triple bottom line measurement and reporting in australia: making

T R I P L E B O T T O M L I N EM E A S U R E M E N T A N DREPORTING IN AUSTRALIA

Making i t Tangible

Dahle Suggett and Ben Goodsir

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This study was funded by:

Prime Minister’s Community Business Partnership

Suite 2, Level 12

3 Spring Street

Sydney NSW 2000

Website: www.partnership.zip.com.au

Department of Industry, Tourism and Resources

20 Allara Street

Canberra ACT 2601

Website: www.industry.gov.au

This study was prepared by:

The Allen Consulting Group

Level 4, 128 Exhibition Street

Melbourne VIC 3000

Website: www.allenconsult.com.au

ISBN: 0-9578337-2-5

Environment Australia

John Gorton Building

King Edward Terrace

Parkes ACT 2600

Website: www.ea.gov.au

Cisco Systems

80 Pacific Highway

North Sydney, NSW 2060

Website: www.cisco.com.au

© Commonwealth of Australia 2002

Information presented in this document may be reproduced in whole or in part for study or training purposes or to provide wider dissemination for publicresponse, subject to inclusion of acknowledgment of the source and provided no commercial usage or sale of the material occurs. Reproduction for purposesother than those given above requires written permission from Prime Minister’s Community Business Partnership, Environment Australia, and Department ofIndustry, Tourism and Resources.

Disclaimer

The views and opinions expressed in this publication are those of the authors and do not necessarily reflect those of the Commonwealth.While reasonable efforts have been made to ensure that the contents of this publication are factually correct, the Commonwealth does not accept responsi-bility for the accuracy or completeness of the contents, and shall not be liable for any loss or damage that may be occasioned directly or indirectly through theuse of, or reliance on, the contents of this publication.Reference to any company, product or service in this booklet should not be taken as Commonwealth endorsement of that company, product or service.

Design and printing by DPA – Document Printing Australia www.dpa.com.au

Triple Bottom Line Measurement and Reporting in Australia: Making it Tangible

This project was funded and supported by a range of public-sector departments

and private-sector organisations, with the Prime Minister’s Community

Business Partnership as the main sponsor. Its purpose was to explore current

strands of thought and action in Australian companies about triple bottom line

measurement and reporting, and to document existing and emerging practices.

An international perspective was also included with input from companies in the

United Kingdom.

The project sought to draw on the everyday experience of companies and

record their sense of priorities, benefits and challenges. We did not necessarily

want the study to mount a case for adopting triple bottom line reporting, rather to

portray companies’ thinking and experiences so more companies could develop a

critical understanding of the questions to be considered and the business benefits

to be gained.

The Prime Minister’s Community Business Partnership, in particular, has an

objective to encourage strong and active collaboration between the community

and business sectors to achieve mutual goals, develop creative solutions to region-

al and local problems, and to strengthen community ties. In exploring business

practices in triple bottom line measurement and reporting we were able to take a

further step towards that goal.

The project partners were:

• The Prime Minister’s Community Business Partnership, Commonwealth

Government: Geraldine Skinner and Amanda Steele;

• Environment Australia, Commonwealth Government: Judith Kendrick; David

Saywell; Alex Fearnside; and Anne Close;

• Department of Industry, Tourism and Resources, Commonwealth Government:

Bob Bennett; Andrew Harvey; and Jo Arnold;

• Cisco Systems: Kip Cole and Katherine Baddeley;

• The Business Council of Australia: Steven Munchenberg;

• Shell Australia: John Simpson;

• The Body Shop: Chris Childs;

• Westpac Investment Management: Shaun Mays.

The Allen Consulting Group undertook the research led by Dahle Suggett, with

Ben Goodsir, Dr Steve Hadfield Dodds, Troy Hey and Dr Sasha Courville.

On behalf of the project partners, I wish to thank the many executives from

Australian and British companies and organisations who contributed their

thoughts, time and resources to assisting in this project.

Geraldine Skinner

Chief Executive Officer

Community Business Partnership

Foreword

iii

Foreword iii

Index of Companies vii

Executive Summary viii

Chapter One

Definitions, Context and Drivers 1

Introduction 2

Triple bottom line defined 2

How triple bottom line works 6

Reshaping business priorities: Drivers of change 9

Conclusion 16

Chapter Two

Triple Bottom Line: A Work in Progress 17

Introduction 18

The current foundations 18

Taking the next steps 19

Evolution of reporting 21

‘Wait and see’ 22

Packaging information for ‘community right to know’ 26

Stakeholder alignment as the starting point 30

Guided by sustainability principles 37

Culturally and philosophically driven operations 45

Conclusion 48

Chapter Three

Indicators and Assessment 51

Introduction 52

Performance indicators 52

Environmental indicators 54

Social indicators 63

Economic indicators 79

Partnering with third parties and disclosure 82

Conclusion 84

Table of Contents

v

Chapter Four

Determining The Value 85

Introduction 86

Benefits: Looking for the value added 86

Measuring benefits 91

Challenges to implementation 93

Management improvement versus external accountability 93

Off-the-shelf indicators versus company- or sector-‘owned’ indicators 96

Global or national versus local reporting 97

Benchmarks versus snapshots 100

Conclusion 101

Chapter Five

Conclusion: Strategies for Achieving Greater Clarity 103

Introduction 104

Role of government 104

Meeting interest group and consumer needs 105

Relationship with industry associations and codes of practice 106

Conclusion 107

Appendix A

Research Methodology 108

Consultation List 110

Other Organisations Cited in the Document 112

Forums Where Triple Bottom Line Issues Have Been Explored 112

Appendix B

Standards, Guidelines and Other Useful Resource Material 113

Table of Contents (continued)

vi


Chapter Two

AMP Ltd

ANZ Banking Group Ltd

AXA Asia Pacific

British Airports Corporation

Commonwealth Bank of Australia

Co-operative Bank UK

Foster’s Brewing Group Ltd

Leighton Holdings Ltd

Medibank Private Ltd

MIM Holding Ltd

Orica Ltd

Qantas Airways Ltd

Rio Tinto Ltd

Shell International Ltd

Telstra Corporation Ltd

The Body Shop

Unilever plc

Visy Industries

Wesfarmers Ltd

WestpacBanking Corporation

WMC Resources Limited

Woolworths Ltd

Chapter Three

Alcoa World Alumina Australia

BP Australia Ltd


Diageo


Normandy Mining Ltd

Orica Ltd

Rio Tinto Ltd

Telstra Corporation Ltd

The Body Shop

Unilever plc

Visy Industries

Wesfarmers Ltd



Chapter Four

AMP Ltd

BHP Billiton Ltd

British Airports Corporation

Cable and Wireless Optus

Commonwealth Bank of Australia



Henry Walker Eltin Group Ltd

Incitec Ltd

Normandy Mining Ltd

Rio Tinto Ltd

Shell Australia Ltd

Unilever plc

Visy Industries

Wesfarmers Ltd



Index of Companies

vii


Transparency and accountability for economic, environmental and social cor-

porate performance are the core notions embedded in the triple bottom line.

While relatively few companies formally issue triple bottom line reports in

Australia, a groundswell of interest is now evident across Australian business. The

next few years will see a increase in business planning and reporting to take

account of this new sense of accountability – although practices will vary widely

according to the sector and context of the company.

This research examined the views and practices of 29 Australian companies

and seven overseas companies, as well as consulted with a range of industry bodies

and non-government organisations. An important objective was to look behind

the ‘big ideas’ to illustrate current practices for measuring and reporting corporate

performance and to explain the benefits and challenges that companies identify.

Care was taken to avoid a didactic approach to how corporations should or should

not behave. Instead, the focus has been on understanding the business logic for

companies’ practices. This enables other companies to benchmark their experi-

ence and identify tangible options for adoption. It also enables government and

other interested corporate stakeholders to better understand the business ratio-

nale and see where they might work with companies.

Triple bottom line has clearly caught the imagination of many companies

and others in the community. Triple bottom line, a phrase coined in the 1980s,

encapsulates the three major dimensions of sustainability – economic, social and

environmental – and proposes that a company’s performance and impact can and

should be measured and communicated to stakeholders. Many companies are

searching for ways to understand the boundaries of their non-market accountabil-

ities and responsibilities and to engage with those stakeholders that matter to their

business. Triple bottom line presents one approach for companies to consider.

Core characteristics

The core characteristics that companies display when embracing triple bottom

line are: accepting accountability and being transparent — probably the most

powerful ideas embodied in the triple bottom line and fundemental to good gover-

nance; integrated planning and operations where a company’s contributions

to economic prosperity, environmental quality and social well-being are reflected

in strategic planning and management systems; a commitment to stakeholder

engagement; and multi-dimensional measurement and reporting.

In practice, companies indicate that there is no ‘right way’ to identify, measure

and report on non-financial inputs or outcomes. Moreover, businesses prefer

approaches that grow out of their own priorities and commercial logic. Some

companies incorporate elements of internationally recognised reporting frame-

works such as the Global Reporting Initiative, The Institute of Social and Ethical

Accountability’s standard and others listed in Appendix B.

Groundswell of interestbut few public reports to date

Study portrays thebusiness logic thatunderpins companies’approaches to triplebottom line

Three major dimensions of sustainability

Characteristics:accountability,transparency, integratedplanning and operations,stakeholder engagement,multi-dimensionalmeasurement and reporting

No ‘right way’: not aprecise measurementtechnology

Executive Summary

viii


The motivation for greater company transparency and accountability is con-

siderable. Companies throughout the world are experiencing unprecedented

challenges. Forces are reshaping the context for business success as companies

face increased global competition and the imperative of adapting to technological

change. The pursuit of sustainable development – meeting the needs of the pre-

sent without compromising the ability of future generations to meet their own

needs – is endorsed by the Business Council of Australia as an important, legiti-

mate and fundamental aspect of business responsibilities. As business structures

and activities in the post-industrial era will barely resemble those of earlier peri-

ods, so too will business responsibilities and accountabilities be transformed.

Against this background, there are more immediate pressures that focus atten-

tion on the nature and quality of the relationship between business and society at

large. Simply put, companies are now asked by many more stakeholders for infor-

mation about their impacts on the environment, the economy and the society, and

to attest to the ethical conduct and sound governance of their business.

Companies are faced with deciding whether to resist these questions, or respond

with available data, or whether to seize the opportunity to gain deeper insight into

the impact of their own practices, as well as to become truly transparent and

accountable.

Triple bottom line measuring and reporting: a work in progress

Five broad categories capture the current diverse state of play in performance

measurement and reporting in Australia. (Some British companies were also

included to illustrate the additional dimensions that will probably develop in

Australian companies over the next few years.) All these practices are valid and the

categories are not judgemental. The five categories are more to show the varied

business rationales and interpretation of community expectations for triple

bottom line measuring and reporting.

1. ‘Wait and see’ is the category where companies are satisfied with their

present approaches to communication and accountability, such as Fosters and

Woolworths. Either a change is not a business priority and ‘not on the radar’,

or there is a sense of potential benefit, but it is far too early to proceed without

understanding more about the context and the directions for the rest of business.

2. Other companies make a commitment to their stakeholders to be open and

transparent, observing ‘the community right to know’ principle and endorsing

the notion of greater accountability to the community for their performance.

To meet this commitment they assemble and ‘package’ internal information for

an external audience. This information reveals the standards they seek to meet,

how well they perform against those standards and a description of their activ-

ities. Some companies in this area are international leaders in environmental

reporting such as Wesfarmers and Orica. They continue to develop their data

collection, reporting and verification approaches, but do not see that a change

in approach to embrace social or economic dimensions to the same extent

would necessarily yield additional business benefits.

Unprecedented challengesin a globally competitiveenvironment

Choices for Australian companies:resist community pressure or benefit from transparency

Five main categories ofcompanies: ‘wait and see’,packaging information for ’community right to know’, stakeholderalignment, endorsing coreprinciples and a holisticcultural perspective

ix


3. A few companies have ‘started from scratch’ and systematically seek alignment

between stakeholders’ expectations and corporate strategy. This approach

requires establishing new management systems and is a long and often

resource-intensive approach. WMC is an example of a company that seeks to

continue to develop in this direction and a number of other companies have

embarked on the first steps, such as Westpac, and others are poised to go down

this track, such as ANZ.

4. A few companies, mostly international, such as Rio Tinto and Shell, shape their

response to stakeholder expectations into principles that guide their business

activity: sustainability principles or partnership principles for example. This

approach is directed at embedding these principles into management practices

– again an intense and, for some, a problematic journey. AMP has recently initi-

ated processes to proceed in this direction.

5. Finally, some companies, mostly in private ownership, define their business

purpose and their commitment to sustainability values and accountability as

fully integrated – their business success depends on this cultural perspective.

The Body Shop is the often-quoted example and the Co–operative Bank in the

United Kingdom, but also Visy Industries in Australia embraces this holistic

approach.

Developing indicators and assessment

Developing high-quality indicators is an enormous challenge, and there is no

one easy or correct way to develop and report them. While some companies

are successfully adopting the Global Reporting Initiative and other frameworks,

others take a more eclectic approach where they review indicators used by other

companies and adopt the most appropriate from various sources.

In general, companies develop indicators that are most relevant to the issues

they face and the concerns of key stakeholders, but, perhaps more importantly,

they are choosing indicators that are useful for informing strategic decisions with-

in the business – the extent to which environmental and social factors are

integrated into management decisions does however vary. Within this context, sev-

eral indicators are comparable within and across industry sectors: the common

environmental ones tend to be the amount of energy consumed and its origin,

resource and material usage, emissions, and effluents and waste management; the

common social indicators relate to health and safety and community involvement;

and economic indicators beyond financial results are, for example, taxation paid

and estimates of wealth created by the company.

While companies have adopted a variety of qualitative and quantitative

approaches to measure their performance, there are several common main features

such as: the mix of input, output and outcome measures; the use of performance

targets; and benchmarking practices and verification processes (see Box E.1).

Designing indicators to inform strategicmanagement

x


Creating value

Uncovering the value creation of triple bottom line or making ‘the business

case’ operates at two levels. There is a ‘soft’ but nevertheless compelling busi-

ness case that concerns management and performance improvement through the

use of data, reputation enhancement, market differentiation and greater social

legitimacy or the securing of ‘the licence to operate’. Companies are adamant

about the value of these benefits, especially when triple bottom line is part of

a more holistic view of corporate citizenship and sustainability. Identifying more

tangible financial benefits – shareholder value, revenue, access to capital and

market growth – is not yet settled. Positive links between sustainable development

and financial results are being identified in research so, again, if triple bottom line

reporting is truly reflective of a company’s adherence to sustainable development

practices, more tangible financial benefits should become apparent.

In the minds of Australian businesses, triple bottom line measurement and

reporting is not a precise measurement technology; it is more a clever concept for

establishing a new vision for a range of corporate responsibilities.

Adopting more transparent and accountable practices must be built on a busi-

ness case that is widely discussed and understood in the company. To achieve

enduring benefits companies need to ‘own’ their own approach, one that is built

on well-conducted research and rigorous execution. Changes of this sort need to

be well integrated into core management systems including planning, operations,

employee relations, and management appraisal and reward systems.

In looking forward, many companies believe there is a role for government that

includes facilitating discussion, especially around the characteristics of an envi-

ronmental, social and economic vision for Australia – what are the community’s

environmental, social and economic goals that should inform business objectives?

There are many current regulatory and administrative instruments that already

include public consultation and reporting (such as the National Pollutant

Inventory). As a first step, the impact of these should be considered in the light of

triple bottom line expectations.

