CCAB Report Sept 2010 V5_edited - ESCP Europe

Towards a framework of mandatory
sustainability disclosure by publicly
listed companies
Dr Davide Sola
Emmanuel Jouanne
Lucie Roux
Raluca Gheorghita
London, September 2010
1

Acknowledgment
We were granted remarkable access to top officials in more than twenty companies and
institutions. We are profoundly grateful for the time environmental professionals, sustainability
division heads, board Members spent with us. In total we spoke with 22 people from various
institutions and UK corporate companies. These persons took the time to share with us the
environmental challenges businesses have to overcome. For reason of confidentiality, the
interviewees’ names are not mentioned in this report. For the same reason, the authors of the
quotes, as well as the companies they belong to, are not mentioned in the body of the report.
We would like to thank the following 15 corporations, audits and institutions:
M&S, Unilever, Kingfisher, Castorama, Co-Operative, Premier Food Plc, Sab Miller, HSBC, GSK,
John Laig Plc, Rexam, Grayling, Christie’s, RM, Rio Tinto, PWC, Deloitte, Accounting for
Sustainability, FEE (Federation des Experts Comptables Europeens), Climate disclosure
Stanadard Board, World Wildlife Fund, Environment Agency
Grayling
We also want to thank Roger Adams, Richard Spencer, Sharon Grant as well as the ICAEW and
the CCAB team who supported us at different stages of the project and provided us with
fundamental contacts and invaluable inputs.
2

CONTENT
I. EXECUTIVE SUMMARY ...................................................................................4
II. METHODOLOGY AND APPROACH ...............................................................8
III. TODAY’S DISCLOSURES ON SUSTAINABILITY IN ANNUAL REPORTS 11
IV. THE PRIORITY AREA IS THE ENVIRONMENT ..........................................14
V. LANDFILL WASTE, BIODIVERSITY AND EMPLOYEES ARE ALSO HOT
TOPICS ..............................................................................................................19
VI. AMONG THE KEY TRENDS IS THE FOCUS ON SUPPLY CHAIN.............20
VII. THE IMPACT OF THE STAKEHOLDERS ON THE REPORTING ..............22
VIII. HURDLES: MOST COMPANIES ARE CONFUSED WHEN REPORTING
ON SUSTAINABILITY........................................................................................26
IX. DIFFERENT INDUSTRIES REPORT ON DIFFERENT AREAS ...................33
XI. CONCLUSIONS AND RECOMMENDATIONS .............................................37
XII. REFERENCES.............................................................................................42
XIII. ESCP EUROPE TEAM ...............................................................................46
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I. Executive Summary
Sustainability reporting has become mainstream, driven by the regulations and by the
potential business value generated through enhanced stakeholder reporting and
communication. This report provides some inputs on this important and developing issue.
The pressure on sustainability reporting in the Annual Reports has increased over the past
decade but despite the presence of generally accepted guidance such as the Global Reporting
Initiative, the sustainability part in the Annual reports lacks coherence and comparability. Despite
the pressure to develop institutional guidance for the disclosure of specific sustainability
information within the Annual Reports (sustainability information in the Annual Reports is now
required for the Business Review), effective guidance is still lacking.
Moreover, there is no single, universally accepted definition of sustainability reporting. The Global
Reporting Initiative Sustainability Reporting Guidelines (GRI guidelines) defines sustainability
reporting as “…the practice of measuring, disclosing and being accountable to internal and
external stakeholders for organizational performance towards the goal of sustainable
development”.
This research on sustainability accounting that has started in April 2010 covers mandatory and
voluntary disclosures by publicly listed companies in the UK. It sets out compliance to current
institutional regulations, current practice and innovative activity on the part of businesses,
forthcoming requirement and trends that may end up being incorporated into mandatory
reporting. It also identifies issues around the mandatory disclosure of sustainability information to
take in account for the improvement of the guidance. Six main conclusions have been drawn from
this research:
1) Today there are no mandatory disclosures in the UK in Annual Reports
There are no official mandatory disclosures on sustainability in the Annual Reports
nowadays in the UK however, according to the Company Act 2006 and the Corporate
Governance Code, companies are required to report on sustainability in their Business
Review. For instance, companies consuming more than 6,000 MWh of energy are
required to report their energy efficiency to the government but it is not mandatory to
report within the Annual Reports. Moreover, some FTSE100 companies conducting
activities abroad are required to comply with foreign constraints as they may have to
respect the local regulations. This has an impact on the way the companies report on
4

sustainability. More specific to the industry constraint, some companies in the chemical
industry are required to disclose material issues.
The topic of mandatory disclosures is a matter of great discussion. Harmonisation of the
sustainability in Annual Reports through mandatory disclosures vs. flexibility of reporting
through voluntary disclosures is today’s debate within the regulatory institutions and the
leader companies.
2) The priority area is the environment:
The main trend is related to the environmental issues and particularly to the GHG
emissions. Environmental issues are indeed a priority because of the international
pressure and the urgency of preserving the natural resource at a global level. A particular
example is the GHG emissions that might become a mandatory disclosure in the Annual
Reports by 2011-2012 in the UK, despite the resistance from the business side. Some
business leaders consider this prescriptive “one-size-fits-all” legislation not appropriate
and not realistic.
Water use and recycling might become the next probable mandatory disclosures after the
GHG emissions, although there is an opposite argument as water used is a difficult
metric to calculate, so a mandatory disclosure would be difficult to implement.
Other possible future mandatory disclosures on the environmental side are landfill waste
and biodiversity. Among the key environmental trends is the focus on supply chain:
companies understand that the environment impact of their business comes from
upstream (suppliers) and passes downstream (to clients). Within the supply chain, the
scope 1 & 2 are the most disclosed vs scope 3 (indirect impact). It is also interesting to
see that the supply chain efficiency is not only driven by retailer’s brand image concern
anymore, but it also becomes a way to generate energy cost savings.
On the employees’ side, health & safety is also considered as a hot topic.
3) Sustainability disclosures in the Annual Reports are mainly driven by the
stakeholders
Stakeholders are the main drivers for a company to decide on which topics to disclose.
Moreover, the style of communication, the way sustainability is disclosed (narratives,
KPIs, etc…) is also influenced by the stakeholders.
Marketing/commercial advantages are the following strong drivers. In fact, reporting on
sustainability is often a marketing tool for the companies who can differentiate
themselves from the competitors with individual methods and innovative activity on
sustainability (funds, advanced environment protection, care about employees, etc.). For
instance, the company studied and interviewed showed a focus on different areas when
reporting on sustainability: some consider sustainability as a preservation of human and
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environmental resources, some assimilate it into ethics, and some see sustainability as
sustainable business (=long term profit). Usually companies care about what are their
competitors’ practices regarding sustainability
The economical advantage is another driver. When companies manage to tie sustainable
KPIs to financial KPIs, they realise that reporting on sustainability can bring benefits.
Reporting on sustainability becomes a more and more strategic activity. A consequence
of this differentiation is that each company has established its own framework to report
on sustainability. Most companies rely on the GRI guidance to build their own framework.
Within this framework, an internal process for the data collection is often implemented.
Companies and audits feel it is mostly the task of the companies, not the authorities, to
decide what and how to disclose, institutional guidance and government are here to
support them.
4) There are some hurdles: most companies are confused when reporting on
sustainability
Sustainability reporting is not standardised and data collection is the first issue. Although
most companies follow the guidance, they still lack practical information. To be added
that, the bigger the company, the more complex it is to collect the data, because the
quantity of information is more significant and the communication between the branches
is not easy. Moreover, usually companies don’t use any specific software to support them
in collecting the data: data collection is still done mostly manually today.
Reporting the right KPIs is a primary concern as it is a recent activity. Companies usually
struggle on this matter. However KPIs and quantitative data are the trends in the
reporting on sustainability: the more the KPIs, the easier is the connection to financial
aspects. On the other hand, narrative seems to present no reporting-related issues.
Another issue is boundaries that are difficult to define and delineate. In the environmental
reporting context boundaries refers to different scopes: the geographical borders, the
thematic (topics) and the time (historic and target). With the globalisation, the borders are
difficult to delineate (for instance, shall an aircraft company measure the carbon emission
in the air, on earth in the countries where it operates?). Moreover, the drivers are not
clear as the stakeholders have divergent opinions on what to disclose. Finally, setting
targets is difficult for the companies: should it be based on the historic data or follow the
institutional target plan?
Finally, another difficult part of the reporting on sustainability is to measure the financial
impact.
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5) The area disclosed depends on the industry in which the company operates
The different industries have different needs when they report on sustainability. Whereas
the services tend to focus more on “soft sustainability” the production sector emphasises
more “hard sustainable area” such as resources used, carbon emissions. The chemical
industry has to report on the resources used to the government and usually also disclose
it on the Annual Reports. The retail industry is concerned about the environment from the
upstream to the downstream supply chain. The banks and service industries are not
really concerned with carbon emissions, etc.
6) What the guidelines on sustainability could improve
There is a little bit of confusion on the current legislations on what is mandatory, on which
guidance is best to follow. The companies are indeed confused mostly due to the
plethora of guidelines. Most of the time, they don’t have a clear view on what should be
disclosed and therefore don’t organise data collection properly. The the communication of
the information and data collection are the main current issues.
Another source of confusion is the drivers, which are not always well understood. Why
should companies disclose on sustainability, what are the benefits of that?
The guidelines should be simplified and yet more specific at the same time: simplify by
indicating some preferential areas (mostly environmental; for instance, carbon emissions
and energy efficiency represent the most widely disclosed CR topics):
- setting 10-15 mandatory KPIs for all the industries,
- requiring more relevant information with a focus on the impact of the non-financial KPIs.
- the guidelines should also require more details on the scope/boundaries (the companies
should always specify the exact boundary they refer to). They should also give more
explanations and recommendations on data collection and on targets
- moreover, In the guidelines, a section dedicated to particular areas for each industry is
necessary. a differentiation in the guidance for each specific industry should be
considered.
- Finally, they should sell/market the benefit that a company can gain when reporting on
sustainability. The guidelines should deal with today and tomorrow’s hot topics.
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II. Methodology and approach
Activities
End Products
End April 10 30 April 10
End June Today
• Summarise and
confirm project
plan
• Discuss and
agree list of
interviewees to
be approached
for Stage 2
1st phase of the research
0 1 2 3
Kick-off
meeting
List Stage of 1
potential Desk EU
countries research
Analysis Stage 2
of Interviews
identified
countries
• List of target
interviewees
• Agreed outline
discussion
• Review
existing
research and
editorial
• Summarise
state of
sustainability
reporting
integrated into
annual reports
• Interim
findings
• Final
discussion
guide based
We started desk-based research with the objective of identifying areas of mandatory and
voluntary sustainability reporting in the annual reports of FTSE100 companies. Our second aim
was to identify best-practice companies in terms of sustainability reporting in annual reports, and
to detail each company’s business case or outlook on corporate social responsibility (CSR).
In order to do this, we first chose a sample of 17 companies from the FTSE100 from different
sectors. These companies have been selected as they had previously won CSR awards for
sustainability disclosure in standalone documents
Company Industry (ICB classification)
Shell Oil & Gas
BP Oil & Gas
Rio Tinto Basic Material
Intertek Certification
Rexam Industrials
Kingfisher Consumer Services
8
• Carry out
interviews with
accountant
members in
business and
practice
• Validate results
from Stage 1
• Summary of
interview
findings prior to
incorporation
into final report
Final Stage 3
Conclusions
Presentation
• Assemble final
recommendations
and conclusions
based on Stages 1
and 2
• Carry out any followup
analysis or desk
research required
• Final report

