Background

Many corporations have taken steps to respond to society’s environmental and health-based concerns regarding the products and processes of chemical, petroleum, pharmaceutical, and related companies. One such step is the publishing of corporate sustainability reports (CSRs) that detail what the companies are doing to address these and other issues. Read below to learn more about the evolution, successes, and shortcomings of these reports, where they appear to be headed, and what actions the Chemical Heritage Foundation has taken to document this history and bring this information to those who can use it.

 

 Evolution

Both the 2011 Fukushima nuclear meltdown in Japan and the 2010 Gulf of Mexico explosion of Transocean’s Deepwater Horizon rig (leased by BP) resulted in massive damages. The ongoing repercussions have provided these events with the distinction of being the worst nuclear disaster and the largest peacetime oil spill in the world, respectively.

Long before these industrial catastrophes, however, concern was already growing in North America and Europe that chemical, pharmaceutical, petroleum, and related companies were causing real or probable harm to the planet, to humans, and to other species. There was also increasing apprehension that the rapid growth of potentially harmful industrial processes, products, and wastes was possibly leading to crisis.

  • In 1962 Rachel Carson’s Silent Spring drew attention to persistent agricultural pesticides building to toxic levels that could be linked to damage to both animal species and human health. [1]
  • In 1984 a toxic chemical leak from Union Carbide’s plant in Bhopal, India, left thousands dead and hundreds of thousands injured.
  • In 1985 an Antarctic ozone hole caused by chlorofluorocarbons was discovered. [2]
  • In 2001 the U.N. Panel on Climate Change concluded that the global temperature was rising and that there was “new and stronger evidence that most of the warming observed over the last fifty years is attributable to human activities.”  [3]

Industrial disasters and alarming findings such as these have led to a critical issue: although society still demands the benefits from corporations’ products, such as chemicals, petroleum and other energy sources, and prescription drugs, a growing number of people are no longer willing to tolerate the often accompanying environmental and social exploitation for the sake of these benefits.

Rachel Carson’s publication of Silent Spring set the tone for the 1960s, as it marked the turning point in society’s understanding of the interconnections between the environment, the economy, and social well-being. Shortly afterward, Paul Ehrlich published The Population Bomb, [4] an account of the connection between human population, resource exploitation, and the environment. The Environmental Defense Fund formed to pursue legal solutions for environmental damage, and Friends of the Earth formed as an advocacy organization dedicated to the prevention of environmental degradation, the preservation of diversity, and the role of citizens in decision making. In 1969 the U.S. National Environmental Policy Act established a national legislative framework to protect the environment and set the basis for environmental-impact assessment around the world. [5]

Reassuring shareholders and the public about the efforts companies made to address these issues gave rise to a new business imperative. Forward-thinking companies started communicating both their awareness of the problem and the expenditures they were making in developing and implementing solutions. In 1965, issue no. 28 in the “This Is Du Pont” series was published: the title was Clean Air and Water in a Complex Society. [6] The issue emphasized that industry alone could not solve the world’s problems and concluded that “there is hope that continued hard work and good faith on the part of both industry and the community will provide the kind of environment which can be surveyed with pride and enjoyment while sustaining a flourishing industrial economy.” In many ways issue no. 28 serves as a precursor to what is now known as the corporate sustainability report.

In 1987 the World Commission on Environment and Development popularized the term sustainable development in Our Common Future [7] (the Brundtland Report). Sustainable development was defined as “development which meets the needs of the present without compromising the ability of future generations to meet their own needs.” In 1992 the Earth Summit was organized in Rio de Janeiro to reach agreement on an action plan, and in 1993 the first meeting of the U.N. Commission on Sustainable Development was held. 

At the time, companies published corporate annual (financial) reports, which are a standardized method of reporting assets, liabilities, risks, profits, and losses. In the United States the format is that required by the Securities and Exchange Commission’s “Generally Accepted Accounting Principles,” while the European Union uses the “International Financial Reporting Standards.” Since all reports were in a similar format, Wall Street and individual investors could compare companies and decide in which it would be prudent to invest.

However, in the early 1990s, as a result of U.N. activity, multinational companies started either including nonfinancial information in annual reports or publishing separate reports covering nonfinancial areas. [8]  These first appeared as safety, health, and environmental (SHE) reports, [9] although this scope broadened to social responsibility and some companies issued corporate social responsibility reports. [10]  Now all these reports are generally known as corporate sustainability reports, or CSRs. Corporate sustainability reporting together with financial reporting or combined with financial reporting is known as triple bottom-line reporting [11] or integrated reporting. [12]

In1999 the Dow Jones Sustainability Indexes group was launched, giving more credibility to companies and funds with a sustainability perspective. [13] By 2002, after five years of multi-stakeholder consensus building, the Global Reporting Initiative (GRI) released reporting guidelines for corporate sustainability reports. These guidelines are widely used and are developing as the standard. [14]   

Many companies recognize GRI but are not consistent in their reporting formats or methods. BASF, for example, issues a fully integrated financial and sustainability report both on the web and in print. Dow issues annual Global Reporting Initiative reports on the web only, but no printed copies are produced as part of their sustainability program. Merck publishes a corporate responsibility report separate from its financial report, both on the web and in print. All have sustainability highlighted on their corporate website and interactive sustainability modules. These modules allow interested readers to pursue just the parts of the report relevant to them.