‘Soft’ benefits throughuseful data, ‘licence tooperate’ and reputation.Extent of financial benefits not agreed

Not a precise measurement technology

Companies need to ‘own’ the process to reap the benefits

Government and industry bodies have a role in facilitation

xi


Main features of performance measures adopted by companies include:

• input measures are the least difficult to develop and hence are the most common, whereas outcomes measures are rare;

• performance targets are used to varying degrees. Most do not set targets but compare incremental performance improvementsover time, and set short to medium-term targets (objectives) and assess performance against these. A few companies setaspirational targets and measure performance against these over the long term;

• few companies explicitly link performance measures with the social, environmental or economic impact of the measured processesor events;

• while there are few opportunities for companies to benchmark performance against key competitors (except in the resource sector)some companies are benchmarking against legal licence limits (that is, emissions and so on);

• indicators are verified in a variety of ways, the most common are external verification and systems incorporating external input.There are several leading companies verifying indicators based on feedback from readers and program recipients. Whileenvironmental indicators are increasingly externally verified, this is more difficult for social indicators; and

• leading companies enable data to be disaggregated to the local level and customised through web-based reporting. A fewcompanies are ‘going live’ with their data, which challenges the status of the more static traditional paper based reporting.

Source: The Allen Consulting Group

BOX E.1 MAIN FEATURES OF PERFORMANCE MEASURES

Industry groups have an important role in taking triple bottom-line thinking

further. There is no one-size-fits-all approach but most industry sectors are well

placed to develop approaches that suit groups of like-minded companies – such

as occurred with the chemical and minerals industries in developing codes of

practice in the 1990s.

The findings of this review are reported as follows:

• Chapter 1 provides definitions of the terms used in this field of discussion, an

overview of the main forces or drivers for companies paying attention to triple

bottom line considerations and a ‘visual map’ to aid a conceptual understand-

ing of the varied elements.

• Chapter 2 portrays the highly diverse state of play by presenting 20 case

studies (16 Australian and four British) of companies’ thinking and practices

grouped into five broad developmental categories. This essentially addresses

the ‘why’ and ‘how’ dimensions.

• Chapter 3 analyses the environmental, social and economic measurement and

reporting techniques employed by companies in their current practices.

• Chapter 4 discusses the business case and the implementation challenges that

companies face in determining their triple bottom line activity and the benefits

that they anticipate.

• Chapter 5 raises some strategies that may be employed in further clarifying the

way that companies could best meet the new community expectations.

xii


1

S N A P S H O T

CHAPTER 1

Definitions, Context and Drivers

Characteristics

Triple bottom line is a clever term for highlight-

ing the non-market and non-financial areas

of corporate performance and responsibility:

environmental, social and economic. The core

characteristics of triple bottom line include:

• accepting accountability: triple bottom

line is founded on the assumption that

companies are accountable not only to

shareholders for generating returns but also

to stakeholders;

• being transparent: companies have an

obligation, within commercial limits, to be

transparent about their activities and

impacts beyond financial performance;

• integrated planning and operations: for

a company to contribute to economic

prosperity (including returns to sharehold-

ers), environmental quality and social

well-being it is necessary that these dimen-

sions be reflected in strategic planning;

• committed to stakeholder engagement:

interacting with internal and external stake-

holders is a process that informs business

objectives and is developed from a base of

rigorous research and dialogue; and

• multi-dimensional measurement and report-

ing: systematic analysis and verification

of economic, environmental and social

performance, together with structured com-

munication on the results, is most often the

main mechanism for making concrete what

a company stands for, how it behaves and

how it delivers on its promises.

Context and drivers: Reshaping

business priorities

• Community and employee expectations: the

traditional relationship between business

and society is being reshaped and this is

altering our common understanding of

business responsibilities.

• Scrutiny related to socially responsible

investment: the recent growth of socially

responsible investment in the United

Kingdom is indicative of what companies

might experience in Australia over the next

few years.

• Reputation-ranking ‘industry’: there is con-

siderable public interest in more generalised

reputation-ranking and this is also driving

many companies to collect the data for the

reports they are being asked to produce.

• Changing voice of the not-for-profit sector:

the not-for-profit sector is attracting interest

worldwide and, in particular, the Australian

sector is changing its interface with govern-

ment, the community and industry.

• Regulation and certification: there are few

regulatory requirements in Australia that

aim to increase or improve corporate disclo-

sure on their social and environmental

behaviour. The more dominant influence on

corporate behaviour, particularly for social

issues, is self-regulation and third-party

regulation (certification).

The focus on how and why

One concept among many describing the balance betweenshareholder value addedand societal value added

2


Introduction

Triple bottom line is a clever term for highlighting the importance of non-

market and non-financial areas of corporate performance and responsibility.

This chapter explains the characteristics, drivers and benefits of triple bottom line

measurement and reporting, and its relationship to other key concepts in the

expanding lexicon for describing wider corporate responsibilities.

Triple bottom line defined

All companies consulted for this study are searching for ways to understand the

boundaries of their non-market role and the non-financial outcomes for

which they are accountable. However, there is no single or correct response.

Variations among companies occur according to industry sector – whether there

is exposure through a brand, a service or operations – company structure, size,

corporate philosophy or even management disposition. A few actively use the term

‘triple bottom line’ to delineate those boundaries, while others prefer to describe

their approaches in terms of corporate citizenship, or being a good neighbour, or

they refer to their sustainability principles or commitments to the community.

Triple bottom line measurement and reporting represents one important

process to assist companies in this search; just one part of the mosaic of corporate

change strategies for embracing more than traditional market signals. The triple

bottom line, as discussed in this study, is also a relatively concrete and observable

process. As a result, drawing on the practices that are observable in companies is

a pragmatic way to define triple bottom line and to assist others in developing a

better understanding of the processes and benefits.

Triple bottom line

The term was coined by John Elkington in the early 1980s:

The triple bottom line focuses corporations not just on the economic value

they add, but also on the environmental and social value they add – and

destroy. At its narrowest, the term ‘triple bottom line’ is used as a framework

for measuring and reporting corporate performance against economic,

social and environmental parameters.

Elkington, J. (1980). The Ecology of Tomorrow’s World

Economic performance encompasses issues conventionally reported in a compa-

ny’s annual financial report, but also considers matters such as: the ratio of market

capitalisation to ‘book value’, investments in human capital and research and

development, wages and benefits paid, community development initiatives, and

the value and location of outsourced goods and services.

Environmental performance includes factors such as: the amount of energy

consumed and its origin, resource and material usage, emissions, effluents and

waste management, land use and management of habitats.

Social performance addresses interactions between an organisation and its

community. It includes such issues as: employee relations, health and safety, ratio

of wages to cost of living, non-discrimination, Indigenous rights, impact of com-

munity involvement and customer satisfaction.

The contribution of the term is in conveying a strategic idea in a simple way: a

company enhances short and long term value through successfully managing its

economic, environmental and social performance and impact so as to create

greater opportunities and reduce risks. Not only does the company derive value

but the company’s wider influence also delivers community benefits. The three

spheres of activity are measurable and their contribution to organisational and

community value should be communicated to internal and external audiences

who have a stake in the results.

A caution is that the financial accounting image of the bottom line should not

be taken literally. A triple bottom line is not a quest for a new bottom-line metric

but rather an approach to management and performance assessment that stresses

the importance and interdependence of economic, environmental and social per-

formance. However, the relevant dimensions of corporate performance are not

always neatly divided into these three categories, with some companies already

talking about a fourth pillar in corporate governance and ethics. Triple bottom line

is therefore best seen as a metaphor that encapsulates the task of managing, mea-

suring and publicly reporting multi-dimensional corporate performance.

Triple bottom line also needs to be understood in relation to other related con-

cepts about the role and responsibilities of the corporation and its performance.

While there are many conceptual frameworks that seek to redefine the role and

responsibilities of business, three related concepts that regularly arise in discus-

sion with companies are: sustainable development, corporate social responsibility

and good corporate citizenship, and stakeholder engagement.

Sustainable development

Economic development, social development and environmental protection are

interdependent and mutually reinforcing components of sustainable develop-

ment. The definition of sustainable development adopted by the Bruntland

Commission is:

Development seeking to meet the needs of the present generation without

compromising the ability of future generations to meet their own needs.

The World Commission on Environment and

Development, Our Common Future, 1987.

This definition has been widely accepted and incorporated into the commitments

of most major business organisations around the world. The Business Council of

Australia endorses this definition and commits to excellence in the management

of the financial, environmental and social dimensions of all activities, products

and services.

The World Business Council for Sustainability (WBSCD) regards eco-efficiency

– which combines environmental and economic performance and corporate

social responsibility – as the core business contributions to sustainability.

Adopting a way of measuring and reporting progress towards sustainability

through a triple bottom line approach is clearly of benefit to the business itself and

to those audiences who are seeking to evaluate progress.

An approach tomanagement andperformance assessment;a metaphor rather than a new accounting metric

A fourth pillar: governanceand ethics

Sustainable development;corporate socialresponsibility andcorporate citizenship; andstakeholder engagementare complementary – notcompeting – concepts

3


Corporate social responsibility and good corporate citizenship

According to the WBCSD, corporate social responsibility concerns the continuing

commitment by business to behave ethically and contribute to economic develop-

ment while improving the quality of life of the workforce, their families, as well as

the local community and society at large.1 Being socially responsible means going

beyond compliance with legal expectations to ‘investing’ in better management of

environmental impact, employee well-being and community benefits. A major

mechanism in achieving this is identifying and responding to stakeholders’ expec-

tations and incorporating this understanding into corporate values, business

strategies and measurement of the outcomes of company performance.

Importantly, this calls for an integrated approach to management; one where

wider social, environmental and economic responsibilities impact on the strategic

planning of the company and not only serve as add-ons in a defensive strategy.

Stakeholder engagement

The WBCSD provides a long list of stakeholders for business to take into account

including: trade unions, churches, Indigenous peoples, interest groups, not-for-profit

organisations, government and non-government organisations, and academics.

Another way of defining stakeholders is to see some as primary stakeholders

(those who exert a direct economic influence on the company and, in turn, are

directly influenced by the company’s performance) and secondary stakeholders

(those who have a less direct relationship with the economic base of the company,

but have significant expectations).2 Primary stakeholders would be customers,

suppliers, employees, creditors, investors and shareholders. Secondary stakehold-

ers would include media, government, local communities, interest groups,

not-for-profit organisations and the general public. In some companies, input

from their primary and secondary stakeholders is the basis for: planning to deliver

on the triple bottom line; understanding stakeholders’ expectations and how to

meet them; and how to measure and report on performance outcomes.

The idea of stakeholder engagement is not about exposure to narrow interest

groups as some businesses fear. Rather, stakeholder engagement can become a

core management strategy for enhancing and sustaining the shareholder and soci-

etal wealth-creating capacity of the enterprise.3

Not an ‘either or’

The core role of business is generating and distributing wealth. The expanding size

and impact of corporations in the globalised economy has, however, reconfigured

their role and responsibilities to embrace additional environmental and social

visions. The new paradigm for delivering on these wider responsibilities that are

embedded in concepts such as sustainable development or good corporate citi-

zenship is not an ‘either or’ of financial performance or environmental excellence

or social responsibility. Rather, the new paradigm is about ‘and also’.

Primary and secondary stakeholders:understanding andmeeting theirexpectations;measuring and reporting on outcomes

4


1 Watts, P. and Lord Holme (1998). Meeting Changing Expectations: Corporate Social Responsibility,World Business Council for Sustainable Development, Geneva, Switzerland.

2 Post, J. (2000). Meeting the Challenge of Global Corporate Citizenship, Boston College for CorporateCommunity Relations, Boston College, MA.

3 Post J., Preston, L., and Sachs S. (Forthcoming). Redefining the Corporation: Stakeholder Managementand Organisational Wealth, Stanford University Press.

As BP Australia said:

In the oil industry, concern for the environment and societal development

does not mean that people have become tired of demanding cheap, reliable

and safe energy. No, it means they want all that and energy, which is clean,

has a creditable provenance and delivers a positive legacy.

Fliedner, I. (2000) 4

The considerable challenge that this presents for business is to deliver equally well

on all dimensions: to remain globally competitive and to be environmentally and

socially responsible and accountable.

Triple bottom line: Core characteristics

What are the observable characteristics of triple bottom line? In its widest sense,

triple bottom line is a philosophy that guides overall corporate performance. In a

narrower sense – and the one that applies in this study – it refers to the approaches

adopted for measuring and reporting on business performance beyond the finan-

cial dimension and towards an integrated view of business processes and impacts

in environmental, social and economic (including financial) domains. While strat-

egy and management practices feature to some extent in this study, the focus

concerns why companies might consider publicly reporting on non-financial

matters and how that is being achieved.

The following points represent the essential behaviours and attitudes that are

manifest in those companies that seek to manage and report according to the idea

of the triple bottom line.

Accepting accountability: triple bottom line is founded on the assumption that

companies are accountable not only to shareholders for generating returns but

also to stakeholders for contributing, within their context and capabilities, to

sustainable development. Endorsing this notion of accountability most often

features in the vision or core beliefs of a company.

Being transparent: companies also have an obligation, within commercial lim-

its, to be transparent about their activities and impacts beyond financial

performance. Recognising the legitimacy of stakeholders’ ‘right to know’ and

disclosing multi-dimensional results and impacts is a powerful idea embodied

in the triple bottom line and is most often reflected in the core beliefs of a

company, its dialogue practices with stakeholders and in the actual content of

its public reporting. Transparency is essential for sound governance.

Integrated planning and operations: for a company to contribute to economic

prosperity (including returns to shareholders), environmental quality and

social well-being requires all these dimensions to be reflected in strategic

planning, the range of operational management systems and reward schemes.

In other words, building these economic, environmental and social considera-

tions into the core processes that drive a company is a precondition for

measuring and reporting according to the triple bottom line.

Commercially competitiveas well as socially andenvironmentallyresponsible

Core characteristics:

• accountability;

• being transparent;

• integrated planning and operations;

• stakeholderengagement; and

• multi-dimensionalmeasurement andreporting.

5


4 Fliedner, I., Stakeholder Reporting in BP: In Search of the Triple Bottom Line, Presentation, Centre forCorporate Public Affairs, Melbourne 16th August 2001.

Committed to stakeholder engagement: interacting with internal and external

stakeholders is a process that informs business objectives and is developed

from a base of rigorous research and dialogue. A commitment to considering

stakeholders’ perspectives and to developing strategies for engagement is

embraced as a core business strategy that adds value.

Multi-dimensional measurement and reporting: systematic analysis and veri-

fication of economic, environmental and social performance, together with

structured communication on the results, is most often the main mechanism

for making concrete what a company stands for, how it behaves and how it

delivers on its promises.

A triple bottom line report: The content

As well as the rich variety of new and traditional communication methods that

companies already have at their disposal (for example, community advisory

panels, stakeholder dialogue, performance disclosure on a website and pamphlets),

the role of a triple bottom line report is to focus on greater transparency and

accountability across all major aspects of company performance and impact.

The content of those reports typically comprises:

• multi-dimensional performance and outcomes information: economic,

environmental and social;

• descriptions of corporate management principles and practices: including

values, vision and strategy; stakeholder identification; governance and

ethical dimensions;

• systematic assessment or measurement of the impacts of company performance;

• a basis for identifying benchmarks and assessing trends; and

• third-party input, verification or assurance.

