The State of Sustainability Reporting in the Trade and Retail Sector
A study to assist Australia trade and retail companies with the preparation of public environmental, social or sustainability report.
KPMG Sustainability Advisory Services
Environment Australia, November 2002
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About the study
Effective brand and reputation management are the hallmarks of leading trade and retail companies. The clearly defined global trend towards the mainstreaming of environmental and social criteria in the business arena means future success lies with businesses ensuring they are, and are seen to be, good operators.
Financial performance is no longer the sole driver for business. Companies are becoming aware that business sustainability (and, ultimately, financial performance) is determined by a combination of economic growth, environmental balance and social progress.
Employees, communities, activist groups, government, and increasingly financial institutions are putting pressure on companies to actively demonstrate they control their environmental and social risks and are improving their performance in these areas.
To meet these demands for greater accountability companies are increasingly considering publishing sustainability reports, or "Triple Bottom Line" reports, to communicate their environmental, social and economic performance to internal and external stakeholders.
Australian trade and retail companies are still to embrace sustainability reporting
Sustainability reporting is becoming mainstream for big corporations with 45 per cent of the Global Fortune Top 250 companies now publishing environmental, social or sustainability reports, according to a KPMG global reporting survey released in June 2002.
Locally however, the KPMG International Survey of Corporate Sustainability Reporting 2002 found the reporting rate for the top 100 listed Australian companies decreased from 15 per cent to 14 per cent in 2002.
Similarly, the Australian trade and retail sector is lagging international practice, with only two companies, or 4 per cent, of the Australian trade and retail companies in the BRW 1000 reporting on their environmental or social performance in a separate public report, compared to 26 per cent of trade and retail companies in the Global Fortune Top 250.
The business case for sustainability reporting
The business case for trade and retail companies to publicly report on their environmental and social performance, in addition to their financial performance, revolves around the satisfaction of the increasing demands of three important stakeholder groups: consumers, employees and investors.
- Consumers and the community: The publication of a sustainability report can enhance a company's management of its brand, trust and reputation, which are strong drivers for consumer preferences. For example, 91 per cent of Australian consumers, surveyed by Sweeney Research in 2001, stated that they would be likely to buy from companies that can show they behave ethically;
- Employees: A sustainability report can help enhance a culture where employees are proud of their employer organisation. This can assist in winning and keeping the best talent, which 70 per cent of CEOs of Australian companies believe would help them win in the future, according to a 2001 study of the best employers; and
- Investors: A trade and retail company can use a sustainability report to demonstrate to shareholders how it manages its environmental and social risks. In addition, the growing socially responsible investment (SRI) sector, which was estimated to include $13.9 billion of funds invested in Australia in 2001, makes use of public reports to select companies for inclusion in funds based on demonstrated environmental and social performance.
While companies operating in the trade and retail sector are positioned at the end of the supply chain and may not be directly exposed to sensitive environmental and social issues, they are increasingly being asked to account for the circumstances under which the products that they sell are being produced and sold. Publishing a sustainability report can assist a trade and retail company to become or remain the retailer of choice.
Benchmarking international trade and retail sustainability reports
Several trade and retail companies use national or international reporting guidelines as a starting point for preparing their reports, in particular the Global Reporting Initiative (GRI) guidelines, which are generally recognised as the emerging international standard for sustainability reporting.
Our review of 24 trade and retail reports against the reporting components recommended by the GRI guidelines revealed that:
- Reasons for the preparation of sustainability reports vary between companies and depend on the maturity of a company's reporting, the drivers for corporate social responsibility in general, and the target audience of the report. The most common reasons mentioned are assessing the company's environmental and social performance, meeting stakeholders' demands for this information, providing a starting point for stakeholder communication and engagement, and mandatory reporting requirements;
- The home countries of trade and retail companies influence the type and scope of reporting. Many European companies produce integrated environmental, social and/or economic reports, Japanese reports provide the most detailed quantified information, and US companies describe in detail their contribution to the community through charity and sponsorships;
- Companies mostly report on what they do for stakeholders rather than how these stakeholders are involved in the company's activities and in achieving the company's strategic sustainability objectives. The most common approach taken is to produce reports specifically aimed at the community with information on how the company has contributed to the wider community through charitable donations, sponsorships, fundraising activities and training and development programs;
- The surveyed trade and retail companies report on a wide range of environmental, social and economic performance indicators, although the level of detail varies and few companies have their data verified by a third party;
- Due to the nature of their business, trade and retail companies report in more detail on the application of environmental innovations and the environmental and social performance of their products. Examples include innovations to reduce electricity use in stores and packaging of products, the participation in product take-back schemes and the provision of eco-friendly and eco-labelled products to customers, such as organic food and timber from sustainably managed forests; and
- Many companies report on the benefits achieved through improving their environmental and social performance, including enhanced reputation, financial savings, staff satisfaction and reduced environmental impacts.
In conclusion, the results of the study indicate that there is a significant opportunity for Australian trade and retail companies to further enhance their positioning with key stakeholders through continued development of sustainability reporting practices.
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