Ahold Responsible Retailing report: the story is there, but data quality seems to provide a challenge

Company:

Ahold is an international retailing group based in the Netherlands with strong local consumer brands in Europe and the United States. Ahold operates its businesses from two continental platforms: Ahold Europe and Ahold USA. Ahold Europe comprises Albert Heijn in the Netherlands, Belgium and Germany; Bol.com in the Netherlands and Belgium; Etos, Gall & Gall, and albert.nl in the Netherlands; and Albert/Hypernova in the Czech Republic and Slovakia. Ahold USA is organized into four retail divisions: Giant Carlisle, Giant Landover, Stop & Shop New England, and Stop & Shop New York Metro. The Peapod online business is also part of Ahold USA. In 2012, Ahold operated 3,704 stores, employed on average 225,000 employees, and served around 80 million customers.

 

Content:
Ahold has published CR/RR (responsible retailing) reports since 1999 and can be considered a very experienced and mature reporter. This is clearly reflected in this report, which looks perfect and seems transparent and complete. I especially favor the scorecard overviews, the amount of data provided and the cases included in the report.

 

Most of the usual topics are included. However, I personally would have liked to read more about the efforts concerning organic products and local sourcing, and about Ahold’s responsibilities during the user phase of a product (in other words: the complete value chain). If I perform a media search on Ahold and its brands, it becomes clear that the media as well as Ahold employees have voiced several concerns. Because of this, I would have liked to read how Ahold is dealing with the obvious challenge of trying to please consumers looking for bargains while still realizing its RR ambitions (which could increase the costs for consumers). A bigger issue reported on by media sources is the relationship between Albert Heijn and its suppliers. In several instances, products were taken off the shelves, or did not even make it onto the shelves, because of a conflict. Furthermore, some employees have taken the opportunity to voice their concerns on dedicated websites (perhaps in part in response to the labor strikes that have occurred in March 2013). The report would be an ideal platform to reflect on these issues and to disclose the company view, or – maybe even better – to let stakeholders reflect on them. Sometimes you see some sort of dilemma sharing in a report. The above issues would lend themselves perfectly for this.

 

Ahold (unlike many other reporters and companies) has a clear strategy, and it is made fairly clear what its targets are, by including its achievements and the measures Ahold has taken to reach its targets. The strategic ambitions are clearly the framework Ahold reports against, which is perfect. This enables Ahold to keep the report concise and to the point, and it increasing the readability of the report significantly. It is good to see that Ahold is trying to integrate CR/RR into its conventional strategy. Almost every company seems to be struggling with this aspect, and I should say Ahold is on the right track. However, I would like to highlight one minor consideration in this respect. In my opinion, it would be even better to see how the strategic pillars, the values, vision, promises and the business model are linked. Currently, the disclosed overview does not provide this information to readers. The overview states that the Responsible Retailing strategy enables growth. More information could be provided, however, on how exactly responsible retailing is enabling growth, and on how the selected topics and corresponding indicators help measuring and steering the performance. Secondly, the link to megatrends such as food scarcity, water scarcity and overpopulation is touched upon, but these trends are not explicitly linked to the RR strategy. Thirdly, it is unclear to me to what extent the current strategy (and thereby the report) answers questions and concerns stakeholders may have. It is said in the report that stakeholders have been engaged for this purpose, but the outcomes of the dialogues are not disclosed. Ideally, both the strategy and the report are assessed by stakeholders, resulting in a so-called materiality matrix. A materiality matrix would plot the importance of topics to stakeholders and to Ahold, resulting in a list of topics that should be included both in the strategy and in the report.

 

The report is rich in quantitative information, and the use of scorecards and dedicated chapters makes it easy to determine the performance. The scope of the information provided, however, varies greatly; more on this can be found in the ‘Credibility’ section. Furthermore, Ahold is quite transparent, providing all the data, even if targets have not been met. Most, but not all, of the trends are explained.