How triple bottom line works

There are many entry points to a triple bottom line approach to measurement

and reporting company performance. Figure 1.1 provides a visual framework

of triple bottom line to illustrate how business decisions are sequenced, where

tools for assisting business processes might be applicable and where information

flows could occur.

Subsequent chapters describe the drivers for change in a number of compa-

nies, their business case for embracing triple bottom line, and the strategies and

techniques employed for measurement and reporting. While there is great varia-

tion among companies, it is possible to show a theoretical sequence of planning

and implementing triple bottom line. The framework below offers a way to under-

stand where a company may currently be focusing attention and where it wishes to

be in the future.

The stem and centre circles of the framework illustrates a simple linear

sequence in decision-making. The outer circles provide examples of the tools or

content that may be applied to those decision-making stages. The outer down-

ward-pointing arrows are illustrative of the many possible feedback loops for

communication and engagement.

The focus onaccountability and transparency is a powerful driver of the content

Great variation amongcompanies, but also atypical planning sequence

6


It is also possible with Figure 1.1 to consider points of interaction or interven-

tion by specific stakeholders such as investors, business groups, government,

interest groups and the not-for-profit sector. Their influence could be seen

laterally: industry bodies for example, frequently take a role in developing codes

of conduct and defining ‘issues’ companies face, whereas they do not advise on

management systems.

A visual framework

In order to improve economic, environmental and social performance, and to

communicate this to internal and external stakeholders, there are a number of

steps that a company would go through, represented in the centre column of inner

circles. This is shown in a linear format to ensure simplicity but, in reality, moving

between the different stages is an iterative process.

Company business strategy is located in an environmental, economic and social

(and political) context. It signals the strategic direction a business adopts, the val-

ues it upholds, the medium and long term objectives, and is supplemented by the

business plan for the short term. A fully developed triple bottom line approach

would have objectives that range over all the dimensions, as well as the core finan-

cial and commercial goals. It would have tools and systematic processes to

determine the values and specific expectations of shareholders.

Strategy and values in anenvironmental, economicand social context

7



FIGURE 1.1 TRIPLE BOTTOM LINE VISUAL FRAMEWORK

Management systems are often proprietary to individual companies, as they are

a source of competitive advantage, and vary in the degree of formality and detail.

Irrespective of the nature of the management systems, a triple bottom line mea-

surement and reporting process arises from and feeds back into the management

or business systems of the company: strategic planning, human resource manage-

ment, information management, environmental management and community

involvement are some key areas.

Indicators function as a ‘measuring stick’, by which companies can evaluate

how they are accomplishing explicit goals. Indicators also need to be placed within

a wider context of key economic, environmental and social issues and objectives.

Indicators should simply communicate complex information about performance

to an audience who wants to understand more about the company or make deci-

sions on the basis of that information.

Key contextual issues, relevant to individual companies or wider industry

sectors, are often identified and formalised through the development of codes of

conduct or sets of principles. These are sets of issues that are considered important

to address in the context of that industry sector, such as in the case of the

Australian Minerals Industry Environmental Code of Conduct, the gaming indus-

try’s Responsible Gaming Code or the Australian Bankers Association’s Banking

Code. This could also comprise a network of international associations represent-

ing business, non-governmental organisations, trade unions and the United

Nations, such as in the case of the Global Compact. ‘Issues’ faced by companies

that are not formally translated into codes are also highly relevant, such as agricul-

tural production techniques and salinity.

There are a number of possibilities for assessment. Where the company

has developed its own set of issues and indicators, the assessment process is

performed in-house. To ensure greater transparency, independent verification of

the results could be obtained. Furthermore, if a widely accepted set of issues or a

code were available and relevant, the company could be audited or inspected

against these criteria through an independent third-party system. Systems such as

Social Accountability International’s SA 8000 standard based on ILO labour con-

ventions or eco-labelling function in this way. Some triple bottom line tools, such

as ISO 14001 or the Building Greenhouse Rating Scheme, can either be used simply

as internal tools for improving performance and management systems or as tools

for external communication to stakeholders through an optional independent

verification and certification process.

Certification systems will become increasingly popular as market-based regu-

latory tools. Questions then arise of who will monitor the monitors. The most

sophisticated certification systems also have accreditation systems, whereby the

certification body is accredited to a higher level organisation that oversees the

integrity of its operations (for example, JAS–ANZ is a body in Australia that accred-

its many certification bodies).

Reporting can be directed to external stakeholders and regulators, to internal

audiences, and serve in management improvement. While the reporting process

will vary depending on the target audience, a main goal is to move towards closer

alignment of values between external and internal stakeholders and decision-

makers. This engagement is most appropriate during the stages of identifying core

issues to address and at the assessment stage to ensure that the results are credible

and transparent. With respect to the internal feedback loop (as outlined in Figure 1),

Triple bottom linereporting arises from and feeds back intomanagement systems

Indicators simplycommunicate complexinformation on outcomes

Sectoral issues,often translated into codes, are a furtherperformance parameter

Assessment technologiesare in-house or externally set

Reporting is alignedbetween stakeholders andbusiness decision-makers

8


this integrates the results into the company’s management system with the goal of

improving performance against economic, environmental and social benchmarks.

This is also important as a lever for cultural change within the company.

Reshaping business priorities: Drivers of change

Companies throughout the world are facing unprecedented challenges. Forces

are reshaping the context for business success in Australia, as elsewhere, with

companies facing more global competition and the imperative of adapting to

technological change. The knowledge economy highlights the importance of tacit

knowledge or the ‘know-how’ of employees so that the intellectual capital of a

company is increasingly a key competitive factor. As well, the pursuit of sustain-

able development – meeting the needs of the present without compromising the

ability of future generations to meet their own needs – is a principle endorsed by

all major business organisations, including the Business Council of Australia, as an

important and legitimate aspect of business responsibility.

Against the background of the global business environment, there are addi-

tional features of the business context that are directed more at the nature and

quality of the relationship between business and society: heightened community

(and employees’) expectations of business performance and responsibility in

Australia, scrutiny arising from the growth of socially responsible investment, the

rise in importance of corporate reputation and the growth of a ‘reputation-ranking

industry’, the changing voice of the not-for-profit sector, and the shifting role of

regulation and certification. These are themes raised in consultations for this

review that may explain the growing interest in the triple bottom line.

Community and employee expectations

The traditional relationship between business and society is being reshaped and

this is altering our common understanding of business responsibilities. This is par-

ticularly the case in Australia where changes in government functions have altered

the position of Australian industry from being highly protected and regulated to

one that is called on to be a partner with government and the community in serv-

ing a wider range of areas for the public good. Many areas of service provision and

economic activity are now privatised, and public companies and the not-for-profit

sector are active in areas of the economy previously reserved for government.

Business in Australia, unlike the United States, is not use to this level of visibility

and accountability.5

Also, intense global competition has refocused business strategy and relations

with employees. Most companies report that improving relationships with

employees and meeting their expectations is a strong – for some the most powerful

– driver for changing corporate activity to better serve a social role. A study of the

benefits of greater corporate community involvement revealed that meeting

employee expectations was one of the most important and new drivers of change.6

Business success redefined

Australian business morevisible and accountable

Employees bring theirvalues to the workplace

9


5 See a discussion with business and community leaders in Dilemmas in Competitiveness, Citizenshipand Community (2000).The Cranlana Programme, the Myer Foundation, Melbourne.

6 Centre for Corporate Public Affairs in conjunction with the Business Council of Australia (2000)Corporate Community Involvement: Establishing the Business Case.

Consultations with companies in this review support this conclusion. Companies

tie the need for culture change and for competing as the ‘employer of choice’, to

being seen by employees as meeting community expectations. Younger employees,

in particular, are seeking a workplace environment that brings community and

personal values to the foreground.

Young employees are championing the cause of a triple bottom line

approach – bottom up – from a variety of disciplines: marketing; investor

relations; human relations; and product development.

Industry body, The Allen Consulting Group Consultations

Community standards have lifted for environmental and consumer protection,

and economic growth is challenged with creating gaps between the ‘haves and the

have-nots’. There is a rising concern for ethics and values and ‘ethical hypernorms’

such as transparency, disclosure and responsibility for managing risk, which now

impinge on all business activity.7

Data consistently demonstrate growing community expectations for socially

responsible company performance. For example:

• a recent survey found that the majority of Australians (90 per cent) want large

companies to go beyond a one-dimensional role of making profits, and con-

tribute more broadly to social and environmental goals. A worldwide survey of

over 25,000 average citizens in 23 countries showed that Australians had the

highest expectations of companies.8 Environmental concerns for 71 per cent of

Australians related to both global as well as domestic environmental problems;

• citizens are expressing their views about corporate behaviour in many different

forms, including as investors, consumers, employees and community advo-

cates. A recent British study demonstrated the impact of company reputation

on consumer purchasing, with good companies being rewarded and poor com-

panies being penalised – 17 per cent of the population boycotted a company’s

product on ethical grounds, 19 per cent had chosen a product/service because

of a company’s ethical reputation and 28 per cent had done both;9

• similarly, a study in 2000 for the inaugural conference of the Ethical Investment

Association found that 75–85 per cent of people had purchased products on the

basis of social and environmental attributes in the previous year;10 and

• other Australian studies have found that around 60 per cent of all consumer

decisions are made with an awareness of environmental impacts, and 73 per

cent of consumers state that they would change brands, given equivalent qual-

ity, to support a product associated with a good cause.11

Business is at times sceptical of the strength of these sorts of findings regarding

everyday actions such as purchasing decisions flowing from corporate reputation.

Irrespective, companies do realise that their social context has altered and that

the taken-for-granted link between business success and perceived community

The majority wantAustralian business to gobeyond making profits

The taken-for-granted link between financialsuccess and reputation has been broken

10


7 Post, James, (2000). Meeting the Challenge of Global Corporate Citizenship, Boston College, Centrefor Corporate Community Relations, Boston, MA.

8 Environics International Ltd, The Millennium Poll on Corporate Social Responsibility, ExecutiveBriefing, 1999. Website: www.environics.net/eil/millennium/MPExecBrief.pdf

9 MORI, www.mori.com/consumer/index.shtml10 Presentation by KPMG, Ethical Investment Association Conference, Sydney Stock Exchange, May 2000.11 State Chamber of Commerce NSW (2001) Taking the First Steps: An Overview of Corporate Social

Responsibility in Australia, The Common Good Program.

benefit has been broken for many in the community. Being a financially successful

company is no longer a guarantee of community (or government) support.

The search for ‘legitimacy’ and a good reputation is occupying the minds of

many company leaders. Business is uncertain about what negative community

pressure might lead to – greater regulation is a concern for some sectors such as

banking or gaming, consumer backlash for the service sector, or constraints on

development for the resource sector or the telecommunications sector.

Scrutiny related to socially responsible investment

While socially responsible investment (SRI) is still a very small part of the market in

Australia, there has been considerable growth in the United Kingdom and Canada

over the past 18 months. This growth will most likely be replicated in Australia.

Major firms such as Challenger, Westpac, Rothschild and AMP have been releasing

new investment products and developing instruments for analysis of company

performance. On the demand side, some superannuation trusts, in particular,

have entered the SRI market and others are exploring their options.

A recent baseline study issued by the federal government concluded that there

are $10.5 billion in socially responsible assets in Australia.12 SRI managed funds

grew by 86 per cent between 2000 and 2001, 12 times that of managed funds as a

whole. Since 1996, SRI managed funds assets in this country have achieved a

growth rate of over 500 per cent.

The international experience in SRI is important in understanding its potential

impact on companies in Australia. The market is mature in the United States, but

Australian developments in SRI do not appear to be moving in the same direction.13

Although the dollars in the United States that are reported to be invested according

to ethical criteria is high – one in every eight dollars under professional manage-

ment – anecdotal evidence does suggest minimal influence on companies. There

is a longstanding emphasis on exclusions for gambling, alcohol and tobacco.

While criteria such as the environment are well represented, others such as women

in management are very new and only included in relatively boutique vehicles. The

Dow Jones Sustainability Group Index is expanding and evidence of performance

demonstrates an equal if not better outcome than for conventional investment.

The recent growth of socially responsible investment in the United Kingdom is,

however, more indicative of what companies might experience in Australia over

the next few years. Screened investment in the United Kingdom grew by almost

380 per cent from $A1.9 billion to $A7.2 billion between 1994 and 2000.14

In the United Kingdom, contemporary values feature more significantly; for

example, human rights, the environment, employment practices and community

involvement. In particular, the government is a strong advocate for socially

responsible investment as part of its program to promote corporate social respon-

sibility, and an infrastructure for screening companies is rapidly building to service

this form of investment. SRI is newsworthy and companies are subject to a vastly

The mature US market is mainly due to theexclusion of ‘sin stocks’

UK growth is indicative of the future of sociallyresponsible investment in Australia

11


12 Ethical Investment Association (2001) Socially Responsible Investment in Australia 2001:Benchmarking Survey (http://www.ea.gov.au).

13 For a discussion of the nature of the market in Australia, see The Allen Consulting Group (2000).Socially Responsible Investment in Australia.

14 Greene, D. (2001). A Capital Idea. Realising Value from Environmental and Social Performance,Commonwealth Government, Australia.

increased number of surveys and the like wanting to access data on company’s

environmental and social performance. Indeed, the impact of the screening

devices seems of greater importance in companies’ minds than the potential flow

of capital:

I used to spend 5 per cent of my time answering questions, now it is

50 per cent.

Resource company, United Kingdom.

The Allen Consulting Group Consultation

I can show you 20 surveys that I have received in the past few months – all

from organisations serving socially responsible investment. It’s an explosion.

Consumer goods company, United Kingdom.

The Allen Consulting Group Consultation

In Australia, recent amendments to the Australian Financial Services Reform

Act will increase the disclosure of the extent to which superannuation funds and

investment managers incorporate environmental and social issues in their invest-

ment decisions, and this will inevitably increase discussion of the parameters of

socially responsible performance. Under the Socially Responsible Investment

disclosure requirements of the Financial Services Reform Act 2001, the Product

Disclosure Statement for financial products that have an investment component

will be required to state ‘the extent to which labour standards, environmental,

social or ethical considerations are taken into account in the selection, retention

or realisation of the investment’. As occurred in the United Kingdom under a simi-

lar requirement, this will produce a ripple effect not only in the investment

community but also throughout listed companies as organisations classify and

record their ‘socially responsible’ activities.

Shareholder democracy is also becoming more prominent in Australia. As more

and more Australians become shareowners (Australians are reputedly the highest

direct and indirect owner of shares), they are beginning to look more closely at the

actions of the companies they invest in.15 Interest groups are also recognising that

introducing shareholder resolutions at company annual general meetings is a

mechanism to call management attention to issue. The Corporations Law 249D

was amended in 1998 to allow at least 100 registered shareholders to call a general

meeting of the company. The union campaign against Rio Tinto’s labour relations

practices was reputedly the first to be conducted through shareholders at their

Annual General Meeting.

Environmental and social risk assessment

Also, more generally, there are reports of increasing pressure from lenders, insurers

and investors on companies to improve their performance, although the current

influence appears to be low. Banks and insurance companies increasingly recog-

nise the importance of good environmental management to reduce their future

risks and some banks overseas have begun to look more closely at environmental

management when considering business loans. Most have implemented

environmental risk criteria as part of their corporate and project lending activities.

