Making Triple Bottom Line Reporting Comparable: Adoption of the gri g3 Framework



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2009 Oxford Business & Economics Conference Program ISBN : 978-0-9742114-1-1

Making Triple Bottom Line Reporting Comparable:

Adoption of the GRI G3 Framework
W. Richard Sherman, J.D., LL.M., C.P.A.

Professor of Accounting

Saint Joseph’s University

Erivan K. Haub School of Business

5600 City Avenue

Philadelphia, PA 19131

rsherman@sju.edu

 Conference for which the paper is submitted:



2009 Oxford Business & Economics Conference (OBEC)


 Academic department to which paper pertains: Accounting

 Key Words: Global Reporting Initiative; Triple Bottom Line; Sustainability Reporting




Making Triple Bottom Line Reporting Comparable:

Adoption of the GRI G3 Framework

ABSTRACT

This paper explores the extent to which adoption of the Global Reporting Initiative’s G3 reporting framework makes the external reporting of a company’s financial, environmental and social performance more comparable. This inquiry takes the form of analyzing the content of the published sustainability reports of well-known companies to compare and contrast the information communicated in these reports. Particular attention will be paid differences in the published content between companies in the same industry – Ford and Volkswagen in the automotive industry; Citigroup and Barclays in financial services; Merck and Bayer in pharmaceuticals; Nike and adidas in the sporting goods industry.



INTRODUCTION

Critics of current corporate reporting practices abound. Particular criticism has been directed at the failure of annual reports or other regulatory files (e.g. 10Ks) to tell anything about a company's environmental and social performance. Triple bottom-line (TBL) reporting aims to remedy this shortcoming. However, initial efforts at TBL reporting were plagued by their lack of uniformity, consistency, and comparability in the information presented. The Global Reporting Initiative (GRI) has attempted to fill this void by developing a detailed framework that is intended to create an analog to the generally accepted accounting principles (GAAP) approach to financial reporting. Simply put, if companies use the same ground rules in preparing their sustainability reports, the information presented in those reports should promote greater comparability.

The Global Reporting Initiative (GRI) was formed in 1997 by the Coalition for Environmentally Responsible Economies (CERES) in collaboration with the Tellus Institute. From its inception, the GRI has possessed a clear mission:

To enhance responsible decision making by promoting international harmonization in reporting relevant and credible corporate economic, environmental, and social performance information (GRI, 2002).


To this end, the GRI has developed and published reporting guidelines based upon the TBL reporting concept first developed by Elkington (1997; 1999). The guidelines follow the broad TBL reporting of economic, environmental, and social performance with the social grouping being further subdivided in terms of labor practices, human rights, society, and product responsibility. While compliance with the Guidelines is entirely voluntary, approximately a third of the corporate responsibility reports produced in 2007 (over 1,000 organizations) use of the GRI framework, with 11% using the G3 Guidelines (Corporate Register, 2008).

The G3 Guidelines
Issued in October 2006, the G3 Guidelines refine the GRI’s 2002 (G2 Guidelines) framework for sustainability reporting. Standard disclosures under G3 include three components:

Strategy and Profile Disclosures set the overall context for reporting and for understanding organizational performance, such as its strategy, profile, governance, and management approach;

Disclosures on Management Approach cover how an organization addresses a given set of topics in order to provide context for understanding performance in a specific area.

Performance Indicators that elicit comparable information on the economic, environmental, and social performance of the organization. (GRI, 2006, p. 19)


In an attempt to enhance comparability and auditability, the G3 Guidelines modify the 97 “key performance indicators” (KPIs) of the G2 framework into 79 performance indicators (GRI, 2007). Fifty of these indicators are considered “core” because the GRI believes them to be of interest to most stakeholders and, consequently, they are “assumed to be material unless deemed otherwise on the basis of the GRI Reporting Principles” (GRI, 2006). Table 1 provides a summary of performance indicators which the GRI recommends be used in communicating an organization’s economic, environmental, human rights, and societal performance, with the “core” indicators presented in bold print. One of the most significant aspects of these indicators is that some are quantitative (e.g. LA1: Total workforce by employment type, employment contract, and region) while others are qualitative (e.g. EC7: Procedures for local hiring and proportion of senior management hired from the local community) in nature. Furthermore, the quantitative indicators are expressed in various monetary and non-monetary units of measure. As a result, stakeholders may be talking past one another. As one investment advisor notes, while companies are “busting their guts to tell their sustainability story,” shareholders want different information. “They say, don’t talk to me about tonnes of CO2. Tell me about earnings per share” (Murphy, 2007).

