Better CSR Reporting Means Better CSR Strategies

As regulators, investors, and customers continue to push for environmentally sound business practices, more and more companies are striving to prove they are listening by improving disclosures of their sustainability initiatives.

During a recent forum at the Massachusetts Institute of Technology's annual CFO Summit, companies discussed the need for accurate and meaningful environmental disclosures and swapped insights about their own sustainability reporting efforts. The overwhelming theme among executives on the panel: the importance of embedding sustainability into the culture and core strategies of the business.

Israel

Eric Israel, managing director of sustainability services at KPMG, stressed that senior management must be engaged in sustainability—not just the reporting of it, but also helping to determine long-term corporate strategy built on sustainability. On that front many companies may still have a long way to go; when the CFO Summit audience was asked how many of them are responsible for the production of their sustainability reports, only one of roughly 250 attendees in the room raised his hand.

At companies such as Timberland, however, sustainability plays a big role in the strategy of the company. “It's how we do business,” said Carrie Teffner, CFO of the outdoor clothing and footwear manufacturer. Timberland CEO Jeffrey Swartz, she said, is “extremely passionate about environmental sustainability” and is a vocal proponent of its importance to the company.

Swartz

How so? For starters, Timberland conducts a separate quarterly conference call on corporate social responsibility reporting that is open to the public. It also has a CSR board responsible for providing guidance on sustainable initiatives, and it strives to make its CSR disclosure readable and meaningful. “It doesn't have to be boring, tedious and painful to read. It can be interesting and informative,” Teffner said. Timberland also works to build sustainability into its culture and products. For example, it was the first company to use recycled tires to make the soles of footwear, said Teffner.

Smarter Communication

Like Timberland, IBM looks to ensure that its business practices lead sustainability reporting, rather than the other way around. One of the company's biggest initiatives has been the launch of “Smarter Planet,” with the goal of developing practical applications for smarter and greener technologies. The fundamental idea is that the same set of capabilities that make data networks run more efficiently can also bring those efficiencies to other networks, explained Martin Fleming, vice president of business performance services at IBM.

As part of the “Smarter Planet” initiative, for example, the company recently launched CityOne, a game that simulates a big city's operations. The aim is to help civic and business leaders discover how to make cities and industries smarter by solving real-world business, environmental, and logistical problems.

“By anybody's definition, the statistics are staggering. Everyday building practices need to change to become more environmentally friendly.”

—Mike Azarela,

CFO

Suffolk Construction

“From a product point of view, there is increasing focus and increasing pressure to be able to find new and innovative ways to make use of the capabilities that we have to address many of these issues,” Fleming said.

Companies in industries that generally aren't seen as environmental leaders are trying to incorporate sustainability as well. Mike Azarela, CFO of Suffolk Construction, readily admitted, “When you think about construction, we're not an environmentally friendly industry.” He cited several statistics from the Environmental Protection Agencey: commercial buildings accounted for 72 percent of electricity consumption in 2006, expected to reach 75 percent by 2025; 38.9 percent of total energy use as of 2005; and 38 percent of greenhouse emissions.

Azarela

“By anybody's definition, the statistics are staggering,” Azarela said. “Everyday building practices need to change to become more environmentally friendly.”

To help with that initiative, Suffolk Construction is showing architects and building owners how to build greener buildings during the design and preconstruction phase (rather than the construction phase) by using technology tools, such as business information modeling. Such technology also allows for paperless documentation where drawings of documents and projects are designed, compiled, and shared on a collaborative Website using Microsoft Sharepoint.

TIMBERLAND ENGAGEMENT POLICIES

The following excerpt from Timberland's CSR report shows what steps the company has taken in terms of sustainability:

New Approaches to Engagement

In the past, we engaged stakeholders formally a few times a year, usually

around our CSR reporting efforts, and this one-way information sharing

resulted in the publication of what was then an annual report.