Additional scrutiny ofcompanies’ performanceand reputation is thecurrent major impact of socially responsibleinvestment

Pressure from shareholder democracy

Increasing pressure fromlender and insurers

12


15 Address Richard Humphry, CEO and MD, Australian Stock Exchange, Annual Oration, AustralianCentre for Corporate Public Affairs, Melbourne July, 2001.

Currently though, environmental assessments tend to be once only and are not

monitored for the duration of the loan period, although this is expected to change

over time.16

Overall, the extent of detailed investment analyst scrutiny of companies’ envi-

ronmental and social performance (other than for socially responsible investment

purposes) is thought to be very low in Australia – especially in a climate of eco-

nomic and corporate instability. For example, a recent survey of 25 Australian

stockbrokers found that their key concern when analysing and recommending

a company to clients was its financial performance. Some did indicate that they

provide an ‘ethical’ analysis if a client requests or if the company actively markets

itself as an ‘ethical’ company.17 Even in the United Kingdom, where the profile of

the issues is much higher, the trend is similar. One survey found 9 per cent of

analysts saw environmental and social issues as important non-financial indica-

tors, compared with 20 per cent of investors and 23 per cent of journalists.18

Those companies advocating a higher standard of environmental and social

performance hope that the investment market learns to differentiate between

companies on these criteria.

‘Reputation-ranking industry’

There is considerable public interest in more generalised reputation ranking and

this is also driving many companies to collect the data for the reports they are

being asked to produce. Many large Australian companies endorse the notion of

stakeholder scrutiny and the obligation of the company to make information freely

available in a transparent and accessible form, endorsing the notion of ‘communi-

ty right to know’. Rio Tinto, WMC, Telstra, Shell and National Australia Bank are

examples of companies with external stakeholder forums. Many large companies

also see that surveys by external parties are a new and legitimate technique for

assessing companies.

The more recent surveys such as the Good Reputation Index appearing for the

second time in 2001 in The Age and Sydney Morning Herald raises a number of

important issues for companies. While more traditional conventions for ranking

each companies’ reputation, such as by the global business press – Fortune 500 in

the United States, the Most Admired Companies for Asian Business or Business

Review Weekly’s polls – draw on business to business reviews, the second wave of

reputation assessment draws on community or stakeholder attitudes across a new

set of criteria. Often, the sources for advice are stakeholder groups that are not

supportive of industry and the relationship can be oppositional and combative.

Whereas earlier reputation reviews were structured around conventional busi-

ness indicators such as leadership, product quality, service standards, investment

strategy and community relations, the newer features of a ‘good reputation’ have

a different focus. Second-wave reviews might include items such as employee

relations, respect for diversity, community involvement, and environmental

programs and ethics, thus reflecting the changing profile of corporate reputation

as an intangible resource (see Box 1.1).

Data are needed forsurveys that rankcorporate reputations

First-wave reviews wereconventional businesssuccess indicators;second-wave reviews aremore combative and focuson stakeholder interests

13


16 PriceWaterhouseCoopers (2001). The Role of Australia’s Financial Sector in Sustainability.17 The Allen Consulting Group Stockbroker Survey (2000). This involved a national survey of

25 mainstream stockbrokers, the results were based on a 40 per cent response rate.18 Data from ‘Investing in the Future’ quoted in press release for Business in the Community, London,

24 May 2001.

Westpac refers to the emerging concept of corporate reputation as:

The net perceptual representation of our past actions and future prospects;

it represents our appeal to all our stakeholders.

Purcell, N. (2001) 19

The media clearly believe that there is public interest in corporate reputations,

and companies are increasingly sensitive about appearing in the front pages of

newspapers rather than only in the business pages. Companies anticipate that the

number of second-wave reputation surveys will increase, and are confronting the

requests for data and the implications of this on their reputations.

The changing voice of the not–for–profit sector

The not-for-profit sector is attracting interest worldwide and, in particular, the

Australian sector is changing its interface with government, the community and

industry.20 It is now the recipient of considerable funds to deliver services to the

community on behalf of government. The sector is in partnership with many

Australian companies to assist them in their community involvement endeavours,

and it continues to recruit people who have a strong sense for serving the public

good and pursuing a sustainable and cohesive Australian society.

Not surprisingly, the voice of this sector is growing in its profile in the

Australian community. Moreover, the language of the triple bottom line is increas-

ingly being used across the sector to describe companies’ social responsibilities. As

companies come to this sector to strike partnerships and alliances and seek assis-

tance in developing sustainable environmental and social activities, they will find

many organisations, like The Smith Family or the Brotherhood of St. Lawrence,

well versed in the varied dimensions of corporate performance.

The not- for-profit sector is well versed in the new dimensions of the corporate sector

14


19 Purcell, N. ‘Managing New Accountabilities’, Corporate Public Affairs, vol. 11, no. 2, 2001, Centre ForCorporate Public Affairs, p. 26.

20 Lyons, M. (2001). The Third Sector: The Contribution of Non-profit and Cooperative Enterprises inAustralia , Allen and Unwin, Sydney.


2nd WAVE REVIEWERS: SUPPORTIVE AND OPPOSITIONAL STAKEHOLDERS

Corporate governance Corporate citizenship Disclosure and reporting

Environmental performance Ethics Sustainability

Employee relations Stakeholder involvement

1st WAVE REVIEWERS: BUSINESS TO BUSINESS PEERS

Quality of management Quality of products and services Financial soundness

Attraction of talent Use of corporate assets Business acumen

Community responsibility

BOX 1.1 EXAMPLES OF REPUTATION CRITERIA

The experience and concern of some major not-for-profit organisations is that

companies do not understand what the key social concerns are for Australian people:

Australian companies want to be socially responsible but many do not

know how to go about it because they do not know what the key concerns

are of the Australian public. In this context it is hard to develop a structured

sustainable approach.

The Smith Family, The Allen Consulting Group Consultations

Many interest groups and organisations are interested in having ‘deep dialogue’

with companies to assist them in identifying ‘public concerns’:

We are interested in having conversations with business to, amongst other

things, build trust between the two parties so that we can work productive-

ly together and address shared problems.

The St James Ethics Centre, The Allen Consulting Group Consultations

When asked what they would expect from companies who seek to measure and

report on the social dimensions of their performance, the Australian Council of

Social Services (ACOSS) similarly sees an opportunity for building trust and two-

way relationships:

Triple bottom line reporting and stakeholder relationship building should

be genuinely reflective. Reporting needs to be based on evidence and there

needs to be assurance that the results will be acted on; reporting needs to be

part of an ongoing two-way relationship.

ACOSS, The Allen Consulting Group Consultations

Certification: peer and customer pressure

An important influence on corporate behaviour and public reporting, particularly

for social issues, is self-regulation and third-party regulation through certification.

Certification systems (for example, ISO 14001, Greenhouse Certification Program,

Forest Stewardship Council and Social Accountability International) routinely

comprise a set of rules, principles or guidelines, and a monitoring and reporting

mechanism. In that sense, they are logically linked to triple bottom line reporting,

providing important substantive information and verification.

Certification schemes can create incentives for companies to improve their

social and/or environmental performance by rewarding successful companies

with a mechanism for differentiation in the market or, alternatively, through peer

pressure to conform to commonly accepted and explicit standards. They can also

provide consumers or industrial customers with a mechanism for making

informed purchasing decisions.

Certification has appeared in almost every major international industry target-

ed by environmentalists and human rights activists, including the chemical,

coffee, forest products, oil, mining, nuclear power and transportation sectors.

Certification is also increasingly prevalent in the apparel, diamond, footwear, and

toy industries, to name a few. A recent inventory by the Organisation for Economic

Co-operation and Development (OECD) listed 246 codes of corporate conduct.

Dialogue is needed tobuild trust between sectorsthrough accountabilityand transparency

Certification provides an incentive and a framework formeasurement and verification

15


Conclusion

Triple bottom line is not a precise measurement or accounting technology but

a way of thinking about the integrated nature of business planning and perfor-

mance across environmental, social and economic dimensions. The focus in this

study is on the measurement and reporting practices of triple bottom line rather

than the underpinning business philosophy. The intention is to provide insight

into current practices, particularly in Australian companies, and practical advice

for those wishing to go forward. The current environment for Australian business

is complex, with strong commercial pressures as well as social drivers for change.

While each company perceives these pressures in their own way according to sector,

location or size, there are increasingly common understandings emerging, pro-

pelled by the interest from government, community and the not-for profit sectors.

The drivers of change for corporate communication and reporting discussed

here were drawn from consultations and there would, of course, be others that

could be mentioned. The intention has been to illustrate those pressures that are

currently ‘top of mind’ for Australian business in setting a context for understand-

ing triple bottom line measurement and reporting.

A way of thinking aboutintegrated planning and performance

16


17

S N A P S H O T

CHAPTER 2

Triple Bottom Line Reporting:A Work in Progress

Understanding the ‘real world’ for companies

• Beyond the annual report, other popular

mechanisms for communicating with stake-

holders include: community or stakeholder

consultation panels, local letterbox drops of

‘flyers’ on environmental initiatives, regular

newsletters to employees and their families, and

regular communication with politicians and

non-government organisations on matters of

interest to them.

• The challenge for companies is in establishing

what would be gained by extending these

options to include more structured, targeted

and reflective information in a triple bottom

line report.

Taking the next steps

• Very few Australian companies have produced

stand-alone or substantial environment and/or

social reports. Of the top 50 companies listed in

Australia ten have produced environmental

reports – half of these companies are in the

resource sector. Six of the top 50 companies

have produced social reports.

Rationales and approaches differ

• In general, there appear to be five broad

categories that capture the evolution of triple

bottom line management, reporting and infor-

mation distribution. While these distinctions are

not mutually exclusive they are indicative of the

primary approach of enterprises and provide a

useful way to illustrate the different rationales

and emphases.

– ‘Wait and see’ is where companies are mostly

satisfied with their present approaches to

communication and accountability. Either a

change is not a business priority and ‘not on

the radar’ or, there is a sense of potential

benefits, but it is far too early to proceed

without understanding more about the

context and the directions for the rest

of business.

– Other companies make a commitment to

their community to be open and transparent

– observing ‘the community right to know’

principle and endorsing the notion of

greater accountability to the community for

their performance. To meet this commitment

they assemble and ‘package’ internal

information for an external audience.

– A few companies ‘start from scratch’ and

systematically ask stakeholders what they

want to know about the company. The

information they then generate is driven by

the goal of aligning with stakeholders’

expectations.

– A few companies, mostly international,

shape their response to stakeholder

expectations into principles that guide their

business activity – sustainability principles

or partnership principles for example.

– Finally, some companies, often in private

ownership, define their business purpose

and their commitment to sustainability

values and accountability as fully integrated

– their business success depends on this

cultural perspective.

Conclusion

• Reporting that is oriented to triple bottom line

characteristics has a range of seemingly

common features including: the scope and

presentation of information; reference to

management systems and commitments; the

extent to which stakeholders are identified and

social, economic and environmental impacts

and benchmarks are identified; and the

engagement of third parties to develop and

monitor reports.

Introduction

This chapter seeks to portray the current thinking and experiences of a range of

Australian and British companies that are grappling with the idea or practice

of triple bottom line measurement and reporting. There is wide variation and each

case study tells a different story due to sector, size, location or simply management

culture. The common thread is that they recognise the changing status of business

and the new challenges that this presents.

Many companies are quick to point out that the range of communication chan-

nels they have available for discussing company performance is already wide and

they prefer to exercise their choice of medium to fit the purpose and audience. On

the other hand, many companies are looking for something additional that facili-

tates a deeper engagement with stakeholders and the issues that matter to them.

The current foundations

The vast majority of company annual reports in Australia routinely include

short descriptive coverage of ‘environment and safety’, ‘our people’, and ‘sup-

porting our community’. These themes supplement coverage of corporate strategy,

business achievements and corporate governance that, in turn, support the direc-

tors’ report, financial report, governance accountabilities and stock exchange and

shareholder information. The values or broad aspirations of a company are usual-

ly covered in the managing director’s or chairman’s report. Many global companies

operating in Australia also issue a version of an annual report without the direc-

tors’ and financial reports.

Beyond the annual report, other popular mechanisms for communicating with

stakeholders include: occasional publications on social, employee or environmen-

tal activities; community or stakeholder consultation panels; local letterbox drops

of ‘flyers’ on environmental initiatives; regular newsletters to employees and their

families; regular communication with politicians and non-government organisa-

tions on matters of interest to them; and so on. Some of these approaches are

specifically geared to achieving transparency and accountability goals, while oth-

ers lean towards one-way communication and managing stakeholders’

expectations rather than dialogue and engagement.

Companies are not always confident in their approach to communication. The

Australian Conservation Foundation (ACF) has found that the majority of

Australia’s top 100 companies have introduced environmental initiatives such as

recycling programs and energy saving initiatives, but many have not taken this

process a step further to report on their broader environmental performance and

impacts.21 Companies that do not report publicly indicate they are unaware of the

potential audience that would be interested in such behaviour and furthermore

they are unsure of the most effective way of reporting it – as much of it is not con-

sidered ‘appropriate’ in the annual report.

Environmental and social descriptions arefamiliar content forannual reports

A rich set ofcommunication mediaused by companies

Evidence of a lack ofconfidence in reporting orpromoting environmentalinitiatives

18


21 Australian Conservation Foundation (2000). A Different Look at the Performance of Australia’s Top100 Companies (www.acfonline.org.au/campaigns/corporate/briefings/perfresults.htm).

Many companies do, however, report internally and externally on major single

issues or programs that are important to them. As an example, a high proportion of

Australian companies choose to describe and display their commitment to social

responsibility or community involvement programs on their websites. This often

comprises a list of sponsorship initiatives, charities receiving donations and other

community involvement activities. The information is normally descriptive and

does not intend to provide measures that could be compared over time, except

perhaps for resource allocation.

For more than a decade many companies have issued one-off environmental

policy commitments, often distributed as a pamphlet or brochure. Many are signa-

tories to codes of practice and voluntary agreements, such as for Greenhouse

Challenge or National Packaging Covenant, and report against results. Periodic

voluntary targets for environmental improvement and descriptions of achieve-

ments might supplement this.

Most companies readily point out that this rich set of communication tech-

niques is their real world for reporting to stakeholders. They mix interpersonal

dialogue with web-based and paper-based information. The question is in estab-

lishing what would be gained by extending these options to include more

structured, targeted and reflective information in line with the triple bottom line

reporting concept.

The following section draws on the experience of companies in Australia and

the United Kingdom to portray the state of play in triple bottom line reporting. The

discussion explores the motivation, approaches and challenges identified by a

range of companies at varying stages of development. The subsequent chapter

examines the measurement and reporting techniques.

Taking the next steps

Very few Australian companies have produced stand-alone environment

and/or social reports – Environment Australia has identified 80 Australian

companies and government business enterprises, across a range of sectors that

have produced environmental reports. A stand-alone report is not inherently

superior to an integrated report but Australian company experience has been that

a closer examination of environmental or social performance initially requires

more space and a separate report; often a supplement to a conventional annual

report is practical and focuses stakeholders’ attention. A number of international

companies are moving further ahead by reconfiguring their annual report around

triple bottom line considerations, bringing the same level of accountability and

trend analysis to non-financial aspects as well as financial.

Of the top 50 companies listed in Australia ten have produced environmental

reports: Wesfarmers, Cable and Wireless Optus, Telstra, BHP Billiton, Rio Tinto,

WMC, Woodside Petroleum, MIM Holdings, Normandy Mining and Orica. Half of

these companies are in the resource sector (see Figure 2.1).

