VideoSuncor Energy Inc. has come clean. The Calgary-based integrated energy company, which reported $6.3 billion (Canadian) in revenues last year, also reported its environmental, social, and economic performance in a 78-page confessional that bares all — from greenhouse gas emissions to workforce diversity to relations with aboriginal communities in the regions where it develops oil sands. To calm critics who might question the report's accuracy, Suncor hired PricewaterhouseCoopers LLP to verify data in 12 key categories. "For us to establish credibility with the stakeholders to our business, transparency is critical," declares senior vice president and CFO Ken Alley.
"We want their consent to continue to operate and grow our business," he says. "And the only way to achieve this consent is by understanding and incorporating the expectations of our economic, environmental, and social stakeholders into our development decisions."
The idea that a company should conduct its business in ways that benefit not just shareholders but the environment and society, too, is called sustainability, or sustainable development. It's an idea championed by a small but growing number of companies around the globe. One business group, the World Business Council for Sustainable Development, lists some 170 international members, including more than 30 Fortune 500 companies. According to the council's Website, these companies share the belief that "the pursuit of sustainable development is good for business and business is good for sustainable development."
To tell their stakeholders about that pursuit, companies are issuing sustainability reports. Many, like Suncor, are doing so following the strict guidelines of the Global Reporting Initiative (GRI), an independent institution founded in 1997, to develop a common framework for sustainability reporting. Enter the words "sustainability reporting" into your favorite search engine and you'll find such well-known company names as Alcoa, Alcan, Bristol-Myers Squibb, General Motors, Baxter International, and FedEx Kinko's. In all, some 500 organizations publish sustainability reports according to GRI guidelines.
Some countries, such as France, South Africa, and the Netherlands, now mandate environmental or social sustainability reporting as a condition to being listed on their stock exchanges. Although the United States is a laggard, some observers believe sustainability reporting is inevitable here.
"Fifty percent of the investment houses around the world offer a socially responsible investment option," notes Andrew Savitz, a partner in the governance risk and compliance group at PwC. "Meanwhile, the amount of socially responsible capital has risen from around $100 billion in the early 1980s to $2.2 trillion today. And the Dow Jones Sustainability Indexes, which recognize the top 10 percent of companies worldwide based on social, environmental, and economic criteria, are increasingly coveted. The pressure to report on social and environmental performance is intensifying."
Indeed, last April, 13 major public pension companies called on the Securities and Exchange Commission to require publicly traded companies to disclose the financial risks of global warming in their securities filings. Collectively, these organizations manage assets of almost $800 billion.
"Five years ago, people would have laughed if I said there is a linkage between the structure of corporate governance and the performance of a company," says Bob Massie, senior fellow and former executive director of Boston-based Ceres, a coalition of environmental, investor, and advocacy groups that developed the GRI. "Then, wham! It rose to the top of issues for major pension funds. Sustainable development is next."
A Consistent Methodology
Sustainability reporting was born in the 1990s when several companies, notably GM and Ford, launched the practice of disclosing their environmental performance. Their reasons were partly altruistic (read: good public relations) and partly good business practice. "Investors were beginning to realize that there were these large strategic questions about sustainability that affected global firms' financial performance, from their record on human rights to their labor practices to how they expend or conserve resources," says Massie. "Companies, meanwhile, realized they could not build trust or a sense of transparency after a huge crisis like an environmental mishap. They need to build this before, so people don't sense a PR effort to cover up a problem."
Ceres carried the flag for these early efforts, largely focusing its initial resources on corporate environmental performance and how it would be measured and reported. When Massie took the reins of the organization in 1996, companies were complaining about the myriad questionnaires they routinely received from investment funds and activist groups soliciting information about their environmental practices. "They believed that this was an important issue, but they were chafing at filling out 300 different questionnaires," says Massie. "They wanted some consistent methodology for reporting these issues that took into account each of the stakeholders, such as the investment groups and the environmental and labor organizations."
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