1 ^  Rachel Carson, Silent Spring, 40th ed. (New York: Houghton Mifflin, 2002).
2 ^  J. C. Farman, B. G. Gardiner, and J. D. Shanklin, “Large Losses of Total Ozone in Antarctica Reveal Seasonal ClOx/NOx Interaction,” Nature 315 (May 16, 1985), 207–210.
3 ^ “Climate Change 2001: The Scientific Basis,” Summary for Policymakers, Intergovernmental Panel on Climate Change; available at  www.grida.no/publications/other/ipcc_tar/?src=/climate/ipcc_tar/wg1/007.htm
4 ^ Paul R. Ehrlich, The Population Bomb (New York: Ballantine, 1968).
5 ^ The Sustainable Development Timeline, 4th ed. (Winnipeg, Manitoba: International Institute for Sustainable Development, 2006).
6 ^ Clean Air and Water in a Complex Society; This Is Du Pont series, no.28 (Wilmington, DE: E. I. Du Pont de Nemours & Company, 1965).
7 ^ Gro Harlem Brundtland, Chairman, World Commission on Environment and Development, Our Common Future (Oxford: Oxford University Press, 1987).
8 ^ J. E. Morhardt,  Clean, Green and Read All Over: Ten Rules for Effective Corporate Environmental and Sustainability Reporting (Milwaukee, WI: ASQ Quality Press, 2002).
9 ^ Hess Corporation Environment, Health, Safety and Social Responsibility 2005 Report; available at www.hess.com/sustainability/environment/2005.pdf (accessed August 8, 2006).
10 ^ Marathon 2008 Corporate Social Responsibility Report: Living Our Values (Houston, TX: Marathon Oil Company, 2009).
11 ^ John Elkington, Cannibals with Forks: The Triple Bottom Line of 21st Century Business (Oxford: Capstone, 1997).
12 ^ R. G. Eccles and M. O. Krzus, One Report, Integrated Reporting for a Sustainable Strategy (Hoboken, NJ: John Wiley, 2010)
13 ^ C. O. Holliday, Jr., S. Schmidheiny, and P. Watts, Walking the Talk: The Business Case for Sustainable Development (San Francisco: Greenleaf, 2002).
14 ^  “GRI Launches Its Year in Review 2010/11,” Global Reporting Initiative; available at www.globalreporting.org/information/news-and press-center/Pages/GRI-launches-its-Year-in-Review (accessed January 24, 2012).

 Assessing the successes and failures of CSRs

Successes

The process of writing a good corporate sustainability report requires a corporation to assess all aspects of its organization (its people, end and waste products, energy and water use, etc.). Having to study and measure, where possible, through the sustainability lens provides an opportunity for employees and management to reassess and find better ways to operate. For example,

  • In their initial 10-year (1996–2006) sustainability-reporting span, Dow reported savings of $5 billion U.S. dollars in bottom-line costs. [15]
  • Since 2007 P&G has reduced its disposable waste by 30% through their Global Asset Recovery Purchases (GARP) program. In 2010 P&G diverted tens of thousands of tons from landfills and delivered tens of millions of dollars in cost recovery back to the company by selling or donating materials to others able to reuse them. [16]
  • In 2010 DuPont saved $175,000 by using a water-treatment technology developed for them by GE, nearly doubling their system efficiency and allowing the company to reduce by 20 percent the water used during a cooling phase. DuPont’s goal is a 30% reduction in fresh-water consumption over the next 10 years, specifically for sites that have a scarce or limited supply. [17]
15 ^ G. Stack, “Dow Measures Up,” The Natural Step, March 30, 2010; available at  www.thenaturalstep.org/en/print/en/usa/dow-measures (accessed April 2, 2010).
16 ^ R. P. Siegel, “P&G Program Finds Purpose and Value in What Had Formerly Been Scrap,” Triple Pundit, March 15, 2010; available at www.triplepundit.com/2010/03/pg-global-asset-recovery-purchases/ (accessed March 16, 2010).
17 ^ Tiffany Finley, “Water Efficiencies Rise to Top of Industrial Agenda,” Triple Pundit, May 16, 2011; available at www.triplepundit.com/2011/05/water-efficiencies-rise-top-industrial-agenda (accessed May 17, 2011).

Shortcomings 

One shortcoming of many of these reports is the focus on short-term, efficiency-based metrics. Lost in these details is a company’s overall strategy of moving toward more sustainable practices whether through non-depleting resources and feedstocks or greater concern about cradle-to-grave or cradle-to-cradle processing. While many of the corporations that issue CSRs are working toward these goals, the CSR format does not mandate this broader thinking about what it means to run a truly sustainable company.

