Buckle up, 2016 has something sustainable in store for you!

2016 has officially kicked off. We expect that this year is going to be a great year for organisations that invest in sustainability and corporate responsibility. From ambitious new targets to trending tools: read on for our predictions for 2016.

-          COP21

The international climate change conference held in December 2015, COP21, has led to an international agreement that aims to limit global warming to 2 °C. In response, governments will likely start formulating policy measures on a national or even regional scale. We expect that more stringent energy targets will be set in 2016, demanding more from businesses in the near future. See our December blog for what your business can expect from the COP21 outcome.

-          The Netherlands as EU president

The Netherlands holds the presidency of the European Union from January 1 to June 30, 2016. Innovation and a forward-looking climate and energy policy are just a few of the topics that the Netherlands wants to focus on during its presidency[1]. The aim is to create a more future-proof model for sustainable growth. This will provide opportunities for business to benefit from this momentum by jumping on the bandwagon of sustainable innovation and energy management.

-          Sustainable Development Goals

In 2015 the United Nations updated their Sustainable Development Goals (SDG). These human development targets have been renewed for the 2015-2030 timeframe. In particular in Belgium, the SDGs are increasingly being used to frame sustainability efforts. We expect that the popularity of the SDGs will increase even further in 2016 and that they will also make their entry into the Dutch CSR arena.

-          IIRC - Integrated reporting and strategies

Integrated Reporting is gaining ground in corporate reporting. In a relatively short period it has changed the reporting landscape and connected the report more closely to the company that is behind the report. It has also become a starting point for integrating sustainability within the core business strategy of organisations. We believe that in 2016 integrated reporting will become the standard for how most businesses communicate their (non-financial) performance. We expect more value chain reporting, more integrated and interconnected information, and more forward looking and strategic reporting.

-          Impact Measurement

An important element of integrated reporting is the focus on creating value and having a positive impact. More organisations will be judged by their stakeholders on the value they create, in particular social and environmental value. As already described in our November Blog, insights into the impact of your organisation can create substantial benefits for business. In 2016, organisations will continue to develop and use various methods in order to map the value they create for society. 2016 will be the year in which we expect several more ‘Puma-cases’ of impact monetization and environmental/social profit and losses.

-          Big Hairy Audacious Goal

Companies taking sustainability serious tend to set mega-targets or ‘Big Hairy Audacious Goals’. We expect that more companies will formulate BHAGs and follow frontrunners such as Unilever and Philips in developing a bold vision statement. In our client base, we see many companies considering such a target. Most organisations see a BHAG as the most inspirational means to clarify their goal. It is not important whether you accomplish the goal or not, it is more of a unifying focal point for a company’s effort. It is a true differentiator and lifts your external communication, marketing and reporting to a next level.

Conclusion

2016 has something sustainable in store for you! With all these trends for 2016, it appears that sustainability will continue its trajectory of becoming a more mainstream element of doing buisness. This is a good development for society at large, but it will become more challenging to stand out from the crowd. Luckily, there are numerous methods and tools that you can use to tailor your sustainability strategy. Be it inspiring BHAGs or outstanding sustainability performance. Use this to your advantage and try to keep in mind the following message: distinguish your business from the others - be a leader in something!

Nick de Ruiter is a partner at Sustainalize. He is a specialist in CSR strategy setting and performance monitoring.

Mart van Kuijk & Marcella van Steenbergen are consultants at Sustainalize. They specilize in CSR reporting and impact measurement and -monetization. 

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[1] http://english.eu2016.nl/eu-presidency/input-and-priorities

Act now: Take the initiative for COP21

Should businesses wait for explicit targets from policy makers in order to start mitigating climate change? No. From November 30^th to December 12^th, 2015, the 21st Conference of Parties (COP) took place in Paris. For 12 days representatives of nations and various organisations gathered in Paris to formulate a universal agreement on climate mitigation and adaptation. This agreement aims to restrict the maximum warming of the global temperature to 2 degrees Celsius. However, past conferences have not brought what the world was hoping for: a concrete, global carbon emission policy. Companies are therefore increasingly taking matters into their own hands and setting up ambitious projects. And so can you!

What does my company have to do with COP 21?

Diplomats and heads of state recently gathered in Paris and, for the first time, each of the represented nations listed concrete proposals for future climate policy. For example, the European Union and its Member States are committed to a binding target of at least a 40% domestic reduction in greenhouse gas emissions by 2030 compared to 1990[1]. The United States intends to achieve an economy-wide target of reducing its greenhouse gas emissions by 26-28% below its 2005 level in 2025[2]. Although democratic institutions are not usually known for their decisiveness, The COP21 agreement aims to achieve a significant decrease in carbon emissions.