John Lewis Consumer Services
Unilever Consumer Goods
M&S Consumer Services
Tesco Consumer Services
BA Consumer Services
The Co-operative Consumer Services & Finance
HSBC Financials
Aviva Financials
Cable & Wireless Telecommunications
Vodafone Telecommunications
GSK Health Care
2nd phase of the research
To substantiate our knowledge we have, in addition to the desk research, followed a ‘bottom-up’
approach by interviewing experts from regulatory bodies and leading corporations. All were
focused interviews and followed a standard set of questions from the study protocol so as to
collect data in a consistent manner. This method has the advantage of obtaining clarification on
the trends, the hurdles and the drivers, as well as gaining knowledge human experiences.
With the assumption that the legislation on carbon emission mandatory disclosures will be voted
upon in December 2010, the cross-analysis of the desk research and interviews allowed us to
identify the trends on sustainable mandatory disclosures for the foreseeable future (specifically
present - 2014). Changing legislative requirements and regulatory regimes, for example in
relation to greenhouse gas emission reporting, are influencing the trends towards sustainability
reporting. We also identified the drivers and obstacles when companies report on sustainability,
giving us input on how to improve the guidelines.
15 interviews were conducted with corporations:
Company Industry (ICB classification)
M&S Consumer Services
Unilever Consumer Services
Kingfisher Consumer Services
Castorama Consumer Services
Co-Operative Consumer Services
Premier Food Plc Consumer Services
9

Sab Miller Consumer Services
HSBC Financials
GSK Health Care
John Laig Plc Housing Property
Rexam Consumer Packaging
Grayling PR Consulting
Christie’s Art Business
RM Educational IT
Rio Tinto Chemical Industry
7 interviews were conducted with experts from various audits and institutions:
Company Activity
PWC Audit
Deloitte Audit
Accounting for Sustainability Institution
FEE (Federation des Experts Comptables
Europeens)
10
Institution
Climate Disclosure Standard Board Institution
World Wildlife Fund Institution
Environment Agency Institution
3 rd phase of the research
The research went through a cyclical inquiry process in which it initially started with achieving in-
depth understanding of the reporting on sustainability in the Annual Reports through desk-
research, and then continuously incorporated new ideas developed so as to ask better questions
in later interviews, which in turn, yields more insights. From the desk-research of the 1 st phase
and the interviews of the 2 nd phase, we extracted the trends and the main needs in order to draw
conclusions on what and how the accounting guidelines on sustainability could be improved in
term of topic, format, lay-out, etc.

III. Today’s disclosures on sustainability in Annual
reports
1) There are no mandatory disclosures on sustainability in the UK in Annual Reports
All the institutions and companies confirmed that there are no specific mandatory disclosures on
sustainability in the Annual Reports today:
• “At the moment, there is no mandatory disclosure for companies in the UK in the Annual
reports” Institution
However, according to the Company Act 2006 and the Corporate Governance Code, there is an
obligation to disclose sustainability matters:
• “The only mandatory reporting required in the Business review is related to the material
issues. But it is not stated on how to disclose these issues” Company
• “Material used and social and environmental risks are required to be disclosed in the
Business Review. But the guidance is wise and it leaves some space for interpretation”
Audit
• “From the Corporate Governance Code: it focuses on diversity and individual KPIs. This
is a more specific guidance on how the company should report” Audit
Some specific industries such as the chemical industry are required to disclose material issues:
• “The companies operating in specific industries (energy, cementer, transport, etc.) have
to report on natural resources used” Institution
• “We have to disclose material risks” Company
Companies consuming more than 6,000 MWh(1) of energy are required to report their energy
efficiency to the Environment Agency but it is not mandatory to report it in the Annual Reports:
• “Energy efficiency scheme is mandatory environmental reporting but it does not need to
appear in the Annual Report, the information is sent to the government. Some companies
might talk about it in the Annual Report, but it is not a requirement” Audit
(1) MWh = megawatt-hours
11