In addition to these standard disclosures, all G3 reports must contain a GRI Content Index (Element 3.12) to serve as a kind of road-map, alerting readers to where in the report the standard disclosures can be found (GRI, 2006, p. 22). Furthermore, the organization should disclose the level of reporting it has chosen. The levels of reporting range from C through A+ and replace the G2 Guidelines self-declaration that a report has been prepared “in accordance with” (with a verification statement signed by Board of Directors or CEO) or “with reference to” the GRI Guidelines. The GRI’s rationale behind allowing differing levels of reporting is to encourage companies to ease their way into using the guidelines, even if they are not prepared to implement all the guidelines at this time. The level of reporting chosen can simply be self-declared, verified by an external third party, or checked by the GRI itself. Table 2 contains a description of the differences in the levels of reporting. Table 3 summarizes the reporting levels and means of verification which each of the companies in this study use for their latest sustainability reports.

In response to criticism of the GRI’s one-size-fits-all approach, Sector Supplements have been developed for the financial services, transportation and logistics, mining and metals, public agencies, tour operators, and automotive industries. [See, for example, the GRI Automotive Sector Supplement (GRI, 2004) and the GRI Financial Services Supplement (GRI, 2008).] These Sector Supplements are not intended as a replacement for the more general G3 framework but do address the more specific issues encountered by companies in particular industries.

METHODOLOGY
This paper considers whether the reporting in conformity with the GRI G3 Framework adds value for the users of these reports. To do so, this inquiry will take the form of analyzing the content of the published sustainability reports of well-known companies to compare and contrast the information communicated in these reports. Content analysis is particularly appropriate for sustainability disclosures. Pedrini (2007) uses content analysis to investigate the points of convergence between intellectual capital and corporate responsibility reports prepared under the GRI’s 2002 Guidelines. Clarkson et al (2008) develop a content analysis index to test the environmental disclosure under the 2002 Guidelines. This study looks to expand beyond the GRI’s recommended environmental and intellectual capital disclosures and examines the extent to which companies present the kind of information that the G3Guidelines recommend for all aspects of an organization’s TBL performance. Particular attention is paid to differences in the published content between companies in the same industry – Ford and Volkswagen in the automotive industry; Citigroup and Barclays in financial services; Merck and Bayer in pharmaceuticals; Nike and adidas in the sporting goods industry.

The companies were selected quite intentionally. First of all, these are highly visible companies. More significantly, all have reputations for being good corporate citizens and have received awards and other recognition for the reporting of their non-financial performance. All prepared their most recent sustainability reports using the G3 Guidelines. Given these common characteristics, one would expect a greater comparability between and among the companies which is one of the paramount goals of the G3 Guidelines. This should be particularly true for those companies operating in the same industry inasmuch as they face similar challenges to their corporate responsibility. Indeed, one of the greatest challenges in evaluating the value that is being added by content in these disclosures is the extraordinarily wide variability in the form of the disclosures. While variability in the content of the disclosures is expected due to the differing materiality of issues which a company faces, one would expect less variability in content from companies operating in the same industry.

Some important differences in the company’s TBL disclosures may also be expected related to the company’s geographic base. There is a general perception that European-based companies are more sensitive to issues of sustainability than are U.S.-based organizations. Consequently, it will be interesting to see if this perception is confirmed by the reporting of European companies as compared and contrasted to that of American firms.

CONTENT ANALYSIS
Ford Motor Company
One of the “Big Three” of American auto makers, Ford has not experienced financial success in recent years. This was true even before the collapse of the auto industry. While generating revenues of $160 billion in 2006 and over $172 billion in 2007, Ford suffered losses of $12.6 billion in 2006 and in excess of $2.7 billion in 2007. Despite or perhaps because of its lack of profitability, the company has become one of the most engaged parties in its sustainability reporting. Its excellence in this area has not gone unnoticed. Ford has been named as one of the Sunday Times “Companies that Count,” as Best in Class for Sustainability Reporting, received an Energy Star Award for Sustained Excellence, and is part of both the Dow Jones Sustainability Index (DJSI) and the FTSE4Good Index (Ford, 2008a, p. 48). Now if only the company could turn a profit.

Ford has published nine non-financial reports, four of which focus specifically on sustainability. Its latest report is available in a 48-page hardcopy (Ford, 2008a) or as web version with links to other more detailed information (Ford, 2008b). The web version of Ford’s report not only provides links from the Content Index to the specific information relating to the particular core performance indicator being reported, it also has links to the explanations of why a particular core indicator was not reported. While there is no reference to the GRI Automotive Sector Supplement, Ford does provide some additional performance indicators beyond those specified in the G3 Guidelines. Ford’s report not only uses the G3 Guidelines, it reports at the A level. This indicates that all material core performance indicators are disclosed. While Ford’s reporting level is not externally verified, the company does receive input from a stakeholder group convened by CERES (Ford, 2008a, p. 47).

