Here's some real help. Just concentrate on your approach and building clear content.
by Paul Pierroz
Strategy | Sustainability | Marketing
September 20, 2021 - We can’t all expect to move to the highest levels of reporting and disclosure overnight. For that to occur, we have to build our organizational strength and capabilities over time.
Here we will examine three approaches to sustainability reporting and disclosure – core, diversified, and integrated – along with their characteristics. We will also explore a unique situation for organizations – where a sharp pivot in strategy is required – and how this affects reporting.
You may have studied sustainability and ESG reporting frameworks and methodologies at length in your organization. We will concentrate on your approach and improvement. Regardless of where you are in the pack, we will provide just enough encouragement to help you achieve the next level.
BUILD A GREAT CORE REPORT
Effective leaders understand the perils of waiting for perfection. As you work to iron out each last wrinkle, the world moves forward without your contribution. Others step forward, fill the space, and define your narrative. It is often better to work with what you have.
Reporting and disclosure do not have to be complicated to be effective. Your first report can begin by illustrating your core sustainability effort, and you can build from there. Using a core reporting approach, you have an opportunity to:
• Discuss your organization and its sustainability profile.
• Select themes that fit your organization and align with essential issues.
• Incorporate quantified impacts to educate the reader.
• Use your workplace policies and programs to reinforce your intent.
• Develop and report a few enduring metrics.
Given sustainability’s importance to stakeholders, initiating a reporting and communication program can position your organization in a favorable light. And your annual revenue does not have to be billions of dollars per year to get started.
Enviva, a US-based producer of wood pellets, primarily for international markets, launched its first sustainability report in 2020. The company began operations in 2004 and grew to produce revenues of US$684 million in 2019.(1)
The company sold more than 3.5 million metric tons of wood pellets to customers in the UK, Europe, and Asia from its nine processing plants in the US Southeast. Power generators in these regions used Enviva’s pellets to supplement coal or to fuel coal-burning facilities that were converted to biomass use.
Their entire report is wrapped around the organization’s societal impact and purpose: to promote bioenergy and encourage its replacement of coal in power and heat generation. In doing so, it believes we can limit our dependence on fossil fuels and reduce carbon emissions. A great deal of space is dedicated to educating the reader about the companies’ operations and profile, business model, societal impacts, and programs with supporting metrics. In producing a single product offering around which it can present its information – wood pellets – Enviva has the benefit of a simple story to tell.
It uses a neat structure around four themes to support its central thesis – forests, climate change, people, and governance – all of which emerged from assessing its most essential issues. They point out that material issues were determined with the help of a third party over the course of one year.
Enviva uses impact quantification in its introduction and later under its climate change theme. It makes the point that it has avoided the release of 31 million metric tons of carbon dioxide equivalent emissions since its inception and equates them to four equivalent metrics:(2)
• 3.5 billion gallons of gasoline not consumed.
• 34. 5 billion pounds of coal not burned.
• 72.4 million barrels of oil not consumed.
• 5.3 million homes not using electricity for one year.
This use of impacts is part of the straight line it draws from the 16 million metric tons of coal displaced to the avoided emissions and the equivalent measures.(3) All of this illustrates its role in providing biomass to help customers reduce their carbon footprint.
Each theme is a section in the report and contains metrics and case studies to reinforce its mission to grow more trees to create thriving forests, fight climate change, empower its people and communities, and govern responsibly. Its “empower people” theme includes a diversity and inclusion section with year-end gender, racial, and ethnic diversity metrics and statements around its intent.(4)
Data at the back of the report includes Enviva’s Scope 1 and 2 emissions and emissions intensity figures with a look back to the two prior years. They chose to map their data against SASB standards in the form of a SASB index for their organization based on four relevant industry standards.(5) Mapping to four standards is a great deal of work but appreciated by stakeholders looking to benchmark the company against its peers.
Enviva took a sensible path with its inaugural report, being open with the availability and relevance of specific data based on the nature of its operations. They’ve also committed to increasing the number of metrics they report in subsequent years. This approach is sure to please many. Like Enviva, your early reports can enhance the profile of your organization by framing your contribution and impacts. As your reporting and disclosure advances, new elements can be added to the mix.
DIVERSIFIED REPORTING TAKES EFFORT
As an organization matures and grows, reporting and disclosure can become more comprehensive and granular. You only need to look at the reporting approach taken by multinationals with a history that includes early CSR (corporate social responsibility) reporting and those which operate in highly-regulated sectors. Complexity in reporting is also a by-product of diversification.
