Corporate reporting in the new age of transparency by John D. Wiebe, President and CEO of GLOBE Group
Much has been written of late about the growing importance of corporate reporting, particularly in what many describe as the ‘new age of transparency’. Corporate disclosure of environmental and sustainability related data has grown exponentially over the past decade, and its importance in demonstrating that superior performance on climate change and resource efficiency correlates with improved financial performance cannot be overstated.
Having pioneered the only global platform for corporate disclosure on the environment, CDP drives more sustainable investment, enables companies and cities to increase efficiency, realize monetary savings, and capitalize on commercial opportunities from the better management of climate related vulnerabilities including energy, water, and the use of forest products in direct operations or across supply chains. There are those, however, that are yet to realize the full benefits of environmental accountability, so how can this be achieved?
The value of transparency
The value of voluntary disclosure of performance data in these critical areas, and the sharing of more general information on corporate perspectives and strategies on sustainability, has been repeatedly proven from a competitive position angle, but also in terms of raising the level of public awareness and acceptance. Both will be increasingly important priorities in the new age of transparency.
What is less well understood, particularly in certain sectors, is a full appreciation of the concept of transparency, and the associated questions of what information should be shared, how much should be made available, and how accurate must this information be, which touches on the issue of verification.
The first and most important fact corporate leaders must understand and accept is that transparency is not an option. It is a reality that permeates every aspect of society, which is more than evident if we look at words that did not exist a decade ago, or which had totally different meanings: Twitter, Instagram, Facebook, and Social Networking. Whether released voluntarily or not, information has a way of becoming public knowledge, and the only real choice open to managers is how to turn disclosure into an asset that has value in the investment community, the marketplace, and on the shop floor.
As noted by Susanne Stormer, Vice President of Corporate Sustainability
at Novo Nordisk, a company renowned for its proactive engagement strategies, “In the long term, not being transparent is really not an option. You can say that truth, like pregnancy, cannot be hidden for long. And even now, your stakeholders will find out one way or another, and you can no longer control the communication that’s coming in and out of your organization.”
To make disclosure a corporate asset, one must first accept the fact that corporate information is a resource quite different from all tools available to managers in that it can't be contained, has a propensity to leak, is highly valued, and must be totally accurate.
Turning transparency into a competitive advantage
Are there limits to transparency? Not really. Are there acceptable limits to disclosure? Yes; but delay, deceit, and obfuscation are not assets in this regard. They are liabilities that have a way of coming back to bite in the most uncomfortable places, and invariably, lead to costly and time-consuming diversions such as countering rumors, denying cover ups, coping with conspiracy theory hyperbole, or engaging in costly legal proceedings.
Thus, if transparency and accurate corporate reporting are the new realities of business, the only real question is how to turn both into a competitive advantage.
Be Accurate, Honest, and Complete
The first rule of thumb is to ensure that what is disclosed is accurate, honest, and complete. Disclosing volumes of incomprehensible data is not the “yellow-brick road” to success. More important are honesty, clarity, and forthrightness. These have a value in the marketplace that are almost beyond measure.
You can manage information, but you cannot manage the truth. Ultimately, everything is revealed. The first rule of corporate reporting in the age of transparency is to be honest, open, and forthright, or be forced to disclose uncomfortable information by government decree or by public pressure.
If there is an uncomfortable truth lurking in the background, deal with it honestly and openly engage everyone in the efforts to resolve it. In this regard, corporate size is not a saving grace.
Giants in the food industry have learned this lesson and are responding accordingly, voluntarily improving processing practices, changing recipes to deal with the dangers of trans fats, funding public education campaigns, and pushing reduced-fat products to regain public acceptance.
Clothing manufacturers are also beginning to realize that low prices do not justify shoddy and unsafe working conditions, or the use of child labor in developing countries. Tragedies in Bangladesh are painful and avoidable stimuli for businesses to engage in long-term strategic planning that transcends profit and commands better stakeholder engagement and more responsible supply chain management.
Energy giants have also learned the painful lesson that honesty and upfront acceptance of responsibility for errors or omissions is a far better strategy for dealing with disclosure than denial, finger pointing, or governmental oversight.
