Assessing the Quality of Sustainability Reporting:
An Alternative Methodological Approach
Claus-Heinrich Daub*
Institute for Sustainable Management, University OAS North-Western Switzerland Aargau,
Martinsberg, CH-5401 Baden
1. Abstract
Against the background of the growing importance in corporate sustainability reporting, the
Institute for Sustainable Management at the University of OAS in Aargau, North-Western
Switzerland, instituted a research project in 2003. This represents one of the first attempts to
perform a quantitative and qualitative analysis of corporate sustainability reporting in
Switzerland. This is the second and, at the time, most comprehensive national study
worldwide on reporting practices. The object of this paper is to reflect the methodology of the
Swiss study independent of other procedures used to-date. The extent to which the new
methodological approach overcomes the weaknesses of other approaches will primarily be
demonstrated. Secondly, the research team’s findings from the results of the study and
interviews with managers from 25 Swiss companies in connection with the study will be
presented.
Keywords: corporate sustainability reporting, benchmark study, assessment
1. Introduction
It has been possible to register change in the reporting procedures of companies for several
years now. An ever-increasing number of companies are publishing supplementary reports in
addition to their standard annual reports. These new reports serve the purpose of
determining the performance of the company relative to the natural environment and the
society of which they are a part. They carry a wide range of different titles. By far the most
frequently used expressions found on the front covers of these reports include terms like
“Environment“ or “Environment, Health and Safety“ (Ciba Spezialitätenchemie 2003,
HEINEKEN 2002, Xerox 2002 etc.), and, in some cases, “Social“ or “Social Accountability“,
or even “Social Responsibility” (British American Tobacco 2002, Eileen Fisher 2002, Daimler
Chrysler 2002 etc.), and in some cases “Sustainability“ (Philips 2003, ABB 2002, Deutsche
Telekom 2002 etc.). Companies in the chemical industry represent a special case. The term
“Responsible Care“ (Merck 2001, Mitsui Chemicals 2001 etc.) dominates here. This is due to
*
Tel.: +41 56 203 10 55, fax: +41 56 203 10 51, email address: daub@ifsm.ch
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the fact that the International Council of Chemical Associations (ICCA) launched an initiative
of the same name back in 1995. The member companies were encouraged to use it as a
platform for demonstrating their resolve to show more responsibility for society and the
environment.
Taking "Sustainability" as a linguistic springboard, the term "Sustainability Reporting" has
established itself as a label for a new form of integrated reporting procedure dealing with
economic, ecological and social performance. In a narrow sense, it is possible to talk of a
Sustainability Report, in terms of a public report, if it is successful in providing information on
the current state of a company in terms of its ability to overcome what Schaltegger et al. refer
to as [3] “the four challenges of corporate sustainability“. It must therefore contain qualitative
and quantitative information on the extent to which a company succeeds in raising eco- and
socio-effectiveness and improving eco- and socio-efficiency during a period, and integrating
these aspects into sustainability management. The definition of the World Business Council
for Sustainable Development (WBCSD) follows this line: “We define sustainable
development reports as public reports by companies to provide internal and external
stakeholders with a picture of corporate position and activities on economic, environmental
and social dimensions“ [4]. Even stronger reference is made to the element of a balanced
reporting procedure in the KPMG definition in its “International Study of Corporate
Sustainability Reporting”. KPMG defines Sustainability Reports as “reports that include
quantitative and qualitative information on their financial/economic, social/ethical and
environmental performance in a balanced way” [5]. Although this represents a relatively new
phenomenon which first appeared at the end of the 90s, various studies have demonstrated
a visible growth in this form of reporting in the past, and also the fact that it will probably
continue to grow in the future.
The demand for all-round responsibility of companies for both their ecological and social
environment is justified through the concept of the “quasi-public institution” in modern
management theories recurrent to basic commercial-ethical considerations [7]. According to
Ulrich and Fluri [8], a company must be viewed “as a multifunctional and therefore pluralistic,
legitimised value-added unit, which fulfils socio-economic functions for various target groups
[…]”. It generates economic value. Put in other words, a company is not just a means to an
end, but pumps added-value back into society (for instance, by paying taxes, wages and
salaries). Simultaneously, it creates a negative, external effect. The more a company grows,
the more negative and positive effects it generates through its commercial activity, and the
more it becomes exposed to the public eye, making it liable to provide reasons for its actions
in the face of society.