Organizations with multiple business lines and brands, serving many different markets, are required to expand their reporting envelope. As your disclosure needs become more diverse, you may consider building on your core with the following elements:
• Present sustainability drivers and ambitions.
• Incorporate product, service, and solution impacts to demonstrate innovation.
• Expand metrics to include activity-based performance to a standard.
• Identify supply chain sources, emissions, and engagement actions.
• Show the results of materiality engagement.
• Map reporting to multiple ESG frameworks and standards.
A diversified reporting approach balances the need to provide information at the enterprise level, across the entire organization, with detailed insights across your different segments and themes. These requirements influence the design of the reports themselves, from their table of contents to the overall layout.
The building of any sustainability report requires a classic storyboard setup. Storyboards are graphic tools that are typically used in planning sequences in TV or film. The drawings represent the shots planned for pre-visualization.(6) Building a storyboard allows you and others to see the overall flow or order of the report at a high level before all the content and details are brought together.
Dow Chemical, the US multinational materials science corporation, has been reporting on its sustainability performance since 2003 and has a history of planning and target setting a decade at a time. The company, which specializes in plastics, industrial intermediates, coatings, and silicones, is organized around three large segments, with 2019 sales ranging from about US$9 billion to $20 billion.(7) Each part consists of two global businesses with a total of six business lines.
Its 2019 reporting begins with a description of its 2025 goals, established in 2015, and an admission that current market challenges call for accelerated action. These challenges are presented in three discrete areas – the circular economy, climate protection, and safer materials – with two new 2030 targets for reducing carbon emissions and plastic waste. The carbon emission reduction is part of its pledge to achieve carbon neutrality by 2050.(8)
After presenting its business and sustainability overview, the Dow story is built around five themes – environment, people, global citizenship, supply chain, and governance. The themes are broad enough to accommodate metrics, programs, and case studies for each.
Product and process innovations are shown through a series of successes and projects outlined in its sustainability overviews, such as its participation in the Alliance to End Plastic Waste or the Hefty EnergyBag program for curbside collection of hard-to-recycle materials.(9) GRI Standards are cited throughout and summarized in its appendix, along with a unique reference to the UN 17 Sustainable Development Goals (SDGs). In a page dedicated to alignment with the SDGs, they illustrate which goals:(10)
• it has the opportunity to lead;
• it has the opportunity to engage and contribute to;
• present a business opportunity or risk; and
• it negatively impacts.
This thread of transparency, whether it’s acknowledging negative impacts, GRI tables, detailed emissions disclosures, or data related to hiring or compensation, is essential for an organization with Dow’s profile. As a diversified organization, the challenge of communicating a sustainability story is more straightforward if you zero in on your fundamentals, strategies, and performance. As the level of integration between the business and sustainability grows, it may be difficult to tell one from the other. Hence, we arrive at integration.
ADVANCE TO AN INTEGRATED REPORT
If you’re interested in taking a holistic approach to expanding on your strategy in order to elevate your reporting, you may want to implement the principles behind integrated reporting. It’s an all-in-one model. You can use the elements in the form of a stand-alone integrated report or merely enhance your existing information.
Effective leaders inherently understand the connection between strategy and sustainability. The time is approaching when your strategy, aspirations, and long-range plans no longer split along clean business and sustainability reporting lines. Integrated reporting brings these ideas together and provides you with another vehicle to communicate what’s important about your purpose and strategy to stakeholders.
The organizations poised to step into this arena have a deep understanding of their markets and a view on how to take advantage of emerging trends to create value over time. Adding this strategic component can add flavor to your story and create content that can be used well beyond annual disclosures. Some of the aspects of integrated reporting that you may wish to work into reporting are:
• Reporting financial, operating, and sustainability indicators in parallel;
• Providing insight into trends, markets, and implications for customers;
• Connecting trends and technologies to strategies; and
• Identifying performance and targets across multiple objectives.
Most of these elements are designed to provide stakeholders with a look behind your numbers and into your strategy development, execution, and monitoring. By incorporating these, you may find yourself well in front of your peers.
Valeo, a French global supplier of automotive electrical systems, has been reporting on an integrated basis since 2015, applying the IIRC (International Integrated Reporting Council) framework.(11) Its solutions are focused in the areas of powertrain electrification and advanced driving assistance, and it operates through four business groups, each with 2019 sales ranging from about US$5 billion to $9 billion.(12)
Its report begins with a primer on its financial and sustainability metrics before launching into a discussion of governance, compensation, and risk management. The stage for the strategy is set with a summary of the trends in automobile use, ownership, and densely-populated cities and the resulting changes in consumer behavior.(13) With a window into these requirements, we see the drivers behind Valeo’s strategies, business model, and innovation ecosystem.