However, we knew we wanted a more meaningful engagement

with our stakeholders, so in 2008 we added new dimensions to our

approach. Now, we are communicating in ways that promote dynamic,

two-way interaction through the following media:

Quarterly reporting—We now release key performance indicators every

quarter in order to give details about our performance more frequently

and to synchronize the disclosure of CSR performance data with our

financial-disclosure calendar.

Quarterly CSR dialogues with our CEO—Regular access to top

decision makers enhances our accountability and maintains a

conversation with our stakeholders as we consider emerging issues

for our company and the industry.

Creating an Earthkeeper community online—We are hosting our new reporting

and stakeholder engagement forums on www.earthkeeper.com/csr,

a Web 2.0 platform that allows stakeholders to interact with Timberland

in real time as they pose ideas, questions and challenges.

Engagement in 2007-2008

Over the past two years, as we've moved toward issue-specific dialogues

with our stakeholders, we've used their feedback to help shape each one of

our pillar strategies:

Energy—Climate experts provided feedback on emissions reduction targets,

our focus on reductions as opposed to offsets and strategies to address the

carbon footprint of our value chain.

Product—We received methodology feedback from environmental experts on

our Green Index label before refining and presenting it to 40 companies in

the Outdoor Industry Association as a model for standardization.

Workplace—Stakeholders reviewed our strategy for reducing working

hours in our supply chain and suggested areas for improvement, such as

clarifying the scope of the factories assessed, the relationship between

sourcing and wages, and brand ownership over root causes.

Service—We also received feedback on the GREEN Standard in our

community service pillar used to evaluate environmental components of all

potential service projects, further fusing our comprehensive CSR agenda.

For years, we've worked with a stakeholder group facilitated by

Ceres2 to review our yearly CSR performance. In 2008, this group gave

feedback that included the use of our new web 2.0 platform and the

challenges and opportunities of engaging a wider range of stakeholders.

This is the same group that reviewed our 2007-08 CSR performance data

and complementary “Dig Deeper” white papers. Some of the key feedback

we heard and integrated into our report and white papers include clearly

defining the boundaries for our carbon neutral goal, discussing the challenge

of industry adoption for a consumer-facing eco-label, clarifying our position

on living wage and considering how the economic downturn has effected

employee engagement. We look forward to continuing our relationship with

this group and are grateful for their input.

Source

Timberland's Corporate Sustainability Report (2007-2008).

Azarela added that Suffolk Construction also is currently looking to appoint a vice president of sustainability, charged in part with helping subcontractors and suppliers meet the requirements of the company's policies.

Measuring Sustainability

Not all members of the audience seemed impressed. One attendee praised all the “nice stories” and agreed that building sustainability awareness is good—but, he said, “At the end of the day, cleaner is more expensive. We need some financial metrics.”

Teffner

Members of the panel argued that most companies are not implementing sustainability practices without an eye towards return on investment. Sustainability is an investment, Teffner said, and “I expect a return on it.”

Timberland, for instance, has a large distribution center in Ontario, Calif., where companies are given tax incentives for certain green investments. To take advantage of those incentives, a 400-watt solar panel (the size of a football field) was placed on top the distribution center that powers the entire facility.

Teffner offered another example: If Timberland has energy-efficient lights in all its stores, it pays more up front but cuts long-term energy costs by 30 percent. That ROI doesn't show up within one year, she said, but most capital investments don't give a one-year return anyway.

Azarela offered a similar scenario: a 2 percent increase in construction cost of a green building project will result in a 20 percent savings over the lifecycle of that particular facility, he said.

Risk management also figures into the analysis. If the organization doesn't have a sustainability strategy in place that focuses on efficiency and cost reduction, “you may miss very large risk areas,” Israel said.

Fleming offered a different perspective: If the benefits of sustainability were obvious to every business, public policy debates on issues such as cap-and-trade and tax incentives wouldn't be necessary. Clearly many companies take their own actions, he said, but certain activities do require some public policy intervention.

“I do believe that eventually our clients are going to demand that we become more responsible,” Azarela said. That's not to say those decisions need to be made today, “but as times moves on, there's going to be more and more pressure for all organizations, irrespective of industry, to get on the boat.”