2) Some FTSE100 companies conducting activities abroad are required to comply with
foreign constraints
Some companies with important operating activities abroad may have to respect the local
regulations. This has an impact on the way the companies report on sustainability:
• “There are many multinational companies present in the UK whose statutory
requirements will be determined by laws in the other countries in which they operate, e.g.
Rio Tinto (UK company) who abides mandatory disclosure laws in Australia, hence UK
based companies have to respect the mandatory disclosure laws in other jurisdictions”
Institution
• “Some UK companies have a big majority of their operating business abroad. For
instance, Anglo-America has its main operating activity in South Africa where the
regulation requirements are stronger than in the UK. They use the King III guidance (not
really the GRI). The consequences is that Anglo-America has a much advanced Annual
Report” Audit
Some countries have more natural resources than others. As a consequence, the priorities of
disclosure may be different from a branch to another, according to the country where they are
located:
• “Environmental: Co2 (GHG) report and impact on Financial statements and energy
efficiency are crucial. The rest depends on the country where the company operates. For
instance, in Italy, water is not a priority, but if the company also has some branches in
Africa, then it becomes important to deal with it and communicate it in the Annual Report”
Institution
3) The topic of mandatory disclosures is a matter of great discussion. Harmonization of
the sustainability in the Annual Reports through mandatory disclosures vs. flexibility of
reporting through voluntary disclosures is today’s debate within the regulatory
institutions and the leader companies
Advantages of mandatory disclosures--it would harmonise the Annual Reports:
• “The companies should keep a degree of freedom when they report on Sustainability but
the mandatory disclosures would force everyone in the long run to disclose coherently”
Institution
• “I like the idea of having few mandatory disclosures in order to make the reports more
coherent and comparable for the shareholders” Company
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Risks of mandatory disclosures: it would add some administrative tasks and wouldn’t take into
account the needs and the specificities of the company:
• “Mandatory disclosures within the Annual Reports would only be a burden for the
company and would add to what is already a thick report”. “An issue may be relevant to a
sector but less to another sector” Company
• “Mandatory disclosure would be another administrative cost to us to produce the
information and it wouldn’t be appropriate for the Annual Report (not publicly meritorious
for the shareholders). This information should better be disclosed to a governmental
instead” Company
• “It can become an administrative nightmare” Company
• “Some companies succeeded in reaching the A grade from the GRI but it doesn’t mean
that their report on sustainability is good” Audit
• “It should be the company to decide what is important or not” Company
4) Sustainability regulation will have a significant impact on UK businesses
UK companies believe that tax and regulation will be a key driver
to achieve sustainability.
U.S. survey respondents (to the PricewaterhouseCoopers’
Appetite for Change global survey) ranked issues with the most
impact on their companies over the next 2-5 years:
• 16% Reduction of carbon-dioxide emissions
• 13% New regulation
• 12% Energy efficiency
• 11% Legislation/new laws
Source: Appetite for Change, PricewaterhouseCoopers global survey, 2008
13

IV. The priority area is the environment
1) Environmental elements might be mandatory in the FTSE100 Annual Reports by 2014
Premises
• We identified the
trends on sustainable
mandatory disclosures
for a foreseen future
(today - >2014)
• The trends have been
established taking in
account 3 key drivers:
a) Regulators
(national and
international)
b) Stakeholders of the
companies analysed
c) Innovative
companies
• These trends have
been established on
the assumption that
the legislation on
carbon emission
mandatory disclosure
will be voted in
December 2010
Sources: interviews, desk research
•Today
• 0 (*)
* Today material used
has to be reported to
the government but this
disclosure is not
mandatory within the
Annual Reports
Method
This framework is the result of:
• Today-2014: an in-depth analysis of existing regulations in the UK and in the
leading countries
• >2014: a cross reference of discussions and interviews with regulatory bodies
and leading corporations. The topics that are already discussed by both and
adopted or almost adopted by the second (innovative companies) are the next
possible mandatory disclosures for a foreseen future
14
• 2012-2014
•Carbon emissions
•GHG emissions
•Water
• > 2014
•Landfill waste
•Product responsibility
(retails)
•Biodiversity
•Employees’
health and safety
•Employees’
Increase of the
supply chain
concern:
upstream and
downstream
14

2) Mandatory disclosures should focus on some key areas
Annual report analysis
• Emissions to air: GHG (Direct and Indirect Impact,)
• Energy used or saved
• Community support (charities funding, research grant…)
• Water
• Product responsibility (customer privacy, compliance…)
• Employees' health and safety
• Supply chain (customers suppliers product life cycle…)
• Trainings
•
Sources: interviews, desk research
• GHG emissions
• Water used/recycled
• Landfill waste
• Biodiversity
Short list coming from
Proposed short list:
15
Interviews
• Carbon emissions (with
differences according to the
industries)
• Water withdrawal and
recycled
• Waste landfill
• Biodiversity
• Employees’ health and safety
• Employees’ diversity
• Employees’ diversity
• Product responsibility
• Supply chain
Supply Chain
(scope 1 & 2)

3) Carbon emissions and energy efficiency represent the most widely disclosed Corporate
Responsibility topics
The cross-analysis of 17 Annual Reports on
sustainability highlight there current topics
Sources: report and analysis
16
16

4) Carbon is the major concern of the interviewees, followed by water and waste
Sources: interviews
5) The main trends: environmental issues and CO2 emissions
Environmental issues are a priority because of the international pressure and the urgency of
preserving the natural resource at the global level:
• “I do believe that CO2/ energy consumption will become a more commonly reported
metric” Company
Keyword frequency analysis in interviews
Keyword related to the topics disclosed
The font size reflects to the frequency of the keywords
Topics
agriculture, carbon, climate, CO2,
community, consumption, diversity, electricity,
emissions, employees, energy,
environment, ethical, gas, GHG, health, labels,
landfill, manufacturing, material, packaging, raw,
recycling, renewable, resources, safety, suppliers,
supply-chain, training, transport, waste,
water
• “Environmental data are the most likely areas to become mandatory disclosure in the
future. Australia and France have made GHG emissions reporting mandatory and the UK
will have to align itself to the international situation too” Institution
The carbon emission might become a mandatory disclosure in the Annual Reports by 2012:
• “In the UK, there is a Climate change legislation in the parliament that has to be re-
approved in 2012 about the mandatory disclosure to report GHG” “It should be approved
this December; the parliament will probably decide to make it mandatory by 2012
(through Climate Change Act)” Institution
• “Carbon may become mandatory in April 2012, talks are taking place this December
2010 to decide whether it will become mandatory or whether it will stay voluntary” Audit
17
Carbon/CO2 are the
most quoted keywords
Waste and water come
as the next priority of the
interviewees, as well as
supply-chain

This legislation is not always welcomed by companies:
• “The forthcoming carbon regulations might also bring new costs for a company, i.e. it
might have to buy VERs to offset their carbon usage, hence this could bring negative
consequences, but transparency is very important therefore the data needs to be
measured” Company
• “Mandatory disclosure within the Annual Reports would only be a burden for the company
and would add to what is already a thick report” Company
6) After GHG emissions, water use is considered as a possible next mandatory disclosure
Water might become the next mandatory disclosure after carbon emission…:
• “Water is the next major trend, lots of organisations are looking at water footprint. 90% of
British CEOs see water as being the biggest sustainability challenge (according to
Unlocking the Profit in Water by Corporate Responsibility Ethical Corporation)” Company
• “Arguably water is a bigger issue than carbon” Audit
…although there is an opposite argument as water used is a difficult metric to calculate, and so a
mandatory disclosure would be difficult to implement:
• “On the environmental side I can see waste to landfill becoming a more widely applied
metric. Although important, water is problematic and will never be a commonly reported
metric” Company
• “One big issue is the water. But there is a gap between the priorities and making
something reportable” Company
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V. Landfill waste, biodiversity and employees are also
hot topics
Other possible future mandatory disclosures are, on the environmental side: landfill waste and
biodiversity:
• “The core environmental topics are: Carbon and energy used, water and waste. Hopefully
they will be the next mandatory disclosures” Institution
• “The UK regulations on sustainability are probably going to change and become stronger
as well in the next 2 years. After the carbon disclosure that might become mandatory,
GHG emissions, water, employees’ diversity, the health and safety are possible
mandatory disclosures” Audit
• “The other big step that the companies will probably have to overcome is that
sustainability will have to be reported in the financial statement: losses, credit, trade, etc”
Audit
• “Topical issues at the moment which should become mandatory disclosure should be:
carbon, water (arguably water is a bigger issue than carbon) and biodiversity (valuation of
ecosystems). All of these you can link to financial implications of the business” Audit
On the employees’ side: health and safety is also possible:
• “Next mandatory disclosures beside environmental ones might be employees’ diversity
and health and safety” Audit
• “The main topics on sustainability in our Annual Report is Environment and Health”
Company
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VI. Among the key trends is the focus on supply chain
The focus on the supply chain is growing. Companies understand that the environmental impact
of their activities comes from upstream (suppliers) and passes downstream (to clients):
• “This is a real explosion. There are quite a lot of books explaining how to collect the info
through the value chain” “Organisations want to have the info for internal purpose in the
value chain, there is also an interest in the procurement” Institution
• “The trend is at looking upstream/downstream” Company
One example is the labelling activity for retailers: to communicate properly carbon emissions to
their clients, retailers need to analyse every link of their supply chain:
• “Product labelling- for retailers- this is the current issue of the moment’ but it has to be
linked back to supply chain, raw materials etc” Company
• “Our suppliers are UK farmers based and mostly cooperatives (90%). Our clients are
informed about the origin of the products on the packaging” Company
Supply chain efficiency is not only driven by the retailer’s brand image concern, but it also
becomes a way to generate energy cost savings:
• “Supply Chain is becoming very interesting because of the boundary-less vision it
acquires. Some companies, i.e. Wal-Mart is reporting beyond their legally defined
boundary, providing information from the upstream and downstream of the supply chain.
Wal-Mart has just announced they want to work with their main suppliers to reduce
emissions from the supply chain with 20mil/tones CO2. Wal-Mart is not doing this
because they’ve suddenly become a green eco-warrior of a company, but by taking out X
amount of CO2, the energy used will decrease, hence the goods they’ll sell will be
cheaper. It can see the business benefits around this issue. Historically sustainability
reporting was about showing that you’re a good citizen/company, nowadays some
companies begin to recognize the financial implications, hence are thinking about
reporting in an integrated way” Audit
1) The scope 1 and 2 are the most disclosed within the supply chain vs scope 3
For the environmental issues, scope 1 and 2 are easier to determine, scope 3 (indirect impact) is
still too complex to manage
• “The scope 1 and 2 might become mandatory, the scope 3 will remain voluntary”
Institution
20