Much of the Ford report lays out its “blueprint for sustainability” but it also addresses the company’s approach to issues in human rights, working conditions, and vehicle safety. Ford’s report is didactic in the sense that it provides both general and company-specific discussions of climate change (Ford, 2008a, pp. 10-17), the new mobility technologies (pp. 22-23), and the challenge of mega-city transportation (pp. 24-26). In addition to its narrative, Ford discloses hard data. One table presents three years of information dealing with various measures of its economic, environmental, and societal performance (Ford, 2008a, p. 46). Some data are consistent with the GRI performance indicators (e.g. world-wide energy consumption; worldwide CO2 emissions) but many are not (e.g. overall dealer attitude; J.D. Power & Associates Initial Quality Study; total “things gone wrong” in first 3 months of service per 1,000 vehicles).

Using the information presented in Ford’s GRI Content Index (Ford, 2008c), Table 4 presents the company’s self-declared compliance with the G3 Framework. Remembering that Ford is supposed to be using an A level of reporting, one might expect that almost all of the 50 core performance indicators would be measured and disclosed. However, that is not the case. Of the seven core economic performance indicators in the G3 Guidelines, Ford reports on five but provides complete information on only two. The company provides information on 16 of the 17 core environmental indicators, but complete information on 11 of these. Of the 10 core indicators for labor and decent work, Ford provides complete information on 5 indicators, with partial information on another 2. In the area of human rights, the company provides complete information on 5 of the 6 core indicators, with partial information on the sixth. Ford provides complete information on 4 of the 6 indicators for society, partial information on the other two. It reports on 2 of the 4 core indicators for product responsibility. In summary, Ford some information (complete or partial) on 84% of the 50 core performance indicators set out in the GRI’s G3 framework.



Volkswagen

Volkswagen (VW) is Europe’s #1 carmaker. With sales of over 6 million vehicles, revenues of €109 million, and after-tax earnings of €4.1 million in 2007 (Volkswagen, 2008a), VW has managed to weather the difficult times faced by the automotive industry and remain profitable. In contrast to its financial results, the company has experienced what it characterizes as “highlights and lowlights” in its perceived performance in terms of sustainability (Volkswagen, 2008a, pp. 76-77). In 2005, it was dropped from the DJSI after having been included since the index was created in 1999. In 2006, VW rebounded by receiving the 2006 European Business Award for its environmental performance and was named by J.D. Power as the top company in its class in the U.S. market for environmental friendliness. In 2007, VW was included in the FTSE4Good’s newly created Environmental Leaders Europe 40 Index.

VW has published only two sustainability reports (Volkswagen, 2006; 2008b) but plans to continue to issue a sustainability report every two years for the consolidated company. Its most recent report [88-page hard-copy or web-version (Volkswagen, 2008b)] covers the period from October 1, 2005 to July 31, 2007 (Volkswagen, 2008b). Like Ford’s report, VW’s most recent sustainability report uses the G3 Guidelines and reports at the A level. Going a step further than Ford, VW’s report has two forms of external verification. The report has been checked by the GRI for content. Consequently, VW is treated as reporting at the A+ level. In addition, the international accounting firm of PriceWaterhouseCoopers (PwC) was engaged to provide a limited level of assurance for VW’s disclosures. As a conclusion of its review, PwC states that “nothing has come to our attention that causes us to believe that the part “key indicators” of the Sustainability Report 2007/2008 has not been prepared in all material respects in accordance with the above mentioned criteria stated in the Sustainability Reporting Guidelines Vol 3 of the Global Reporting Initiative” (Volkswagen, 2008b, p. 78).

As was true with Ford’s Content Index, VW’s web version provides links to information or why certain indicators were not reported. VW also provides supplementary indicators and, in its own judgment, “complies to a very large extent with the requirements of the draft version of the Automotive Sector Supplement to the GRI from 2004” (Volkswagen, 2008b, p. 82). There are clear stylistic similarities between the VW and the Ford reports. The tone of the VW report is at times didactic with general, non-company-specific sections on greenhouse gas emissions, fuel economy and the use of alternative fuel sources, demographic change and its impact on employment, and China - which accounts for 17% of greenhouse gas emissions, second only to the U.S. (Volkswagen, 2008b, pp. 22-25). However, there are differences, too. VW’s report tells its sustainability story more by way of interviews (e.g. with Wolfgang Steiger, Director of Powertrain Research; pp. 14-15) and case studies (Team Joachim Franz and this AIDS bicycle ride; pp. 54-55) than does Ford’s report.



