Executive Summary (with the permission of UNEP)
Engaging Stakeholders results from a unique international project undertaken by SustainAbility alongside the United Nations Environment Programme (UNEP) and the New Economics Foundation (NEF), with the active support of sixteen sponsoring companies and more than a dozen organisations whose work increasingly involves using the reports produced by companies worldwide.
What have leading report-makers learned from stakeholder feedback? Who do they see as key stakeholders? What other ways are being explored to engage stakeholders? Which reports best meet current stakeholder needs? How will these needs evolve? These are just some of the questions addressed in this two-volume report.
Triple focus
The Engaging Stakeholders project has had a triple focus:
- the growing need for business to engage a range of internal and external stakeholders in developing, implementing and improving environmental and sustainable development programmes;
- the role of environmental disclosure and reporting in building the necessary credibility, trust and other forms of 'social capital' needed to ensure real, sustained stakeholder relationships which genuinely add value to a particular business; and
- more specifically, the role of the company environmental report (CER) in addressing both these areas of need.
Core Messages
Among the core messages of Engaging Stakeholders:
- The CER is a means to environmental improvement and greater accountability, not an end in itself.
- CERs have made great progress but a number of outstanding challenges remain.
- The key audiences for CERs are shifting and information needs are evolving.
- New frameworks are required to measure progress against the emerging agenda. S New forms of stakeholder engagement are needed to manage the sustainability transition.
In addition, it is clear that:
- There is a new -and growing- focus on verification, environmental benchmarking, environmental performance indicators, full cost accounting and 'sustainability'.
- 'Institutional' or market groups (eg. customers, financial stakeholders) are becoming more important users of company environmental information.
- CERs are increasingly being used by key stakeholders to monitor, screen, benchmark and rank companies.
- There is a building pressure for mandatory rather than voluntary reporting.
Two Volumes, Two Perspectives
The project, which built on earlier work carried out by SustainAbilit;y and UNEP in the area of corporate environmental reporting, began early in 1995. The result was two separate, but linked reports: Volume 1 is entitled The Benchmark Survey and Volume 2: The Case Studies.
Among our key objectives were to address six major outstanding tasks:
- Promote wider reporting.
- Catalogue trends.
- Analyse trends in main world regions.
- Review - and respond to - latest reports.
- Advise on best formats and indicators.
- Explore links between CER and sustainable development (SD) reporting.
In addition, there is a seventh outstanding task: to target significant non-reporters. The intention is that this will be one of the issues addressed in the next stage of the programme. In addition, the theme of 'engaging' stakeholders and the issue of how to make CERs more useful to target audiences are central to both volumes of this report.
Volume 1 examines the latest developments in company environmental reporting from the angle of the report-maker, emphasising the role of external stakeholders, such as markets and public authorities, in achieving Stage 5 'sustainability' reporting, and in setting reporting boundaries. Volume 2 focuses upon ' the emerging agenda from the perspectives of report-users, and includes key recommendations on how companies can better grasp and address evolving stakeholder needs.
Among the key features of Volume 1 is an updated 5-Stage reporting model, characterising various styles of CER and mapping out the possible elements of sustainability - or Stage 5- reporting. Volume 1 also features a revised set of 50 reporting elements - or ingredients and presents the findings of our 1996 CER Benchmark Survey of the 40 report-makers at Stages 3 and 4 in 1994 and how they fare against the new tools. It concludes with a discussion of ten key transitions in environmental management and reporting, outlining the emerging agenda for reportmakers.
Volume 2 accompanies and illustrates Volume 1, arguing that better understanding of emerging stakeholder expectations and agendas is a vital starting point for expanding and improving the reporting process. In particular, the issue of how to create demand for CERs and widen their appeal needs to be tackled if companies are to continue reporting and if the resulting data are to be of real value in helping to manage the transition to sustainable development. In Volume 2, the perspectives of 'report-users' are explored by means of a collection of 12 stakeholder case studies, ranging from Greenpeace to the Thai Stock Exchange. What do they have in common? All are already making use of the information disclosed in environmental reports and among the many issues that they highlight is that reporting suffers from a major paradox.
