CSR Reporting, Frameworks & Systems

1. CSR Reporting, Frameworks & Systems MBA 292C-1 Professor McElhaney 1.31.07

2. Tonight’s Agenda • Key Learnings Review • Current Events • CSR Reporting • CSR Frameworks & Systems • Anatomy of a 292 Project

3. Key Learnings

4. Current Events

5. Current Events • Tesco to Create 'Carbon Label' Showing Each Product's Carbon Footprint U.K. retailer Tesco plc has announced that it will place a 'carbon label' on each of its 70,000 products that will inform customers how much carbon dioxide was emitted in producing, transporting and packaging each product. According to the Financial Times, Tesco is investing 5 million pounds in academic research at the Environmental Change Institute at Oxford University to develop a method for creating the label. The Guardian reports that while the research is underway, products that arrive into the United Kingdom will feature an airplane label. Tesco has also pledged to lower store and distribution center emissions 50 percent by 2020 as well as the amount of carbon dioxide produced by its distribution network for transporting goods by 50 percent over the next five years.

6. Current Events • Sam's Club to Offer First 'Carbon Balanced' Retail Product In a partnership with Karcher USA and TerraPass, Sam's Club -- a division of Wal-Mart Stores, Inc. -- has announced that it will sell what it calls the first retail product that is 'carbon-balanced.' The product is a Karcher pressure washer and a small portion of its price will go to TerraPass to balance out two years worth of its carbon emissions.

7. Current Events • Super Bowl to Offset Electricity Emissions This year, the U.S. football Super Bowl XLI is offsetting carbon emissions from the electricity it uses at the game. It has a waste management program in place as well as programs to collect and donate leftover food and decorations from Dolphin Stadium in Miami. More...

8. CSR Reporting

9. CSR Reporting Trends • 1997, five reports • 2000, over 2000 reports • 2002, 40% of top 250 global companies CSR report • 2005, 64% of top 250 global companies CSR report • 80% of top 100 UK companies report • Countries moving towards requiring non-financial reporting: England, France, Germany, Australia, South Africa

10. Why Report?Stakeholders Want to Learn More About Companies’ CR Activities Source: Globescan, 2005

11. Does Reporting Work?Stakeholders Believe Companies’ Communication of Their CR Performance Source: Globescan, 2005

12. Stakeholders Surveyed:Preferred format to read report

13. Stakeholders Surveyed:CSR Reports Need Assurance

14. Annual Reports Goal: trust Standardized format Wholly quantitative Verification required Targeted externally Static view Mandatory Slightly dull CSR Reports Goal: Trust Varied format More qualitative Verification optional Targeted both internally & externally Static and forward view Voluntary Can be interesting, engaging, creative Annual Reports v. CSR Reports

15. Reporting Opportunities & Challenges • Materiality • Pick only relevant, critical issues (recycling for tech company, rather than casual Fridays participation rates…) • Carpet bombers still exist- BHP Billiton at 522 pages (9.6Mb) for 2006 • Getting stakeholders to read them • H & M asks on website how s.h.’s would like to receive reports; Vodafone publishes 11 mini-reports for its operating units and one internal report; Weyerhauser produced a tabloid-sized 4-page mini-report • Print v. Virtuality • Greater flexibility in electronic communications, print executive summaries and offer PDF on web site • Integrate to Finances • Integration of accounting, disclosure, reporting & communication; Novo Nordisk integrates annual, environmental and social reports

16. Reporting Opportunities & Challenges • Assurance • Third party assurance desirable and leads to higher credibility, but demand outstripping supply • Brand congruence • CR communications must fit brand attributes; if edgy fiercely competitive athletic wear company, do not want soft, warm, fuzzy CSR report • Companies shifting to two-year reporting cycle • Maintaining quarterly web reporting on goals/ updates • Engaging over the Web • McDonalds, Vodafone actively engage on web using blogs, stakeholder dialogue tools • Using reporting as one piece of overall CSR Communications strategy • Necessary but insufficient alone

17. Reporting Tools 1. Aspirational Standards • Hundreds, including: • APEC Code • Caux Principles • Global Sullivan Principles • UN Global Compact • OECD Guidelines • Principles for Global Corporate Responsibility • Equator Principles • Company-specific standards • Hannover Principles • Can be issue-specific • Voluntary endorsement

18. Reporting Tools 2. Performance Standards • SA 8000 (Labor and human rights) Child labor Freedom of association Forced labor Working hours Health & safety Remuneration Discrimination Management systems Discipline • ISO 14000/ 14001 (environmental) • ISO 26000 (social) • Measurable, management system, verifiable & audit-able Reporting Tools

19. Reporting Tools 3. Reporting Standards: Global Reporting Initiative • Generally accepted framework for reporting an organization’s economic, environmental, and social performance • Convened by CERES, with UNEP in 1997, first used in 2001 • Multi-stakeholder developed • Allows comparisons across sectors • Designed to elevate CSR reporting to same level as financial reporting • Sector-specific reporting standards to allow for comparability • Partnership with ISO 26000

20. Global Reporting Initiative: G3 http://www.globalreporting.org/ReportingFramework/G3Online/

21. 4. Assurance Standards • Accounting firms (E & Y, PwC, Deloitte) • Specialist consultancies (SustainAbility, AccountAbility) • NGOs • AA 1000 (Simon Zadek, leads in Europe), TVZ • Stakeholder Working Groups • Faculty experts • Capacity challenges: demand outstripping supply

22. Effective Reporting: Goals • What are specific goals? • Enhance image • Respond to attacks, protests • Build bridges, learn, engage • Organizing tool • Inspire employees • CEO says have to • Rank in order of importance: prioritize

23. Effective Reporting: Audiences • Who are your audiences? • External too broad • NGOs • Employees • Executive management • Rank them by importance • Re-rank every reporting period

24. Effective Reporting: Tool • Report used as a tool to: • Inspire employees • Draw line in sand • Means to change language, climate, even company culture • Method to track progress over time • Pre-cursor to develop CSR organization, vision, strategy**

25. Effective Reporting: Credibility • Take necessary steps to ensure or enhance credibility • Use of language, issues, images • Frank communication • Use of outside assurances • Getting internal constituencies onboard with external

26. Effective Reporting: Consistency • Does report fit with overall brand/ marketing strategy? • Does it fit with overall communications/ PR strategy? • Is it unique to company (competitive advantage)? • Are the themes, tones reflected in other company materials?