The intended decrease in carbon emission can have a wide range of implications at a company level. Countries can make laws on energy efficiency, they can come up with taxes on carbon intensive products (including fossil fuel use), or they can impose increased import tariffs on unsustainably managed forestry etc. The impact of these measures differs per type of business and per sector, but it most certainly has an impact, either direct or indirect.

Be a frontrunner, not a laggard

In the light of these important developments, companies are realising that the outcome of COP21 may affect their business proposition. But instead of waiting for politics to unfold, the business world is using the momentum created by the Conference to show initiative. Corporations like Danone and Unilever are voluntarily pledging to stringent emission targets[3]^,[4]. Furthermore, the CEOs of 78 major companies, including Siemens and HSBC, have called on world leaders to include carbon pricing in a global climate deal at COP21[5]. Even major oil and gas companies (BG Group plc, BP plc, Royal Dutch Shell, Statoil and Total SA) have, Taking the summit in Paris into consideration, set out their position in a joint letter to introduce carbon pricing systems[6].

These companies have already started recognizing and identifying the implications of a changing climate on their business proposition. By anticipating the outcome of COP21, they are taking a pre-emptive approach to prevent any potential damage in the future, or to improve their position in the market by grabbing the first-mover advantage. Those who move quickly may generate not only a head start on their future targets, but also a competitive advantage from a boost in reputation or increased efficiency.

So what can you do?

For companies that want to anticipate on a changing climate, there are several options for a climate change strategy. For an organisation that wants to get involved with climate change action, it is sensible to formulate a clear strategy plan. Should the focus be on mitigation or adaptation? What targets do you want to set? Here it can be useful to first map the impact on your business so that you know where the easy wins and biggest challenges are. With this knowledge, you can build a strong plan to act on.

A second step in corporate climate management is measuring your impact. CO₂ footprint, Life Cycle Assessment, and impact monetisation are all methods that can be used to gain an insight into the impact of your business practices. Not only do they measure the impact on the climate, but some also provide data on other environmental factors, which could prove to be valuable information in reducing your impact, or, costs.

To harness the beneficial effect on your business’ reputation, it is vital to report on your efforts. Reporting is a great tool to track and communicate progress. On the topic of climate change, numerous big corporations take part in the Carbon Disclosure Project (CDP). The CDP requires an organisation to report on its climate performance, risks and opportunities, and strategy. The outcome is a dual score: one for the actual performance of the organisation, and one for the quality of the disclosure. The performance score is relative to other organisation in the specific industry, making it easy for a organisation to compare itself with its competitors.

Jump on

While bureaucracy is typically a slow-paced environment, companies are much better equipped for fast change. In fact, as an early mover, you can prepare yourself for future regulations while you reap the benefits of being progressive. So don’t wait for the COP21 outcome. Use this momentum to get your company in the leading group in the battle against climate change now.

Nick de Ruiter is a partner at Sustainalize. He is a specialist in CSR strategy setting and performance monitoring. 

Misha Elkerbout is a specialist in life cycle analyses, impact monetization and CSR performance improvement.

Marcella van Steenbergen is intern at Sustainalize with a profound interest in CSR, CSR strategy setting, impact measurement and CSR reporting.

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[1] Latvia/1/LV-03-06-EU INDC.pdf

[2] U.S. Cover Note INDC and Accompanying Information.pdf

[3]http://www.danone.com/uploads/tx_bidanonepublications/DP_DANONE_Climate-Policy_EN_091115.pdf

[4] http://www.theguardian.com/environment/2015/nov/27/unilever-to-stop-using-coal-for-energy-within-five-years

[5] https://agenda.weforum.org/2015/11/open-letter-from-ceos-to-world-leaders-urging-climate-action/

[6] http://www.shell.com/global/aboutshell/media/news-and-media-releases/2015/oil-and-gas-majors-call-for-carbon-pricing.html

It’s all about the money: Turning non-financial indicators into financial impact

‘Accountants will save the world’ was what Peter Bakker, president of the World Business Counsel for Sustainability (WBCSD) in 2013[1] stated about how companies should measure and compare their sustainability performance. Although he didn’t say how, he was right. This is reflected in an upcoming trend; the emergence of different methods to measure and compare non-financials such as the environmental and social impact of organisations. These methods are often based on quantifying the outcomes of an organisation in financial terms, better explained or popular named as the monetisation of impacts. Considering the early development phase in which these methods are currently positioned, a variation in design is apparent, and no ‘dominant design’ has evolved yet. Therefore, to get a clear view on these developments, this blog outlines the current state of monetisation methods and will explore why monetisation of impacts is important to organisations.