This very concept provides the starting point for the reports named in the Introduction to this
paper, irrespective of the title they carry. They are to be understood as the reaction of
companies to the increasing demands of society to legitimise their actions. This idea of
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legitimisation is also mirrored in the central reasoning behind the growing spate of often
varying publications published by companies. J. Emil Morhardt, Sarah Baird and Kelly
Freeman [1] state the main reasons for this as follows:
– The effort to comply with legal regulations and to reduce the potential costs of future
regulations by actively participating in advance.
– An attempt to balance their activities with environmental codes, especially if sanctions are
threatened for non-fulfilment.
– An attempt to reduce operating expenses and
– The effort to improve stakeholder relations.
They also name the effort to improve perception for the environmental activities of a
company and therefore upholding or improving competitive opportunities, and the knowledge
that the active environmental management and/or the conscious acceptance of social
responsibility demonstrated by the report would secure the legitimacy of the company. The
WBCSD also states an almost identical reason in its most recent publication on “Sustainable
Development Reporting” [4].
The Institute for Sustainable Management at the University of Applied Sciences in Aargau,
North-Western Switzerland, instigated one of the first comprehensive quantitative and
qualitative analyses of corporate sustainability reporting in Switzerland against this
background. This is the second and, at the same time, most comprehensive study worldwide
concerning reporting practice. The first study of this kind, which made reference to the
sustainability reports of Canadian companies, was published by the Canadian consulting firm
Stratos Inc. [11].
The Swiss research team specified the following determining factors for its study based on
analyses of literature and interviews with science and business experts.
– As far as possible, the evaluation method should be oriented towards already established
evaluation procedures from other studies. This appears logical and necessary, since they
are based on the guidelines laid down by the Global Reporting Initiative (GRI), which are
used by most companies as a reference for developing their own reporting procedures.
– Despite these efforts to harmonise the various systems of evaluation, the methodology
should overcome the weaknesses of procedures to-date, and hence make a contribution
to the scientific discourse on the opportunities and restraints of evaluating corporate
sustainability reporting at the same time.
– In contrast to studies on corporate sustainability reporting published to-date, the Swiss
study aims to demonstrate the current level of integration of reporting in the top 100
companies in a country, independent of whether a “real” sustainability report or, for
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instance, “merely” an annual report has been submitted. Only this makes it possible to
demonstrate the qualitative changes in reporting procedure practice in a country and also
track the gradual establishment of corporate sustainability reporting amongst small-tomedium-sized enterprises.
This paper will focus on presenting the methodology used in the Swiss study as separate to
other procedures used to-date and the various problems connected with this. The results of
the study themselves are not the object of this presentation. These have already been
published separately.
Methodological Problems in Existing Assessments on the Evaluation of Corporate
Sustainability Reporting
Assessments of the reporting practice in companies have already existed in various forms for
several years. For instance, in many countries, specialist journals have the annual reports
from companies listed in stock exchange indices tested by experts once a year for the quality
of content and design (in Switzerland, this study is undertaken by the business magazine
“Bilanz” [12]). The resulting rankings are a strong sales argument for the various business
magazines in an otherwise sparse journalistic landscape during the summer months.
Another method of evaluation can often be seen in the form of awards for well-designed
annual reports. Since companies started moving over to supplementing their annual reports
with additional reports, the number of awards for good environmental, social and
sustainability reports has increased. The Association of Chartered Certified Accountants
(ACCA) in Great Britain has been bestowing an award for the best environmental report
since 1991. In 1999, they added an award for the best social report and in 2001, an award
for best sustainability.
These newspaper rankings and the various awards make a lot of sense, since they promote
interest in the reports and contribute to a systematic improvement in the reports themselves.
On the other hand, however, they also exercise a strong influence on the independent
assessment of reporting practice quality. This can be seen in two areas in particular:
1.
International and national studies on the quality of corporate sustainability reporting
published to-date have constantly taken individual reports and not every report published
by a company during the reporting period into consideration. Sustainability reports in the
narrow sense are not the main concern here [4.5], but all types of special report
published by a company in addition to the annual report. In this regard, Stratos, for
instance, defined a company as a sustainability reporter in its two Canadian benchmark
studies from 2001 and 2003 [9.14] “if it produced an environmental, environment, health
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and safety (EH&S), community, social responsibility or sustainability report for the 2002
reporting year, or if its 2002 annual report contained more than five pages of
environmental and/or social information, including performance data" [14]. From a total
of 338 company reports examined, Stratos selected 35 individual reports for further
study. A similar approach was taken by the study teams on the two most recent
Benchmark Studies from SustainAbility/UNEP, first published in 1994 [15].