The New Benchmarking Tool
A key feature of Volume 1 is our new 5-stage benchmarking tool for evaluating company environmental reports. To help report-makers think through the benchmarking issue, SustainAbility developed a 5-stage reporting model, first introduced in Coming Clean (1993) and developed in Company Environmental Reporting (1994). A key task addressed by the Engaging Stakeholders project team involved recalibrating the model for the conditions, needs and expectations of the late 1990s.
The challenge facing us was to:
- reflect the expanding quality and quantity of CERs and incorporate the latest reporting trends;
- address the apparent CER bottleneck at the original Stage 4, by expanding the range of possible criteria for Stage 4 CERs;
- begin to open up the 'black box' of Stage 5 sustainability reporting; and
- improve our understanding of different approaches to stakeholder engagement.
The revised stages are as follows:
Stage 3 is characterised by reporting that is annual and linked to an environmental management system, but remains largely descriptive. There is basic 'one-way' communication with stakeholders, such as information packs, press releases, briefings, etc.
Stage 4.1 is distinguished by a shift from largely descriptive disclosure to fully quantified reporting, with 'two-way' but passive communication, such as feedback slips and market surveys.
Stage 4.2 is distinguished by the emphasis it places on the quality of information, emphasising clear reporting of significant effects and performance against targets, and third party verification. The company promotes 'multi-way' active dialogue with key stakeholder groups, via roundtables and discussion panels.
Stage 4.3 involves greater comparability, with reporting against recognised standards, sectoral indicators, global operating standards and benchmarking. Here, the company engages in advanced 'multi-way' active dialogue with all stakeholders on a global scale, covering all countries and regions where the company operates.
Stage 5 is characterised by integrated environmental, social and financial accountability, with consistent, worldwide reporting of local and global impacts, progressive global operating standards and lobbying, and internal and external performance evaluation. There is fully institutionalised 'multi-way' stakeholder engagement, in which the boundaries of reporting and rules of engagement are themselves the outcome of a process of active stakeholder engagement.
Bottom-Crawler or Trailblazer?
Cast a quick eye over the latest generation of CERs and it is clear that report-makers and users alike still find considerable value in the original 50 elements introduced in UNEP Technical Report 24. The 50 elements, like the 5-Stage model, have now been revised and updated.
New scoring system
A number of the latest crop of CERs refer directly to these ingredients, while a proportion of recent verification approaches, not to mention report-users' screening methodologies (see Case Study 5 in Volume 2), are using the 50 ingredients as benchmarks of performance. Engaging Stakeholders introduces a new scoring system.
The new system devised for the 50 reporting ingredients also makes it possible to differentiate between and benchmark companies' coverage of any given element - as well as attributing an overall score. Effectively, it allows report-makers and report-users to pick out the areas of strength and weakness in a CER and rank these against others.
Following on from the 1994 UNEP/SustainAbility ranking exercise, the purpose of our 1996 review of the latest CERs was threefold:
The most striking observation is that - even against the new reporting agenda- virtually all 40 pioneers have made noticeable progress: indeed, against the updated 5-Stage model, all have moved up, or are in the process of moving up, a stage or more.
Yet it is also clear that CERs which perform well against one category do not necessarily perform well under the other. Thus CERs which score highly for certain progressive characteristics are tripping up when assessed for breadth and depth of disclosure.
Our 1996 Benchmark Survey shows that:
- The bulk of the companies surveyed 34 out of 40 - are located within the expanded Stage 4, with an additional five companies making the transition into this Stage from Stage 3.
- Companies are tending to score highest on 'Section l: Management Policies and Systems', while 'Section lll: Finance' is still the weakest aspect of environmental reporting.
- Only one company, The Body Shop International, is in the process of entering Stage 5, being the sole candidate with integrated social and environmental reporting and institutionalised stakeholder engagement.
Meeting Stakeholder Needs
In its short five-year history, reporting has improved vastly, but just how fully is the CER meeting the needs of stakeholders? In Volume 2, the 12 Case Study stakeholder groups argue there is a mismatch.