Why monetise impact?

Valuing impact can create several opportunities to organisations, as they gain insight into the organisation’s impact on society and the environment:

• Better overview of risks, which can be foreseen in an earlier stage.  This can prematurely mitigate potential problems and greatly improve decision making.
• Comply with the growing demand from stakeholders that increasingly ask for a larger focus on non-financials.
• It can reduce costs because of a better understanding of the internal processes (e.g. allocating resources and the impacts of safety and energy reduction), and could foster new innovations.
• From an external perspective, there is an opportunity for improved communication as society requests more transparency. 
• Consumers and future employees are increasingly appealed to buy and work for ‘responsible’ and/or ‘sustainable’ organisations.

Integrating Impact

Our world is full of societal and environmental challenges, and it seems obvious that we are in need of a system that is able to provide us with insight into the actual impact of our choices. This is also echoed by the International Integrated Reporting Council[2], which states that the value that an organisation creates is based on four stages. Namely, the input-, business model-, output- and outcome stage (more information on this value creation model is provided in our last blog on Integrated Thinking[3]). These four stages eventually result in the impact an organisation has on the environment and society. But how can organisations translate different impacts into a monetary value? A lot of organisations are experimenting with methods to monetise their impacts. Although there is no leading method yet, monetisation seems to have great potential for organisations to improve their performance. Therefore, some assistance is needed. At this moment, only several experts are able to provide this service. Albeit the market for providing this service is still relatively small, it is growing and shows a promising future. Should your organisation be on the sideline waiting for this market to move forward or engage in an active manner by experimenting with this method?

Best practices

Several organisations are experimenting with new methods of monetising impacts. Currently, they differ largely on their scale of application, namely by product, project, region or organisational scale. PUMA was one of the first organisations that monetised the environmental impact of its product. They used a method that calculated the true costs producing a pair of shoes by incorporating environmental costs into its production costs. Based on this information PUMA has made drastic changes and now aims to find alternative substitute leather types. The PUMA case dates back to 2011, however other have followed since then, such as Natuurmonumenten. This is the largest nature conservation society in the Netherland. The organisation monetised its impact of societal services such as CO₂ storage, particulates storage and natural water purification. With this method they found out that nature conservation does not halt economic development but instead is an important carrier for economic recovery, which strengthened the organisation’s license to operate. On a more regional scale, Heineken aimed to quantify the effects of its activities by performing socio-economic impact studies in several East African countries. This greatly helped the organisation’s management to make better business decisions based on actual facts on the impact it has on society. This study also gave insight in how Heineken could help to increase the yields of small-scale farmers, which indirectly improved their sales and income. These organisations have benefited from monetising impacts, but we believe many more organisations can benefit from this approach.

Monetization will repay your efforts

The main goal of impact monetisation for organisations is to better allocate resources in order avoid or decrease negative impacts and/or to increase the positive impacts. This is endeavoured by taking into account the different values of these impacts in different contexts, and thereby gaining a more comprehensive view of the total impacts of an organisation on society. It should however, be noted that monetising and valuing an organisations impact is not an ‘one size fits all’ approach, is organisational specific and requires a high level of insight in an organisation’s impact. Nevertheless, despite the initial effort that the monetisation of impacts requires for organisations, these are in our opinion most definitely outweighed by the benefits.

Nick de Ruiter is a partner at Sustainalize and has produced several Integrated Reports. He is also a specialist in CSR strategy setting and performance monitoring.

Mart van Kuijk is intern at Sustainalize. He is writing his master thesis on impact measurement and impact monetization.

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[1] https://hbr.org/2013/03/accountants-will-save-the-worl/

[2] IIRC, 2014 (http://integratedreporting.org/wp-content/uploads/2015/03/13-12-08-THE-INTERNATIONAL-IR-FRAMEWORK-2-1.pdf)

[3] Integrated thinking: how to smartly visualise your unique selling points (http://cr-reporting.blogspot.nl/2015/10/how-to-smartly-visualise-your.html, 2015, 2015

Integrated thinking: how to smartly visualise your unique selling points

Recent developments in integrated thinking aim to strengthen the emphasis on the unique qualities of an organisation. Business strategies containing merely a standard set of social, environmental and economic aspects fail to add real value. The International Integrated Reporting Council (IIRC) and the Global Reporting Initiative (GRI) nudge organisations to include aspects which are material and have an actual impact on the organisation. Besides including material aspects in the strategy and report, it is important to establish the actual added value of your organisation.