The market drivers, such as the demand for lower-emission electric vehicles, more strenuous safety regulations, and improved driver experience, are directly connected to Valeo’s 12 new technology platforms in order to position the company in high-growth markets. These include the development of 48V powertrain systems for all-electric and hybrid applications, which represent part of a US$22 billion market by 2030 for low-and medium-voltage powertrains.(14)
A unique aspect of the report is Valeo’s treatment of performance. A set of 13 objectives related to the organization’s challenges, such as energy use and efficiency, promoting diversity, and engaging its supplier base, are converted into key indicators, each with an annual target and actual results from the current and prior two years.(15)
Valeo’s strategy considers market momentum to position itself for success over the long term. The alignment between opportunity and market dynamics appears to be in their favor. Let’s now turn to an organization that has had to make a difficult pivot and reposition itself due to some very challenging dynamics.
SPECIAL SITUATIONS CALL FOR SPECIAL REPORTS
It’s tempting to believe that market trends will always continue in your favor, given your organization’s history and success. Under ideal conditions, you have the benefit of time to fine-tune your marketing initiatives and sustainability reporting. Your progression is methodical and gradual. But suppose one day it all changes. In this case, you enter a state of heightened alert, knowing the tactics you select at this juncture is critical.
If you acknowledge your situation and remain focused on the task at hand, you are likely to emerge safely. Disruptive forces and trends are at work in every sector. At times, they are so extreme that a fundamental shift in strategy is required. The change must be reflected in your reporting and disclosure. In the event this occurs, you should consider the following steps as a starting point:
• Address the new reality.
• Define a new role for yourself based on your capabilities.
• Align to the unique challenges.
• Open up a dialogue.
• Generate and promote new impacts.
Not having all of the answers amid a change in strategy is perfectly acceptable. Move forward, embrace the ambiguity, and communicate your successes, even if they seem minor at the time. It’s all part of your ascent.
Saipem, an Italian-based company founded in 1957, has built some of the world’s largest energy and infrastructure projects. It is organized into five business divisions that focus on onshore and offshore drilling, engineering and construction, and conceptual design services.(16) Given its connection to oil and gas contracts, which effectively collapsed in 2014 with a plunge in oil prices, it has had to set a course beyond fossil fuels and rethink everything about its business. This “change or die” scenario sets the tone for its reporting and disclosure.
Its 2019 sustainability report acknowledges the scenario it is facing and tackles the issue of the low-carbon transition head-on. At its core is the organization’s rallying call, or “the four challenges,” which describe the context and frame the opportunities it must capture to remain competitive.(17)
A section for each challenge communicates the story. Each contains a description of the challenge and a detailed scorecard with annual targets and actual performance. The organization is performance managing its way through each of the challenges. And manage it does.
In its first challenge, “Innovating for the new energy scenario,” Saipem reassures its stakeholders that its complex project expertise can seamlessly transfer to floating wind farms, smaller-scale liquefied natural gas facilities, carbon capture, and storage solutions. The metrics for the new energy scenario combine targets from climate change and air quality, talent and development, digitization, and innovation. They signal that to be successful, the shift will have to be broad and multidimensional. They highlight that the vast majority of their backlog of projects are not strictly oil-related to prove the progress they are already making.(18)
Successful leaders understand the importance of direct and transparent communication during the change management process. The company spends considerable time explaining its management system, approach, and the context for its dialogue on sustainability across five continents. Its “Open Talks” events are a catalyst to obtain feedback as the business adapts and evolves.(19) Content from the talks is used throughout to add a flavor of expert opinion and external commentary.
Saipem also goes beyond targeting and dialogue to promote potential impact areas. It uses an innovation roadmap over several time horizons and case studies to prove it is in the new game on land and water. These include early-and late-stage collaborations for floating wind turbines and solar parks, using wave and tidal energy, and hydrogen production from electric power.(20)
They prove that only organizations with the innate ability to change can keep pace with sector challenges, and they extend the change process to include their stakeholders. They open up, address the new reality, organize around the challenge, communicate progress, and prepare for a new round of societal impacts.