For example, there is a general lack of acknowledgment by most energy and related companies that they are dependent on limited supplies of fossil fuels and water. In this century energy suppliers should be supplementing and eventually replacing dwindling and more difficult-to-extract fuels, such as petroleum, natural gas, and coal, with wind, solar, and other alternative-energy sources. Many company reports, however, seem to reflect business as usual, with negligible investment in developing such alternative-energy sources.

Another shortcoming of many reports is their general failure to address the unintended and unforeseen consequences of their processes and products. In the biotechnology field, for example, genetically modified organisms (GMOs) may either be the answer to inevitable food shortages among the world’s burgeoning population or a dangerous experiment with food supply and health throughout America and the developing world. [18] (Products such as GMO corn, ubiquitous in the United States, are not currently allowed in the European Union.) Nanoparticles are used in literally hundreds of products on supermarket shelves, but as with GMOs, they are unlabeled and their long-term effects are unknown. [19] These subjects are not addressed, and, therefore, those reports are not truly transparent and do not allow consumers and investors to make informed decisions based on potential risks.

18 ^ Jeffrey Smith, “Ten Reasons to Say No to GMOs,” in Spilling the Beans Newsletter, August 25, 2011; available at www.responsibletechnology.org/blog/1619 (accessed  September 30, 2011).
19 ^ Michael Passoff,  “Yes or NO on Nanoparticles in Food,” Triple Pundit, April 12, 2011; available at www.triplepundit,com/2011/04/nanoparticles-food/ (accessed April 21, 2011)

 Future

Corporate sustainability reports and corporate sustainability officers [20] have become part of the everyday functioning of major companies. As a result of global warming and the economic meltdown, this trend has expanded far beyond the chemical, petroleum, and pharmaceutical industries; currently, all types of companies around the world work toward greener, more transparent documented sustainability efforts. [21

Preparing reports has allowed companies to understand where they can operate more sustainably and competitively. Today, these reports are a crucial piece of internal governance as well as a form of external audit by watchdog groups and investors alike. They are also an excellent communication tool when prepared and publicized properly.

However, four big challenges remain: [22] 1) how to quantify (or develop metrics for) the nonfinancial (environmental and social) aspects of each corporation; 2) how to standardize nonfinancial reporting in the same manner as financial reporting; 3) how to integrate the two so that corporations are evaluated by their total value; and 4) how to communicate the information so it is distributed effectively.

According to Eric Dziedzic, corporate responsibility director at Merck, today’s reports are reaching intended audiences but are not reaching everyone who should be targeted. He believes there is a much larger audience beyond socially aware investors that can be reached through social-media efforts. Social media allows for real-time distribution of the information, but the challenge will be that the corporation is no longer in control of the conversation. Dziedzic believes this shift must be undertaken with eyes wide open. [23]

20 ^ Andrea Newell, “Weinreb Group Report: The Rise of the Chief Sustainability Office (CSO),” Triple Pundit, September 28, 2011; available at www.triplepundit.com/2011/09/weinreb-group-report-rise-chief-sustainability-officer-cso/  (accessed February 12, 2011).
21 ^ “Special Report: Corporate Social Responsibility: Just Good Business,” The Economist, January 19, 2008; available at http://www.economist.com/node/10491077?story_id=10491077  (accessed April 17, 2012).
22 ^ KPMG International  Survey of Corporate Responsibility Reporting 2011 (pub. no. 110973), November 2011; available at http://www.kpmg.com/global/en/issuesandinsights/articlespublications/
corporate-responsibility/pages/2011-survey.aspx
(accessed March 19, 2012).
23 ^ Eric Dziedzic, interview with Jeni Bauser, Ethical Corporation’s New York correspondent, about how reporting is evolving in 2011, podcast http://www.ethicalcorp.com/content.asp?ContentID=7401 (accessed  May 19, 2011)

 Bringing this history to those who can use it

CHF began studying the evolution of corporate sustainability reporting in 2005 to document the various ways this information is reported, to see whether standards were being developed, and to ascertain whether anyone else was studying this issue. [24] The result of this work is a snapshot of 20 years during which voluntary sustainability reporting transforms from an inconsistent, novel approach for assessing a company’s sustainability activities to a state of increased standardization and acceptance.

More than 60 chemical, petroleum, and pharmaceutical company CSRs were collected, both electronically and through hard copies solicited from companies to add to our archives. In addition, background, publications, and current activities have been documented for approximately a hundred institutions with an interest in this area. CHF is interested in providing public access to this information, and the site will be updated periodically.

24 ^ “Corporate Storytelling: Non-Financial Accounting Is Now Too Serious to Be Left to Amateurs,” The Economist, November 4, 2004; available at www.economist.com/PrinterFriendly.cfm?Story_ID=3353315  (accessed November 4, 2005).