2.
Moreover, both of the studies named above endeavour to identify and classify best
practice in corporate sustainability reporting. Hence, evaluating the current situation in
reporting procedure practice is not placed in the foreground here. In a detailed study, the
direction taken is to select those individual reports that appear to be extremely good
after an initial, general evaluation.
Both of these methodological decisions clearly demonstrate the orientation and, at the same
time, usefulness of studies of this kind. They provide a good insight into the principal
opportunities that exist for companies for presenting their ecological and/or social
performance as an integral part of special reports. Over and above this, they show
companies who are planning a report of this kind, or who have already submitted a first, yet
still weak version, the right approach with "model" reports and provide a benchmark for the
reporting procedure.
This approach does, however, give rise to several fundamental problems of a methodological
nature.
1.
If a study is limited to individual reports alone, and the model for best practice is derived
from this, this approach implies that the publication of special reports (sustainability,
environmental, social reports etc.) should be the preferred model for all reporting
procedures besides the "traditional" annual report. This does not necessarily constitute
the right approach to take.
2.
To a certain degree, studies published to-date have not been able to avoid comparing
apples and oranges due to the degree of variety referred to in the Introduction. The
question concerning the extent to which it is admissible to compare the sustainability
report of one company with the health and safety report of another, and the
environmental report of a third, and to devise a ranking is not explained in satisfactory
terms in any of the reports named.
3.
In the case of the ”Global Reporters” studies from SustainAbility/UNEP [15] and the best
Canadian reporters [9.14], only large, mostly multinational companies were evaluated.
These companies have adequate financial means at their disposal to draft detailed
reports in terms of content and design. It is not to be assumed that small-to-mediumsized enterprises are in a position use these types of reports as models.
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The team at IfSM attempted to solve this problem with a new approach that we will discuss in
the following.
A New Methodological Approach
The ultimate aim of the “Corporate Sustainability Reporting in Switzerland” project consisted
of analysing and evaluating current practice in sustainability reporting procedures in Swiss
companies. This was defined in the study as those companies who have their headquarters
or one of their main offices in Switzerland. Excluded from this were all companies who have
offices in Switzerland but whose parent company has its headquarters abroad. This
approach can be justified by the fact that the object of the research project is to draft a
country report.
In a further step, it was determined that this initial study would be restricted to a study of the
top 100 companies in Switzerland. This was due to several reasons: experience to-date
shows that a much larger share of the responsibility for global problems such as the pollution
of the environment or social inequality is placed on the shoulders of large companies
compared to small-to-medium-sized enterprises and, on balance, they are put under more
pressure by their stakeholders. In line with this, it was to be expected that very few
sustainability reports, or even none at all, would be published by companies not active on a
multinational scale. The results of the international study referred to above corroborate this:
sustainability reports (just as environmental reports were as their “historical precursor”) are
mainly published by multinational companies during a primary phase [9.14-15]. Small-tomedium-sized enterprises tend to jump on the bandwagon during a secondary phase. In line
with this, it was to be assumed that nearly all sustainability reports would be included in the
study if limited to the named objective.
In order to guarantee that all sustainability reports would be evaluated [4.5] in the narrow
sense, the research team carried out in-depth research beyond this. This showed that other
companies had submitted "real" sustainability reports in Switzerland in the period between
2001 and 2002 in addition to several of the largest companies. An example of this would be
those published by Baer AG and the Basellandschaftliche Kantonalbank (a regional bank).
The reports from these two companies were assigned a wild card in the study: they were
included although they were not ranked amongst the top 100 companies. In the ranking itself,
Baer AG was placed 12th and the Basellandschaftliche Kantonalbank 8th.
Selection of the largest Swiss companies took place on the basis of their turnover (in the
case of banks: their balance sheet total, and in the case of insurance companies: their gross
premium revenue). Companies ranked between 100 and 200 were included until at least five
companies from each sector defined had been included in the study in order to be able to
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include at least five companies from each respective sector. A total of 103 companies were
identified in this manner and asked in writing to submit their annual reports along with any
other periodically published public reports (sustainability reports, environmental reports,
social reports etc.).