Using information from VW’s GRI Content Index (Volkswagen, 2008b, pp. 82-82), Table 4 presents VW’s compliance with the G3 Framework. Once again remembering that VW is supposed to be reporting at the A+ level, one might expect the most, if not all, of the 79 performance indicators would be measured and disclosed. Again, one would be disappointed. Of the seven core economic performance indicators in the G3 Guidelines, VW reports on five and provides complete information on four. The company provides information on 12 of the 17 core environmental indicators, but complete information only five of these. Of the 10 core indicators for labor and decent work, VW provides complete information on 5 indicators, with partial information on another 3. In the area of human rights, the company provides complete information on none of the 6 core indicators, but partial information on all of them. VW discloses complete information on 3 of the 6 indicators for society, partial information on two others. It reports on 3 of the 4 core indicators (2 completely; 1 partially) for product responsibility. In summary, VW some information (complete or partial) on 78% of the 50 core performance indicators set out in the GRI’s G3 framework.

Ford, Volkswagen & the G3 Framework
Ford and Volkswagen share the same challenges to their responsible corporate citizenship that other companies in their industry face. For the automotive industry, the primary issue is that of greenhouse gas emissions and how the cars and trucks they manufacture contribute to climate change. One would therefore expect Ford and Volkswagen to set similar goals, follow aligned approaches, and report comparable data. These expectations are disappointed. The differences in the reporting of the GRI core performance indicators has already been noted but even more unsettling is even when a common goal is stated is (reduction of CO2), the scale of the reduction is not comparable. While Ford plans to reduce the CO2 emissions of its new US and EU vehicles by 30% by 2020 (Ford, 2008a, p. 3), Volkswagen does not set CO2 goals for its US or EU vehicles, but targets a 20% reduction in fuel use and CO2 emissions in China (Volkswagen, 2008b, p. 74). Interesting, the greatest divergence of disclosure between the two companies is in the core environmental performance indicators. As noted above, Ford discloses some information (partial or complete) for 16 of the 17; VW discloses information on 12. Moreover, the companies are not even disclosing the information on the same indicators. Six of the environmental indicators are reported by one company but not the other, leaving 11 common indicators on which some information is provided. Given that both companies use the same G3 Guidelines and both companies report at the A level, this is particularly disappointing. One would and should expect greater comparability. Based upon the G3 disclosures, it is impossible to conclude which company is performing more responsibly in addressing the critical challenge to its industry.

Citigroup

With more than 200 million customers and conducting business in more than 100 countries (Citicorp, 2008a, p. 67), Citigroup is one of the world’s largest, most comprehensive financial services companies in the world. Its record of social responsibility has earned its place in the Dow Jones Sustainability Indexes (World and North America) and in the FTSE4Good Index. Citi has been named by Ceres as the top U.S. bank in corporate governance and climate change, been recognized as 100 best companies for working mothers, and as a top 50 company for diversity (Citigroup, 2008a, pp. 65-66). It should be noted that this study of the various sustainability reports pre-dates the sub-prime crisis that has permeated the financial services industry and, indeed, the entire global economy. It will be extraordinarily interesting to revisit the content of future sustainability reports in order to see how much their focus has changed as a result of the decline in the global financial markets.

Citi’s 67-page 2007 Citizenship Report is the company’s seventh (Citigroup, 2008a). While the 2007 Report is not externally verified, it does include external stakeholder commentary from CERES President, Mindy Lubber, and Janet Murguia, President and CEO of the National Council of La Raza (Citigroup, 2008a, pp. 9-11). In addition to the general G3 Guidelines, Citi provides some of the performance indicators recommended in the GRI’s draft Financial Services Sector Supplement. It should be noted that the Financial Services Sector Supplement was finalized at the end of 2008, after Citi’s latest report was released.

The 2007 Citizenship Report contains sections on Citi’s stakeholder engagement, governance and ethics, community relations, promoting diversity, but focuses on what Citi considers to be its three core citizenship areas - microfinance (i.e., providing financial services to “clients outside the reach of traditional financial institutions”), financial education, and the environment, including its response to climate change (Citigroup, 2008a). Its narrative style is straightforward, unembellished, with bullet-point presentation of much of the information, and links to additional related information. Although the report was issued before the explosive crisis in the global financial markets, it is somewhat surprising that more than financial education or microfinance, the discussion that takes up more of the report than any other topic (18 pages) is Citi’s response to its environment impact and climate change. In this discussion, Citi provides quantitative targets and measures of performance. For example, Citi is commited to reduce green-house gas emissions by 10% from their 2005 levels by 2011 (Citigroup, 2008a, p. 35).