• “If something will be mandatory, it has to be clear (more concrete) in term of what and
how to disclose. Scope 3 is too demanding to be mandatory, it would scare the
companies” Institution
• “The biggest issue with many companies is the indirect impact” Company
Case study - AT&T sustainability report: Energy
intensity cut nearly 24%
New strategy model allowed AT&T to reduce it energy
intensity (scopes 1, 2 & 3)
• Scope1: increased their fleet’s efficiency through a
$565 million investment in alternative fuel vehicles
and driving efficiency reducing the number of
trucks dispatched
• Scope 2: (86% of its emission inventory in 2009).
Even with the addition of international scope 2
emissions (power for network and operations),
AT&T year-over-year scope 2 emissions declined
by 2%
• Scope 3: (1% of its 2009 emissions). Less
business travels reduced slightly the scope 3
emissions
Source : ATT Sustainability Report 2009
2) Trends in supply chain are fueled by the potential risks related to climate change
Large organizations have honed in on the supply chain, a primary source of large
carbon footprints:
“It seems like every few weeks a new company makes the pledge to hold suppliers
accountable for energy use and GHG emissions”. Ford Motor Company joined the fray
recently, announcing that it will initially survey 35 top global suppliers on their energy use
and estimated greenhouse gas (GHG) emissions
This is a consequence of the stakeholders’ request:
Shareholders have progressively become more bullish on climate-change risk. Ceres, a
national network of investors, environmental organizations, and public interest groups,
announced in March that shareholders filed a record 95 climate change-related
resolutions with 82 U.S. and Canadian companies, a 40% increase in resolutions filed
over the last year. The organization indicated this is an early sign of the “growing
pressure on companies to disclose climate risks and opportunities in the wake of the
recent Securities and Exchange Commission’s climate disclosure guidance and other
recent policy developments.”
21

VII. The impact of the stakeholders on the reporting
Drivers : 1st mandatory requirements; 2nd stakeholders (clients, consumers, customers,
Sources: interviews
pressure, reputation, responsibility)
1) The stakeholders are the main drivers for a company to disclose sustainability
• “The current key drivers are employees (most convincing part: prospective and current
employees, recruitment is a key factor), International pressure (NGOs), Stakeholder
pressure, Competitive advantage (especially retails, competitive on sustainability)”
Institution
• “Pressure from employees, from investors, nearness (water scarcity in Australia is very
important therefore companies have to deal with that), reputational risk (companies want
to be perceived as the vanguard), great desire to move on in this agenda, opportunity”
Institution
• “A company’s drivers to disclose are the shareholders, NGOs, the employees, the
customers” Company
Keyword frequency analysis in interviews
Keyword related to the drivers and hurdles
The font size reflects to the frequency of the keywords
Drivers/hurdles
advantages, assurance, audience, benefits, burden,
citizen, clients, communicate, competitive,
complicated, consistent, consumers, costs,
customers, drivers, improve,
mandatory, obstacles,
parliament, pressure, reputation, responsibility,
stakeholders, transparency, trends, trust, urgent,
values, voluntary, website
The way sustainability is disclosed in the Annual Reports is also influenced by the stakeholders
• “It is important to decide not only what to disclose but also how to disclose as
misunderstandings from all types of stakeholders are easily created” Company
Benchmarking is also a common practice to establish what to disclose
22
“Mandatory” is the most
quoted keyword in the
drivers/hurdles related
section
Several keywords related
to stakeholders come
then : clients, consumers,
customers, pressure,
reputation,
responsibility,…

• “We look at other company’s reports to see what other people are doing” Company
Stakeholders are increasingly interested in understanding the approach and performance of
companies in managing the sustainability (environmental, social and economic) aspects of their
activities, including the potential for value creation. For example, there is a growing recognition
amongst investment analysts that sustainability contributes to long term financial performance
and investment returns.
2) ...Followed by marketing/ commercial advantage
Reporting on sustainability is also a marketing tool for the companies. It’s an opportunity to
communicate their strategy in term of sustainability
• “Some companies report on sustainability just for the philanthropic purpose of showing
that they care about community, labour, etc” Audit
• “it shouldn't be a marketing tool” Comapny
The commercial advantage is another driver. When the companies manage to tie sustainable
KPIs to financial KPIs, they realise that reporting on sustainability can bring benefits
• “Companies which have perceived the commercial links related to sustainability
disclosure are happy to do detailed reporting because they know carbon efficiency equals
operational efficiency. For companies where the link is less obvious, the value of
integrated and consistent sustainability reporting is less obvious” Institution
• “The trend in terms of disclosure is that it’s getting more commercial, more numerical and
less narrative, it’s getting more specific and target-driven. Sustainability is becoming
more business-like, commercial and embedded and the reports are becoming more
interesting” Company
23

3) A survey on CEOs found that the main drivers are brand/reputation and profit generated
•93% of the CEOs interviewed
see sustainability as crucial to
their future success
•Of these, 72”% said that
strengthening their brand, trust
and reputation with consumers
was the primary driver and 44%
said it was the potential revenue
growth/cost reduction
•86% said “accurate valuation by
investors of sustainability in longterm
investments” is a necessary
first step to reaching a tipping
point in sustainability
Source: United Nations Global Compact and Accenture (766 CEO interviewed) – Environmental Leader, June 2010
4) Companies use individual methods to differentiate themselves from their pairs
The companies studied and interviewed showed different a focus on different areas when
reporting on sustainability.
Some consider sustainability as a preservation of human and environmental resources:
• “Sustainability means respect of the resources” Company
Some assimilate sustainability into ethics:
• “We have 3 main areas of disclosure: Access to medicine, R&D practices, Ethical
business practice” Company
Some have a holistic view of sustainability, seeing it as sustainable business:
• “Sustainability is a triangle: People – Planet – Profit” Company
Sustainability should become more strategic:
• “The information on Sustainability in the Annual Reports is hardly ever strategic and
integrated with the rest of the report. It doesn’t show how it drives the value for the
business” Company
24
Which factors have driven you, as a CEO, to take
action on sustainable issues? (Respondents
identifying each factor in their top three choices)
Pressure from
12%
investors/shareholders
Government/regulators
environment
Impact of development
gaps on business
Employee
engagement and
Consumer/customer
demand
Personal motivation
Potential for revenue
growth/cost reduction
Brand, trust and
reputation
24%
29%
31%
39%
42%
44%
72%
0% 20% 40% 60% 80%

