Beyond the Bottom Line
Financial reporting only tells part of the story. The raw data of a quarterly report tells us nothing of a company's conscience. Just because a company hits all the fiscal targets doesn't mean it's a straight shooter.
But a new breed of reporting has emerged to fill the gaps, covering a company's carbon emissions, energy use and community involvement - in short everything that's lacking from a typical quarterly report.
"This pattern has emerged over the past 10 years of companies reporting more and more, from environment to social and now even ethics," says Jeff Yorzyk, a senior consultant at the Boulder headquarters of Five Winds International, a sustainability-focused management consulting firm. He says Nike's child-labor exposé in the early 1990s was the PR debacle that catalyzed today's "constant demand for transparency" from shareholders.
As far as the nuts and bolts of reporting environmental and social initiatives, "There's a million ways to do it," Yorzyk says. "It depends on the company. There's also the data-collection issue."
He points to the Global Reporting Initiative as the emerging gold standard for guidelines on how to report on sustainability and other nonfinancial aspects of the business. "It's a very thorough methodology," he says. "It's a good place to start."
Yorzyk's two primary questions for clients are "What do I report?" and "Where do I get the data?" Also important: "What story do I have to tell?" On the last question, Yorzyk's advice: "Allow your company to be human."
"You can't have a junior person running the reporting," he adds. "You really need to have a high-level person driving it."
One of Yorzyk's clients, Boulder-based GoLite, took this to heart: Co-founder and Chief Sustainability Officer Kim Coupounas guided the ultra-light outdoor gear manufacturer's first GRI-based report. Released in January 2010 (Coupounas says the plan is to update it every other year), the 157-page report covers everything from operational structure to labor practices to environmental initiatives, earning an A+ from GRI for transparency.
The report "shows that you're walking your talk," Coupounas says. "There are no regulations on most of this stuff. You're not required to give back to the community. You're not required to source materials that are environmentally sustainable. (The report) forces you to get more serious and rigid how you set goals and how you measure progress toward those goals."
One such goal was the use of a majority of "environmentally preferred materials" in GoLite products by 2010 - starting from 5 percent in 2007. "That's a huge leap," Coupounas says. "It wasn't easy to find these materials." But GoLite accomplished the goal, hitting 67 percent in 2010.
GoLite's report also garnered the company certification as a B Corporation from B Lab, a nonprofit based in Philadelphia and New York. Coupounas calls the GRI standards with B Corp. certification "a good one-two punch." According to B Lab co-founder Andrew Kassoy, GRI has established standards while B Corp. certification adds "a layer of judgment" on top of those standards.
About 400 companies have been certified in 50 different industries to date. While Kassoy commends GRI, he notes that the labor-intensive process is difficult for small businesses to manage. "We think this allows the movement to scale," he says of B Corp. certification.
Accounting giant KPMG is on the GRI board, and Mike Bearup, managing partner of the firm's Denver office, says there is now a "critical mass" of companies engaging in the practice. "If you're bidding against a company that's doing it and you're not doing it, people ask why," he says. Bearup says investors, customers and regulators are increasingly requesting this kind of information.
Bearup commends Fort Collins-based New Belgium Brewing as a standout. "The way they've built sustainability into their business model is amazing," he says. "It derives from their need to act like and be viewed as a responsible corporate citizen, and that's something that impacts everything from marketing to the right customers to hiring the right people."
A 2010 KPMG/Economist Intelligence Unit survey of 400 companies revealed 62 percent were reporting on sustainability and social issues, and another 11 percent were planning to do so, and 61 percent of responding executives thought the benefits outweighed the costs.
Denver-based Qwest Communications is another company that employs GRI methodology in an annual report to the community, and also reports greenhouse-gas emissions through the Carbon Disclosure Project (helping Qwest reduce greenhouse-gas emissions by more than 30,000 metric tons from 2008 to 2009).
Darrell Lingk, Qwest's director of environmental health and safety and disaster preparedness, says these kinds of reports emerged in 2007. "Sustainability as an issue had just gotten into the psyche of American business," he says. "We started seeing more inquiries (from investor groups) of this nature. That's just exploded."
Not only has Qwest turned its recycling program into a moneymaker, reporting sustainable and social information "gives us a better competitive posture," Lingk says.
Robin Seguin, Qwest's staff director of environmental health and safety, recommends companies establish "a green team" as a precursor to reporting. "This is a passion for some employees," she says. "Get them involved, and they'll come up with ideas that will make you go, ‘Wow!'"
Beyond filing reports, companies can also elect to enter state or municipal programs designed to highlight corporate responsibility in the local business community. At the state level, the Colorado Department of Public Health and the Environment's Environmental Leadership Program, in existence since 1999, annually awards gold, silver and bronze levels of recognition to participants. The program has plenty of room to grow - only 53 companies participated in 2010.
One gold-level participant is Ball Aerospace, which has been involved in ELP since the program's inception. "It's pushed people to go beyond compliance," says Laura Davis, the company's director of environmental health and safety and system safety engineering. "It's inspired people to think differently."
Davis says ELP helped Ball to stop treating its spent isopropyl alcohol as a waste stream; now it's found a market for it in the chemical industry. The process also forced management to look at its energy use in its clean rooms and develop a low-power idle mode for times when they were not in use.
"There's a business case for it - it's not just doing something for the sake of being green," Davis says. Beyond the financial benefits of these initiatives, however, "It automatically has a secondary benefit to the environment."
The city of Fort Collins has a sustainability-oriented program called Climate Wise that pushes businesses toward a smaller carbon footprint through energy audits by a task force. Nearly 250 businesses are partners in the program, meaning they've signed a pledge to undergo audits and work to reduce their carbon impact, as well as educate employees and attend free seminars. Like ELP, partners attain different levels showcasing their accomplishments - platinum, gold or silver.
"Last year, Climate Wise partners saved more than $8 million and more than 90,000 metric tons of greenhouse gases," says Rosemarie Russo, the city's sustainability coordinator.
Another local sustainable standout, the Denver Botanic Gardens, received ISO 14001 certification for its environmental management system in 2009, making it the first botanic garden in North America to do so. "It was a great process to go through because it made us see exactly where we stand," CEO Brian Vogt says. "It also saves us money - we're a lot more efficient."
But Vogt says setting goals and reporting on them only matter if an organization's people understand the rationale for it. "Sustainability only matters if you understand the why, because the hows change all the time and are only getting better. The whole point is the why."
ON THE WEB
Global Reporting Initiative: www.globalreporting.org
B Corporation/B Lab: www.bcorporation.net
Carbon Disclosure Project: www.cdproject.net
Environmental Leadership Program: www.cdphe.state.co.us/oeis/elp/index.html
GoLite's report: ww.golite.com/meaning-of-lite/transparency.aspx
Ball Corp.'s report: www.ballcorporate.com/img/pdfs/Ball-Sustainability-Report-2010.pdf