What are Cost Drivers of Sustainability Reporting for First Timers?

While some may still be wondering how long they can get away without reporting, others see this as an opportunity to leverage sunk costs, impress investors and drive performance improvement. All first time reporters who have discovered their own business case in reporting will be wondering about one thing: what are cost drivers of inaugural sustainability reporting? - Shortlink: http://wp.me/p27qSt-4v

Those who have discovered the business case of sustainability reporting have probably realized that they are half way there before they even started the reporting process. They see that, due to listing requirements, they have good governance and accountability structures in place. They also have accounting and human resources departments, policies and practices in place. ‘Tick off’ a bunch of GRI disclosure requirements and indicators. Many companies also have environmental, health & safety policies and management systems in place to support regulatory reporting and compliance, and support efforts aimed at continuous improvement. ‘Tick off’ a dozen or two additional GRI indicators. Add industry-wide stakeholder engagement initiatives, and company/project specific stakeholder engagement (well-developed in the extractive sector) and you have most – if not all - of the ingredients for a good inaugural sustainability report in place. However, this information and related context and stories are perhaps confined within departmental silos and disbursed throughout the reporting organization. Pulling this data together is typically not a major problem. This is perhaps why the IFC took out the vuvuzela in support of GRI reporting by its investees.

Major costs associated with sustainability reporting - especially in the extractive/mining sector - is already sunk cost. Most – if not all - the policies, activities, monitoring and stakeholder engagement, which provide an important platform for sustainability reporting, are already in place. The reporting part is thus largely a marginal cost item.

Perhaps this analogy is useful: sustainability reporting is like the top part of a floating iceberg: the visible part above the water line represents the smallest portion of the mass (in an iceberg it is about 1/8th and for reporting, this would be a much smaller proportion). Sadly, most organizations have generated the mass of data and activities needed - now floating largely invisible below the water line  - but have failed to leverage that investment to also generate their first sustainability report.

So what drives the costs of inaugural sustainability reporting? Below, I will touch on capacity building, GRI Application Level, credibility and assurance , and desk-top publishing and disclosure.

Some investment in training and capacity building is often a useful start for first time reporters. Options include attendance of “generic” GRI-certified courses which were conceived for report coordinators (see also here). These courses do not cover GRI’s technical protocols or sector supplements in any great detail. This is one of the reasons first time reporters often prefer to use experienced external consultants to coach them through their inaugural reporting process. Or they go through a couple of internal “mock reports” before finally getting up their courage to disclose their reports. The really worried types do both and - if in the mining sector - still pray to Saint Barbara, the saint of miners, when disclosing their first report.

Another cost driver is the selection of the so-called GRI Application Level. GRI requires that reporters should declare an Application Level (although about a quarter of GRI reporters chose not to do so). These are designated A, B or C with a “+” if part/all the report/data was externally assured (a hotly debated topic which I will not address in this blog entry). The Application Levels reflect coverage of the GRI reporting framework, such as approach to management discussion and analysis, and number of Performance Indicators reported on.

The Application Level declaration appears to be creating psychological barriers to reporting. For many, the use of A, B and C conjures up images of school grades. Imagine the challenge of approaching your CEO and requesting resources to generate a sustainability report which targets ‘only’ a ‘C,’ an entry-level advocated by GRI for first-time reporters (requiring only reporting of 10 Performance Indicators).

The approach to boost the credibility of inaugural reports can also become a cost driver. This is especially true if that approach is - in my view - mistakenly equated to applying external assurance. External assurance, typically provided by the "Big Four" accounting firms and a few other niche providers, can become a major cost driver. First time reporters, often not assurance ready, would be well advised to take a look at Teck, a mining and metals major, or other long-time reporters in their sectors. Teck is an early adopter of GRI’s sustainability reporting framework and has produced annual sustainability report since 2001. However, Teck only used an “External Review” (a limited form of assurance) in 2007. There are many better – and typically more cost-effective – ways to boost the credibility of inaugural sustainability reports. Acknowledging critical stakeholder voices and discussing challenges/failures in addition to including the obligatory picture of smiling school kids are among the most effective ones. And they are free of charge!

Other cost drivers include approach to report production, desk-top publishing and disclosure choices. Reporters will need to choose between “free” in-house drafting/editing and desk-top-publishing (and associated opportunity costs, urgency), and outsourcing. They will also need to consider if they want to invest in printing their reports or creating web-posted PDF report using recycled electrons.

Do these cost drivers resonate with you? Or have you come across more significant cost drivers for inaugural sustainability reporting which should be mentioned here?

About the author: Mehrdad Nazari is a Senior CSR, GRI & ESIA Advisor at PRIZMA. He has developed and delivered over a dozen GRI-certified training courses and boot camps on corporate responsibility and sustainability reporting (in addition to providing training on IFC Performance Standards and Equator Principles). Examples of Prizma's inaugural sustainability reporting assignments include Lucara Diamond, a new diamond producer with producing asset in Botswana, ScottsMiracle-Gro, the world’s leading provider of lawn products and services, Lundin Mining Corp, a mining company with operations across Europe and DR Congo, Red Back Mining, with operations in Mauritania and Ghana (acquired for some $7 billion by Kinross), and Gold Reserve Inc, an advanced development stage mining company involved in an international arbitration case with Venezuela. Prizma's is currently supporting Centerra Gold with its corporate responsibility reporting process.