 

Communication:

Both the website and the report are perfectly designed for easy navigation. The report has links throughout the text, and navigation buttons are included at the top of the page. In addition, the download center on the ‘A year in review’ website offers the possibility to download just the performance data, which I regard a big plus. The design of the report is nice, with a different color per topic and including enough visuals, such as tables and diagrams. The scorecards in the beginning of the report are a good way to provide a quick overview of the performance per material topic. Mainly due to these scorecards and the chapters being organized per topic, the report reads as a true progress report. A progress report that lets its readers determine whether Ahold is fulfilling its strategic ambitions. It is a big plus that Ahold reports in line with Global Compact and GRI at application level B+. I would never advise companies to increase the application level to A+ for no particular reason, as an A+ report is not necessarily better than a B+ report (only bigger). Another reason not to strive for an A+ report is that the new G4 guidelines do not use different levels of application. The hyperlinks included in the GRI-table are again helpful in the navigation. Ahold claims that the report was drafted in accordance with GRI 3.0, but I suspect that actually version 3.1 was used (just a minor difference, however).

The improvements I would like to suggest are relatively small. For instance, I would like to note that not all definitions or criteria are disclosed. Regarding the healthy products, for instance, it is currently unclear what would be regarded a healthy product (and therefore which products are deemed to be less healthy). A solution could be to refer to the relevant information in the report through hyperlinks and/or QR-codes. Another observation is that the report is not integrated yet. Nowadays, more and more sustainability reports are being integrated with the annual report. Integration would do more than merely combining the two reports; it would mean that Ahold reports, in an integrated manner, all financial and non-financial information stakeholders require to understand to what extent Ahold is fulfilling its strategic ambitions. I would say that Ahold’s strategic ambitions are perfectly suited to be reported upon in an integrated manner (disclosing both financial and non-financial information). Another observation is that there does not seem to be a Dutch version of the report. As many of the stakeholders are Dutch (Albert Heijn customers and employees, for instance), I would expect a Dutch version to be published. I know that Albert Heijn (its Dutch operations) publishes its own reports, but perhaps stakeholders are also interested in the listed mother company.

Credibility:

To make the report more credible, it is essential to have some sort of external assurance provided by a dedicated expert and/or an accountant. Ahold has decided to engage Deloitte in providing limited assurance on the information in the report. However, I personally prefer assurance statements that also disclose the findings and recommendations (as is the case with AA1000AS and sometimes Big4 statements).

If we look into the data disclosed, most trends appear plausible. On the downside, I can see that not all historical data is recorded and that a lot of footnotes are included, which makes assessing the performance difficult. On top of that, it is noted that data integrity cannot be confirmed for several indicators, such as healthy sales, donations, and GFSI-audited own-brand product suppliers. I can understand that this must be a huge challenge for a company the size of Ahold. For the waste data, an extrapolation has been performed, but the basis of the extrapolation is unclear. Also, closer examination reveals that not all brands are included in the data (only 3-6 of the 10 brands are included). Probably, these entities are not included because they are small compared to Ahold USA and Ahold in the Netherlands, but it would be most helpful to read what proportion of the company is covered in terms of FTEs and/or revenue per topic. Furthermore, sometimes anecdotal information about entities is included that relates to a certain topic, while the same entity is not included in the reported data regarding that topic. Examples of this can be found for the Etos and Gall & Gall brands in the environmental section, and Peapod (please also refer to the figure on page 24) and Albert/Hypernova in relation to community well-being. Ahold reporting all the disclaimers, changing data scopes and footnotes is both transparent and confusing at the same time. It is transparent because it tells the reader exactly what the limitations in the data are. Most other companies have to deal with the same limitations, but refuse to be transparent about it. That demands courage! On the other hand, you have to be a very experienced reader to understand how to evaluate Ahold’s performance taking into account the limitations disclosed.

Concluding, I would say that the narrative and form of the report are above average. I would recommend Ahold to focus its energy mostly on data and data management. Perhaps by focusing on this, the level of assurance could be increased to reasonable assurance (perhaps just for the most material indicators).

Recommendations:

1.       Try to minimize the limitations in the data and maximize the scope of the data by focusing on data quality, data management and data validation;

2.       Once the above recommendation has been implemented, I would like to recommend to explore the possibilities for increasing the level of assurance;

3.       Try to get stakeholders more actively involved in the report by assessing their needs and plotting those against the company priorities in a materiality matrix. The outcomes of this assessment should also help in fine-tuning the Responsible Retailing strategy and determining the boundaries of the report;

4.       Provide a stronger and clearer link between the business model, values, strategic ambitions, selection of indicators, megatrends and stakeholder needs.