5) As a consequence, each company has established its own framework to report on
sustainability
Companies have different levels of integrated internal framework. Most companies rely on the
GRI guidance to build their own framework:
• “We use an internal framework with KPIs that we built from GRI (and UN Global Impact)
and our own business model since 2002. We have a standardised system with different
levels of details that we adapt in each country” Company
• “Our internal system to gather the data has evolved over time by taking into account the
GRI and DEFRA and by taking into consideration the business’s capacity and strategy
too. As we gain confidence, we set our own KPIs and targets and use general
frameworks for guidance” Company
• “We use our internal system to measure/collect data, which is informed by the GRI”
Company
• “We have an internal process and we don’t follow the guidance such as GRI, DEFRA
although we pay attention that our own process coincide with the international guidance”
Company
Within this framework, an internal process for the data collection is often implemented:
• “In order to collect the information, we have an internal contact within each business unit
(maybe 2 per business unit). Thus our data collection is well managed” Company
• “The CSR Steering group is chaired by the CEO and manage the Cross functional
Directions which are chaired by 5 executive board members. These Cross Functional
Directions manage the Sustainable Working Groups (Packaging, Climate Change, Waste
Management, Recycling)” Company
Companies and auditors feel that this is up to the companies themselves to decide what and how
to disclose, institutional guidance and government are here to support them:
• “Companies should disclose only what they want and what is important for their business
strategies and the sector they operate in.” Company
• “Companies choose their areas and categories according to the importance of impact on
their business (positive or negative impact)” Company
• “According to the stakeholders’ feedback, the board should take the time to define
strategically what information is relevant for the company to publish, and then use the
GRI as a tool in order to calculate the KPIs and turn them into financial data” Audit
25

VIII. Hurdles: most companies are confused when
reporting on sustainability
actions, activities, aware, benchmarking, boundaries, calculate,
chain, clarity, clear, collection, comparable, compile,
data-collection, downstream, flexibility, footprint,
guidelines, KPI's, measure,
measures, measuring, methodology, metric, narrative,
pragmatically, quantify, questionnaires,
targets, team, unit, upstream
Sources: interviews
Guidelines
A4S, CRF, DEFRA,
GRI
1) Sustainability reporting is not standardised; especially data collection
Data collection is the first issue. Although most companies follow the guidance, they still lack
practical information:
• “Companies calculate an average at the beginning and at the end of the year. They
estimate figures and don’t collect the real information” Company
The bigger the company, the more complex it is to collect the data, the quantity of data is more
significant and the communication between the branches is not an easy job:
• “Measuring and collecting the data is very challenging, the bigger a company is, the more
difficult it becomes to do this” Company
Keyword frequency analysis in interviews
Keyword related to the methods used
The font size relates to the frequency of the keywords
Methods
GRI was the most quoted guideline used
• “Recommendation: make the guidelines more relevant for businesses. They are too
generic and not specific to the sectors. They have to make the measures relevant. A
concrete example: the GRI requires the companies to complete a questionnaire with for
instance the number of hours of training: but they don’t ask anything about the type of
training, which is not relevant because according to the type of training in the type of
26
When methods for
collecting data were
discussed, the clarity
of the guidelines, the
definition of KPI’s,
boundaries, targets
were hot topics. How
to quantify, how to
used the
questionnaires
requested by the gvt.
were also discussed

usiness, the impact is totally different. So the guidelines are not relevant as not specific
enough” Company
• “One main issue is gathering the data, in particular in Russia and China, it is harder to
have a good quality of data” Company
Usually companies still don’t use any specific software to support them in collecting the data:
• “We don’t have a computer software yet to collect and manage the data, but we might
have one in the future.” Company
2) Reporting the right KPIs is a primary concern
Whereas narratives seem to present no reporting-issues, reporting KPIs on sustainability is the
main concern as it is a new activity:
• “There is a problem of level of confidence in measuring the financial impacts as the
figures might be not appropriate. Especially the environmental part: it is the most difficult
part to measure in term of financial impact. That’s why they usually don’t measure any
financial impact” Company
• “Obstacles for companies usually are: lack of education, systems not in place, confusion
inside and outside the company, collecting information (how to set KPIs, consistency,
methodology)” Audit
• “How to calculate properly the GHG emissions, etc. It is not clear” Company
• “The other issue to bare in mind is that in the UK companies covered by the new Carbon
Reduction Committee for Energy Efficiency scheme will be monitored in kWh’s. Many
SRI/ Ethical Investment surveys have already stopped collecting carbon data due the
many factors in its calculation and have reverted to asking for kWh’s and litres of fuel
again” Company
However KPIs and quantitative data are the trends in the reporting on sustainability: more
numbers mean more connection to financial aspects:
• “The legislation should be much clearer so that companies understand the linkage
between non-financial KPIs and financial indicators” Institution
27

3) Boundaries are difficult to define, the drivers are not always clear and targets are
difficult to implement
Boundaries are difficult to define:
• “What if we have different boundaries?” Company
• “There are a lot of ways to translate the environmental factors into financial terms,
because it involves not only our activity but also the manufactures and other businesses
and external organizations” Company
• “The carbon disclosure is extremely complicated to measure and it creates enormous
challenges in terms of boundaries. It needs to be clearly defined in terms of geography”
Company
• “There is a difficulty in setting organizational boundaries” Institution
The scope of disclosure differs from just the company to its wider operations
• Not all companies disclose the upstream - downstream environmental impact of their whole supply
chain Upstream Operations Downstream
Resources used for the
production
• Consumption of raw
material and/or energy used
by the company for the
production of its products
• However, some companies do specify these aspects, especially the consumer goods companies:
“We will continue to help customers be green and save money, through more recycling facilities
and by reducing plastic bag usage even further. We will also work with our suppliers to reduce
carbon emissions in our supply chain. We will measure the carbon footprint of 500 products
and communicate the findings to our customers.” (Tesco Annual Report and Financial
Statements 2009)
The drivers are not clear; the stakeholders might have divergent opinions on what to disclose:
• “Shareholders believe that we should have a sustainability report but they all have
different views of what we should report, therefore we look at what general trends are of
interest and then report on them” Company
Emissions from
the supply chain
production
• Offices/plants/subsidiaries
included
• “Companies have to be encouraged to pick out the good information to reveal, instead of
publishing long and useless reports” Institution
28
Emissions from
the products
once in the market
• Techniques of assessing life cycle
impacts/emissions of products
once they are bought by
consumers
Source: Desk research and Strategic Management, Journal of Business Research, June 2008

Setting targets is difficult: should it be based on the historic data or institutional targets?:
• “There are 2 things: the government’s targets and the companies’ targets. If the
government needs some specific targets to be implemented then it should set some
policies itself to collect the information it wants” Company
4) Among the plethora of guidelines, GRI is mostly considered as the reference
The companies have to deal with many guidelines to set their reporting on Sustainability:
• “There are different guidelines. The companies might be confused” Company
• “There are 80-90 different international guidelines with different definitions of
methodology, KPIs…” Institution
Some companies also complain about the lack of relevance of these guidelines:
• “Recommendation: make the guidelines more relevant for businesses. They are too
generic and not specific to the sectors. They have to make the measures relevant”
Company
To remedy this confusion, most refer to the GRI:
• “There is a little bit of confusion due to the plethora of guidance, but all in all the
frameworks and guidance converge to the GRI. So Premier Foods PLC sticks on the GRI
which simplifies the work” Company
Some companies gave up using any institutional guidance and designed their own system:
• “The guidance are confusing and overlapping, that’s why we use its own guidance. It
would be impossible for any companies to follow one general standardized guidance”
Company
The trend of guidance is to converge:
• “There is a wish that there will be, in the short term, one unique governmental guidance
for all the UK industries, and in the long term, one unique international guidance backed
by an accountancy body” Institution
• “There are too many guidance, although now there is a lot and more and more expertise,
which can explain why there are so many guidelines” Company
5) GRI questionnaires are not closely enough related to the Annual Reports’ KPIs
There is a plethora of guidance but also plethora of questionnaires sent by various organizations:
29