Due to the problems of focussing a study on the individual reports referred to above, the
project team decided to extend the object of the research to all reports published by a
company. Corresponding to this, all company reports with information on economic,
ecological or social performance during a specific reporting period were included in the
research object definition. Additional information (for instance, from the Internet, or in the
form of brochures or newspapers ) was only included if it was referred to explicitly as part of
the report and if it was possible to identify information that supplemented the information
provided in the report (for instance, summaries in table form, detailed figures, case studies
etc.)
In developing the method of evaluation and due to the reasons named above, the research
team focused mainly on previous systems [9.14-15], which, in turn, had mainly used GRI
guidelines [10] as a reference [16]. For this reason, the following representation is limited
mainly to a description of the essential differences between the various evaluation methods.
The Swiss study makes no essential difference between the four reporting clusters in which
the dimensions of the statements to be made in a sustainability report reporting procedure
are determined. In other words, they combine a specific quantity of significantly correlated
criteria, for instance, criteria relating to the credibility and communicative quality of a report,
or criteria which query quantitative performance information such as information on the
proportion of regenerative energy used in production, or the quota of women in management
positions.
In Reporting Cluster A (Context and Orientation), general information is collated that is
required from the reporting team on its company and the reports submitted. For instance, this
includes the company's vision in economic, ecological and social terms, or a representation
of the markets in which a company would like to become more active, and how this relates to
its function as a social and environment policy player. Even in these descriptions it is
possible for the reader to relatively easily recognise the extent to which a company has
redefined its economic role and no longer sees itself as a mere driver of sales and source of
profit.
Clear and distinct information is collated in Reporting Cluster B (Policy, Management
Systems and Stakeholder Relations). Following a general introduction, the focus should now
be placed on stakeholder relations and a company's management system. What are the
company's target groups? How does it incorporate them into its decision-making processes?
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How are the economic, ecological and social risks managed? Questions of this type need to
be answered by a company in order to prove how serious their interest is in making a
contribution to the sustainable development of its social and ecological environment.
While information of a qualitative type is collated in Reporting Clusters A and B, Reporting
Cluster C (Performance Indicators) contains information of a quantitative type. This is the
heart of a sustainability report, since it makes reference to hard data and facts which a
company can use to demonstrate economically, socially and ecologically responsible action.
Reporting Cluster D (Transparency and Overall Picture), as the final category, contains all
criteria for measuring the transparency and credibility of the reporting procedure. If the
information provided is credible, is information on important stakeholders included in the
report as support? Is the reporting procedure approached in a manner allowing the reader to
form a comprehensive picture of a company's performance quickly - or is he presented with a
mountain of paper that confuses more than it explains?
The most important difference between the evaluation systems submitted to-date and the
one from the IfSM derives from the weighting of Reporting Cluster C (Performance
Indicators). The research team took the position that the criteria in Reporting Cluster C
(Performance Indicators) should be weighted with a factor of 2, which is a more substantial
weighting than in studies submitted to-date, since it contains the hard facts on the
performance of a company in the three sustainability dimensions. Although the evaluation
system from Stratos [9.14] achieved a similar relative weighting of Reporting Cluster C in
comparison to the other categories, Stratos divided up the individual criteria for evaluating
the reporting procedure to such an extent that the correlation was lost. What is more, the
evaluation system contained several criteria which could not be used in Switzerland such as
“Indigenous Peoples/Aboriginal Relations”.
The Swiss research team also mainly oriented itself to the procedures used to-date with
regard to devising the basic rating scale for evaluating the degree of fulfilment of a criteria in
a report (or a complete reporting procedure), and with regard to the evaluation procedure, so
that no essential differences resulted in this dimension.
Experience from the Benchmark Survey in Switzerland
The experiences of the Corporate Sustainability Reporting study in Switzerland in 2002
clearly show that the alternative methodological approach chosen was capable of
overcoming the problems of the other survey methodologies. On the one hand, this is
demonstrated by the research team's analysis of the results, and on the other, as a result of
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interviews with representatives of middle and top management from 25 Swiss companies
where the study was presented after its completion in Autumn 2003.
The most important findings of the benchmark study and the interviews are summarised in
the following:
1.