Six of the top 50 companies have produced social reports (BHP Billiton, Rio

Tinto, WMC, MIM Holdings, Normandy Mining, and Westpac).

Community involvementreported on websites

Mixing dialogue with web- and paper-basedcommunication: whatmore is there to gain?

19


As more companies beyond the resource sector consider their reporting

options there seems to be a gradual expansion of the content of annual reports to

capture the general triple bottom line themes rather than an immediate progres-

sion to more rigorous reporting. The annual report by Westpac 2001 is a leading

example of an expanded and reshaped annual report that better reflects the needs

of customers and community to understand the wider impact of the company on

society. Leighton Holdings is another example where the triple bottom line struc-

ture has shaped its 2001 annual report.

It is interesting to compare industry sectors in Australia to the leading sectors

internationally. A recent international benchmark study of the top 50 company

triple bottom line or sustainability reports concluded that companies in the

pharmaceutical sector produced on average the best reports. (See Box 2.1 for the

assessment criteria.) The performance of the other sectors, in order, was:

resources, financial services, information technology and telecommunications,

utilities, consumer and office products, automotive, and chemicals. Two Australian

companies were in the top 50: WMC and The Body Shop Australia and New

Zealand. Their top five reports were issued by companies in the United Kingdom.

They hypothesised that this was due to the strong development of sustainability

language and concepts, as well as standards and guidelines in Britain.22

20



TRANSPORT

TRADING/DIVERSIFIED

TELCO/MEDIA/IT

RETAIL & WHOLESALE

RESOURCES

PROPERTY & ENGINEERING

MANUFACTURING/FOOD

LEISURE & GAMING

FINANCIAL

ENERGY/METALS/PHARMACY

BUILDING/FOREST

0 20 40 60 80 100

IND

US

TR

Y S

EC

TO

R Proportion in industry sector (in top 50) with environmental reports

Proportion of top 50 companies

Proportion in industry sector (in top 50) with social reports

PER CENT

FIGURE 2.1 NUMBER OF ENVIRONMENTAL REPORTS PRODUCED BY THE TOP 50 COMPANIES IN AUSTRALIA BY INDUSTRY SECTOR

A recent international benchmarking study used the following criteria to assess and rank triple bottom line reports:

• context and commitments regarding sustainable development;

• management quality for internal and external alignment;

• economic performance assessment;

• social and ethical performance assessment;

• environmental performance assessment;

• multi-dimensional performance assessment (for example, supply chain impact); and

• accessibility to stakeholders and assurance of accuracy.

Source: The Global Reporters: International Benchmark Survey of Corporate Sustainability Reporting (2000), SustainAbility and the United NationsEnvironment Programme, London

BOX 2.1 BENCHMARK CRITERIA FOR ASSESSING SUSTAINABILITY REPORTS

22 SustainAbility and the United Nations Environment Programme (2001). The Global Reporters:International Benchmark Survey of Corporate Sustainability Reporting, London.

The Australian Conservation Foundation has found that Australian companies

are not necessarily slow in adopting environmental and social programs, but tend

to retain more traditional reporting methods rather than take the next step in

reporting. They also concluded that some companies failed to translate what on

paper appears to be ‘best practice’ environmental strategies to their ‘on-ground’

environmental performance. The Australian Conservation Foundation identified a

further inhibitor to development in Australia as being a reluctance by several

multinational companies to bring to Australia the same standard of environmental

strategies and community development initiatives as those used by their overseas

parent companies.

Evolution of reporting

Five broad categories capture the evolution of triple bottom line management,

reporting and information distribution. The discussion that follows describes

the practices of Australian and some British companies according to these cate-

gories. These distinctions are not mutually exclusive and the development is not

linear, but they do provide a useful way to illustrate the different rationales and

emphases of companies. It should be said at the outset that these categories are

not judgemental; companies have their own internal logic for their decisions and

make changes within an integrated framework. As one executive said:

It is very unlikely that this area (triple bottom line) will look the same in five

years; who knows the best way to proceed at this early stage and in this eco-

nomic climate. I don’t want to get ahead of the pack but I don’t want us to be

left behind.

Company Executive retail sector, The Allen Consulting Group Consultations

‘Wait and see’ is where companies are mostly satisfied with their present

approaches to communication and accountability. Either a change is not a busi-

ness priority and ‘not on the radar’, or there is a sense of potential benefits, but it is

far too early to proceed without understanding more about the context and the

directions for the rest of business.

Other companies make a commitment to their community to be open and

transparent — observing ‘the community right to know’ principle and endorsing

the notion of greater accountability to the community for their performance. To

meet this commitment they assemble and ‘package’ internal information for an

external audience. This information reveals the standards they seek to meet, how

well they perform against those standards and a description of their activities.

A few companies ‘start from scratch’ and systematically ask stakeholders what

they want to know about the company. The information they generate is driven by

the goal of aligning with stakeholders’ expectations. This often requires establish-

ing new management tools for capturing the information and is a long and often

resource-intensive approach.

A few companies, shape their response to stakeholder expectations into princi-

ples that guide their business activity – sustainability principles or partnership

principles, for example. This approach is directed at embedding these principles

into management practices – again an intense and, for some, a problematic journey.

Capturing the evolution in thinking. Companiesseem to fall in to thefollowing categories:

• ‘wait and see’

• packaging information

• stakeholder alignment

• principle driven

• philosophically driven

‘Wait and see’: benefits donot appear to outweighthe costs

21


Finally, some companies, often in private ownership, define their business pur-

pose and their commitment to sustainability values and accountability as fully

integrated – their business success depends on this cultural perspective.

‘Wait and see’

By far the majority of companies are not as yet producing triple bottom line

reports. These companies fall into a number of camps. Six companies’ views

are discussed below. There are those who understand the concepts, but they are

‘not on the radar’ of business priorities. There are also those that understand the

concepts, are committed to open communication with stakeholders and may be

conducting community programs and environmental improvement activities, but

they do not believe that the benefits of formal reporting would outweigh the costs.

Many in this group are interested in learning more about the concept and

are waiting to see where the whole agenda goes, before they commit to enhanced

social and environmental reporting. Others are very interested but are progressing

slowly, conducting the research to better understand their capabilities and what

is required.

Foster’s: No demonstrable business case

Foster’s has carefully considered the variety of measurement and reporting

arrangements (for example, CERES principles and the Global Reporting Initiative)

and the practices of other businesses. The company subsequently decided that the

substantial investment in triple bottom line measurement and reporting would

not be the best use of company resources at this stage; that is, increased expendi-

ture in identifying performance indicators, establishing data-collection systems

and the like would be better invested in improving actual environmental and social

performance than reporting it. Moreover, there is no strong demand from their

stakeholders and consequently there do not appear to be strong business drivers.

This sort of approach would mean diverting resources from doing meaning-

ful things to writing largely useless reports.

Company Executive, The Allen Consulting Group Consultations

Environmental and social policies have been built into core business manage-

ment and the company is a signatory to the National Packaging Covenant and a

number of codes of practice. Nevertheless, the lack of strong drivers or clear bene-

fits has meant no translation as yet to wider measurement or reporting.

We have been a leader in environmental practices and have taken an early

and proactive stance on key social issues. Our key stakeholders are aware of

that and are not calling for greater reporting.


The majority of companies are not yet producing triplebottom line reports

Stakeholders are notdemanding triple bottom line

22


In conclusion, Foster’s is unconvinced of the benefits, but will ‘wait and see’

how this develops among their key stakeholders, in other companies and in the

wider community.

There is considerable confusion and poor understanding of the costs and

benefits of the triple bottom line; the jury is still out and will be for a while.


Woolworths: Need to see relevance to retail sector

Woolworths is one of the largest employers in Australia and has a presence in most

Australian communities. It seeks to be an active member of those communities

and to build local relationships. Its approach to community involvement and com-

munication is derived more from understanding the particular context of the retail

sector than from emulating the activity of other sectors such as minerals.

Woolworths, as with other retail companies, operates with relatively tight margins,

a large number of shareholders, and rarely encounters community opposition to

its business. The scope for changing its relationship with the wider community is

therefore relatively minor. Nevertheless, a major corporate entity such as

Woolworths is well aware of changes that are under way in other companies and

will gradually make similar adjustments to its reporting to shareholders and the

wider community.

Woolworths’ annual report and website are in the traditional format, where

financial results are provided in detail and social and environmental initiatives are

described mainly in terms of policies or program initiatives. Its social or communi-

ty involvement program is extensive and the website enables a reader to look in

some detail at the nature of the activities and resources allocated.

The company is currently considering ways that it might extend the environ-

mental and social content in subsequent reports. It does not envisage moving to a

triple bottom line approach, but recognises that there may be additional informa-

tion and data that could be included.

Not a priority for retail sector

23


Rationale for Fosters ‘wait and see’ approach:

• no demonstrable business case or benefit that would warrant the additional expenditure;

• stakeholders not demanding more information;

• environmental and social concerns already built into the business strategy; and

• will wait until expectations and processes are clearer.

BOX 2.2 FOSTERS

Rationale for Woolworths ‘wait and see’ approach:

• not a priority for the retail sector and no obvious benefits;

• already active in local communities and enjoys community support;

• current communication outlets are working well; and

• could gradually expand the scope of information.

BOX 2.3 WOOLWORTHS

AXA: Inclusive values but triple bottom line is not a business priority

Every week we deal with issues or respond to stakeholders’ concerns that

could be labelled as triple bottom line accountability. However, at this stage,

the management and the board do not see developing measurement and

reporting as a priority.


For AXA, community activities and the approach of the company to external stake-

holders are based on the philosophies of its French parent, which tends to adopt

an inclusive approach to business and the community. The reporting side of this

has not been seen as a key component to date. It produces a traditional style of

annual report and is interested in learning more about a triple bottom line

approach to assess what it should or could be doing.

Parts of the organisation are increasingly interested in triple bottom line issues

for different reasons. For example, the marketing area is considering the implications

for branding and product development issues, and the community relations area is

interested in developing a comprehensive framework for consultation. As with

other companies in the financial sector, the key driver for considering this area

would be to improve reputation and image. At this stage, however, the company

does not see any significant pressure being exerted from its external stakeholders.

Qantas: Existing communication channels meet current needs

Qantas is advancing slowly on this front and considering what the next develop-

ment might be. As with many companies, Qantas believes it is conveying its values

to employees, relating well to the airline’s sponsorship partners and it feels the

message is effectively conveyed to external audiences through existing channels.

Qantas was publicly listed in July 1995 and has extensively developed its website to

show current press releases and detailed information for investor relations pur-

poses, for example.

24


Rationale for AXAs ‘wait and see’ approach:

• expanding measurement and reporting not a current business priority; and

• in marketing and community relations it sees relevance in building its reputation — by adopting an inclusive approach to businessand the community.

BOX 2.4 AXA

Qantas approach to triple bottom line:

• advancing slowly;

• already conveys values to employees;

• planning more transparency for environmental performance; and

• website used to show community contributions.

BOX 2.5 QANTAS

The environmental area is also expanding, and the company is seeking to ‘go

beyond compliance’, acknowledging the full extent of its responsibilities to the

community. It will be using its website and other mechanisms to ‘bring more trans-

parency to the issue’ and to show progress. Qantas is very active in the community

and the company’s annual report lists contributions made to sporting events,

charities, environmental organisations and cultural events in the airline’s commit-

ment ‘to make a positive contribution to the Australian and international

community’. Qantas public reporting is essentially financial.

Medibank Private: Building on corporate community involvement

Medibank Private is currently considering the shape its reporting might take.

A focus on wider measurement and reporting is part of a broader repositioning of

the company. Based on broad-ranging consultations with staff and key community

stakeholders, Medibank is developing an enhanced and more strategic communi-

ty involvement plan tied into its existing balanced scorecard reporting framework.

Medibank may consider a triple bottom line management and reporting frame-

work but it is still at an early stage in the process:

Some just see the triple bottom line process as demonstration of being a

‘good corporate citizen’ but others see that it could be much more.


Developing better ways to demonstrate the extent of the organisation’s

activity and capability in interacting with the community is backed by a strong

business objective.

Leighton Holdings: Prefer ‘natural evolution’

Leighton Holdings is actively considering its options but waiting to better under-

stand what is possible. Leighton Holdings is planning to produce a consolidated

external report on environmental and community issues within the next 12

months, and has embraced the concept of triple bottom line in this year’s annual

report. It has no doubt that reputation and good environmental records are a com-

petitive advantage to the Group’s operations in both Australia and Asia.

The core issue for Leighton is to determine what the triple bottom line

accountabilities are for a holding company. Thiess is an integrated engineering

and service provider heavily involved in triple bottom line reporting and there is a

strong business logic as they are a BHP-Billiton customer. On the other hand, John

Holland is a low-cost contractor with minimal overheads. They have a good safety

record but do not feel the pressure to produce additional reports on those matters.

Reputation and goodenvironmental records area competitive advantage

25


Medibank Private’s approach to triple bottom line:

• strategy under consideration but at an early stage;

• broad-ranging consultations with staff and community stakeholders has been conducted; and

• intends to leverage off-balanced scorecard framework.

BOX 2.6 MEDIBANK PRIVATE

Leighton has internal measurements around occupational health and safety,

environment and regulatory requirements. It is also developing internal reporting

processes for ethical practices across the business, arising out of the building

industry commission that challenged the industry’s ethical standards. Its ‘ethical

dimensions reporting’ is one area where Leighton Holdings is developing a unique

management system that addresses a particular business pressure in that sector.

The data in these areas is not as yet externally available.

The key questions for Leighton are similar to many companies: how much

reporting should be factual, quantitative and verified, as opposed to qualitative;

are there common measurements as in safety; to what extent is the Global

Reporting Initiative and similar approaches relevant to all companies? Leighton

also wants to assess what is relevant to its customers and determine the needs of

line areas and those parts of the business that operate as contractors.

The more fundamental question concerns whether Leighton Holdings would

reach a point were it would not embark on socially or environmentally controver-

sial developments. That is, are there ways to use measurement and reporting in

risk management to highlight issues and concerns, and make commercial deci-

sions with a full understanding of community expectations?

It would prefer to adopt a process of ‘natural evolution’ on these questions.

Packaging information for ‘community rightto know’

Another group of experienced companies are more or less comfortable with

their current practices, understand the pressures to develop more measures

along the social and economic dimensions but are unconvinced of what they

would gain. The practices of three companies are discussed. Essentially, they are

committed to being open with the community, are pragmatically using informa-

tion that they collect for management purposes on environmental, health and

safety issues and community involvement and are packaging it into a triple bottom

line framework.

While these companies have developed some additional information and man-

agement systems, the majority of this is packaged for communication purposes.

These companies have well-developed reports – some have led the way in the past.

Some are unsure about the types of measures to report and are sceptical about

whether the benefits would outweigh the costs.

A group of companies areunconvinced of the gainsof wider triple bottom linereporting beyond theircurrent communicationstrategies

26


Leighton Holdings’ rationale and approach to triple bottom line:

• believes a good reputation is a competitive advantage;

• pursuit of ethical business practices is a fundamental attribute;

• triple bottom line report to be issued in near future;

• the first step is to review current indicators produced across the company; and

• ‘natural evolution’ in identifying dimensions and relevance.

BOX 2.7 LEIGHTON HOLDINGS

Wesfarmers: A well-established record in environmental reporting

The CEO has stated that ‘the more public focus we put on our performance

in these areas the more pressure we put on ourselves to improve – and that’s

one of the main reasons for publishing the document’.