Integration is key

When it comes to sustainability the focus is often put on the (integrated) report. Although the report is an excellent tool to communicate to your stakeholders, it is merely a tool and not the goal. As the IIRC explains, the purpose of integrated reporting is “to explain to financial capital providers how an organisation creates value over time”[1]. In order to actually reap the benefits of integrated reporting and creating actual value, an integrated strategy is required. Organisations should be able to clearly answer the following questions: how does your organisation distinguishes itself, how does it add value to your stakeholders, and how will your business model sustain in the future. Answering these questions and defining the value creation process can help your stakeholders to understand your value proposition, legitimises your business and smoothens the process of strategy setting.

The struggle continues

Many organisations however struggle with the value creation process. A common practice is to solely add a visual of the value chain in the report. Unfortunately, this approach fails to fully capitalise the value creation process into an integrated, profitable long-term strategy. Not to mention that it ignores to provide stakeholders with the ‘bigger picture’. In the end, the current practice might have the opposite effect of what was intended to be a helpful tool to strengthen businesses.

As the struggle continues this raises the question, how to integrate the process of value creation optimally? Below we describe a couple of important actions which are helpful in creating and integrating the process of value creation in the decision making process of an organisation:

·         If you reflect on the inputs,…

Which inputs are essential to your organisation, what do you need to keep your organisation running? Financial instruments are the first aspects that come to mind, but usually these are only a small fraction of the total inputs. A financial institution such as ING, depends most on human and financial assets. A chemical manufacturer such as AkzoNobel, on the other hand, dependents utmost on natural resources and innovation. Most organisations employ several assets simultaneously (both tangible and intangible). By further specifying and, if possible, quantifying these inputs (e.g. the number of employees, the financial investments or the amount of materials bought), the organisation will be able to internalise the first step of the process of value creation.

·         …describe the business activities and the unique properties of your organisation,…

Once established which inputs are needed to keep your business going, it is time to reflect on the business model. The aim is to describe the business model by identifying what distinguishes your organisation from its competitors. In order to do so, one should be able to reflect on the unique properties of the organisation. In other words: what makes your organisation unique? ROCKWOOL for example uses product differentiation by providing a high quality product with better results than competing products, namely non-flammable stone wool as isolation material. Another example is Interface, it differentiates itself by its Mission Zero, which sets out that Interface is to be the first company that is fully sustainable. Interface aims to achieve its mission through innovative thinking such as producing sustainable yarn, using methods to recycle yarn and reinventing its service by also leasing carpets.

·         …the outputs and outcomes follow naturally.

Essentially, what goes in, must come out. Thus explaining the outputs i.e. key products and services provided by your organisation. The assets as described in the first (input) stage are retrieved and translated into outputs. Subsequently, these outputs should be converted into outcomes. Outcomes describe the actual (positive and negative) impact the organisation has on its surroundings. This also includes internal and external consequences, and preferably outcomes which are quantified or even monetised. Both TenCate (page 20-21) and Avalex (page 12) provide valuable examples of a translation into (qualitative) outcomes in their latest annual reporting.

·      Integrating these insights increases the potential of an organisation

As described above the process of value creation and the corresponding value chain should be internalised and custom made to your organisation. The aim is to specify what distinguishes your organisation from its competitors, and how your business adds value to both its stakeholders and yourself. By focusing on the unique strengths and areas in which your organisation has the most important impact, it can improve its decision making process. Namely, the organisation is better informed on the relevant financial and non-financial indicators. Moreover, being fully aware of the value your organisation creates, will help to create a competitive advantage, may improve the resilience of your organisation as it improves the awareness of its strength and weaknesses, potentially increases sales, and boosts your reputation because now you have a coherent and clear story to tell.

Nick de Ruiter is a partner at Sustainalize and has produced several integrated reports. He is also a specialist in CSR strategy setting and performance monitoring.

Alissa Daurer is consultant at Sustainalize and is a specialist in value creation, the assessment of materiality and GRI G4.

Sustainalize (www.sustainalize.nl) is a global CSR consulting firm that specializes in CSR, CSR reporting, CSR strategy, performance monitoring and external AA1000 assurance. Sustainalize’s client base consists of larger corporations across all sectors.