19 Comments to What are Cost Drivers of Sustainability Reporting for First Timers?

  1. […] This post was mentioned on Twitter by FabianPattberg, Green Economy Post. Green Economy Post said: RT @FabianPattberg: Reading: What are Cost Drivers of Sustainability Reporting for First Timers? http://ow.ly/23ZhL […]

  2. Comment left on LinkenIn Group by Henrik Weinestedt, Intern / project manager at Suzlon Foundation, Suzlon Energy Limited, India:

    “Well written and very interesting! Working for an organization that is just coming out with a first report, I definitely recognized some of the issues that you mention, the biggest perhaps that people who aren’t very familiar with the application levels or have read a few reports immediately assume that an A+ level report is the best, and not realizing that publishing even small, C level GRI compliant report is a great step on the way.”

  3. Sean Takayoshi at Tech Go Green commented:

    “That was a very interesting read.

    So is external assurance not needed? Would the cost effective methods you mentioned be sufficient enough to make a sustainability report credible?”

  4. Jouko Kuisma, Independent Management Consulting Professional, commented on LinkedIn:

    “Thank you for an important article – I totally agree with what you say.

    Reporting and assurance costs are unfortunately not in linear relation to the size of the company. In my experience, the costs for a 100 million USD company can be almost the same as for a 10 billion USD company – depending of course in which sector and in how many countries those companies are active. Some costs can be saved by producing a web report and printing only a summary if needed for personal distribution.

    I recommend to all first time reporters that they mark down certain GRI indicators as cost-saving indicators (and some as competitive advantage indicators, if any). Counting also the financial savings from improvements in energy and material efficiency, waste management, transportation, sick days, disability pensions, employee turnover etc. will very soon prove that GRI reporting is a good tool for saving money and increasing profits. The CFO may not let you tell the exact amount as there are some uncertainties seen from the accounting point of view, but not being a CFO, I dare to say: GRI reports (or actually the work behind them) save money.”

  5. Jonathan A, Vice President Aboriginal Affairs & Sustainability at De Beers Canada Inc. commented on LinkedIn:

    “Thank you for this information. I want to share our experience. We produced our first ‘Report to Society’ for Canada using a “One Report” appraooch for 2008 at the beginning of 2009, and did not attempt to achieve any Assessment Level. 2008 was ouir srting date becuase this was the year our twon mines commenced production, and GRI really becaem aplicable. GRI does not fit exploration and construction phases veryeffective;ly. The report for 2009, released in 2010 was assessed by an external party as meeting the C+ requirement, but we did not have it externally verified. The obbjsective is to achieve a B+ for our report for 2010 next year. We will have this externally assessed, but not externally verified. The cost of exterrnal verification would be prohibitively expensive for us at this stage.As a private company, we see no real advantage in stretching to an A+ Assessment Level. This would fit in with our approach to continual improvement.

    We spent a couple of months doing homework before compiling the first report so that we could understand what was required. We also looked at quite a few other third party reports to see what everyone else was doing, and have had external reviews of our drafts that were very helpful. We produced the report in-house and sent the final version out for printing. Our biggest headaches have been sucking data out of our internal systems where currently we do not have a single effective repository for information and each department has its own data silo(s). We are addressing this so that we do not have to enter data more than once. The other issue was writing the report at a comprehension level that best met the requirements of our audience. This is something we are still wrestling with.

    Feedback from our communities of interest has been interesting. Most have complimented us on the increased transparency, regardless of whether they have good or bad feedback on other issues. We find this encouraging.

    Actual reporting costs were lower than we anticipated. Our senior management and board is pleased with the report and the feedback that it has produced, and we feel that it is a good investment and a sound foundation for a social licence to operate.”

  6. Henrik Weinestedt, Intern / project manager at Suzlon Foundation, Suzlon Energy Limited, India, contunued conversation on the GRI Group LinkedIn as follows:

    “Jonathan, very interesting. I think the issue of pinpointing and then making sure you reach out to your target group(s) is of the highest importance for the report to actually make an impact, and I wish GRI could provide some more guidance on this. Working for an Indian NPO publishing its first report, it’s been challenging to write it considering our most important stakeholder (in my opinion) would be the beneficiaries of our programs; semi-illiterate communities with a low insight into the corporate world. How do we go about communicating our performance – do we go to them in person, make executive summaries in their language, or some other way?”