Taking advantage of the flexibility provided under the GRI’s philosophy of allowing an organization time to adopt the G3 framework in stages, Citigroup has chosen to report on the GRI Guidelines at the B level. As summarized in Table 4, Citi’s self-declared Content Index (2008b) indicates that it reports on five of the seven core economic performance indicators in the G3 Guidelines. The company provides information on 8 of the 17 core environmental indicators. Of the 10 core indicators for labor and decent work, Citigroup provides complete information on 3. In the area of human rights, the company reports on none of the 6 core indicators. Citigroup discloses information on 4 of the 6 indicators for society. It reports on none of the core indicators for product responsibility. In summary, Citigroup provides information on 40% of the 50 core performance indicators set out in the GRI’s G3 framework.

Barclays

Barclays is one of the three largest banks in the UK, has more than 30 million customers, and operates in more than 50 countries (Barclays, 2008d). Recipients of numerous awards for its social performance and reporting [e.g. # 2 in Fortune 500’s most accountable firms; Business in the Community Environmental Leadership Award 2007; leading bank in the Dow Jones Sustainability Index for environmental reporting; recognized by The Times as one of the top places in the UK where women want to work; ranked 8th in the 2007 FTSE4Good Environmental leaders in Europe 40 (Barclays, 2008a)], Barclays has been issuing social reports since 2000. Its 2007 Sustainability Review is available only in a web version and provides extensive links to additional information and detail (Barclays, 2008d). As was the case with Citigroup, in addition to the general G3 Guidelines, Barclays also provides some of the performance indicators recommended in the GRI’s draft Financial Services Sector Supplement.

The form and content of Barclays report is quite different from Citigroup’s Citizenship Report. The website contains links to short “case studies” in each area of social responsibility and outlines some of Barclays’ accomplishments such as £52.4million in community project investments, with investment outside the UK increasing from 15% of the total (£6.9m) to 26% (£13.5m), reflecting Barclays increasing global presence. Expressing its environmental targets in different terms from Citigroup’s, Barclays aims to become carbon neutral by 2009 and is working with others in its supply chain to reduce their environmental impact.

Verification of its GRI content and an overall external assurance of the 2007 Review has been provided by Corporate Citizenship. Unlike the negative assurance which is commonplace for the limited engagements by other external reviewers of sustainability reports (see the previously discussed PwC assurance provided on the VW report and subsequently discussed Ernst & Young assurance provided on the Bayer report), the Corporate Citizenship opinion letter resembles the audit opinion issued by the independent accountant on the fairness of financial statements.

In our opinion, the online Sustainability Review provides a fair and balanced representation of the material aspects of Barclays performance for the 2007 reporting period. . . .
In forming our opinion and making our comments, we have based our work on the international assurance standard AA1000, notably considering materiality, completeness and responsiveness. We have also had regard to the reporting guidance for content and the principles contained in GRI’s G3 reporting guidelines.

(Barclays, 2008b).


Of the seven core economic performance indicators in the G3 Guidelines, Barclays reports complete information on six. The company provides information on 4 of the 17 core environmental indicators. Of the 10 core indicators for labor and decent work, Barclays provides complete information on 8. In the area of human rights, the company reports on 3 of the 6 core indicators. Barclays does provide information on 4 of the 6 indicators for society. It reports on none of the core indicators for product responsibility (Barclays, 2008c). In summary, Barclays provides information on 50% of the 50 core performance indicators set out in the GRI’s G3 framework.

Citigroup, Barclays & the G3 Framework

Given the B level of reporting chosen by both Citigroup and Barclays, the relatively lower level of disclosure is expected when compared to the A level sustainability reports issued by Ford and VW. Following the rationale of the GRI in allowing these different reporting levels, one would hope that in future years, the companies would increase their TBL reporting to encompass more information about their non-financial performance. That notwithstanding, because both Citigroup and Barclays report at the same level, a meaningful comparison of the reports should be possible. Remembering that the issue that received the most discussion in the Citi report was the environment, it is not surprising that Citi provides information on twice as many of the G3 environmental core indicators. On the other hand, there is no apparent difference in the emphasis that the companies place on Labor Practices & Decent Work in the narratives of their respective reports. Consequently, it is curious that Barclays reports on 8 of the core indicators in that area while Citi only provides information on three. There does not seem to be anything particularly unusual about the indicators on which Barclays reports but Citi does not [viz. LA1: Total workforce by employment type, employment contract, and region; LA2: Total number and rate of employee turnover by age group, gender, and region; LA3: Benefits provided to full-time employees that are not provided to temporary or part-time employees; LA5: Minimum notice period(s) regarding operational chances; LA7: Rates of injury, occupational diseases, lost days, and absenteeism, and number of workforce fatalities by region; LA14: Ratio of basic salary of men to women by employee category] which would explain the discrepancy. Another interesting difference is that Barclays provides information on three core indicators in the area of human rights which Citi reports as being non-material to its operations. This additional disclosure may be more a function of Barclays leadership role in human rights initiatives (e.g. it is one of 14 corporations which form the Business Leaders Initiative on Human Rights) than it is a reflection of Citi’s understatement of the impact on human rights in its business.