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[1] Source: The IIRC. (2015). “Get to grips with the six capitals”. Retrieved from: http://integratedreporting.org/what-the-tool-for-better-reporting/get-to-grips-with-the-six-capitals/

Better government decisions through the integration of non-financial information

Although much has been said about the public sector lagging behind in terms of integrated reporting, research shows that integrated information and stakeholder engagement enable public sector pioneers to make better decisions, attune strategy to society’s needs and consequently create more public value or a better balanced budgeting system.

Integrated reporting was one of the topics of the conference on THE ROLE OF PROVINCIAL/REGIONAL AND LOCAL GOVERNMENT IN MAKING GOVERNANCE MORE EFFECTIVE, ACCOUNTABLE AND INNOVATIVE, held by the School of Public Leadership, Stellenbosch University, South Africa, August 19-21, 2015. 

Public need for understanding the creation of public value 

In many governmental organizations, much effort has been made to improve the quality of public administration. Attempts from different perspectives, but with the same underlying goal. In order to improve governance, much effort is aimed at developing organizational structures and leadership role models to support improvements in policymaking and decision-making. The increasing importance of governance has been a trend for several years. Linking outcomes to organizational activities as a basis for effective governance is a complex matter. It is often referred to as “an ongoing challenge" to be able to demonstrate a logical and explanatory relationship between public sector activities and societal outcomes. Simply linking outcomes and activities is not sufficient for a comprehensive understanding of the creation of public value. 

Integrated information improves the creation of public value 

With case studies and practice reviews, Hans Bossert (School of Public Leadership, University of Stellenbosch) and Lianne Dijkstra (Sustainalize) substantiated that integration of non-financial information improves government decisions. Their study confirmed the hypothesis that integrated information leads to better government decision-making, i.e. decision-making that is more focused on the process of public value creation and stakeholder engagement.  Use of information on the effectiveness of the organization’s strategy and policies as well as its efficiency and legitimacy leads to more efficient and productive allocation of capital for public value creation. 

Improved management decisions through stakeholder engagement 

Bossert and Dijkstra’s case studies regarding the 2014 annual reports of Avalex and the NOM also showed that stakeholder involvement in the reporting process plays a crucial role. For one, involvement will result in better management decisions, due to a better understanding of what stakeholders expect of government organizations’ creation of public value. In addition, providing stakeholders with integrated information facilitates better understanding and articulation of governments’ strategies, which in turn will improve stakeholder engagement.

Integrated reporting enables government organizations to better attune strategy to society’s needs 

Comparative case reviews of subnational government pioneers in integrated reporting show a clear correlation between the business model, the outcomes and the impact on society. In their annual reports, the cities of Melbourne, Warsaw and Johannesburg claim that by managing and disclosing both their financial & non-financial performance data, their strategies will be better attuned to society’s needs. Furthermore, the case reviews show that (subnational) government organizations apply leading protocols and standards on governance and integrated reporting (King III, GRI-G4, IR) in order to link outcomes to their business strategies and provide internal and external stakeholders with insight into how they intend to address sustainability issues.

Conclusion: the results of the study call for (subnational) government organizations to follow in the footsteps of public sector pioneers and private sector organizations in terms of integrating non-financial information and being transparent and accountable regarding their public impact.

Lianne Dijkstra is consultant at Sustainalize (www.sustainalize.nl). A globally active consulting firm that specializes in Integrated Reporting, CSR, CSR Reporting, CSR Strategy and performance monitoring in the private and public sector. 

Bavaria: well on their way

Company:

Bavaria is the biggest independent brewery in the Netherlands, and the only brewery with its own source of natural mineral water. Bavaria is a 100 percent family-owned business, and currently run by the 7^th generation of the Swinkels family. Its roots date back to 1680. Bavaria produces 6 million hectoliter of beer a year, of which 65 percent is exported to more than 120 countries. Besides beer, Bavaria also produces malt, soda, cereal extract and water. Its net sales exceed €500 million and Bavaria employs about 1,000 employees. Bavaria’s headquarters is situated in Lieshout, the Netherlands, and it has 4 subsidiary companies in Spain, France, Italy and the UK.

Content:

At first sight, Bavaria’s 2013 CSR report looks good, especially as it is well organized and easy to read. It is clear that Bavaria is aware of its impacts on the (business) environment, and takes a proactive approach. A good example is the project “Boer Bier Water”, for which Bavaria works closely together with local parties, such as farmers, to address local issues like draughts. Although I applaud Bavaria’s good intentions to demonstrate the importance of stakeholders, it is a bit unusual to elaborate on the stakeholder engagement even before introducing the company and the report itself. I do not know whether this was done intentionally, but it seems a bit superfluous, as Bavaria shows its stakeholder dedication throughout the entire report.