A strategic change managed with this focus and granularity opens up new possibilities for purpose-driven marketing. As the impact areas and benefits materialize, the organization will have new content and case studies to attract customers, retain employees, and appeal to investors. The ultimate by-product may be a stronger brand and organizational purpose.
There is no perfect way to report to stakeholders. Each organization needs to evaluate its markets and position, consider the advantages of core, diversified, integrated, and exceptional situation reporting, and set a path forward. And, if you’re lucky, you’ll be given some support along the way.
(1) Enviva website, Sustainability, “2020 Corporate Sustainability Report,” page 7. https://www.envivabiomass.com/wp-content/ uploads/Enviva_Sustainability_Report_2020.pdf (2) Enviva website, Sustainability, “2020 Corporate Sustainability Report,” page 7. https://www.envivabiomass.com/wp-content/ uploads/Enviva_Sustainability_Report_2020.pdf
(3) Enviva website, Sustainability, “2020 Corporate Sustainability Report,” page 19. https://www.envivabiomass.com/wp-content/ uploads/Enviva_Sustainability_Report_2020.pdf
(4) Enviva website, Sustainability, “2020 Corporate Sustainability Report,” Page 31. https://www.envivabiomass.com/wp-content/ uploads/Enviva_Sustainability_Report_2020.pdf (5) Enviva website, Sustainability, “2020 Corporate Sustainability Report,” page 43. https://www.envivabiomass.com/wp-content/ uploads/Enviva_Sustainability_Report_2020.pdf (6) StudioBinder website, Alyssa Maio, “What is a Storyboard? The Fundamentals to Get you Started,” March 5, 2020. https:// www.studiobinder.com/blog/what-is-a-storyboard/
(7) Dow Chemicals website, Science and Sustainability, “Sustainability Report 2020,” pages 3 and 13. https://corporate. dow.com/en-us/science-and-sustainability/reporting/sustainabilityreport-2019/
(8) Dow Chemical website, News, Press Releases, “Dow sets targets to reduce GHG emissions, stop plastic waste, and drive toward a circular economy,” June 17, 2020. https://corporate.dow.com/en-us/ news/press-releases/dow-sets-targets-to-reduce-ghg-emissions--stop-plasticwaste--an.html
(9) Dow Chemicals website, Science and Sustainability, “Sustainability Report 2020,” page 19. https://corporate.dow. com/en-us/science-and-sustainability/reporting/sustainability-report-2019/
(10) Dow Chemicals website, Science and Sustainability, “Sustainability Report 2020,” page 25. https://corporate.dow. com/en-us/science-and-sustainability/reporting/sustainability-report-2019/
(11) Valeo website, Financial Presentations and Releases, “2019 Integrated Report,” June 2020, page 2. https://www.valeo.com/ wp-content/uploads/2020/06/2019-Integrated-Report.pdf
(12) Valeo website, Financial Presentations, and Releases, “2019 Integrated Report,” June 2020, pages 34 and 35. https://www. valeo.com/wp-content/uploads/2020/06/2019-Integrated-Report.pdf
(13) Valeo website, Financial Presentations and Releases, “2019 Integrated Report,” June 2020, page 21. https://www.valeo. com/wp-content/uploads/2020/06/2019-Integrated-Report.pdf
(14) Valeo website, Financial Presentations and Releases, “2019 Integrated Report,” June 2020, page 23. https://www.valeo. com/wp-content/uploads/2020/06/2019-Integrated-Report.pdf
(15) Valeo website, Financial Presentations and Releases, “2019 Integrated Report,” June 2020, page 39. https://www.valeo. com/wp-content/uploads/2020/06/2019-Integrated-Report.pdf
(16) Saipem website, Documents, Sustainability Reports, “2019 Sustainability Report,” page 8. https://www.saipem.com/en/ documents?section=sustainability&category=reports&year=2019 (17) Saipem website, Documents, Sustainability Reports, “2019 Sustainability Report,” pages 24 and 25. https://www.saipem. com/en/documents?section=sustainability&category=reports&year=2019
(18) Saipem website, Documents, Sustainability Reports, “2019 Sustainability Report,” page 26. https://www.saipem.com/en/ documents?section=sustainability&category=reports&year=2019
(19) Saipem website, Documents, Sustainability Reports, “2019 Sustainability Report,” pages 18 and 19. https://www.saipem. com/en/documents?section=sustainability&category=reports&year=2019
(20) Saipem website, Documents, Sustainability Reports, “2019 Sustainability Report,” pages 30 and 31. https://www.saipem. com/en/documents?section=sustainability&category=reports&year=2019