Merck

The U.S. based pharmaceutical company Merck made headlines in 2004 when it pulled its blockbuster pain medication Vioxx off the market after studies linked the drug to increased risks of strokes and heart attacks. Despite its legal and public relation difficulties, Merck has been recognized for its superior corporate citizenship. Based on its sales ($24.2 billion in 2007), Merck may fall into the middle range of companies in the very competitive pharmaceutical industry but the Chronicle of Philanthropy ranked Merck No. 2 for its 2007 corporate giving. The company is a member of the FTSE4Good Index, Domini 400 Social Index, KLD Global Sustainability Index, KLD North America Sustainability Index and the KLD Select Social Index. Merck ranks among the "Top 50 Companies for Diversity" and “Working Mother 100 Best Companies” and "Top 30 Companies for Executive Women” (Merck, 2008).

The company has produced two sustainability reports (Merck, 2005; 2007b). In preparation of its latest 70-page report for 2006-2007, Merck not only consulted the GRI’s G3 Guidelines, but also the Millennium Development Goals, and the Access to Medicines Index (Merck, 2007b). The report identifies five key issues for Merck – researching new medicines and vaccines to address unmet needs; improving access to medicines, vaccines, and healthcare; ensuring confidence in the safety and quality of its products; conducting itself ethically and transparently; and managing its environmental footprint. The report provides detail on the progress made and the company’s plans for the future in each of these five areas. For example, as one of its environmental goals, Merck sets reducing greenhouse gas emissions by 12% from their 2004 levels by 2012. In addition to addressing these key issues, Merck’s report gives an overview of its corporate governance, work environment, and approach to philanthropy.

In terms of the G3 framework, Merck reports at the B+ level, with its content being verified by the GRI (2007a). As summarized in Table 4, of the seven core economic performance indicators in the G3 Guidelines, Merck reports on five, providing complete information on two. The company discloses information on 12 of the 17 core environmental indicators, but complete information on only seven of these. Of the 10 core indicators for labor and decent work, Merck provides complete information on 3 indicators, with partial information on another 6. In the area of human rights, the company provides complete information on 3 of the 6 core indicators and partial information two others. Merck discloses complete information on 4 of the 6 indicators for society, partial information on the two others. It reports on all 4 core indicators for product responsibility. In summary, Merck provides some information (complete or partial) on 82% of the 50 core performance indicators set out in the GRI’s G3 framework. This is interesting inasmuch as it is higher than the percentage of core indicators for which VW provides information (78%) despite the fact that VW reports at the A+ level.



Bayer

To say that Bayer is a household name is no overstatement. Its products - Aleve, Alka-Seltzer, Bayer Aspirin, and One-A-Day vitamins – can be found in virtually every U.S. household. With business divisions that span the pharmaceutical and chemical industries, 2007 was the German company’s most successful year to date. With sales of €32.4 billion, Bayer’s net income (the after-tax income attributable to the stockholders of Bayer AG) increased from €1.7 billion in 2006 to €4.7 billion (Bayer, 2008d). In addition to its financial success, Bayer is included in almost all of the important sustainability indices and in investment funds that focus on companies with strong records of TBL performance – the Dow Jones Sustainability, FTSE4Good, Advanced Sustainable Performance Eurozone, Carbon Disclosure Project’s Climate Disclosure Leadership, and Access to Medicine indices. Bayer has a long history of sustainability reporting and has garnered top honors for its reports from the Roberts Environmental Center and CorporateRegister.com (Bayer, 2008c).

Its latest report is available in a 112-page hardcopy (Bayer, 2008d) or in a web version (Bayer, 2008b). Dr. Wolfgang Große Entrup, Head of Environment & Sustainability at Bayer, notes:

In this report, we are for the first time covering all of the indicators recommended by the Global Reporting Initiative (GRI) in its current guidelines on sustainable development reporting (G3).