• “Each company is required to fulfill a lot of different questionnaires during the year
(mostly in June): the Don Johns sustainability, the Investment agencies, the business
communities…there are a lots of questions (around 100 pages to complete) and a lot of
different wordings” Audit
• “There are too many overlapping forms and questionnaires from different frameworks
(GRI, UN…). The companies would prefer to have one unique questionnaire to fulfill. This
is a waste of time and costs” Institution
These questionnaires could be useful if they were more related to the KPIs on sustainability in the
Annual Reports:
• “The GRI requires the companies to complete a questionnaire with, for instance, the
number of hours of training: but they don’t ask anything about the type of training, which
is not relevant because according to the type of training in the type of business, the
impact is totally different. So the guidelines are not relevant as not specific enough”
Company
• “The questionnaires can’t be used straight forward in the Annual Reports, the information
required in the questionnaire are too detailed” Audit
• “The questionnaires have a limited use and we need more specific level in our sector”
Company
And most of the questionnaires are required in June whereas companies gather data for the
Annual Reports in January:
• “Another issue is that the timing doesn’t fit. Most of the questionnaires are required in
June whereas the Annual Reports are made in January-March” Audit
6) The most difficult part of the reporting on sustainability is to measure the financial
impact
Because reporting on sustainability is recent, companies lack experience and knowledge:
• “there is a problem of level of confidence in measuring the financial impacts as the
figures might be not appropriate […], that’s why we usually don’t measure any financial
impact” Company
• “There is a huge gap between how much is reported on sustainability and the disclosure
of its impact on financials” Institution
• “Sustainability creates tensions: senior managers are worried about the sustainable KPIs
as they are more complex than the traditional financial KPIs. There is a lack of easiness
in using these KPIs” Audit
30

• “60% of UK companies surveyed by PwC on behalf of DEFRA/ DECC have said that
reporting on GHG currently provides no financial benefit” Institution
• “It is difficult/not clear how to quantify it and each company has to develop its own
process, especially when it comes to converting it in economical terms and numbers”
Company
More collaboration between the sustainable department and the financial department is
necessary:
• “The sustainable team and the financial department have to learn to work together with
their respective expertise. This is difficult” Audit
But some companies apparently have no problem connecting their environmental KPIs with
financial KPIs:
• “Provided that companies have good measurement and accounting systems, it’s not
difficult to link the non-financial data to financial indicators” Company
31

7) Data collection is still done mostly manually today
real time
Automatically
Batch
Manual
How GHG data is collected
8) The reporting of KPIs is mostly done by large companies
How KPIs are gathered, treated and reported also depends on the size of companies:
• “The SMEs tend to report less and more recently”. “There is a KPMG survey that shows
that, in 2008, there were 80% of CSR stand alone reporting. But a lot of companies still
put a lot of irrelevant information because they don’t have the required information that is
required.” Institution
The institutional guidance are not always adapted to the SMEs:
• “The GRI is a good guidance for the big companies but might be too broad for the SMEs”
Company
16%
30%
31%
Source: AMR Research, 2010 – 189 total respondents
64%
0% 10% 20% 30% 40% 50% 60% 70%
• “Because of the size of our company (middle size) and because of the industry we
operate, we don’t have a big impact on climate change. As a consequence, we don’t
report a lots of KPIs on environmental issues” Company
32
Architecture to manage GHG emission
data
no existing IT system
Highly fragmented
Somewhat fragmented
Standardized
Highly standardized
The manual data collection is still the norm
« Excel is still king »
13%
18%
17%
22%
30%
0% 5% 10% 15% 20% 25% 30% 35%

IX. Different industries report on different areas
1) The areas disclosed depends on the industry in which the company operates
Number of terms used in sustainability reports (FTSE1100) related to sustainability
themes
Industrial
Financial
Technolog
7 3
9
5
4
9
3
21 23
Basic
Consume
Telecom
material
r
s
services
6 9 15
10
13
9
3
52
9
33
22
Health
care
12
5
26
34
Consume
r
goods
13
13
63
Oil and
gas
16
16
93
Utilitie
16
61
14
97
140
272
7
19
5 31
7
29
49
The different industries have different needs when they report on sustainability:
• “It is impossible to have a same framework for everyone, the differences are too big”
Institution
Whereas services tend to focus more on “soft sustainability”, the production sector emphasises
more “hard sustainable areas” such as resources used, carbon emission:
• “The trends also depend on the sectors. Services: soft sustainability; Retail: supply chain;
Banks: risk reputation (even in the private equity firms they take care of ethics and
sustainable portfolio). They use KKR: they play around cost savings in sustainability,
sustainability has a real impact” Institution
The Chemical industries have to report on resources used to the government and usually also
disclose it in the Annual Reports:
23
16
26 34
52 58
15 47
55
72
51
59
79
37
50
39
21
• “The Oil and Gas industry has specific guidance as they use a lot of natural resources
and because their activity has a big impact on the environment. They usually use the
33
44
41
62 306
89 383
54 77 81 451
66 116 132 641
24 114 171 199 200 212 243 269 403 455 2290
Source: SPADA Environmental Reporting Trends in FTSE 100 Sustainability Reports,
November 2008
Resource and
supply chain
Renewable
energy
Sustainability
Environme
Corporate
responsibility
Waste and
recycling
Climate change

IPIECA guidance (The global oil and gas industry association for environmental and
social issues) and the GRI G3” Institution
• “For example BT has been starting collecting data in the early nineties because of the
high impact of their activity on the environment (unless the service industry)” Institution
• “Companies have different emphasis according to their interest and priorities. For
instance, Shell and BP have clearly some raw material issues (quite similar issues)”
Institution
The retail industry is concerned about the environment from the upstream to the downstream
supply chain:
• “In food retail, health/ nutrition is a key issue reported on by many. Some also report on
‘products and services’ including issues such as affordability. I'd add health/ nutrition for
food; employees training and diversity/ equality and also sustainability issues associated
with key raw materials such as wood, fish, cotton, palm oil etc” Company
• “But sometimes, different companies from the same field might also have different issues.
On the other hand, the investors would like to see some comparable information in the
different reports from the different companies” Institution
2) The banks and service industries are not really concerned with carbon emissions
• “For a bank which is not a big polluter, carbon, water, waste are not material issue”
Company
• “For some companies (service), reporting on carbon can lead to disclosing a very small
figure which is immaterial for their business” Company
34

3) Differentiation in the guidance for each specific industry should be considered
Each industry has some typical relevant areas to disclose sustainability:
Industry Preferential areas of sustainability
Retails/Consumer services • Supply chain, especially downstream (product responsibility, labeling), which
also includes traceability from the suppliers (upstream)
Industrial, manufacturers • Labor (when manufacturing in the emerging countries)
• Supply chain:
- Upstream: resources used,
- Middle: direct emissions from production,
- Downstream: retailers might ask them to be more sustainable
Chemical industries (basic
material, oil & gas)
Sources: interviews, desk research
• Risks linked to material issues and environment
• Employees’ health and safety
Telecommunications • Being low carbon sector, they are more concerned with waste and recycling
• Employees well-being
Financials • “Soft sustainability”: ethical investments, community, employees’ diversity
Healthcare • R&D
• Community (often emerging country where they provide massive support)
35

4) Case example: Telco focus on areas specific to their industry: smart metering, mobile
handset recycling, …
AT&T, BT and Orange lead the European Telco
operator market for sustainable
telecommunications solutions:
• Leading telcos are making investments in marketing
the sustainability benefits of their services and are
developing new sustainable solutions such as smart
metering, mobile handset recycling and machine-tomachine
remote monitoring for water, fuels and
human health.
• As an example, AT&T expects to save 200 tons in
packaging waste by requiring its cell phone
equipment suppliers to reduce packaging, and will
look for the majority of new devices to comply with
the energy-efficient GSMA Universal Charging
Solution
• 2 years ago, Orange made the decision to boost its
CSR efforts, stating it wanted to focus on minimizing
the impact its business had on the environment and
advising customers on safe and responsible use of
its products and services.
Source : Verdantix report, “Green Quadrant Sustainable Telecoms Europe 2010”
36

