Going through the 84 pages of “Future at Heart”, Target’s 2018 corporate responsibility report (CSR), I had hard time understanding if Target is doing a good job addressing its environmental and social impacts. It’s clear that the company is making progress, but is it good enough? After giving it some more thought, I realized that I need to frame my question differently:
How might sustainability reports provide clarity on how companies address their social and environmental impacts, and at the same time can be read in 30 seconds and understood by 5-year-olds?
Let me explain.
Sustainability reporting (aka corporate responsibility or CSR reporting) represents (almost) everything that is wrong with sustainability-as-usual – these long and complex reports celebrate all sorts of progress, without giving the reader any clear indication if the progress described in the report is good enough. This is partially because there is no clear benchmark for ‘good enough’, and partially because of an incrementalist mindset dominating the sustainability-as-usual sandbox. Add to it reporting formats that change from company to company and thus make it almost impossible to compare companies, even when they are grounded in the same reporting standards, and you end up with reports that very few read and even fewer can make sense of. The frustration around sustainability reporting is echoed in quotes provided on NBS’s Sustainability Reporting Research report, which was published last October:
“We publish a lot of environmental data in the annual report and something that came out of the [stakeholder] interviews was that that data don’t really mean anything to anyone. To some it was just a list of numbers, it doesn’t really tell a story.” – Sustainability Manager from an Air Transport Company
“If you want people engaged, if you want them motivated, if you want their buy-in, you need to show numbers but you also need to be able to tell the story in a very sophisticated but also a very brief way. People don’t have time to read now.” – Industry Body Stakeholder from a Consumer Packaged Foods Company
So what do we do about it? As detailed in my last article I believe that we need to create a new sandbox, moving away from a sustainability-as-usual mindset. The new sandbox will look among other things to radically change how we think about sustainability reporting. There are of course already efforts to fix reporting, but they’re mostly taking place within the current sandbox (with the exception of the Reporting 3.0 initiative) and thus are limited by nature. The urgency that is at the heart of the new sandbox requires a different type of approach, one that creates more engagement and accountability and allows us to differentiate between ‘good’ and ‘bad’ companies. To do so we need to consider the following: What do we want from companies, what benchmarks they should use, and how their progress (or lack of it) should be communicated.
What do we want from companies?
I’ll go into the specifics of this question in more detail in another article, but for now let me put it this way – in the new sandbox we should expect every company to do the following:
1) Take climate change seriously and respond with urgency.
2) Treat stakeholders responsibly.
These two components represent a clear set of priorities, addressing “the single greatest crisis the planet has ever faced”, i.e. climate change, while paying close attention to companies’ relationships with their stakeholders at the same time. They are also grounded in the understanding that no trade-off is allowed – you can’t treat your employees poorly or ignore the needs of your community while fighting climate change.
1) The benchmark for responding to climate change should be the Paris agreement goals (“Holding the increase in the global average temperature to well below 2 °C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 °C above pre-industrial levels”). Every company should adhere to it.
Measurement tool: In order to assess the implementation of the Paris Agreement I suggest to use the Science Based Targets initiative (SBTi), which is a collaboration of a number of respected environmental organizations, providing companies with “a credible pathway in line with the goals of the Paris Agreement.” SBTi offers a credible, science-based roadmap for companies interested in adopting the Paris Agreement goals, which includes three steps:
1) Signing a commitment letter indicating that the company will work to set a science-based emission reduction target.
2) Developing a target – once the company has signed the commitment letter it will have up to 24 months to develop a science-based target.
3) Submitting the company’s target for validation with the SBTi.
So far 440 companies have been working with the initiative, including 122 companies that their science-based targets were already been approved. It is also important to note that SBTi doesn’t offer a ‘one solution fits all’ approach – it’s rigorous, science-based process offers companies multiple approaches to target setting, assuming that “some methods will be more suitable for certain companies/sectors than others.”
2) Finding a clear benchmark for treating stakeholders responsibly is far more complex. There are different frameworks that can be considered, such as the UN Sustainable Development Goals (SDGs), which are valuable but are not necessarily the best fit for a simple and clear benchmarking.
I’m not sure I have the best answer (happy to receive your feedback!), but for now I believe the B Corp certification should be used at minimum as a benchmark, reflecting the notion that “B Corporations are businesses that meet the highest standards of verified social and environmental performance” as well as the fact that this has become a leading platform enabling companies to balance purpose and profit. I don’t suggest that every company will have to become a certified B Corp, (although that would be a plus!), but that every company should meet the minimum required of every company interested in the certification – a score of over 80 points on the B Impact Assessment.
