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July 02, 2004
A Brief History of Sustainability Reporting
    by William Baue

Part one of this two-part article outlines the history of sustainability reporting up to the present; part two projects trends in sustainability reporting into the future.


Corporate reports covering non-financial information--variously called sustainability, triple bottom line (TBL), corporate social responsibility (CSR), and environmental, health, and safety (EHS) reports--are relatively young compared to financial reports. However, non-financial reporting is growing in significance as corporations and their shareowners and stakeholders recognize that non-financial issues impact financial performance. Tracing the history of non-financial reporting helps project the trajectory of where this kind of reporting is heading, which part two of this two-part article will cover.

"There have been sporadic initiatives [in the past] to produce non-financial corporate reports, such as the social reports produced in Germany during the 1970s," said Paul Scott, director of Next Step Consulting, a UK-based consultancy focusing on corporate policy, strategy, and communications. Next Step manages CorporateRegister.com, a free online directory of corporate non-financial reports. "The current reporting movement emerged from reporting in the US during the late 1980s, in response to the increasing volume of emissions data put into the public domain by the US 1987 SARA [Superfund Amendments and Reauthorization Act] Title III legislation--the 'right to know' legislation which established the Toxic Releases Inventory."

Also in 1987, the Brundtland Commission, appointed by the United Nations to study the connection between development and the environment, coined the term "sustainable development," meaning that present resource use must ensure future resource availability. Over the next several years, this concept created a ripple effect in non-financial reporting, spurring a transition from narrowly-focused reports to ones that integrated diverse sustainability issues.

"During the early 1990s the concept of sustainable development gained common currency, especially following the 1992 'Earth Summit' in Rio de Janeiro," Mr. Scott told SocialFunds.com. "The existing environment and EHS reports began to include wider issues, such as community, and gradually 'sustainability reports' began to appear."

The shift continued through the "Rio + 10" Summit on Sustainable Development in Johannesburg, South Africa in 2002. According to CorporateRegister.com statistics, the percentage of reports exclusively focusing on the environment fell from 63 percent of non-financial reports in 2000 to 42 percent in 2002, while sustainability reports rose from 5 to 15 percent over the same period.

Sustainability is increasingly becoming the umbrella term under which all non-financial reports fall. Last week, AccountAbility, a UK-based institute promoting accountability for sustainable development, and CSRNetwork, a UK-based CSR consultancy, released a study lumping social, citizenship, and EHS reports under the sustainability rubric. The Accountability Rating, which rates sustainability reports from the Fortune Global 100 (or G-100, the world's 100 companies with the highest gross revenues), finds significant growth in sustainability reporting. Almost three-quarters (72 percent) of G-100 companies issued sustainability reports by 2004, whereas less than half (48 percent) had done so by 2003.

"This is remarkable if you consider that many of the Global 100 are Japanese trading companies and financial-sector firms, who do not tend to report," said Riva Krut, vice president of Cameron-Cole, an environmental management services (EMS) consultancy. In 1997, Dr. Krut developed the survey on which the Accountability Rating was directly based, the annual Benchmark Survey of Global Environmental/Social/Sustainable Development Reporting, which CSRNetwork took over from Cameron Cole in 2001.

"The escalation trend is most conspicuous in the USA, where the percentage of US reporters in the G-100 rose from 18 percent to a remarkable 49 percent in one year," Dr. Krut told SocialFunds.com.

Also conspicuous was the dearth of US companies in the top sustainability report ratings: Hewlett-Packard (ticker: HPQ) was the sole US-based company in the top ten, which included BP (BP), Shell (RD), Toyota (TM) and Unilever (UN), among others.

To gauge the overall status of sustainability reporting, the survey graded reports on a 100 percent scale in six areas: stakeholder engagement, strategy, governance, performance management, public disclosure, and assurance.

The findings reveal that stakeholder engagement is widespread, with 72 percent of companies earning some score in this arena in 2004 as compared to only 31 percent of companies addressing stakeholder engagement the year before. However, stakeholder engagement is relatively weak, according to the survey.

"Only two companies scored 50 percent or above, and only 10 out of 100 companies both identified their stakeholders and described processes in place for engaging with them," said Katy Anderson, principal consultant with CSRNetwork.

Assurance had the lowest overall score of the six areas, averaging four percent. Only 15 companies provided external auditing or verification of their reports. Interestingly, seven of these companies placed in the top 10 overall ratings.


Part two of this two-part article extrapolates the present state of sustainability into future trends.

 

 
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