In this way we can integrate all the relevant information on these issues and hopefully further improve transparency and rapid access to information for our readers, an approach consistent with the many years of environmental and sustainability reporting by our company, which began in 1976 with the publication of our first Environmental Report (Bayer, 2008a).
In addition to the G3 Guidelines, Bayer’s report also follows the recommendations and guidelines of the World Business Council for Sustainable Development (WBCSD), the Greenhouse Gas Protocol and the European Chemical Industry Council (CEFIC) and focuses on four issues. Two of the issues are similar to those identified in Merck’s report – access to medicine and climate protection. Two others - - corporate compliance and sustainable procurement management - are touched upon by Merck but not with the same emphasis as that given by Bayer in its latest sustainability report.

Through use of interviews, case studies, and other anecdotal devices, Bayer’s report details the programs it has in place to address the issues it deems critical to its corporate citizenship. As seems to be disconcertingly common, Bayer specifies targets for performance in terms that are different from Merck’s. For example, while Merck set an overall reduction in greenhouse gas emissions (12% by year 2012), Bayer sets its targets by business unit with a different time-frame – Bayer MaterialScience to reduce by 25% per ton of sales product; Bayer CropScience to reduce its absolute emissions by 15%; Bayer Healthcare to reduce its absolute greenhouse gas emissions by 5% - with all reductions set for the time period 2005 through 2020 (Bayer, 2008d, p. 30). Consequently, although they address the same issue, Merck’s and Bayer’s performance targets cannot be compared or evaluated meaningfully.

Bayer’s report has been external reviewed by Ernst & Young. As was the case for VW, this was a so-called limited engagement with the resulting negative assurance being issued by the reviewer“Nothing has come to our attention that causes us to believe that the ‘Performance Report’ and ‘Focus Issues’ parts of the report are not presented fairly, in material respects, in accordance with the reporting principles and criteria” (Bayer, 2008d, p. 95).

Of the companies studied, Bayer provides the most comprehensive reporting under the G3 Guidelines. Reporting at the A+ level, the only core indicator for which Bayer did not report is the benefits provided to full-time employees that are not provided to temporary or part-time employees (LA3 under Labor Practices & Decent Work). In summary, Bayer provides information on 98% of the 50 core performance indicators set out in the GRI’s G3 framework.



Merck, Bayer & the G3 Framework
The primary difficulty in comparing the Merck and Bayer reports does not stem so much from the different level of reporting chosen by the companies (Merck at the B level; Bayer at the A+ level) as from the different units of measures used. Indeed, Merck’s reporting of 82% of the core performance indicators was only slightly lower than Ford’s at 84% and was higher than the 78% reported by VW – and this in spite of the fact that the two car companies report at the A level.

Just one example of the different units of measure is the information disclosed by the two companies in terms of total energy usage. Bayer reports that its total energy use in 2007 was 91.7 petajoules (equivalent to 25.5 terawatt hours) in 2007; Merck reports its 2007 energy use as 15.2 million BTU x 106. The information about energy usage is indeed being disclosed by both companies but is it comparable?



Nike

With revenues exceeding $16 billion in 2007, Nike is the world leader in the global sporting goods industry. Despite being named to Ethicsphere’s list of the world’s most ethical companies (Ethicsphere, 2007), being recognized as one of the “100 Best Corporate Citizens” by Business Ethics Magazine as well as one of Fortune Magazine’s “100 Best Companies to Work For” (Nike, 2007a, p. 130), Nike has often been target of criticism, particularly for the treatment of workers in the factories in developing countries in which its shoes and apparel are manufactured (Kasky v. Nike, 2000; Klein, 2002; Locke, 2003; Nike v. Kasky, 2003). In response to its critics, Nike established and enforces a Code of Conduct which standardizes its treatment of employees outside the U.S. It was the first company in the industry to disclose its factory base in order to encourage supply chain transparency and continues to disclose the names and locations more than 700 contract factories worldwide producing Nike products (Nike, 2007b). It also posts the company's contract factory auditing tools, providing insight into how the company evaluates and monitors its contract factories for compliance with company standards.

Since 2001, Nike has produced three stand-alone Corporate Responsibility Reports (Nike, 2002; 2005; 2007a). Its 2004 report garnered awards from SustainAbility’s Global Reporting Initiative as the top U.S. Reporter and from Ceres-ACCA North America for Sustainability Reporting (Nike, 2007a). In 2007, Nike produced a 163-page corporate responsibility report (Nike, 2007a) which received high marks for its “creativity in communications” (10th place) and “openness and honesty” (2nd place) in the Corporate Register’s winners in corporate responsibility reporting (Corporate Register, 2008). Following an increasingly popular practice, the Nike website provides links to more extensive information about the company’s activities in the area of corporate social and environmental responsibility (Nike, 2007b). In its most recent report (Fiscal Years 2005/2006), Nike set three primary goals in its corporate responsibility efforts – improving worker conditions, creating innovative sustainable products and effecting social change through sport (Nike, 2007a). These fit squarely into the TBL approach of reporting on economic, environmental, and social performance. The report presents the company’s approach to various issues, along with an impressive amount of information on its targets and performance related to those targets in each area. For example, the report’s section on “Considered Design and the Environment” address Nike’s efforts to create more environmentally friendly products and operations while “Let Me Play” details the company’s approach to addressing social issues through the power of sport.