Drawing on the case studies in Volume 2, it is clear that there is a mismatch between how companies think stakeholders use CERs and what they actually use them for. Companies think stakeholders use CERs mainly:
- as a source of reassurance;
- to identify best practice examples; and
- as a decision-making aid.
However, taking the case studies as a whole, the emphasis of stakeholders is placed strongly on:
- measuring;
- monitoring;
- screening;
- comparing; and
- benchmarking.
What becomes clear is that companies are still treating the CER primarily as a public relations vehicle - for reassurance and 'feel-good' image-building - whereas stakeholders are increasingly using CERs as a means of comparing and differentiating between companies on the basis of hard performance data.
2A Inverted chronology of reporting
| Actual chronolgy | Ideal chronology |
| Environmental Auditing | Environmental / Full Cost Accounting |
| Environmental Reporting | Environmental Indicators |
| Environmental Management Systems | Environmental Management Systems |
| Verification | Environmental Auditing |
| Environmental Benchmarking | Environmental Reporting |
| Environmental Indicators | Verification |
| Environmental / Full Cost Accounting | Environmental Benchmarking |
Data: UNEP/SustainAbility 1996
This trend towards benchmarking company environmental performance raises the key issue of comparability. Without some level of standardisation in reporting, CERs remain difficult to use. Yet the common metrics and indicators necessary for standardisation are lacking. This points to a paradox surrounding the environmental report.
The CER Paradox
As more and more companies join the ranks of the report-makers, reporting remains haunted with a paradox - logically, before companies began to report externally on environmental performance, initial efforts would have been focused upon developing appropriate environmental accounting methodologies for measuring performance and then installing full systems for auditing against these - only then would a company environmental report be produced. Instead, companies have tended to kick off with auditing, followed by reporting - and only now are they starting to think about environmental accounting techniques (see Figure 2A above).
To engage stakeholders effectively and demonstrate performance and leadership, reporting must address stakeholder groups in the languages and areas of relevance specific to each target audience and use benchmarks or indicators that are credible. The key challenge to report-makers is this: without acceptable environmental accounting methodologies, indicators and benchmarks, reports remain of limited use to most stakeholders - only when CERs are usable will they become effective at demonstrating continuous improvement.
1H Engaging shareholders: ten transitions
| Established focus on | Emerging focus on |
| 1. One way, passive communication | Multi-way, active dialogue |
| 2. Verification as option | Verification as standard |
| 3. Single company progress report | Benchmarkability |
| 4. Management systems | Life-cycles, business design, strategy |
| 5. Inputs and outputs | Impacts and outcomes |
| 6. Ad-hoc operating standards | Global operating standards |
| 7. Public relations | Corporate governance |
| 8. Voluntary reporting | Mandatory reporting |
| 9. Company determines reporting boundaries | Boundaries set through stakeholder dialogue |
| 10. Environmental performance (Stage 3-4) | 'Triple bottom line' performance (Stage 5) |
Data: UNEP/SustainAbilit;y 1996
What will the CER look like in 2000?
The research reported in Engaging Stakeholders suggests that the voluntary reporting trend will branch in some interesting directions in the closing years of the 20th century - and bear unexpected fruit in the early years of the 21st century.
For the moment, many questions are being asked about reporting. For example, will the number of reporting companies expand? Without question. Will corporate environmental reports merge with annual reports? In some cases, undoubtedly. Significant numbers of report-makers predict closer integration of the different forms of corporate reporting. And will the Internet mean the end of printed reports? Probably not, no more than it will mean the end of books or maqazines.
But, as explained in Volume 1, Chapter 4, the World Wide Web appears to be on the verge of becoming a major channel for some forms of corporate environmental communication. And the coming years will see major shifts in the ways in which the environmental and social performance of companies is communicated to the outside world.
Ten key trends which reporting companies will need to recognise and respond to when seeking to engage stakeholders are outlined in Figure 1 H (above) and explained in more detail in Volume 1.