Measurement tool: The B Impact Assessment (BIA) is “a free online platform to evaluate your company’s impact on your workers, community, environment, and customers.” It includes between 50-150 questions covering five areas: Workers (compensation, benefits, work environment, employee ownership, etc.), Community (suppliers, diversity, charity work, etc.), Customers (direct impact of products/services, targeting underserved communities, etc.), Environment (energy use, facilities, etc.), and Governance (transparency, ownership). “The Assessment is scored out of 200 possible points. The weightings of each question and section depend upon the specific “Assessment track” — determined by industry, size, and geography — of the business taking the Assessment,” the B Labs’ website explains.
While this may not be the perfect tool (for example, there’s still more work to be done on how multinationals and public companies can use it), it still has many advantages in providing a clear understanding of how responsibly company treats its stakeholders (including the environment). As you can read from the experience of companies such as Patagonia, Ben & Jerry’s and Danone North America, this tool helps companies to better understand where they stand in comparison to other companies and how effective are different strategies or programs they apply. Used already by more than 40,000 companies, this tool is as comprehensive as many other tools, but at the same time is able to generate an easy-to-understand bottom line, i.e. a score that can make sense of so much qualitative and quantitative data companies include in their reports.
How to communicate progress?
This is a critical component, reflecting the overall difficulty of sustainability reporting to communicate sustainability data in an engaging way. Assuming the current lengthy, complex reports don’t do such a great job as an effective communication tool, providing all stakeholders with clarity about the companies’ sustainability performance we should consider using a new approach.
This approach should be first and foremost user-friendly. I would like to make it as simple and easy as possible, something along the lines of what Robin Chase, cofounder of Zipcar, had in mind when she imagined the Zipcar experience – “Zipcar’s goal was to make renting a car as easy and convenient as getting cash from an ATM,” she writes in her book “Peers Inc”. Inspired also by Bill Burnett and Dave Evans’s “Designing Your Life” idea of using a Work/Play/Love/Health dashboard as a visual self-evaluation tool, I thought that the goal should be to make reading and understanding a sustainability report as simple as reading a fuel gauge.
My suggestion therefore is that companies will report on their progress using a dashboard with two gauges, one for their climate change response and the other for their stakeholder relationships. These gauges provide an intuitive sense of how well companies are doing with each goal. See below the proposed gauge for each goal.
While this is just a very preliminary proposal and the different levels on each gauge can be reconsidered, these gauges can provide us with clarity that is nowhere to be found in today’s reports. For example, On Target’s report you can find the following update: “While we are implementing projects in our owned brand manufacturing facilities that will result in the avoidance of Scope 3 emissions, within the year, we aim to develop an additional Scope 3 goal that, coupled with our Scope 1 and 2 goals, will fulfill our commitment to the Science-Based Targets initiative.” (p. 25). With a little bit of detective work on the SBTi website I understood that Target went through step #1 of the SBTi process last October, i.e. providing a commitment letter. As a result Target’s climate change gauge will show it is one-eighth full.
Using this dashboard also makes it easy to compare companies’ performance. Take for example, Yum! Brands’ new report (72 pages), in which the company, which operates brands such as KFC, Pizza Hut and Taco Bell, reveals that it will “reduce average restaurant energy and GHG emissions by an additional 10 percent by the end of 2025.” The company, however, does not take action with the SBTi, which means it does not work to meet the Paris Agreement goals. Therefore its climate change gauge will show empty. One may argue that it is not fair to say the company is not doing anything about climate change because it does something. However, I would argue that any response to climate change that does not adhere to the Paris Agreement Goals is just unacceptable in 2018, and is equivalent to doing nothing. The dashboard reflects it, showing that the company is not taking climate change threats as seriously as it should.
An important question is what should be the threshold for ‘good enough’ in these gauges? While this is open for debate, I would suggest that ‘half-full’ on the gauges, i.e. targets, are validated by the SBTi on the climate change gauge and achieving a score of at least 80 points on the B Impact assessment, should be the minimum for performance to be considered as ‘good enough’. In the case of Target and Yum Brands we can learn from their dashboards that both companies currently don’t do enough about climate change. We can also learn that while both companies are still far from the ‘good enough’ threshold Target is currently doing a better job than Yum.
I want to be clear that the lengthy, complex sustainability reports companies produce now may still have a role in the future, even with the suggested dashboard in place, perhaps similar to the annual Form 10-K required by the U.S. Securities and Exchange Commission (SEC). However, this can’t and shouldn’t be the main way companies report to their stakeholders on their efforts to address their social and environmental impacts.
“We shape our tools and afterwards our tools shape us” – this quote that is attributed to Marshall McLuhan can be easily applied to sustainability in business. The current sustainability reporting is one of the tools shaping the sustainability-as-usual sandbox. Moving out of this sandbox requires us to think of new reporting tools, such as the reporting dashboard that can shape a new sandbox, where urgency, engagement, accountability and responsibility are clear and don’t get lost in never-ending reports.