users with drop-down menus from which they can select and view environmental performance data by site.

• BT produces a web-based report that allows the reader to organize and view the company's sustainability information according to different frameworks or norms, including alignment with the GRI Sustainability Reporting Guidelines, BT's statement of business conduct, or the nine principles of the United Nations Global Compact.

• Some companies, such as VanCity and TransCanada, use symbols (Fig. 6.20) in their paper reports to indicate that their website provides more information on the subject.

Figure 6.20. Symbols used in paper reports to refer the reader to a website.

• Rio Tinto provides an interactive map, enabling the user to focus on a facility of interest.

Additional experimentation with electronic reporting will continue to yield new ways to make information more accessible and usable to target audiences. To use e-reporting effectively, however, companies need to adopt the benefits of the Internet while retaining core features of good paper reporting, including clearly identifying relevant performance information, indicating the time period the information covers and when it was last updated, and delineating the overall structure of the "report."

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