Planning and reporting

Wesfarmers is ‘mature’ relative to the majority of Australian companies in that it is

producing its fourth environment report in 2001. From a modest start the report

has progressively been extended to include all the business units. The process has

been evolutionary where the content, format and external verification processes

have been gradually developed from experience. A more uniform approach across

the business units has depended on the capacity of those units to collect and

assess comparable data.

External verification of results is a key feature of the measurement process. The

recommendation was for five-year improvement plans to consolidate the structure

of reporting. Where the previous themes were environment, safety and health, the

new categories are more oriented to business activities such as business manage-

ment, training, and management systems along with more tightly specified areas

of environmental and safety performance.

Challenges

As a diversified industrial company, Wesfarmers has a complex mix of businesses,

including joint ventures, a large number of shareholders and varied stakeholder

relationships. Moreover, the company is growing rapidly and facing the challenge

of integrating acquisitions such as IAMA and Howard Smith Ltd. The business

units operate autonomously and have varied levels of resources for extensive data

collection and reporting.

While the company is committed to continuing the evolutionary process of

reporting, to deliver on the commitment to be open and transparent, questions are

being asked about the forms of engagement and communication that give the

most benefit to the company and its stakeholders. While employee awareness of

the reports is expanding, there is a sense that they are most interested in insights

into their own business units, as opposed to wanting access to information about

the whole company. Also, the company is unclear about the impact the report has

on other stakeholders. While they seek feedback, it has been hard to determine its

value to those who receive it.

Committed totransparency but unsure about use by stakeholders

27


Key features of Wesfarmers’ approach to triple bottom line:

• committed to transparency: welcomes public scrutiny;

• pursuing a consistent approach across a rapidly growing company — although this is a challenge as employees are most interestedin their own business units;

• external verification of results is a core activity;

• unsure about use by stakeholders; and

• mature process: fourth environment report in 2001.

BOX 2.8 WESFARMERS

The challenge is therefore to continue to report widely and support the

evolution of reporting across all business units, but at the same time to have a

manageable process and one that is useful to stakeholders.

Orica: A mature process and still evolving

Orica has been publishing a safety, health and environmental report for six years,

site-specific reports for ten years, and is well regarded for quality and consistency

in this area. Orica see this as consistent with its ‘commitment to the sustainability

of our business and the world we live in’.


Orica, like Wesfarmers, operates complex process and engineering-based opera-

tions and, where possible, has established comprehensive internal data-gathering

mechanisms as part of quality management. It is also committed to openness with

the community, conducting community consultation panels and the like, and

welcoming engagement with stakeholders.

The reports have combined both qualitative and quantitative information.

Orica’s reporting has evolved from more descriptive accounts of performance and

the issues it considers important, to focusing on the facts and figures, reports on

achievements against targets and identifying targets for the future. Consistent with

the origins of its reporting to the community, over 50 per cent of its sites produce

additional reports for their local communities and this proportion will increase.

Letters of assurance, drawn from internal and independent audits, are part of the

due diligence approach in confirming the standards of management and operating

procedures for health, safety and the environment.

Orica’s main emphasis has been on providing results on health, safety and

environmental performance drawn from the information generated by its compre-

hensive management systems and information, which is reported to government

bodies as part of the regulation of this industry sector. A change in the type and

depth of information is largely due to the fact that it now has more robust data for

those areas of performance.

It is a mature operator when reporting in areas beyond financial performance

and has received awards for the quality of its reporting. However, it does not

see additional benefits in acting differently, other than continuing to improve its

current processes.

No strong business case for expansion beyondcurrent practice

28


Key features of Orica’s triple bottom line approach:

• committed to ‘community right to know’;

• produced health, safety and environment reports for six years;

• produced site reports for local communities for 10 years;

• establishing ‘real-time’ reports on their website; and

• no strong business case to support the expansion into other areas.

BOX 2.9 ORICA

Its recent report has retained the traditional measures but has also introduced

some different aspects that go a little further into social and economic dimensions.

The new aspects:

… relate to the future of our company and its role in society: material effi-

ciency, reduction in greenhouse emissions, product life-cycle assessment,

and social responsibility.


Orica’s website also provides information on health, safety and environmental

performance nearer to ‘real time’ than is possible in a paper-based report.

Challenges

Orica is comfortable with gradually improving on these established processes.

There is no apparent business case to radically change or extend these measures

further into the economic or social domains. Nevertheless, it continues to be

watchful of developments. As Orica increases its involvement in new international

markets the company is keen to ensure it is able to adapt its Australian practices

and standards to operations in countries that are less developed than those in

which they have traditionally been established.

Commonwealth Bank of Australia: Identifying suitable data

The Commonwealth Bank is a large and successful business. Reputational matters

are on the agenda for the top levels of management and there is an understanding

that ‘a sustainable business requires the company reputation to be sound on all

dimensions’. With 35,000 employees, the highest number of customers of any

bank, and with a strong position in the share market, the question is what more

could the Bank gain by diverting resources away from its core business to address

other concerns?


The Bank has conducted a shareholder audit that has revealed a very strong call

for transparency – ‘shareholders want information and they appreciate being told,

and told soon!’

The company is not responding to the various scans and surveys that are arriv-

ing; it needs to be far clearer about the possible business gain before putting time

into answering these resource intensive surveys.

Its approach to reporting to shareholders and stakeholders is being built round

the Global Reporting Initiative (GRI). As the GRI is essentially developed for

resource companies, the Bank has found it has many limitations with respect to

the financial services sector, particularly for a customer service company with

millions of customers.

For a successful business what more would be gained?

29


Key triple bottom line challenges for the Commonwealth Bank:

• identifying additional benefits for an already successful company;

• meeting shareholders’ information needs;

• the limited application of GRI to finance sector; and

• identifying economic, social and environmental data to be reported.

BOX 2.10 COMMONWEALTH BANK

Challenges

The main challenge is identifying what is feasible and appropriate to measure and

report to a wider audience. Identifying the dimensions for future reporting has

required a gap analysis of the data required by the GRI against the information that

is already available. This has highlighted additional information that should be

collected to enable more comprehensive reporting according to the general frame-

work of the GRI.

It is anticipated a more comprehensive report in the future will include the

following dimensions:

• economic (for example, staff, tax, funds, dividends, staff training);

• environment (for example, water and paper use, legal liability); and

• social (for example, the number of customers, fees, concessions, contributions

to the community).

Stakeholder alignment as the starting point

Asmall number of companies start from scratch, aiming to better align their

practices with stakeholders’ expectations. The strategies of five companies

are described in this general category. They actively engage with a wide range of

stakeholders not only to identify key issues and concerns, but also to partner with

them in managing environmental and social problems. Stakeholders’ expectations

are a major driving force for corporate direction, and performance measures are

well designed and often developed for specific stakeholder groups.

A range of starting points and practices is illustrated below. One common fea-

ture is the clear business benefits that are identified. Engaging more closely with

stakeholders is an imperative for a successful business. Another common feature is

the need to embed the processes into the company if the full benefits are to be

realised. Management improvements are a distinctive advantage that the more

experienced companies identify.

Westpac Banking Corporation: Accountable to more than shareholders

The Managing Director has said:

The future prospect for banks in Australia is not simply about how we

anticipate technological change, competition and globalisation, but

increasingly more about how well we operate in the social and environmen-

tal constructs applying across our industry … Conventional business

models tend to be short on guidance in this area … It would be the interplay

between the financial, social and environmental factors driving our indus-

try that will ultimately determine the future of our industry … A company

cannot succeed unless it is accountable to more than just shareholders.


Within this context, Westpac sees the drivers of a more integrated approach

to responding to community demands as twofold: those expectations concerned

with service and product quality (reliability and value); and those derived from

the community norms (ethical practices, accountability, transparency and

acting responsibly).

Some companies focus on better aligning their practices withstakeholders’ expectations

30



Westpac has a long history in communicating on more parameters than financial

results. In the mid-1990s it issued an environmental policy, was a signatory to envi-

ronmental protocols and participated in the Greenhouse Challenge. In 1992

Westpac was one of six banks in the world to sign the founding United Nations

statement on financial institutions and the environment. Given that it has a very

long experience in attempting to be open with stakeholders, it is a logical step to

develop a more integrated set of commitments and reporting parameters.

An ‘overriding goal is to make the practices of the bank transparent to stake-

holders’. The challenge is establishing the form that this might take.

There would be hundreds of key performance indicators established in the

company to drive internal management, but these are obviously not direct-

ly relevant in that form for external audiences.


Westpac believes that ‘scrutiny of performance drives incentives to deal with

those shortfalls – it is a good test of our performance and standards’. Westpac is

‘very comfortable’ being rated by the reputation and performance research agen-

cies; for example, the Dow Jones Sustainability Group Index for ethical investment

purposes rate them very highly.

However, Westpac came to the realisation that it should be ‘telling the world …

about our performance’. The starting point will be a web-based communication,

‘Being Responsible’. It will be a statement of ‘social responsibility practices’ and an

important step in constructive dialogue with customers, government, communi-

ties and staff:

It seeks to put what we do into plain language and to make it widely available.


The policies and practices to be measured and communicated reflect, among

other things, practices that the community expects from ‘companies like us’. The

key areas will be governance and ethical conduct, market place practices, human

rights and employee practices, occupational health and care for the environment,

community involvement, and financial controls and risk management.

In developing the framework Westpac examined other companies’ sustainabil-

ity reports. It found many were very complex and not sensitive to the audiences’

needs. An important driver for designing their approach was to understand what

stakeholders would want of them and then establish how to communicate this in

the most accessible and meaningful way.

Security of performance is valued

31


Key features of Westpac’s triple bottom line approach:

• Guided by: what stakeholders want and the best ways to communicate — communication will reflect ‘what we stand for andwhat we do’.

• Benefits: loyal customers, motivated employees; public influence.

• Focus will be: governance and ethical conduct, market place practices, human rights employee practices, occupational health andcare for the environment, community involvement, and financial controls and risk management.

• Challenges include: selecting indicators, being realistic and staying relevant.

BOX 2.11 WESTPAC

Challenges

The overriding goal is to develop a process to communicate ‘what we stand for and

what we do’. A difficulty is that expectations change so the development process

needs to be dynamic and relevant.

Westpac will attempt to report the information that stakeholders see as of

primary concern but recognise the complexity in selecting relevant indicators.

For example, Westpac believes that around 90 per cent of ISO 14001 is not

relevant to the purposes it would wish its reporting to serve. Westpac has therefore

embarked on developing its own performance indicators that are credible and

recognisable to all stakeholders:

There is no central external group that can determine that [relevant indica-

tors] for us we have to look to our own needs and the needs of our

stakeholders … Banking is in fact a very difficult industry and essentially no

one has broken the mould on their business models for reporting.


Another caveat on reporting, is ‘you can’t get ahead of yourself’. Reporting must

be a reflection of real performance and aspirations, and each organisation needs to

establish the needs of opinion leaders and those who can give guidance and confer

credibility. For example, in the disabilities area it might be the Human Rights and

Equal Opportunity Commission.

WMC: Well-developed sustainability reporting

WMC is seen as a world leader in triple bottom line reporting.23 The company has

been publishing an environmental report since 1995 and it issued its first commu-

nity report in 2000. The rationale can be summed up as:

We recognise that people affected by our operations have a right to be

considered in our activities and can have an impact on our ability to

prosper … traditional practices and current technology will not always

provide acceptable solutions in the future. We accept the challenge of

adapting to meet changing standards.


The Managing Director has stated his commitment to openness and account-

ability. He expects this of the community agencies, government and others that the

company deals with, and ‘can hardly exempt the company from meeting the same

standards’.

WMC has refined the measurement and reporting processes to serve as

motivation for improved performance, as well as a mechanism to reflect perfor-

mance. This has, in turn, led to establishing information management systems,

data-collection processes and verification techniques to ensure the content is

accurate. The process has become embedded in the company’s operations and is

now a routine part of the work it does.

Credible and recognisableperformance indicators for all stakeholders

Mutual expectations for openness andaccountability

32


23 SustainAbility and the United Nations Environment Programme (2001). The Global Reporters:International Benchmark Survey of Corporate Sustainability Reporting, London.


The strategy has been to bring business performance reports into alignment with

the timing of financial reporting. In 2001 the community report was combined

with an environment report, and a safety and health report was also issued. For

2002 the goal is to produce a sustainable development report with consideration of

a single report in the future. As it is a public document, the ASX standards for accu-

racy need to be rigorously observed and that has required considerable attention

to the business systems that support the reporting process.

WMC see that this process serves three main functions. First, reporting is a

reflection of where a company is. Second, it can also serve as an aspirational docu-

ment to motivate and show the forward thinking of the company. Third, it can be

the basis for a more formal public commitment for the future:

If it achieves this it can then serve as an important driver of business

processes – which is probably its most important contribution.


WMC’s experience is that embedding the commitments into the company

practices can take a long time when the process is being led in a top down way –

‘new processes around environment or community impact compete with the

more established engineering and business based regimes’. WMC concedes that a

top-down introduction, rather than early integration into the business line plan-

ning, is ‘doing it the hard way’. The challenge of building ownership of the initiative

therefore becomes imperative.

In WMC this has been achieved through a number of mechanisms. The ‘sus-

tainability’ dimensions have been built into line area business plans. Business

systems were also established in fields such as human resource and training, envi-

ronmental management and safety management. (For environment the system is

built on ISO 14001 although not certified as such.). WMC does not as yet have a

supporting management system for community objectives and there is a sense

that this weakens the data.

Verification is an important part of reporting publicly. WMC use auditors,

rather than community groups or non-government organisations, which apply the

conventional rules of auditing to the verification process. The auditing system has

taken about four years to develop.

33


Key features of WMC’s triple bottom line approach:

• Focus: it has a commitment to openness.

• Main functions: it signals where a company is, where it wants to be and where it commits itself. (Reporting drives companyperformance, as well as reflects it.)

• Benefits: risk management, reputation and drives performance.

• Challenges: establishing valid measurement and data management, valuing ‘intangibles’ in a statistically driven environment andnew skills are needed for line areas.

• Market position: an early leader in environmental and social reporting.

BOX 2.12 WMC

The auditors have the freedom to pursue any angle they wish and to visit

any site. This is expensive but it provides management with a sense of

assurance that is appropriate in an engineering-based and publicly

listed company.


WMC does have a community panel and it also reports on its views of

the company.

Challenges

‘Sustainability reporting is, however, a demanding process’. The benefits are fre-

quently intangibles, are in a longer time frame and in that ‘grey area’ that is difficult

to account for. ‘This is especially the case in a business context where managers

prefer to deal with statistical probabilities.’ Managers also need to be able to com-

municate well to disseminate the social and environmental reports.

It really requires a new set of skills for mine managers and for them to not

only look at their production results in the next month, but also to consider

the outlook in the forthcoming years.


WMC has learned that new initiatives in a company must be accompanied by a

budget, accountability mechanisms and ‘ownership by the business managers –

otherwise it will not endure beyond the enthusiasm of the proponents’. As yet,

management competencies are not explicitly tied to sustainability characteristics.

Over time, promotional opportunities will come to those managers who

demonstrate the wider management skills required for effectiveness in this area.

