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.
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).
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]
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).
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)
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).