When you read a financial report you can generally understand its main points even if you’re not an analyst or finance professional. This is mainly because these reports use a set of guidelines and rules (GAAP) and a uniform format that makes it easier to understand them even if financial statements are not your cup of tea. With sustainability reporting it’s a different story.
A sustainability report in its most basic form is a report about an organization’s environmental and social performance. Although sustainability reporting has become mainstream and more and more companies use a uniform set of guidelines (GRI), a casual reader might still have hard time understanding and assessing these reports. To help casual readers we provide 8 tips on what to expect and not to expect when entering the galaxy of sustainability reporting:
1. Length – Most companies have not adjusted yet to the age of twitter when it comes to sustainability reporting. As a result, 60-page or even 100-page reports are common. Don’t be impressed with the length – remember that in this case longer is not necessarily better. Try to focus on the parts you believe are material for the company or interest you personally.
Quick tip: If you don’t have the time or energy to read dozens of pages, look for the company’s CSR webpage for the report’s highlights.
2. Letter from the CEO – Even though this part is usually filled with praise for the company, don’t skip it. Actually, this is the first thing you should read in the report. Many times you will find this part is essential to understanding the report.
Quick tip: If you have the time, go and read the CEO letters in the company’s past reports – they will provide you with a great input on the direction of the company rather than just its current state.
3. Transparency (part 1) – No one is perfect, but companies seem to have a hard time accepting it. As a result, many sustainability reports still tend to emphasize the company’s achievements and ignore or marginalize its failures. In some cases, the explanations are no less important than the data – if a company reports a failure but provides a lame excuse about it, you might want to ask yourself what the company doesn’t want to share.
Quick tip: If the report includes nothing but achievements, something is wrong here.
4. Transparency (part 2) – Some companies not only don’t like to tell you about a failure to meet a target, but are also reluctant to share other stuff they don’t feel comfortable about, like a conflict with a group of stakeholders or an accident that causes substantial environmental damages.
Quick tip: If you suspect this is the case with the company you read about, just Google it and see what pops.
5. Materiality – Companies sometimes report more on topics they feel comfortable with instead of topics that are material for the company. In these cases it’s either that the company fails to understand CSR communication or just doesn’t want to share information because of performance issues or other reasons.
Quick tip: Look for a materiality analysis in the report. If there is one, it’s an indication of a professional approach, not to mention that it’s a great read.
6. Assurance – More companies recognize that a third-party verification enhances the credibility of their report. Yet, many companies, especially in North America, still don’t do it. To find out if a report has been audited by a third-party, go to the last page of the report, where you can usually find the information about the verification process, if there was any.
Quick tip: Another indicator is the report’s GRI grade. If it has “plus” in it (like B+), it means that the report (or some parts of it) has been audited.
7. Interest – Here’s a reality check: Although sustainability reports have a good reputation and they are often touted for the storytelling they include in an attempt to make them fun to read, most reports are quite boring. A growing number of companies make an effort to change that with interactive and more sophisticated platforms, but the majority of the reports are still far from being a page turner.
Quick tip: If you’re more interested in personal stories than in data check the company’s CSR blog.
8. Performance – To understand how well the company does from a sustainability point of view, check to see if it meets the goals it has set up for itself. That’s one check. The second is whether these goals and results are good enough. For example, does a 20 percent reduction in GHG emissions goal put it ahead or behind other companies? To answer this question you will need to conduct some further research, looking at competitors’ reports and other ratings. Still, there might be a chance you will end up with nothing more than a guestimation to answer this question.
Quick tip: Check out Deloitte’s Zero Impact Growth Monitor – if the company you’re looking at is one of the 65 companies they cover, you’ll have an answer to your question.
Raz Godelnik is the co-founder of Eco-Libris, a green company working to green up the book industry in the digital age. He is an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and the New School, teaching courses in green business, sustainable design and new product development.