Telstra: First steps in sustainability reporting

The drivers for wider reporting differ across a company. Pressure points include

growing community expectations for large companies. Those particular to Telstra

comprise service standards, results from an increasingly sophisticated stakeholder

research program, the need for a co-ordinated response to the growing require-

ments of reputation and socially responsible investment screening.


Telstra’s Public Environment Report is drawn from an increasingly comprehensive

data-collection system from across its many businesses and operating divisions.

Public reporting is an integral part of Telstra ‘taking on the challenge of being a

sustainable company’. It acknowledges that sustainability integrates the three ele-

ments ‘commonly referred to as the triple bottom line: economic, environmental

and social.

There is a groundswell across Telstra supporting the many initiatives that

move us towards enhanced sustainability management and reporting.


Budget, accountabilitymechanisms and‘ownership by the businessmanagers’ is crucial

34


Challenges

The identification, measurement and reporting on environmental issues is well

developed, in contrast to economic and social elements. Accordingly, environ-

mental performance serves as the centrepiece of Telstra’s public report, but

includes discussion of implementation aspects, such as employee training

and stakeholder communication. There is also discussion of how Telstra views

stakeholder interaction and relationship-building and how it manages to meet

external expectations.

While there is room for improvement, we have largely covered economic

and environmental reporting – the social aspect is another matter.


Telstra is unsure whether to combine the non-financial and financial reporting

into a single document.

Unilever: Local and global accountability

The Unilever Group chairmen have stated that, ‘to succeed requires the highest

standards of corporate behaviour towards our employees, consumers and the

societies and the world in which we live’. A core objective is therefore to turn

commitment into practice and demonstrate performance. Combined with its

commitment to be ‘open and transparent’, Unilever has responded by developing

a global and comprehensive environmental and social reporting program that

balances the need for local accountability with global accountability.

However, the parameters for developing an approach to stakeholder engage-

ment and reporting is vastly different in a company such as Unilever, compared to

a resource-based company. Unilever has a decentralised structure, it sells con-

sumer goods under multiple brands in 150 countries, and there are multiple

suppliers and multiple sites. The company had to design an approach that fitted its

values and was suitable to the realities of a consumer goods business.

As in many other companies, a further incentive is having the capacity to

respond to the raft of requests for information the company receives from third

parties. This is a recent phenomenon but ‘it has snowballed and is causing a

rethink on data management.’

35


Key features of Telstra’s triple bottom line approach:

• It’s taking on the challenge of being a sustainable company;

• is part of a suite of accountability and consultative mechanisms; and

• uses stakeholder input to refine the process and content.

BOX 2.13 TELSTRA

Key features of Unilever’s triple bottom line approach:

• Goal: to turn commitment to practice and demonstrate performance.

• Parameters: different to a resource-based company: — with a decentralised structure, consumer goods brands in 150 countries,and multiple suppliers and multiple sites.

• Challenges: what to report locally versus internationally, how to achieve comparability and maintain relevance, how to identifymeaningful trend data and benchmarks, and how to deal with gaps between principles and achievement.

• Next step: is ‘seeing it as a whole’.

BOX 2.14 UNILEVER


Managing the logistics and processes for wider company engagement and report-

ing is a complex operation. The company has had to decide: what to report locally

versus internationally, how to achieve comparability and maintain relevance, how

to identify meaningful trend data and benchmarks, and how to deal with gaps

between company principles or aspirations and actual achievement.

Unilever has collected data on environmental performance for the past

ten years, which has yielded substantial trend data. The first environment report

was published in 1996, the second in 1998 and in 2000 it was published online.

(This has its advantages and disadvantages because many people prefer hard

copies but the cost and the distribution logistics are considerable.)

The company adopted the attitude of taking a few risks with the content:

Lets go for it; if it is wrong or not quite right let’s not worry too much

because it is better to get under way and communicate and get feedback.

The challenge is deciding how much detail is presented and the best way to

present complex information.


On the economic side, data were readily available: rate of return on equity, dis-

tribution of equity and value-added calculations. On the social side the challenge

was to determine how the company could measure social, as well as environmen-

tal performance, including ways to take into account the newer social issues as

they came up, such as genetically modified foods.

To better understand the company’s capacity to do this, it conducted a pilot in

nine countries around the world. It sought to understand the way the company

engages in a socially responsible way in the ‘many and varied day-to-day relation-

ships with society’. It identified seven particular stakeholder groups: shareholders,

employees, consumers, suppliers and trade customers, government, local commu-

nities, and academics and others with whom they do research.

Each country completed a self-assessment manual, which enabled Unilever to

review in depth how it lives out its values in practice and measures and critically

assesses its performance. The report drew on data that are regularly collected and

supplemented by local information and case studies.

Challenges

Triple bottom line reporting is no longer just pigeonholing information into

financial, environment and social.


While data for certain environment parameters are available – for example, waste

water – the data are not available for measuring the value of supporting local com-

munities through assisting children in education. Unilever therefore acknowledges

that ‘it is still learning’ and will continue to experiment in measurement.

For Unilever, communication is increasingly integrated as many stakeholders

have interests and questions that range over all three areas of triple bottom line. As

a consequence, the environmental report requires many more linkages drawn to

economic, financial and social aspects. The next phase is ‘seeing it as a whole’, but

before making decisions it will seek more feedback from customers and stakehold-

ers on their needs.

An initial task was tounderstand the company’ssocial and environmentalpractices

36


ANZ: Starting with commitment

ANZ is at the early stages in developing its approach to reporting to the communi-

ty on a wider set of parameters than financial.


The process to date has involved setting in place mechanisms to meet customers’

most immediate needs. In introducing its first Customer Service Charter in

October 2001, ANZ’s Managing Director acknowledged, ‘we know we still have a

long way to go in restoring customers’ faith in us’. The Charter is seen as a ‘further

step towards improving the bank’s value and service to customers’. It established

benchmarks for the provision of service to customers in five initial areas: simple

and fast account opening, access to services, privacy, plain language communica-

tion, and complaint resolution.

The Customer Service Charter is part of a broader set of initiatives, including a

Customer Advocate and an enhanced community relations program that will

extend the bank’s improvement strategy to include customer service and commu-

nity relations, as well as the bank’s financial and operating base.

ANZ will be reporting publicly, as part of the annual reporting process, on

progress with the Customer Service Charter and other customer and community

initiatives. Measurement will be quantitative and qualitative.

Challenges

Getting the sequence right and achieving the right balance is the main task ahead.

It has started a process to establish a better understanding of the expectations

of the community and customers before determining the strategies that will best

meet those needs and how results would be communicated.

Guided by sustainability principles

Another group of companies is developing sustainable development principles

to guide its operations and strategic directions – these are often developed in

consultation with stakeholders. The principles provide a focus and the companies

encourage their performance to be judged against these. Triple bottom line is

embedded in their operations and they often seek to create products and services

with characteristics that reflect their principles. Four major companies operating

in this way are discussed.

Sustainable developmentprinciples that guideoperations and strategicdirections

37


ANZ’s initial steps in triple bottom line include:

• understanding stakeholder expectations and making commitments;

• developing a Customer Service Charter – with the aim of evaluating performance against this in the future;

• reshaping community relations initiatives; and

• progressing slowly to reporting on non-financial indicators.

BOX 2.15 ANZ

A number of these companies are global and operating in the United Kingdom

where the public policy context is encouraging companies to move in the direction

of the triple bottom line. The case studies illustrate the depth of planning that

underpins their activities. Each strives to consolidate the link between measurement

and reporting, accountability to the community and performance improvement.

Rio Tinto: Stakeholders and sustainability

Rio Tinto globally and in Australia has been a leader in developing a deep

understanding of community and stakeholder expectations. It has generated wide-

ranging strategies to engage with the community’s expectations of its business.

Rio Tinto in Australia has a robust ‘Business in the Communities’ program that

‘places direct emphasis on forging active relationships with organisations and

communities’. As the Chairman said:

Issues once thought to be remote from the conduct of our business are now

integral to it and others are becoming increasingly important to us: sustain-

able development, climate change, human rights, biodiversity and product

stewardship among them.

Rio Tinto, Social and Environment Review 2000

Widening the parameters for communicating and reporting on company per-

formance has been an integral part of this process. The company explicitly states

that it is seeking a ‘reciprocal arrangement’ with those who ‘have a stake’ in its

affairs, listening to each other and learning.

While the decision to report on more than financial data has been an evolu-

tionary process, there have been a number of matters under company law that

have focused the attention of the board (for example, The Turnbull Report in the

United Kingdom requires directors to sign that they have systems in place for all

aspects of their company’s performance). Company law is under further review

and it is expected that there will be more requirements placed on directors. Also,

the Blair government has made a request to the ‘top 350 companies’ that they

report environmentally and socially. Reporting more widely is not yet mandatory

but it is evident to Rio Tinto that there is a slow increase in the pressure for

accountability in this area.

There is also a shorter term and more pragmatic reason for developing wider

access to information about the company. The company headquarters in London

has observed that around two years ago external requests for information about

social, environmental and other aspects of company performance started to grow.

There is now a flood of requests connected with socially responsible investment

that call for a new level of information.

Seeking a reciprocalarrangement withstakeholders: listening to each other

38



For a company, the greatest value is in the process of measuring and com-

paring, rather than the direct focus on performance outcomes as such.


Five years ago Rio Tinto had very little data. Previously it had to draw its report

from what it could collect.

It has taken three years to get ‘the numbers right’. As everyone in measure-

ment knows, the numbers change in the first years as the processes

improves, so the best thing is not to delay reporting but to get started.


Decisions about the content and format of the report are complex. Ideally, the

company wants more detail contained on its website (like a set of library resources),

a sharper executive summary and the document appearing in hard copy.

Multinational (and indeed national) companies face decisions on the scope of

reports. The primary aim is to address the needs at the community level and to

promote dialogue. The report for the global company reflects the group as a whole,

but the reporting system makes provision for affiliates to report according to

their own experience. The process that each affiliate follows is to talk with the

community, to report against last year’s performance, and establish targets for

the subsequent year.

Deciding ‘what’s in’ commenced with conducting focus groups with stakehold-

ers and community partners on their priorities. In the environmental area there

has been a long process of sorting out the mix of stakeholders’ expectations.

The preferred focus was that measurement concentrates on the local impact of

Rio’s operations with global issues being a second-order consideration. The priori-

ty is that data collection be directly useful for Rio Tinto in the management of

its business.

In the company’s global reporting on social and environmental performance

there are three areas: ‘The World we Live in’, which covers sustainability issues;

‘Engaging with our Neighbours’, which reviews community relations and social

and economic impact on the community; and ‘Taking Responsibility for the

Workplace’, where aspects of employee relations are covered.

Verification and auditing is vital in this process. A significant question is

whether the large accounting firms have a role to play.

Local need at thecommunity level isprimary concern

39


Key features of Rio Tinto’s triple bottom line approach;

• Development: founded on a commitment to sustainability and stakeholder engagement – experience has been an evolutionary process.

• New driver: socially responsible investment surveys are an added and important impetus.

• Reporting scope: reports globally with links to local reports on the website.

• Key challenge: how far to take measurement – any additional measurement must also be of use in management.

BOX 2.16 RIO TINTO

Challenges

A major challenge is making external reporting meaningful and central to internal

management. Management style is changing significantly and it is increasingly dif-

ficult to find any one trigger that will change behaviour and performance. Social

and environmental reporting is a possible trigger, but if the needs of managers

are not taken into account the opportunity to have an internal impact is lost.

Managers tend to think about company performance in an integrated way that is

focused on their line or functional area. The test for social and environmental

measurement and reporting is to reflect this focus.

The issue of added costs is important. The question is does a company put

resources into the substance of actually improving performance or extending the

collection of data?

British Airports Administration (BAA): Contract with the community

The CEO believes that a company, ‘cannot grow and prosper without the consent

of people and people’s expectations are changing’.

Developing an integrated approach of reporting to stakeholders was a journey

that BAA embarked on seven years ago. The company employed a well-known

Greenpeace activist at a senior level to assist it to understand the problems that

aviation faces in relation to meeting community expectations. An early step was to

embark on reporting to the community on environmental performance.


BAA has continued its leadership in reporting to the community and is the first

company in the United Kingdom to issue an environmental and social report on the

same day as the financial report. It is now about to issue a fully integrated report in

one document and also makes this information more widely available through its

website. Importantly, all planning decisions in the company now take into account

environmental and social impact, noise, air, waste and renewable energy.

The annual report is particularly commended by the United Nations

Environment Programme (UNEP) review because of the way the reporting process

has developed.24 BAA attempt to report what is not working as well as its successes,

and it also published the environmental consultants’ audit of the report. UNEP

particularly value BAA’s report on the practicalities of how to seek buy-in and to

drive through decisions.

Difficult to make externalreporting meaningful and central to internalmanagement

40


Key features of BAA triple bottom line approach:

• Priorities and focus: a ‘contract with the community’ – publicly expressed priorities and targets – is the foundation of the triplebottom line approach. It ensures the business grows in a sustainable way.

• Reporting: ‘cutting edge’; committed to openness (reports both good and bad news stories); embraces community validation; andbased on practical matters.

• Benefits: business case proved through community endorsement of airport expansion.

BOX 2.17 BAA (BRITISH AIRPORTS ADMINISTRATION)

24 British Airports Administration was nominated as a top company in the: SustainAbility and the UnitedNations Environment Programme (2001). The Global Reporters: International Benchmark Survey ofCorporate Sustainability Reporting, London.

On reporting, BAA regards the ‘environment is easy – it is relatively easy to mea-

sure’. There are lots of rules regarding environmental improvement and

stakeholders are well aware of the general standards required. Data collection for

BAA similarly is not a problem – if the requirements increase it simply measures

more aspects of performance.

Social impacts, on the other hand, are very hard to evaluate. For example:

One might measure the volume of volunteers in the community, but that

does not answer the question as to what their contribution is worth.

Similarly, one might measure the resources allocated to education, but

again the degree of impact is not measured.


BAA believes that triple bottom line reporting will eventually become manda-

tory in the United Kingdom, and this will include dimensions such as employment,

contributions to charities and safety.

In summary, the BAA experience is one that inextricably links future growth

with a commitment to sustainability and openness with the community. BAA has

consolidated the sustainability goals in a program called ‘Contract with the com-

munity – public and uncompromising promises and targets’.

The capacity of the company to demonstrate its ability to take community

standards into account was a major factor in enabling the expansion of Gatwick

Airport from handling 31 million passengers to 40 million passengers. BAA

believes that this was only possible because it implemented it programs in

response to community expectations. Its huge success commercially is attributed

to open and responsive community relations.

Challenges

A challenge for BAA is how to keep expanding the business with active community

support. This may become increasingly difficult because people and interest

groups are far more watchful and ever more articulate. Global aviation is becoming

increasingly important in the environmental movement and it is very hard for

industry to strike the right balance between growth and meeting all environmental

concerns.

Nevertheless, for BAA to survive as a profitable and responsible company it needs

to be seen as taking the lead in open and trusting relations with the community:

The final challenge is to avoid imposing cosmetic solutions instead of real

management solutions. A short term advantage may be gained, but the

longer term problems will not abate until a company realistically and gen-

uinely embraces community concerns in its business strategy.


Shell: Language and processes for the future

As part of a global company committed to sustainability and engagement with

stakeholders, Shell Australia has embarked on its own process of engagement in

the Australian community. Consistent with the sustainability framework devel-

oped to guide the global company, Shell Australia also produces an annual review

and statements on environmental, economic and social performance. The reports

Believe triple bottom line reporting willeventually becomemandatory in the UK

Contract with thecommunity: public and uncompromisingpromises and targets

41


cover dimensions of the company behaviour, performance and impact in areas

relevant to local communities and stakeholders in the wider community:

Shell Australia’s primary role is economic. By creating wealth and transfer-

ring skills, we contribute to economic and social development and generate

resources for social and environmental improvement.