Although I believe that the report is already quite far developed, I feel there are some opportunities to help bring the report to an even higher level. One point for improvement ceould be the completeness of reported data. Bavaria chose to solely report data of Dutch operations, since it only brews its beer in the Netherlands. However, as a globally active company, one could imagine that this scope can be expanded. Take for example the new developments in Ethiopia, where Bavaria bought a 54% share in a new brewery called Habesha. What is interesting about this arrangement, is that the other 46% belong to almost eight thousand local investors. It would be nice if Bavaria were to report on these kinds of topics in their next report.

Bavaria explains that it is currently working on a new “Master plan” for its sustainability strategy. This plan includes further development of its ambitions and goals, and, among other things, incorporating a materiality analysis. Firstly, such an analysis can bring the strategy (and report) to a higher level by strengthening its focus on key issues. Furthermore, even though I believe that Bavaria is already addressing most of the important issues, a materiality analysis can produce surprising new topics. Moreover, the materiality analysis can stimulate Bavaria to make choices with regard to its objectives, especially as out of the 8 current themes, Bavaria developed 29 objectives. Managing that many objectives automatically results in a loss of focus. In addition to a materiality analysis, I would encourage Bavaria to include more information on its value chain, and in particular to add a visual of this value chain. Describing the value chain would depict what Bavaria’s business model is and how added value is generated for stakeholders. Also, reporting on the value chain would also result in closer alignment to the principles of GRI G4 and the International Integrated Reporting Council (IIRC).

Communication:

Finding the Dutch report online proved to be easy, unfortunately this is not the case if someone is looking for the English report. The fact that the report seems to be only available in Dutch appears odd, considering that Bavaria is active in over 120 countries.

While the report is easy to read, my impression is that it consists mostly of ´dry´ text. I would recommend Bavaria to add more visuals throughout the whole document. Visuals increase the attractiveness of the report. They invite the reader to read the actual text, while at the same time clearly show what is most important. Moreover, although Bavaria presents several overviews with figures in the appendices, not all of these figures are of great relevance. The materiality analysis can also help with this aspect, by selecting the most relevant issues and reporting on Key Performance Indicators (KPIs).

Credibility:

Bavaria has engaged Lloyd´s Register Quality Assurance (LRQA) for the assurance of its sustainability data. I particularly enjoy the fact that the assurance statement is written as an advisory report, because this is easier to understand for the general public. However, some confusion arises by the verification approach, which is compiled of principles and best practices of: AA1000AS, ISAE3000 and the Dutch NIVRA 3410n. As a combination of three standards is used, it is rather difficult to retrace the actual verification approach. The CSR report also raises several other questions regarding the transparency and completeness. For example, the fact that CO₂ and NO_x emissions data were excluded from LRQA’s verification and verified by another consultant.

Recommendations:

• As a globally active company, consider expanding the scope of the report by including the other countries of operation as well;
• It is our recommendation to bring further focus in the report by performing a materiality analysis;
• We would suggest to include information on and  a visual of Bavaria’s value chain;
• Bavaria could ask LRQA to improve the transparency of the verification approach.

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.

‚Unsubscribe dialog – subscribe collaboration’

To survive, stakeholder dialog needs to transform to stakeholder collaboration and make use of new forms of IT

Stakeholder Inclusiveness is one of the four core principles in the GRI G4 Guidelines that help to define report content that is material to the reporting organization and its stakeholders. Since GRI introduced the logic flow of how and when to use these four principles in the reporting process (first done in a Technical Protocol in 2011 and then only slightly amended for G4) it became clear that stakeholder inclusiveness means an ongoing and unstoppable process – in parallel and supporting the use of the other three report content principles. Clearly, stakeholder dialog would not be useful for only creating an organization’s sustainability report.

 

And here lies the problem: exactly THAT is done in many reporting organizations. This is due to various reasons, some of them are:

·         There are other existing feedback instruments like customer or employee satisfaction surveys. Sustainability seldomly gets included there; these survey services are often offered by external third parties and the sample of topics can’t be changed. Getting varying sustainability issue feedback through those surveys is difficult and the internal owners of these instruments are hard to convince that they should be changing or adding to what is ‚theirs’ and already ‚cast in stone’.