XI. Conclusions and recommendations
The role of sustainability reporting is undeniable. However, the fact that its style, content and
presentation are in a continuing evolution represents a real struggle for companies. Many aspects
are still confusional such as data collection, the use of the KPIs and their link with the financial
aspects, the boundaries and scopes, etc. Confronted by this confusion, these companies
sometimes opt to report far less, or to report more with narrative as opposed to with reliable KPIs.
It is clear that reporting on sustainability needs to be standardised.
Despite the current debate on whether a set of KPIs on sustainability should be mandatory or
voluntary, our analysis and interview lead us to believe that mandatory reporting by UK
corporations regarding their impact on society and the environment is inevitable in order to make
the report usable with standardised and comparable information. What specifically needs to be
reported and in what form, however, remain challenging questions. It might be crucial to
simultaneously pursue both mandatory reporting of sustainability indicators in a standardised
format, and reporting on key performance indicators specific to particular industries.
Our study shows that although today there are no mandatory disclosures in the UK, there is a
high probability that carbon disclosure will become mandatory for annual reports by 2011/2012.
As a consequence, other disclosures on environmental effects may also become mandatory in
the following years. Indeed, we also found that amongst the sustainability hot topics in the annual
reports, the priority is the environment. Being confronted by the risk of pollution and scarce
resources, the regulators, the companies and society alike consider the environment to be the
highest priority going forward.
Sustainability reporting has two main categories of drivers:
• The regulators (referred to in this context as “the stick”): their role is to control and set
general targets for companies via frameworks, according to the national and international
social, environmental and economic situation.
• The stakeholders (referred to in this context as “the carrot”): their role is to influence
companies on the way they report on sustainability.
Thorough work has been done to establish a credible set of universally applicable indicators and
frameworks. Examples include the Global Reporting Initiative (GRI); the DEFRA; the A4S and its
Connected Reporting Framework; the AccoutAbility; the ISO 14001 environmental management
standard; the Greenhouse Gas Protocol; the Environmental Benefit Calculator; and many others.
37

All provide a trusted and credible framework for sustainability that companies are encouraged to
use, and each of them having a slightly different focus and set of objectives. These frameworks
provide guidance for reporting on corporate governance structures, managerial approach and
environmental, social, and economic performance indicators.
So if reliable indicators and frameworks exist, where is the problem? It is simply that there are far
too many options. Moreover, further work needs to be done on how to determine relevant sector-
specific key performance indicators as a minimum basis for sustainability reporting.
Our recommendations for developing a better guidance for reporting on sustainability rely on the
below principles:
- simplicity through the convergence of the different guidance and the selection of a few
mandatory disclosures;
- consideration of all the stakeholders of the companies, including the regulators;
- connection of non-financial indicators to financial KPIs;
- development of guidance according to the sector;
- emphasis on the benefits companies can expect by reporting on sustainability.
We wish to stress that the aim of this report is not to provide a definitive list of KPIs for the
industry. Rather it gives some suggestions by which such KPIs can be established in a
transparent and flexible manner.
How the guidelines on sustainability could be improved:
- The plethora of guidelines do not help companies understand what they should disclose
and how. Therefore, the guidelines should be converged or simplified; and at the same
time become more specific, indicating some preferential areas, mostly environmental (for
instance, climate change management, energy efficiency, air quality and emissions,
impact on communities, product and operational efficiency, product quality and
innovation, product environmental impact, water used and recycled, materials and waste,
customer satisfaction, sourcing practices, environmental compliance, etc.). This should
be performed through an alignment with global standards where possible. A more active
role for government regulators in sustainability reporting should be encouraged.
- KPIs can play a vital role in any sustainability disclosure; however, only a selected few
mandatory KPIs are necessary, and setting a limit of 10-15 that cover all industries would
be an obvious way to simplify. A KPI approach that focuses in on a limited number of the
most relevant sustainability issues is important; it allows for the presentation of data in a
usable, standardised format that allows comprehensiveness, practicability and easy
38

comparison of relative corporate sustainability performance. The fact that companies
disclose on a voluntary basis allows them to choose different time periods in which to
report, as well as reporting on different factors. With mandatory reporting on KPIs, a
routine inquiry into the sustainability fundamentals of a particular company could result in
peer-to-peer comparisons of the intensity of corporation’s current impacts and its relative
positioning to capture future opportunities
- A unique method for identifying KPIs for all sectors is difficult to implement. Certain key
issues are common to many sectors, while others are unique to each. One way to
encourage the uptake of sustainability in annual reports is through the development of
concise guidance on key sustainability issues for each sector with minimum disclosure.
KPI work best when focused on a specific company because the sustainability
information categories vary substantially across sectors. Transformation of relevant
issues to sector-specific indicators is a critical step in developing relevant KPIs for
business.
- Convergence with financial reporting and establishing KPIs is important. Substantial work
has already been done in identifying a methodology to link non-financial indicators with
financial KPIs (see the CRF framework). The guides should push companies further to
make this financial connection as far as possible.
- Regulators should acknowledge the principle of complementarity – i.e. the regulator
should raise the bar in terms of minimum reporting requirements, but leave enough space
for voluntary disclosure and innovation. To encourage voluntary disclosure beyond the
minimum mandatory requirement as well as innovation, regulators should consider
relevant incentives to help companies build new business processes according to
sustainability standards (see p 41).
- Reporting on KPIs can be performance based (quantitative) or based on management
policy and business processes (qualitative). Accounting methods can be developed in-
house or can draw on existing tools (recommended).
Quantitative: Roughly half of the GRI indicators are already quantitative, and half are
qualitative, requiring a description of policies, procedures or impacts. There are well-
established sustainability accounting tools for measuring reductions in greenhouse
gases, energy use, solid waste and recycling, and water use. However, by using the
quantitative tools, companies should communicate the real impact on their
sustainability. According to an interview conducted with an expert from FEE, KPIs
39

