Disconnect

Over the last decade, companies reporting sustainability activities have significantly increased. Reasons for reporting are varied. Officially, the reports are intended to be “vessels of transparency and accountability.” However, only a simpleton would believe that this is true. It is more sensible to believe that companies engage in sustainability reporting because not reporting could have “a negative effect on its performance, reputation, and the ability to raise capital.”

Global Reporting Initiative (GRI) is now the most widely used framework and standard for sustainability reporting. In 2017, “63 percent of the largest 100 companies, and 75 percent of the Global Fortune 250 reported applying the GRI reporting framework.” 

GRI Standards have a modular structure, making them easier to update and adapt. The standard suggests reporting on nearly 80 sustainability activities, called ‘‘indicators.” These are classified into six different categories or ‘‘dimensions,” namely labor and decent work, economic, environment, human rights, society and product responsibility. Companies selectively choose among and comply with the wide variety of activities. Moreover, they can be “creative” on how they want the selected activities to be presented. 

Understandably, to sustain the popularity of the standard, the focus is to get more organizations around the world to produce sustainability reports, “preferably using the GRI guidelines.” More understandably, this has resulted in “many reports that are a little more than public relations efforts.” If the focus is more reporting, then are the reports getting better? 

As one stakeholder group, customers are the “most critical to the majority of executives investing in relationship building through sustainability.” Research shows that “customers influence a firm’s sustainability strategy more than any other stakeholder group” and “has direct influence on the choice of environmental key performance indicators.” According to one study, a number of sustainable environmental practices have been primarily influenced by customers.

This makes a lot of sense: “if a customer approves of a company’s sustainability practices, then they can reward the company with loyalty, purchase intent, etc.” Customers can refuse to buy a company’s products, or they can vent their sentiments on social media.

Customers’ understanding of the sustainability activities is important and relevant. Their concerns and expectations should be aligned with what the company intends to project.

One study sought to determine a “disconnect” between sustainability reporting and customer concerns. The study found that “customers see different dimensions than those put forth by the GRI framework.” It suggested a “disconnect between corporate sustainability reporting and stakeholder views and interests.”

The study gathered 15 GRI Reports, intentionally including “companies from industries known as ‘embracers’ of sustainability practices.” These include reports of The Coca-Cola Co., Abbott Laboratories, Intel Corp. and Volkswagen. After identifying sustainability activities that pertained to various GRI dimensions, the activities were classified according to these dimensions.

Six factors emerged that reflect customers’ understanding of sustainability. These are environmental stewardship, risk and compliance, community building, social justice, employment opportunities and employee education. The study sought to address two (2) questions:

One, “do the GRI dimensions align with how consumer stakeholder group think about sustainability goals?” In other words, is the customer’s understanding of sustainability the same with what GRI means?

Expectedly, customers do not see economic objectives being compatible with sustainability. Customers see sustainability as independent and an end in itself. For them, sustainability should not be an instrument for achieving economic viability. Although not one of the listed GRI dimensions, risk and compliance emerged as an important dimension for customers. These include activities such as “complying with laws and regulations and identification of risks that impact the business.”

Two, “what are the most important sustainability activities to the consumer stakeholder group?” Results show that customers perceive social justice activities as most important in achieving sustainability. Specifically, customers value that companies “prohibit the use of child, forced or involuntary labor,” and “ensure all consumers are treated fairly and consistently.”

In order of importance, environment stewardship came second. Customers appreciate activities that explicitly address minimizing waste, such as “develop effective processes to prohibit the uncontrolled release of pollutants (e.g., wastewater, sulfur dioxide, nitrous oxide),” “save tons of paper and plastic through packaging and shipment redesigns, thus reducing landfill waste,” and “increase company recycling rate.”

Under risk and compliance, customers expect companies to be involved in “educating employees on how to reduce risk.” Community building and employment opportunities are also seen as importance factors of sustainability. For them, most important are activities that “help individuals grow and better themselves.”

Despite official statements to the contrary, it is most prudent to accept that sustainability reports feign to serve the interest of stakeholders. By aligning sustainability activities with customer concerns, companies can re-connect with customers. And the pretense is now better concealed. 

Real Carpio So lectures at the Ramon V. del Rosario College of Business of De La Salle University. He is an entrepreneur and a management consultant. Comments are welcomed at realwalksonwater@gmail.com. Archives can be accessed at realwalksonwater.wordpress.com. The views expressed above are the author’s and do not necessarily reflect the official position of DLSU, its faculty, and its administrators.