·         New product or service testing is mainly done when prototypes are out for market trials. Before that R&D is still mainly working behind closed doors, sustainability aspects are – if existing - mainly built in through regulation, internal design standards or specifications; potential customer reactions are only due when testing starts. Crowdsourcing is still in its infancy for many of those organizations that have built R&D fortresses and it’s hard to conquer the walls of overestimation of one’s capabilities, the billions of dollars invested in know-how, brains and internal think tanks weren’t in vein, weren’t they?

·         Investor relations still doesn’t take sustainability into their analyst briefings and bulletins, and why should they? Nobody’s asking! These colleagues have to entertain a very specific stakeholder group, engrained in their own mental stereotypes of how markets function and reward. Dozens of sustainability indicators? Well, spare me the white noise, give me one or two!

·         Top management wants information rather quick: if somebody is asking difficult questions in an interview (the questions are mostly precooked) or if top management needs input for a speech, turnover time to serve with answers is often less than 48 hours, so better have handy all necessary data and sound bites in or through the sustainability team.

·         Finally we hear so often that sustainability team members need to be careful, need to create step-by-step approaches, need to draw a fine line, have to be politically correct, need to know ‚the game’ or ‚how it works’ inside the company. Risk-averse approaches are the consequence. Being one of the most important internal strategy or board advisors – a role we would wish for the sustainability department to have – is much different. Go ask some companies how often the head of sustainability meets the board or the head of strategy! Prepare yourself for some disturbing answers.

 

These descriptions may sound a bit overexagerating for some, but feedback from dozens of organizations we spoke to internationally in the last year or so paint a rather difficult picture of how especially internal stakeholders react to demands by sustainability departments to include sustainability into their daily working instruments, surveys and dashboard. Of course, there are organizations in which ‚integrated thinking’ as proclaimed by the IIRC for integrated reporting works better in the meanwhile, but for the majority of companies we still doubt it.

 

One consequence of these rather unsatisfying conditions is that a stakeholder dialog process is often done just through the sustainability department and – even more disturbing – just for the report that comes out. That again is input for some of the known rankings and ratings. Many sustainability department staff know the routine as they are both inviting and invitees (in other company’s dialog processes): once per year data is collected through existing niche software (or through some ERP system modules) or certain identified colleagues (issue owners) get an excel sheet into which they have to add data they are responsible for. Thank you, and until next year! Parralel to that a questionnaire is sent out to identified external stakeholders (often also from other companies), and of course the other usual supects, including some internal stakeholders. After a max. 30 % feedback rate some statistics are pulled together. Usually, these are presented in one or several roundtables, sometimes in various countries (in the case of multinationals). Together with additional weighing factors a materiality matrix is then drawn up. Programs are set in motion to decrease the most negative impacts, and there goes your report and the shoulder clapping.

 

We expect that this sort of stakeholder dialog process will be dead in about 2-3 years. There are many indications for that:

·         Can this process convince to support and carry out reliable stakeholder input to really find out what the material issues are? In our view, it can show tendencies or possibly trends, but would you truly tell your top management that this is a proper assessment of the reality out there? As the availability of software and data is less and less of a threshold, one can demand a different quality and amount of data involved.

·         Hardly any sustainability department has organized stakeholder inclusiveness in a way that it is an ongoing process. There is anecdotal evidence at certain moments during the year and some have tried out standing stakeholder expert committees or panels to bridge that gap, but will that be seen as enough? Members of these committees are changing over time, so how stable is that interim solution?

·         Most corporate representatives are frustrated: having received many invitations to such rounds of questionnaires and roundtables from other companies, there is little excitement to go there more than once. Seen it, done it, had it, too little benefit to be involved. It also dawns on them that their own process will most likely face the same problem.

·         NGO representatives already face an ‚overflow error’ syndrom. Think about potentially up to 6.000 calls that Greenpeace will receive in 1-2 years based on the EU’s new Corporate Reporting Directive. No way! Same with most other NGOs, apart from the fact that they also already face the same frustration as mentioned above. Too little do they know what happened to their input and how far it lead to any transformation.

 

What will be the alternatives? Sure, there’s one big vision already on the horizon: the possibilities of Big Data for stakeholder involvement. In the coming years new data and information-based technologies will contribute to the development of new ways to collect, analyze and visualize bigger and so far unconnected sustainability data. Smart cities, infrastructure, sensors, the Internet-of-Things, portable and cognitive technologies, as well as new business models around Big Data will contribute to this development. Additionally, new interfaces between earth system science, satellite-based data and personalized technologies will emerge. IBM’s Watson and Smarter Planet are first examples of how enterprises prepare themselves for these changes. A bridge too far for the moment for most of us, we would say.