such as training (quantified by number of training sessions per year per employee by
category of employee) are rarely identified in annual reports to show the real impact
on the employees’ career progression or employees’ health and safety, for instance.
The qualitative indicators seek verbal responses that are more subjective but also
useful to explain companies’ business process and strategy according to
sustainability. Although they demand careful thought, an effort, qualitative indicators
used to define the company’s relevant activities clearly and consistently make the
economic impact difficult to measure. The guideline should call for ‘neutrality’ –
objective information that presents an unbiased and honest view. In other words, it is
better to report unvarnished information, rather than trying to adapt the answers to
qualitative questions.
- The guidelines should require more detail on the scope/boundaries (the companies
should always specify the exact boundary they refer to). They should also give more
explanations and recommendations on data collection and on how to establish targets.
- Finally, they should sell/market the benefits that a company can gain when reporting on
sustainability. A recent article in Harvard Business Review claimed: “In the future, only
companies that make sustainability a goal will achieve competitive advantage”. All
serious corporate sustainability effort requires effective communication to both internal
and external stakeholders. Reporting on sustainability makes organisational commitment
clear, meaning companies are aware of the importance of communicating sustainability in
their annual reports through KPI tools.
Sustainability reporting is the practice of measuring, disclosing and being accountable to
internal and external stakeholders for organisational performance towards the goal of
sustainable performance. Therefore some qualitative pieces of advice could be given
within the guide to push companies further in thinking differently about their business
model. The guides should find a communicative way to convince businesses that despite
business agendas and environmental protection seeming to be at the centre of interest,
sustainability is profitable and sustainability accounting could be a tool to reconcile these
two conflicting notions. The crucial point is the vision of what sustainability means to a
given organisation. The question companies need to ask themselves is what the benefit
of disclosing on sustainability would be. Additional quantitative work and/or case studies
would need to be done by the authorities and institutions to identify the real benefits of
such an activity in order to convince and guide the different industries in a more efficient
manner.
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The adoption of a more standardised approach to communication within an organisation’s
sustainability activities, both operational and strategic, will enhance comparability across
organisations. The guidelines should allow a company to report sustainable activities specific to
the individual company while also allowing some level of uniformity in the approach.
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XII. References
Reports:
AMR Research Inc.: Sustainability Reporting and Greenhouse Gas Management – Sensing
Market Trends and Evolution in U.S. Manufacturing, 2010. AMR Research Custom Executive
Summary in Collaboration with SAP
AccountAbility reports: www.accountability.org
British Standard 7750 Report (BS7750), www.quality.co.uk/bs7750.htm, 2010. Quality Network
Carbon Disclosure Project: Supply Chain Report, 2010. Atkearney
Carbone Disclosure Project report: www.cdproject.net
Carbon Disclosure Project: Water Disclosure, The Case for Water Disclosure, 2009. IRBARIS
CERES reports: www.ceres.org
Climate Disclosure Standards Boad: Reporting Framework, Exposure draft, 2009
CorporateRegister reports: www.corporate.register.com
DEFRA. Report: Environmental Key Performance Indicators Reporting Guidelines for UK
business, 2006. http://www.defra.gov.uk/environment/business/reporting/
Environment Agency report: Environment Disclosures, The Second Major Review of
Environmental Reporting in the Annual Report & Account of the FTSE All-Share, 2007.
Environmental Leader reports: www.environmentalleader.com/newsletter
Environmental Reporting, Trend in FTSE 100 Sustainability reports, 2008. Spada Limited
FEE report: Discussion Paper Sustainability Information in Annual Reports – Building on
Implementation of the Modernization Directive, 2008, Brussels
FTSE4Good Index Series: www.ftse.com
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Global Reporting Initiative (GRI). www.globalreporting.org.
Global Reporting Initiative (GRI): Sector supplements as of April, 2010.
http://www.globalreporting.org/NR/rdonlyres/6ADFA7EB-1211-4E57-B063-
BC7AB2B4A4C4/2981/SSLeafletGRI2009FINAL.pdf
KPMG Report: Carrots and Sticks – Promoting transparency and sustainability, an update on
trends in Voluntary and Mandatory Approaches to Sustainability reporting, 2010
KPMG: Sustainability Reporting, A Guide, 2008
The Ends report: www.endsreport.com, July 2010/issue 46, Environmental Data Services
PriceWaterHouseCoopers report: Appetite for Change, Global Business Perspectives on Tax and
regulation for a Low Carbon Economy, 2009
PriceWaterHouseCoopers report: Greenhouse Gas Emission Report, An Illustration for Business
Climate Change and Greenhouse Gas Emissions Reporting, 2010. Typico plc
Public Sector Sustainability Reporting – Achieving sustainability goals, An executive Briefing to
Stimulate Debate and Feedback, Thornton, J. 2010. Oracle Publication
SPADA report: Environmental Reporting Trends in FTSE100 Sustainable Report, 2008
The Company Act 2006 Briefing, 2006, Freshfield Bruckhaus Deringer
The State of Sustainability Reporting in Europe, 2007:
www.sustainabilityreporting.eu/general/ec07.htm
Verdantix Report: Green Quandrant Sustainable Europe, 2010
Books:
Esty, D. & Winston A. S. (2006). Green to Gold, How smart companies use environmental
strategy to innovate, create value, and build competitive advantage, Yale University Press, New
Haven and London
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Epstein, M.J.(2008). Making Sustainability work, Best practice in managing and measuring
corporate Social, Environmental and Economic impacts. Berrett-Koehler Publishers, Inc., San
Francisco
Hopwood, A., Unerman, J., Fries, J. (2010). Accounting for Sustainability. Practical Insights.
Earthscan. London, Washington, DC.
Gray, R. and Bebbington, J., (2001) Accounting for the Environment, 2 nd
Edition. Sage, London
Laszlo, C. (2008). Sustainable value: How the world’s Leading Companies are doing well by
doing good. Standford University Press, Standford, California
Lockwood, C., O’Neill Packard K. and Reinhardt, F., Lovins, A. B., Lovins, H., Hawken, P., Hart,
S. L., Lash, J., and Wellington, F; Sells, B., Stern, A. J. (2007). Harvard Business Review on
Green Business Strategy, Harvard Business School Press, Boston MA
Robbins, P. T. (2001). Greening the Corporation, Management strategy and the environmental
challenge, Earthscan Publications Ltd, London, Sterling, VA,
Savitz A. W., and Weber K. (2006). The Triple Bottom Line: How Today’s Best-Run Companies
Are Achieving Economic, Social and Environmental Success – and How You Can Too, Jossey-
Bass, San Francisco, CA
Academic articles:
Gray, R. and Bebbington, J., (2000) "Environmental Accounting, Managerialism and
Sustainability" Advances in Environmental Accounting and Management, Vol 1, pp. 1-44
Ketelhöhn Werner (2006). “Strategic management practice in Latin America”. Journal of
Business Research, Vol 59-3, pp 305-309
Lydenberg, S., Rogers, J., Wood, D. (2010). “From Transparency to Performance, Industry-
Based Sustainability Reporting on Key Issues, Report. Initiative for responsible investment”,
Harvard University
Nidumolo, R., Prahalad C.K, & Rangaswami M.R. (2009). “Why sustainability is Now the Key
Driver of Innovation”, Harvard Business Review
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Schaltegger, S.& Synnestvedt, T. (2002). “The link between ‘green’ and economic success:
environmental management as the crucial trigger between environmental and economic
performance”, Journal of Environmental Management. Vol. 65, pp. 339-346.
Sarkis J. (2002), “Manufacturing’s role in corporate environment sustainability: concerns for the
new millennium”, International Journal of Operations & Production Management, Vol. 21, pp. 225-
248.
Sarkis J., Meade L., Presley A. (2006). “An Activity Based Management Methodology for
Evaluating Business Processes for Environmental Sustainability”. Business Process Management
Journal, Vo. 12, pp. 751-769.
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XIII. ESCP Europe team
Dr Davide Sola
Associate Professor in Strategy and Organisational Transformation at ESCP
Europe
PhD in Enterprise Economics; Master in European Management from ESCP Europe;
Diploma Kaufmann; Diplôme des Grandes Ecoles; Laurea in Economia.
Davide has been involved in a number of technology start-ups. He joined the Hartley
Investment Trust in London where he worked as Head of New Ventures. In 2003 he
returned to Italy to join McKinsey & Co. as an Engagement Manager. He held the
position of Director at ESCP Europe’s London campus for four years, stepping down in
2010. He has remained at the School as a faculty member, teaching subjects in the
organisational and strategy area. His research interests are in corporate
transformation, strategic renewal, entrepreneurship, and applied economics
Emmanuel Jouanne
Associate Professor in Operations Management and QM at ESCP Europe
Msc Engineering from Ecole Centrale de Paris
Emmanuel is a Senior Consultant specialising in MIS with international experience in
start-up evaluations, business planning and financial analysis. He started his career at
the Société Européenne de Propulsion at Washington D.C., where he dealt with the
selection and management of the invitation to tender (DOD, NASA), before working for
Telesis as a Consultant Europe in the USA. In 1999 he joined A.T. Kearney Europe as
a Senior Manager. Currently Emmanuel is an independent consultant in Canada and
France.
Lucie Roux
Research Associate at ESCP Europe
MA in Information-Communication-Journalism from the University of Lyon III and the
State university of Saint-Petersburg
Lucie started her career in journalism in France (Europe 1 Radio; the press agency AFP)
and in Russia (at the Kommersant newspaper). In Saint Petersburg, she conducted
market research for French companies willing to do business with Russian partners
(within the "Mission Economique" of the French Consulate). Before moving to ESCP
Europe, she worked in Italy in import-export within various industrial companies
Raluca Gheorghita
Research Associate at ESCP Europe
MA in Politics and European Public Administration from University College London and
the Heidelberg University.
Raluca worked within the Supply Chain Management department of Procter & Gamble.
She joined ESCP Europe in 2008 and worked on a major consultancy project looking at
business models sponsored by Pfizer. Her past research also involved
pharmacoeconomic and investment strategies for family businesses projects, as well as
supply chain management strategies for Top 10 UK retailers.
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