Shell, How do we stand? People, Planets and Profits: The Shell Report 2000


The Global Report has now been through a number of stages. One of the most

significant benefits would be that it has created a macro framework in which to

articulate what the company aspires to achieve:

If you don’t have a macro framework you continue to deal with micro

problems. The macro framework enables you to spend less time wading

through small, specific issues.


The origins of the global sustainability framework lay in an extensive internal

and external stakeholder consultation project in 1996 and 1997. The company con-

cluded that it had to be more outward looking and had to engage with stakeholders

with these two elements driving a revision of its business principles to determine if

‘they are fit for purpose’. Some business principles remained the same, such as

operational integrity, but there were a number of additions such as human rights

and sustainable development.

The well-publicised first report issued by Shell, Profits and Principles, ‘is

arguably a democratic piece of work’. This report essentially gave an account of the

stakeholders’ views received through the extensive consultation activity. Shell

found that this exposed far more staff to the fundamental questions facing man-

agement, and hence had considerable benefits in organisational development.

The next step for Shell globally will be to integrate the social and environmental

reports into the annual report. This will be a highly significant step for the compa-

ny and undoubtedly will have implications for other global corporations.

There are many benefits. A core matter for Shell was to understand how it could

use the process of renewal to differentiate its business:

Customers are not just buying a product but are buying into values –

therefore there is a commercial gain from understanding your core values.


‘Outward looking’ andstakeholder engagementdrive business principledevelopment

42


Key features of Shell’s triple bottom line approach:

• Focus: centred on redirecting the culture by taking stakeholder engagement into account.

• Reporting: macro reporting framework helps articulate what the company aspires to achieve. Operates within well-publicisedglobal parameters.

• Two way communication: new language and reporting opportunities enable dilemmas to be discussed rather than the companyappear ‘all-knowing’.

• Challenges: must do internally what is said externally and avoid a credibility gap, ensuring relevance for line management, andsustaining this focus in the highly competitive environment in Australia.

BOX 2.18 SHELL AUSTRALIA

Another significant benefit has been for employees. The stakeholder consulta-

tion process and the language embodied in the sustainability framework enabled

the company to openly debate the major dilemmas that it faces rather than the

company being forced into assuming the position of being all-knowing.

Challenges

There are a number of major lessons that Shell has learned: ‘you must do internal-

ly what you say externally’. A company can project an image of concern and

activity in the community, about improved environmental practices and employee

relations, but in reality things may not have changed. Companies that do not

vigorously engage with their own leadership teams on these matters are faced,

usually in a short period of time, with a huge credibility gap between what they say

to the wider community and what the company actually does on the ground:

Our line areas, particularly in the downstream sector, continue to ask what

does it mean for us and this reminds us that we still have a lot of work to do.


Shell reports ‘in the spirit of the Global Reporting Initiative’ but admits that it is

‘hard to take something off the shelf’. Often the parameters are too restrictive

where the company might want to report more widely. It sees these initiatives are

helpful but only in the early stages of raising awareness.

Shell does not want a product off the shelf, it wants to build its own

understanding of reporting areas and refine the process to suit its own

stakeholders and employees.


Verification is also a complex matter. A major accounting group verifies Shell’s

health and safety and environment data – there are, however, limitations to the

verification process as it is conventionally conducted. Auditing does not address

the question of whether the data have a use value. Shell now seeks to go beyond

verification and publish stakeholder feedback as proof. Stakeholder engagement,

both formal and informal, leads to third-party endorsement. Accounting firms are

struggling with this style of verification.

AMP: Sustainability principles for triple bottom line

AMP recognised that in many ways:

It has a direct and indirect impact on the lives, communities and environ-

ments of millions of people … they all have a legitimate interest in the way

AMP conducts its business.


Throughout its 153-year history, AMP believes it has adopted a philosophy of

‘responsible corporate behaviour’ towards its stakeholders, shareholders, cus-

tomers, employees, suppliers, governments, non-government organisations and

the broader community around the globe. It understands that:

Society is demanding that companies take greater responsibility for their

social and environmental impact.


Must do internally whatyou commit to externally

43


AMP has observed the growth of triple bottom line considerations and report-

ing practices, and has sought to determine the directions that it might take.


The Board’s decision has been to place an increased emphasis on the implementa-

tion of sustainability development principles across all AMP operations. This

approach is now incorporated into the company’s strategic priorities for 2001 to

‘create an organisation that is socially responsible.’

Its approach will encompass social issues such as employee practices and com-

munity development, as well as environmental issues such as climate change and

resource use. It will be integrating social and environmental issues, as well as

financial, into the business decision-making processes.

It is making use of the various guidelines for measurement and performance

indicators, but is cautious about adopting processes that are ‘black and white’.

Rather it recognises that:

It calls for a more credible and thoughtful approach … and different

industries need to understand their own conditions because they

manage matters differently.


AMP intends to bed down the internal processes for two to three years before

reporting more widely. It will develop a consistent and credible management

process and measurement and reporting systems for sustainability.

Establishing the management systems for sustainability is being centrally led

with close connections to the AMP Board. Each business unit is identifying short

and long term sustainable development priorities to contribute to the company-

wide framework. A key aspect of this process is consultation with a broad range

of stakeholders:

Dialogue with the community will be fundamental to the company’s

journey towards sustainable development and to being recognised and

supported by all stakeholders as socially responsible.


Bed down internal processbefore reporting externally

44


Key features of AMP’s triple bottom line approach:

• Pursuing fundamental grassroots change for sustainability reasons – not publicity.

• Creating an organisation that is socially responsible.

• Bedding down internal management process for 2–3 years is a priority before wider reporting begins.

• Stakeholder dialogue is proceeding on community involvement priorities.

• Plans to integrate environmental and social decisions with financial.

• Being led with close connections to the AMP board.

BOX 2.19 AMP

Challenges

AMP is pursuing ‘fundamental grassroots change – not publicity’. The steps for

reporting on these objectives and results will be taken very slowly. It wants its

employees to be fully engaged in developing an external version of its progress

to sustainability.

A challenge to those managing such processes in any company is to avoid the

‘flavour-of-the-month effect’. This calls for a concerted effort to create a full aware-

ness in the organisation of the benefits and to involve all levels of the company.

A further task is to avoid building unrealistic expectations for commercial gains

from greater community investment. Wider involvement with the community

is integral to its approach, but it is not a simple adjunct to marketing but

a way of relating to stakeholders and contributing to the public good. A

company also needs to convey to stakeholders its motivation, as well as its activi-

ties and outcomes:

As an organisation we need to develop policies and practices that are rele-

vant to our business strategy and operations, while at the same time

balance these needs with the interests and concerns of our stakeholder

groups and the delivery of stakeholder value.


Culturally and philosophically driven operations

The final group of companies to be profiled are those leveraging from their

commitment to sustainable development to better learn, innovate and

manage for the future. They adopt a bold and solid approach to sustainable devel-

opment around principles such as zero waste and sustainable product life cycles.

They see that their core business is fully consistent with their endorsement

of sustainability.

The companies described here are not publicly owned. At this stage in the

development of triple bottom line this may provide the basis for the very strong

commitment they exemplify.

Visy Industries: A values-driven business

Visy’s core business operations and philosophy are integrally based on what it

refers to as a sustainable development approach – it sees itself as a triple bottom

line business. In one sense, much of its activity falls outside that covered in this

review but its philosophical position is illustrative of a private company at this end

of the spectrum.


Formal reporting forms one small component of its total communication strategy

that embraces extensive dialogue with stakeholders and partners. As a private

company, it produces substantial internal environmental and social impact infor-

mation, but externally it reports on a ‘as needs’ basis as far as the wider community

is concerned and according to commitments it has made such as the National

Packaging Covenant.

Fundamental grassrootschange – not publicity

Core business isphilosophically consistentwith sustainability

45


The environmental focus is essentially on ‘closing the loop’ by reusing and

recycling paper, cardboard, plastic, glass, and steel and aluminium products. The

Pratt Foundation and Visy Cares reflect the social dimension. Visy donates more

than 3 per cent of its pre-tax profits through the foundation to numerous not-for-

profit organisations. The current focus is on Aboriginal health, the environment,

youth in crises and religion. In addition, Visy Cares works with local communities

to develop projects that enhance the quality of life and provide benefits for disad-

vantaged, minority and special needs groups.

Challenges

Visy’s ultimate strategy is to contribute to developing a sustainable society, which

has the following features:

• much less dependence on non-renewable natural resources;

• a much lower net production of substances and phase-out of persistent

substances;

• a reduction in negative environmental impacts; and

• more efficient and equitable use of available resources.

While Visy is now on a sustainable development path, it did not start on this

road for environmental reasons, rather ‘because it made good business sense’.

Over time, however, the direction and focus has moved from a compliance focus to

‘beyond compliance and towards sustainable development’. Visy would like to

keep developing its processes in the way that works best for it and its stakeholders:

Triple bottom line is a very good management tool and the focus and

priorities will vary from business to business so it must remain flexible –

government should not prescribe indicators.

The best benefit comes when companies need to develop their own focus and

identify stakeholder concerns that they intend to address and report on.


The Co-operative Bank: Partnerships define its core business

The Co-operative Bank in the United Kingdom is wholly owned by a co-operative

and its background is philanthropy. It is not publicly listed and it is run by a share-

holder conglomerate. It is atypical in the finance sector: because it has pushed the

boundaries of social and environmental reporting, major banks are looking more

closely at its achievements.

The core-underpinning concept for its corporate citizenship is a partnership

approach that commenced in 1990. The partnership approach frames its relation-

ship with seven partners or stakeholders: customers, staff and families, suppliers,

local communities, national and international society, past and future generations

of those in co-operative movements, and shareholders.

46


Key features of Visy Industries’ triple bottom line approach:

• business philosophy and operations are integrated within a sustainable development framework;

• reporting is done internally for employees and shareholders, and externally on an ‘as needs’ basis;

• operates in a model that clearly identifies stakeholder concerns and corporate priorities;

• ‘triple bottom line’ is considered to be a valuable business tool; and

• moving beyond compliance towards sustainable development.

BOX 2.20 VISY INDUSTRIES

Through an extensive consultation process with customers in response to a

downturn in business, it identified ‘ethics’ as a potential competitive advantage.

The bank came to the position that ‘being ethical’ was of value to customers.

As with many other companies, it came to this understanding out of crisis.


The initial approach to establishing a business plan around the value of being

ethical was to institute a screening process for investments by asking customers

what values they thought should be supported through investment. It surveyed

customers regularly as attitudes are culturally and time-specific; for example, in

1998 only 8 per cent said that genetically modified organisms were an issue, but

now there is a far higher proportion of customers showing concern. (All surveys

said that NGOs and charities are more trusted than public groups in the communi-

ty and hence dialogue with those groups became a very important input to the

bank’s planning.)

The next step was to ask customers if they wanted proof regarding the bank’s

actions. They assumed that customers trusted the banks but the audit culture of

the United Kingdom led the bank to conclude that proof was needed. It also start-

ed to examine internal environmental issues such as waste, recycling and the use

of air-conditioning. The bank developed an ecological mission statement.

Reporting is geared to indicating to the seven partners the extent to which the

bank has delivered value. The first report was issued in 1998. A core goal is that

the partnership surveys are integrated into the business and become a driver of

the business.

Challenges

One difficult issue in reporting includes how to deliver greater value to partners

when their performance is already high. For example, there is already a higher level

of customer satisfaction than would be evident in more traditional organisations.

Measuring improvement therefore may be misleading.

The bank knows that on the social side there are many complexities; for exam-

ple, how to measure the inputs and outcomes of community involvement? Also,

incorporating the perspective of its partners into all aspects of the business is

another challenge.

The bank is engaged in a consortium of banks concerned with the Global

Reporting Initiative, but there are many cultural difference that place significant

limitations on the international comparability of indicators and measures. For

example, different cultural attitudes to part-time work, ethnic minorities or to peo-

ple with disabilities are limitations on establishing an international template.

Stakeholder surveys are integrated into and drive the business

47


Key features of the Co-operative Bank’s triple bottom line approach:

• it grew out of financial crisis – went to customers to see what they valued;

• ‘ethics’ have become the foundation business value;

• seven partner/stakeholder groups define the parameters for their ethical business – partners are regularly surveyed to identify whatmatters to them;

• measurement and reporting is structured around how they add value to the seven ‘partnerships’; and

• multi-dimensional indicators are reported.

BOX 2.21 THE CO-OPERATIVE BANK – UK

Conclusion

There are many common features among companies but, as the case studies

illustrate, the pattern of motivations, priorities, strategies and perceived bene-

fits varies.

To see a pattern in current practices, companies were grouped into five general

categories. The first group represents the bulk of companies in that they are either

not taking any action at this stage to change their measurement or reporting, or

they are waiting to observe the benefits other companies identify. Companies with

well-recognised brands, such as Fosters and Woolworths, are satisfied with their

current communication channels, relations and reputation with their customers,

employees and the community. Some, such as Leighton Holdings, are thinking

about the first steps they will take towards a triple bottom line approach and are

weighing up the possible business gains.

There are others such as Wesfarmers and Orica who are far from newcomers to

openly communicating a rigorous assessment of their environmental performance

and observing a ‘community right to know’ principle. These companies under-

stand the benefits of greater transparency and accountability to the community.

However, potential additional benefits from changing their strategies to embrace

a wider form of measurement and reporting, requiring more resources and

management attention, are not yet apparent. Such companies prefer to let their

processes evolve.

Others are either poised to go more deeply into triple bottom line strategies

(not necessarily labelling their activities as triple bottom line), or are already well

engaged. Some, such as Westpac, have started from developing a better under-

standing of stakeholder needs to developing measurement, accountability and

communication systems. Others, such as WMC, are already embedding their

approach into the management systems of the company and identifying signifi-

cant benefits in enhanced management.

Another group of companies have a set of principles as their guiding frame-

work. While the well-established global companies Rio Tinto and Shell, for

example, are mature in their processes, while still acknowledging there is a long

way to go, others, such as AMP, are just starting on their journey. A common theme

is to avoid aspirations getting ahead of reality. These companies have embarked

on significant cultural change. Transparency and accountability for economic,

environmental and social performance outcomes applies not only to the needs of

those external to the company but to employees.

Finally, a small group of companies have adopted a holistic philosophy for the

triple bottom line. Their cultural perspective is integrated with their business

philosophy. Examples identified so far in this category are privately owned and

have a strong background in philanthropy and community service.

Some of the common features apparent in the transition in reporting of the

more active companies are summarised below (see Box 2.22).

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The Old Reporting System The New Reporting System

Shareholder focus Stakeholder focus

Paper-based Paper- and web-based

Standardised information Tailored stakeholder information

Financial information Economic, social and environmental information

Company-controlled information Open and transparent approach including third- party information

Periodic reporting Continuous reporting

Distribution of information Stakeholder dialogue

Technical features and past performance Greater emphasis on strategy, future projects, risk management and sustainability

Historical cost Value-based assessments

Audit of accounts Assurance of underlying system

Essentially static system Continuously evolving model


BOX 2.22 TRANSFORMATION OF CORPORATE REPORTING

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