27. Effective Reporting: Design • 10-second skim shows key ideas • 90-second skim of front sections shows key ideas • Headers, quotes, photo captions show action, engage • Quotes show dramatic tension • Effective story-telling • Keep short & sweet

28. Effective Reporting: Laugh Test • What is scariest question facing company? • What are harshest accusations critics could make? • What is one-sentence dismissal that could be made? Is this addressed openly? • Is the big picture hidden by details? (carpet bombs)

29. …..

30. Progressive seeks forthright and full disclosure in all our business reporting. Progressive is currently the only Fortune 500 company to report results on a monthly basis. Progressive wants “no secrets” when it comes to how rates are determined. Embracing transparency: Strengthening a brand Progressive Insurance, Annual Report

31. Among the stakeholder concerns expressed are: • The fuel economy of SUVs is less than cars.... • SUVs can raise safety concerns for drivers and passengers in other vehicles.... • SUVs used for off-road recreation can damage nature. • SUVs contribute more than any other vehicles to the Company’s bottom line.... Without SUV offerings, Ford likely would lose sales and profits. Ford Motor Company

32. We envision ourselves wearing our gear while enjoying the benefits of nature or, better yet, while fighting environmental sinners. But it’s a fact that our synthetic-fiber clothes start as petroleum, and the subsequent refining process pollutes. Everything we make pollutes; the production of every piece of clothing we make has a negative impact on the environment. Period. Patagonia

33. Exxon Mobil

34. 1928 Columbian army killed an undetermined number of employees and others during labor protests. 1961 Company ships provided support for failed U.S. invasion of Cuba. Initiated sale of bananas in Japan. 1975 Involvement of United Brands in Honduran bribery scandal led to the enactment of the U.S. Foreign Corrupt Practices Act. Company stock plunged and Chairman and CEO Eli Black committed suicide. Chiquita

36. CR Reporting Types • Truants • Nothing beyond legal compliance • Cosmetics • Focus on style rather than substance • Nerds • Numbers crazy, data driven, lack big picture and/or materiality • Virtuosos • Have numbers, big picture & performance to match • Supersonics • Mainstreamed it, integrated it with financials, and got beyond business case to develop new business models Source: Trust Us, SustainAbility, 2002

37. v. • Reporting Types? • Strengths? • Weaknesses? • Specific recommendations?

38. CSR Report Analysis Assignment • Select report of your choice to analyze • http://www.corporateregister.com/ • Can select project company, competitor, peer, where you want to work, etc. • Three-page analysis focusing on: • What worked well in the report/ strengths? • What did not work well in the report/ weaknesses? • What are your specific recommendations for improving the report? How would you rewrite this report? • Due February 14 • Detailed assignment posted on due date on Catalyst

39. CSR Frameworks

40. Changing the Game

41. The Landscape of the Business Case for CSR Changing the Game Competitive Advantage & Market Positioning Employee Relations Investor Relations Improved Business Performance Value Creation Risk Mitigation Reputation “Insurance” Mitigate long term business risks Build Stakeholder Trust

42. Shifting From Defensive to Offensive CSR BP: “Beyond Petroleum” Citigroup: Commits $100m to microfinance Gap: PRODUCT (RED)Interface: “Mission Zero”Stonyfield Farm: “Bid With Your Lid” Timberland: Partnership with City Year “Offensive CSR can distinguish a company’s reputation but cannot protect it; defensive CSR can protect a reputation but cannot distinguish it. Both are necessary to succeed in today’s business climate.”1- Mark Kramer & John Kania, Changing the Game

43. Stages of CSR • Defensive • Company faced with pain, criticism, reacts defensively • Compliance • Cost of doing business, do just as much as need to • Managerial • Moves CSR to core business managers & functions • Strategic • Realigns strategy to use CSR as competitive advantage • Civil • Need to involve all in sector, collective action

44. Stages of CSR Sweet Spot

45. Implementing CSR • Make business case (relevance) • Engage stakeholders (internal & external) • Map potential vulnerabilities/ risks • Develop CSR strategy • Align with organizational culture/ change • Monitor, measure, report • Communicate to ALL stakeholder groups

46. Designing a CSR Structure: Big Picture • Build Senior Vision & Support • Examine Current CSR Systems & Activities • Design a CSR Structure • Implement CSR Management Systems

47. Designing a CSR Structure: Nine Steps • Understand Drivers (internal & external) • Identify Key CSR Issues • Identify & Evaluate Stakeholders • Identify Current Functions Supporting CSR • Analyze Current CSR Systems, Culture • Design CSR Structure • Develop Effective Staffing Plan • Create Cross-Functional System • Match Budget to Best Framework

48. A CSR Continuum Philanthropic Transactional Integrative Growth stage: Adapted from The Collaboration Challenge, James E. Austin

49. CSR Landscape: Plot Goal

50. Build Stakeholder Trust “an early awareness of the concerns of NGOs and stakeholders enables companies to join and shape the debate before it turns against them – or at least to prepare themselves for turbulence ahead.” – McKinsey Quarterly1