Nick de Ruiter is a partner at Sustainalize (www.sustainalize.nl), a global CSR consulting firm that specializes in CSR, CSR reporting, CSR strategy, performance monitoring and external AA1000 assurance.

Expert review of ING 2012 Sustainability Report: ING in Society

Company:

ING is a global financial institution of Dutch origin that offers banking, investments, life insurance and retirement services. With more than 84,000 employees, ING serves over 61 million private, corporate and institutional customers in over 40 countries in Europe, the Americas, Asia-Pacific and the Middle East. ING has been reporting on CSR for many years.

 

Content:

At first glance, it is a very complete report, covering all relevant topics which one may find in a CSR report. However, the report is quite big (94 pages) and does not contain many visuals, graphs and tables.

Let’s start off with some feedback on the content of the report. As said, the report is complete with regard to the topics covered. Furthermore, I always appreciate it when companies, like ING does, adopt and include their progress on guidelines like Global Compact and the Millennium Development Goals. I assume that the report was drafted in accordance with application level A+, which at least indicates that the report is complete in terms of the GRI guidelines. The GRI Application Level Check on page 5, however, is illegible and  the application level is not explained in the report. Also the GRI table does not contain the Disclosures on Management Approach (DMA). As a side-note: to me, an A+ report is not necessarily better than a B or C report, as the application level does not say anything about the relevance and materiality of the report. Given the amount of information included, I expect that this report, again, will score quite high in the Dutch Transparantiebenchmark (I would expect a top 20 position).

You can read and feel that this report is focused on stakeholder expectations (I really like the ‘economic contribution to stakeholders’ table on page 11, by the way). In the 2011 report, ING included a comprehensive stakeholder map listing the most relevant issues for each stakeholder group. In the 2012 report, these issues have been translated into nine focus areas. These nine focus areas seem relevant for the business and for ING’s stakeholders. Moreover, the nine focus areas are internally assessed on their potential impact on revenues, costs and reputation. This provides clear insight into the ‘how’ of reporting and managing those focus areas. I have, however, two remarks. Firstly, it would have greatly improved the report if the stakeholder dialogue and stakeholder map had been updated for the 2012 report. Secondly, in my view, the assessment of materiality is not complete when only internal prioritization has been performed, without gathering the expectations of external stakeholders. Such an exercise should result in a materiality assessment or materiality matrix. In such a matrix, all topics would be plotted based on their importance to ING on the one hand and their importance to stakeholders on the other hand. After finalizing the materiality assessment, I would expect it to have implications for both the content of the report (what is included and excluded) and the strategic choices and ambitions.

Following the recommendation by the accountant (it is a big plus that KPMG still includes recommendations in its assurance reports, please also refer to ‘credibility’), I would expect ING to have defined a more dedicated strategy. From the topics included in the report, one can deduce what ING’s strategic choices are, but a dedicated (or integrated) strategy is lacking. This strategy should ideally be linked to the mission and vision of ING and should depict what ING wants to achieve in the coming 3 to 5 years. To be fully complete, the strategic pillars should be translated into KPIs, which would help both ING and its external stakeholders to monitor the progress towards targets. To become 2.0 in CSR, ING could also consider to use the value chain as a basis and research what impacts are made in the different stages. This would certainly impact the current topics in the report, especially when (environmental and social) impacts were to be monetized, following the PUMA example. I have high hopes for the renewed frameworks for 2013-2016.

Currently, ING reports transparently on the progress towards ambitions and targets in Section 3.2 of the report. In case targets have not been reached, this is disclosed as well. Unfortunately, not many targets are actually SMART, and it is sometimes difficult to grasp the reasons why a certain goal (e.g. actively market sustainable products and services) has been achieved. ING is also quite transparent in the disclosure of external issues and its position, as can be seen on pages 23-26. For me, as a stakeholder, this answers many questions and provides clear insight into the vision of ING on important topics. I would even recommend to include the analysis in the aforementioned materiality assessment.