If the research team had failed to include annual reports in the survey, they would not
have had access to important findings. For instance, they would have overseen the
report from the Zürcher Kantonalbank. The company does not publish a sustainability
report, nor does it publish an environment and/or social report, but includes detailed
information on the bank's ecological and social performance on 40 pages of its business
report. This report was placed ninth in the total rankings. This confirmed the idea that
statements concerning the actual quality of the sustainability reporting procedure and the
extent of inclusion of the three sustainability dimensions can only be made if all
publications published periodically by a company are taken into consideration.
2.
The fundamental consideration behind the surveys submitted to-date that the publication
of a special sustainability report is the "right way to go" could not be substantiated by the
Swiss research team following the evaluations. The Zürcher Kantonalbank was not the
only example of how well companies integrate ecological and/or social aspects into their
annual reports in an exemplary manner. The energy supply company for the city of
Zurich, EWZ, was ranked no. 18 and yet still appeared above companies who published
a special environmental report.
3.
Several companies whose all-round reporting was otherwise comparatively poor
achieved the full tally of points in some criteria and also presented the required
information in a model manner. This proves the initial theory that the focus should not be
placed on the best reports in an assessment.
4.
The utilisation of an evaluation system similar to that used in comparable studies on the
all-round reporting procedure (and not on individual reports) did not prove to be a
problem. Printed reports are, as a rule, similarly structured and correspondingly, they
can be assessed in parallel. Hence, even with these alternative approaches, the
possibility remains for orienting oneself to the Global Reporting Initiative guidelines [10] .
5.
An evaluation of the performance of the reporting company in the four reporting clusters
resulted in a clear weakness in Reporting Cluster C (Performance Indicators), in which
the 76 reporting companies examined only achieved 33% (Reporting Cluster A: 40%,
Reporting Cluster B. 43%, Reporting Cluster D: 52%). This proves that the companies
have a lot of hard work in front of them to integrate hard data and facts. The double
weighting here makes it clear that they will have to place a lot more emphasis on this
aspect in future.
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Besides the knowledge won from the evaluation, the results of the benchmark study
delivered additional valuable information from interviews with managers carried out in
connection with the study.
The majority of those interviewed criticised the fact that companies are reaching their limits
due to increasing demands for ever more detailed and more frequently published reports.
Among other things, this can be explained by the fact that many companies are presently
implementing corporate governance guidelines [17] which are comparatively stringent in
Switzerland. This criticism confirms the assumption of the Swiss research team that, in
future, the usefulness of developing sustainability reporting will have to be demonstrated
increasingly to Swiss companies. Moreover, continuation of systems’ development will have
to occur to allow companies to introduce sustainability reporting on a step-by-step basis.
Another important area of criticism addresses the circumstances under which assessments
are frequently carried out by companies who use consultancy services for their corporate
sustainability reporting. Action must be taken by neutral research institutions against this
problematic accumulation of tasks in future. Consulting companies should not and cannot be
allowed to evaluate reports to which they make a considerable contribution.
The Swiss research team made one of the most interesting findings during the interviews:
apparently, many of the companies failed to include information in the reports that was
available, and, in principle, should have been published. There were many reasons given for
this: according to their own reports, several of the companies consciously wanted to avoid
giving the public the impression of being too "social" a company. Public sector companies
used this argument most frequently. They want and have to demonstrate their ability to deal
with the challenges of a potential, future liberalisation of the market. According to their
arguments, they can only succeed in this if they pointedly emphasise their commercial skills
and successes. According to their own reports, other companies are afraid of forcing
competitive disadvantages by publishing ecological and/or social performance indicators.
The “secret” of having very particularly satisfied customers or employees for instance is
uncovered in this manner.
The opinions of these companies can be interpreted in a variety of manners. However, they
do clearly demonstrate that the awareness of a company’s principal responsibility towards its
stakeholders has grown. At the same time, it also proves that efforts made to convince a
company of the importance and usefulness of a sustainability report will clearly have to be
increased in future. An assessment like the one instigated in Switzerland is one of the most
important steps towards achieving this. During further steps, the development of case studies
would be important, which clarify the reporting procedure for triple-bottom line performance
to companies as a unique communications proposition (UCP). Here, the emphasis will be
placed increasingly on small-to-medium-sized enterprises which form the backbone of the
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economy in all the European countries. The new edition of the Swiss survey in 2004 will
consider this by extending the object of the survey to these companies.
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