  7. Jonathan A, Vice President Aboriginal Affairs & Sustainability at De Beers Canada Inc. responded on LinkedIn:

    “You raise an important point: it is essential in any stakeholder engagment, dialogue with communities of interest, that a thorough stakeholder mapping exercise be undertaken first, to identify both external and internal communities of interest. Once these are known, then an appropriate enggement plan can be drawn up, including the appropriate methods of delivering communications. Personally, I believe that this is fundamental to any community engagment or consultation process, and comes into play long before an organization even thinks about compiling information for GRI or any other reporting. We face similar opportunties to reach out to communities with low literacy levels. One way to reach them may be to also look to a bare-bones summary with very simple language and plenty of pictures and simple bar graphs to convey the key messges. Some of our communities have a strong oral tradtion, and we are also looking at how to deliver the summary information in a respectful oral manner to get the story across. It is not a simple matter, as you point out. I suspect that this is something each reporting organization will have to work out for itself, and there are thus great advantages in sites like this to allow an exchange of ideas – what has worked, what has not and what might – and to build on the “Wisdom of Crowds.” At the end of the day, surely the level of the key messages has to be appropriate to the audience and to the reporting organization. One size does not fit all..”

  8. And here is my comment:

    Thank you all for this conversation of practitioners.

    With regard to reaching specific (vulnerable?) stakeholders, such as the local communities/program beneficieries you mentioned above, I would like to add a note of caution. Just looking at external stakeholders, GRI-type reports are – by design (and increasingly so with GRI’s vision of integrated reporting) – much more targeted at/useful to “intermediaries” such as investors or NGOs. You may be interested to take a look at my blog which highlighted observations by a representative of First Peoples Worldwide during the GRI conference and launch of GRI’s Mining & Metals Sector Supplement. He noted that GRI reports are important but also that they are not designed with local communities as target audience in mind.

    See also my blog entry entitled “Are Sustainability Reports Designed for Local Communities?” which can be found here: http://prizmablog.com/2010/06/23/are-sustainability-reports-designed-for-local-communities/

  9. […] What are Cost Drivers of Sustainability Reporting for First Timers … […]

  10. Comments by Henrik Weinestedt,Intern / project manager at Suzlon Foundation, Suzlon Energy Limited, India – on LinkedIn group:

    “@Jonathan: One size definitely does not fit all, I think the only “general” modification we will do is translate the report into Hindi; our local implementation managers will communicate the rest. At the same time, I don’t think it’s a good idea to believe that sharing a report like this will have an impact, or even be interesting, to local communities in which you operate, or other stakeholders for that matter – at least in our communities, there are more important things to communicate, things that will have a definite impact on their lives.

    @Mehrdad: great link (that blog is a well of knowledge!). I agree that a sustainability report as an end product is definitely not written for the beneficiaries, but rather, as you mention, for the intermediaries. The best approach by far in my opinion in creating processes where all stakeholders are identified and their needs and expectations identified and considered through a comprehensive stakeholder dialogue framework. Developing one is a big task, but should definitely assure that a sustainability report contains something “for everyone”. “

  11. Comment by Graham Howe, Business Development Manager at Jurat Software, on LinkedIn:

    “These comments relate to issues that I see from a number of our partners – while we can help them to manage their stakeholder data many of them ask us for a stakeholder facing tool to help them engage – these tools, however, by their very nature, must be different for each group of stakeholders that you interface with, depending on their needs – I have seen everything ranging from sophisticated crowd-sourcing solutions for industry Canada down to individual consultants who can communicate on a solely verbal level with first nations communities
    I agree with the basic principals outlined – first, identify your stakeholders. Second – decide how you want to engage with them. Third – adopt the appropriate tools.
    Without these basic principals, CSR reporting becomes irrelevant, as Hendrik says, simply because it doesn’t address the concerns of the stakeholders”

  12. […] This post was Twitted by AnaloC […]

  13. […] without major cost implications. (You may also be interested in some of my previous blog entries: What are Cost Drivers of Sustainability Reporting for First Timers? and Has GRI Reached Glass Ceiling? and attached article Sustainability Reporting using GRI […]

  14. This blog entry made it to my Top 10 for 2010. Full list posted here

  15. […] In a recent article (Sustainability Reporting using GRI Lessons Learned Article Nov09), I examined some of these misperceptions and reporting barriers based on discussions with over 90 attendees of ten GRI-certified short courses delivered from January to July 2009 in Canada and the USA. The key concerns and confusions revolve around the sheer number of Performance Indicators, self declaration of Application Level and related GRI/Third Party Check options, and the concept of assurance (which will be subject of future blogs). There is also an undercurrent: what will all of this cost and will this create value for money for a reporter? To get a feel for this aspect, I would encourage you to read this blog entry: What are Cost Drivers of Sustainability Reporting for First Timers? […]

  16. […] What are Cost Drivers of Sustainability Reporting for First Timers? […]

  17. […] What are Cost Drivers of Sustainability Reporting for First Timers? […]

  18. Bruce McKean says:

    Merhdad:

    A good message…well done.

    A somewhat important typo: “Tech” should be “Teck” (I think they would appreciate it, especially as you had nice things to say about them.)

    Cheers

    Bruce

  19. Many thanks, Bruce, also for pointing out the typo (now corrected)!

Leave a Reply