Even more transparency is found in the elaborate disclosure of information in the ‘Better business’ chapter. Almost all information included is deemed relevant. I especially favor the tables on pages 38-40, which disclose the coverage of the Environmental and Social Risk (ESR) framework, combined with the position of ING on issues depicted on pages 40 and 44. Also, the information regarding the application of the equator principles on page 41 and the corresponding screening results on page 42, offer the reader much insight into ING’s position on the environmental and social risks in financing.

 

Communication:

The report can be easily found on the website, and it is very readable (not too much jargon) and easy to navigate. The different hyperlinks are a big help in finding the relevant topics both in the report, the annual report and on the website. The corresponding website is also easy to navigate and lists all relevant topics and information. I also favor the short movie included on the website. The GRI table is very extensive and provides all relevant considerations. Unfortunately, the DMAs are not included. The report holds quite a number of pages, which negatively affects its readability. I do understand, however, that it is always a big challenge to balance having a concise report and making sure to report according to GRI A, score high on the applicable benchmarks and include all relevant information of a company as diverse as ING. One recommendation for the readability of the report would be to include more visuals, graphs and tables. Also, a (separately downloadable) factsheet containing all quantitative information would be a plus. In this report, data are included in the text and they are not always compared with performance in earlier years and/or performance in the sector. Also, not all trends in the data are explained or elaborated on. Currently, the report is not yet integrated. On page 4 of the report, we can read the efforts ING has undertaken to integrate CSR and financial reporting, and ING’s ambition to have an integrated report. Although ING reports transparently on external factors, internal policies and corresponding dilemmas, the report would greatly improve if a ‘lessons learned’ (please also refer to the new BP report) or a ‘what still went wrong’ (refer to the DSM report of 2011) section or chapter were to be included.

 

Credibility:

Companies have the possibility to (voluntarily) have their reports assured by an independent external assurance provider. Such external assurance greatly improves the credibility of the report. ING has recently switched from Ernst & Young to KPMG as its external assurance provider. For several years now, ING has been engaging an external assurance provider to provide external assurance on its reports. This is a true added value for the reports! Additionally, it is a big plus that KPMG is willing to include a recommendation in its assurance reports for the public to read. Unfortunately, KPMG is the only assurance provider active in the Netherlands including such a recommendation (PwC used to include a recommendation, but no longer does).

KPMG has provided limited assurance in accordance with the guidelines as set out by the international auditing standard ISAE3000. I have two remarks on this. Firstly, I would expect that a mature reporter such as ING would be ready to increase the level of assurance to reasonable assurance (the higher level of assurance) for at least the most important KPIs. Secondly, it is remarkable that the ISAE3000 standard was adopted instead of the Dutch COS3410n standard, which was specifically designed for assurance of CSR reports.

In my opinion, the legitimacy of the report would improve if the assurance were to be enriched with stakeholder involvement. This could be achieved by setting up a stakeholder panel (refer to Shell and several reports in the US and Japan). Also, ING could consider including the more stakeholder-oriented AA1000 guideline (issued by AccountAbility: www.accountability.org) in the engagement with KPMG. I would also expect the supervisory board (or a dedicated committee) to be more closely involved than is disclosed in the report.

Regarding the data included in the report, it has come to my attention that not all data have a high FTE coverage (e.g. carbon, 75% coverage). Also, data related to carbon have been extrapolated, while the reasons for and the basis of extrapolation are not completely clear (p. 57). Apart from this, most trends seem plausible and the limited number of restatements are very well explained.

 

Recommendations:

1.       Further emphasize the link between materiality, stakeholder dialogue, CSR Strategy, KPIs, and targets.

2.       Increase the relevance of assurance (e.g. AA1000) as well as the level of external assurance.

3.       Further integrate the annual reporting and increase the report’s readability by using more visuals.

 

Nick de Ruiter is one of the partners of Sustainalize (www.sustainalize.nl), a global CSR consulting firm which specializes in CSR, CSR reporting, CSR strategy, performance monitoring and external AA1000 assurance.