Nike uses an external Report Review Committee to comment on its report. As the Letter from the Report Review Committee explicitly notes, “the Committee did not function as an assurance provider, since we did not provide any verification or commentary on the accuracy of the data Nike presents in this report” (Nike, 2007b, p. 135). Nevertheless, the Review Committee does suggest areas for improved sustainability reporting and reviews Nike’s reaction to previous suggestions (Nike, 2007b, p. 128).

While Nike does not specify the G3 reporting level it has chosen, it does states its report was prepared “with reference to the Global Reporting Initiative’s third generation of indicators” (Nike, 2007a, p. 131). Consistent with this self-declaration, Nike’s report provides an index of compliance to the G3 framework (Nike, 2007c). In this index, Nike notes either where in its report the information recommended by the G3 Guidelines is disclosed or characterizes its non-compliance as (A) information not reported due to a lack of access to appropriate data, (B) information is partially reported, in accordance with systems currently in place and access to data, or (C) the indicator is determined to be not material due to Nike’s lack of impact on this issue. This classification scheme is only appropriate for companies reporting at Level A – which Nike clearly is not.

Table 4 presents Nike’s self-reported compliance with the G3 Framework. Of the seven core economic performance indicators in the G3 Guidelines, Nike reports on four and provides complete information on three. The company provides information on 8 of the 17 core environmental indicators with complete information on six of these. Of the 10 core indicators for labor and decent work, Nike provides complete information on none but partial information on three. In the area of human rights, the company provides complete information on all 6 core indicators. Nike provides complete information on 2 of the 6 indicators for society. It gives partial information on just one of the 4 core indicators for product responsibility. In summary, Nike provides some information (complete or partial) on 38% of the 50 core performance indicators set out in the GRI’s G3 framework.



Adidas

Adidas ranks second in the sporting goods industry (behind Nike) with sales over $13 billion in 2007. The company takes pride in being the industry leader in the Dow Jones Sustainability Index (DJSI). Adidas is also included in the FTSE4Good Index, and has been awarded the prize for best sustainability reporting by the German Chamber of Public Accountants. In 2007, the adidas Group was included for the third consecutive time in the list of the “Global 100 Most Sustainable Corporations in the World” (adidas Group, 2008b). Adidas has produced social and environmental reports since 2000. For 2007, adidas provides both a 24- page hard-copy sustainability report (adidas Group, 2008a) and an on-line version (adidas Group, 2008b) which provides links to more extensive and detailed measures of performance and other information relating to its efforts to promote sustainable development.

The adidas Social & Environmental Report for 2007 addresses most of the same issues as Nike’s Corporate Responsibility Report - i.e., management of its supply chain, environmental impact, employees, and community relations. However, both the content and style of the report are quite different from Nike’s. Adidas utilizes short case studies of how the company addresses these issues. For example, the company’s approach to labor practices and decent work is presented in the form of an interview with the company’s chief human resource officer, Matthias Melassa (adidas Group, 2008a, p. 9) and its environmental policies in the form of a question-and-answer section (adidas Group, 2008a, p. 18). As with the Nike report, adidas presents a great deal of quantitative information such as the gender breakdown and average age of its workforce, employee turnover, its energy usage, the number and results of its audits of its subcontractors. Very little of this information is expressed in the same units of measure as Nike’s so a comparison of relative performance is difficult, if not impossible.

Like Nike, adidas does not have external verification of its report. However, in contrast to Nike, adidas does not have any overall external review of its report but some parts of the report have been subject to external review and/or verification. The company’s position is:

While we strive to continuously improve our reporting systems for supplier monitoring data, we feel that much of this data, in particular data on labour conditions, is not always verifiable in a standardised way. At this stage therefore we do not feel that a report verification would add value. We do, however, believe that independent verification of workplace conditions and of the processes and monitoring approaches we adopt in our compliance programme is important. For this reason the report does contain information that is subjected to an annual review by the Fair Labor Association. We also refer to data verified when supplier factories or our own facilities were certified to ISO, EMAS and OSHAS standards (adidas Group, 2008d).

Adidas is quite candid about the degree with which it complies with the G3 Framework, choosing only to report at “Level C”:


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