Make sure information is standardized and credible
Secondly, make sure the information you report is standardized and credible. This is a tough one, because the process of environmental sustainability performance assessment can be complicated and time consuming, and is generally not easily understood by the general public.
This is where programs such as those offered by CDP can be of great value. They provide the metrics that go beyond the measurement and disclosure of carbon emissions, water use or deforestation – important as that may be – but also provide the framework for self-assessment and metrics for sectorial comparisons of performance.
The availability of a standardized, industry-wide framework for information disclosure makes the task of reporting not only achievable but also useful, both to corporate managers and to other stakeholders.
Not only does this assist companies in responding to growing stakeholder expectations, it also gives companies the opportunity to view risks and opportunities for future business strategies through industry-wide standards.
That is why sharing information within a sector is so critically important. It places understandable and credible standards into the public domain and raises the bar in terms of performance measurement.
Indeed, as noted in a recent Ernst and Young report, a study of industries with significant environmental impacts (utilities, metals and mining, oil and gas, pulp and paper, and chemicals) determined that voluntary sustainability disclosure by firms in these industries allows investors more information than government-regulated transparency alone and that disclosure was positively correlated with return on assets and cash flow from operations.
In the age of growing transparency expectations, employees, consumers, and investors want to know they are dealing with good corporate citizens. As Don Tapscott and Anthony Williams point out on their excellent 2003 paper on Value and Values in the Age of Transparency, over time the commitment to transparency and the disclosure of credible information “reinforces the notion that a company’s commitments are reliable and that its behavior consistently aligns with the values and images it projects in the marketplace.”
Take control and ownership of externalities
This leads to my third and perhaps most important point with respect to corporate behavior in the age of transparency. That is the need to take control and ownership of externalities before they take ownership of you.
Externalities, or what economists often refer to as side effects, can include the uncomfortable realities associated with a company’s operations noted earlier, that have a way of surfacing when least expected or desired. But they are realities that must be dealt with openly and objectively.
In the context of sustainability, they can include environmental impacts arising from standard operations, or from catastrophic breakdowns, or from totally unexpected impacts not previously understood, such as the long-term impacts on eco-systems from the end of life disposal of products or packaging materials.
As noted, denial is not an effective strategy. Nor is seeking to avoid responsibility or obligation for the consequences of what happens beyond the factory gate. Taking ownership of an issue before it becomes explosive is the most tangible example of leadership that exists in the corporate world, and the ultimate model of excellence in the age of transparency.
This is far more than good public relations. It is hard-headed management in a world where everything is ultimately transparent, and the prize will go to those who recognize that indeed, honesty is the best policy.
The role of the private sector
Summing up, why is this important? Simply put, notwithstanding pronouncements at the highest level of government on the importance of corporate reporting on sustainability (such as the 2012 Rio+20 Conference Outcome Document agreed to by all UN Member States), the private sector is the most important player in the pursuit of sustainability.
It drives the workforce, fuels innovation, and influences every facet of life from the production of essential goods and services, to the pursuit of research and development, to the formulation of technical standards that integrate national economies.
That is why integrity and honesty in voluntary corporate reporting are such important issues going forward in this new age of transparency.
Engage with CDP and industry at GLOBE 2014
Coming back to the importance of reporting through CDP, it allows for peer-to-peer comparison of corporate environmental risk and provides the basis for informed discussion by the general public and other stakeholders of corporate action on sustainability, which ultimately is the key to retaining the social license to operate.
This is a message we have stressed over and over again on the past quarter century in all our activities at the GLOBE Group. And it will be the core message at GLOBE 2014, the next in our celebrated series of conferences and trade fairs on the business of the environment, taking place on March 26th - 28th in Vancouver, Canada. Close to 10,000 participants from more than 50 countries will converge for GLOBE 2014.
Nigel Topping, Executive Director of CDP, and Tom Carnac, President of CDP’s operations in North America, will be joining many other industry leaders and sustainability experts at GLOBE 2014 to share strategic insights, develop collaborative partnerships, and participate in more than 45 conference sessions and workshops dedicated to sustainability and enhancing corporate performance.
I invite you to download the GLOBE 2014 Conference Program and join us for what is shaping up to be another critical event for identifying the business opportunities around today’s greatest environmental challenges.