 

But there are also intermediate solutions to start already now. It all begins with a change of mindset. Like already mentioned we can be sure that stakeholders will more and more unsubscribe from the current approaches, simply because that sort of stakeholder ‘dialog’ is not fulfilling. In combination with a) the growing data availability and b) a further integration into corporate strategy development, stakeholder dialog needs to be replaced with ‘stakeholder collaboration’. That in our view is only possible if the different parts of the organization, those that are not yet connected (or willing to connect, see above), will tune in. Here’s how:

·         Employee and customer satisfaction insight need more than questionnaires with some extra questions on sustainability. We need offers to contribute instant feedback, ideas, openings to focused discussion forums. It is clear that stakeholders want quick feedback, want to know what happened to their input, and how it was used to support change. That data can very well be used to indicate material sustainability issues.

·         Crowdsourcing and crowdfunding are important, yet underestimated feedback instruments, not just to develop products & services, they are also indicators for the reputation of the organization on many fronts, the willingness to co-create and re-think by stakeholders, and the buy-in for potential new products and/or services developed and used by stakeholders. Best new recruits could stem from those sources.

·         Investors need new and aggregated data that can quickly show the ‚ThriveAbility’ of a company, both for investment decisions and for their own reputational buffer. The ThriveAbility Foundation (www.thriveability.zone, going live soon) has started the development of an aggregate ThriveAbility Index as well as a ThriveAbility Assessment (designed to check organzational capabilities to being thrival) and ThriveAbility Pathways (a tool to assess leadership capabilities for becoming thrival). Thrival in short means the ability to instigate a net positive value creation process, the future precondition to have a right to grow and to get fresh capital.

·         Top management can get infomation instantly if new software tools like e.g. VERSO Workbook (www.verso.info) are used, to our knowledge the first holistic plan-do-check-act support tool that covers data aggregation, workflow management, facilitated discussion on issue-specific communities, communication and publication of sustainability information as well as coverage and use of all mainstream social media tools for stakeholder involvement. Think about your top management having access and all relevant information just 2-3 clicks away?

·         Sustainability departments can strengthen their role and need to be embedded in corporate strategy. The development of new qualities of materiality matrixes will be a growing field, but needs to be done differently. Virtual dialogue and online engagement platforms will increasingly fill this need, given the cost and carbon-intensity of in-person engagement, the scheduling nightmare of multi-party conference calls and webinars, and the inefficiency and isolation of individualized outreach to stakeholders. Convetit (www.convetit.com), the online stakeholder engagement platform co-founded by Bill Baue and Tom O'Malley, helps solve these problems by hosting asynchronous online dialogues. Most recently, Convetit introduced an interactive Materiality Matrix tool that enables stakeholders to plot the importance of material issues on a matrix that the platform then aggregates and averages to paint a collective picture of stakeholder sentiment.

 

Other new tools using Big Data approaches will be arriving on the market soon and will have promising propositions: Take e.g. the startup eRevalue (www.erevalue.com) that analyzes external sources from the internet and provides business intelligence to companies. Through objective output analysis – screening sources that were published by third parties - companies can make an informed decision as to what issues to focus on. This depends per sector, per region, per operational structure, supplier locations etc.. Their software will help determine which sustainability issues are most relevant to a particular business. It uses a set of key topics ("semantic ontology") related to environmental issues, social issues and corporate governance. This set of key topics creates a common language for companies to use for strategic decision-making.

 

It is time to get real on the new realities stakeholder collaboration demands. The earlier the new possibilities are used, the quicker we will see results. The technology is there, it will be polished, fine-tuned and upgraded by the growing amount of users. Together with the Big Data developments that we will be seeing within just a couple of years, old-fashioned stakeholder dialog for sustainability reports as we knew it will be history. If you are interested to get to know all these and even more players, don’t miss the 2nd International Annual Reporting Conference in Berlin, October 6/7, www.reporting3.org.

 

Authors: Ralph Thurm is the Founder & Managing Director of A|HEAD|ahead, Nick de Ruiter is partner at Sustainalize. Transparancy disclaimer: Ralph is involved in VERSO and in that role has contact to a whole array of new tools for stakeholder collaboration. He is also curating the Reporting 3.0 Platform and is a Co-Founder and Technical Director of the ThriveAbility Foundation.