How would it feel if your organisation went truly transparent? If you created an open forum for customers to share views on your products, like’s Nissan’s “Leaf Owners”? If you invited the public to see your supply chain, like McDonald’s Scouts? If you put your resource waste data in the public domain, like Tesco’s food waste data? Or, if you’re feeling really brave, make everyone’s salaries public, like Buffer?
You’d face major opposition from most corporate boards, but you’d probably also create a highly innovative, trusted business, that would naturally connect with society’s issues. It may take a cultural wrench to get there, but you might have tomorrow’s company.
For the 14th July, we put together a panel of transparency advocates to discuss the value of transparency, and to discuss ways of overcoming major obstacles. We heard from;
Diana Verde Nieto, CEO of Positive Luxury, on the value of product transparency
George Gordon, Head of CR Comms at Tesco, on why it put its food waste data in the public domain
Steve Waygood, Head of Sustainability Research at Aviva Investors, on investor transparency
Mark Banniser, Echo Sourcing, on supply chain transparency
Through the panel discussion and the roundtables, we aimed to extract the collective wisdom on this business megatrend. It was particularly aimed at those in the communications, sustainability, external affairs and strategy teams at large organisations.
Is an Integrated Report an amalgamation of two unread reports, or does it change the way that a business makes decisions? Many of the protagonists argue the latter, and this table will explore how the growing its growing adoption can build better businesses, and even a better society.
What is an Integrated Report?
• Asks new questions: “how much value do we create and what are the sources of this value?”
• Connectivity of non-financial information with financial information
• Presents material business information in the context of future risks and opportunities
• Often still a classic Annual Report and Accounts with a summary of the sustainability report included
• Waste of time to stick two reports together (as output) – needs to be an integrated way of thinking (as management process)
Why do we need Integrated Reporting?
Traditional (Financial & CSR) Reporting
Presents an accountant’s view of performance (Financial) or those elements of broader environmental and social impacts which can be readily quantified / assessed (CSR)
Didn’t capture non-quantitative aspects
Did not accurately capture ‘risk’
Served a purpose for ‘bricks and mortar’ businesses that were operating differently from today (e.g. their market value and their book value were more or less the same)
Encouraged decision-making based on historical financial information
Communicated to investors
Captures the true cost of resource consumption and impacts – choices that are becoming more important to the sustainability of our economies
Starting to quantify aspects of corporate behaviours and performance that will have real economic consequences in the future
Looks holistically at the material issues that affect the risk profile of the business
Meets changing business needs in the context of new business models (e.g. market value of a modern business is largely reflected in its intangible assets rather than its book value)
Encourages decision-making based also on future prospects & risks
Can communicate to a broader set of stakeholders, to whom companies are increasingly accountable
Integrated Reporting as a process
• A mechanism to change internal thinking (‘Integrated Thinking’)
• Iterative process: need integrated thinking to produce an Integrated Report; the Integrated Report then informs future business thinking & strategy
• Dynamic: deliver then report; and promise then deliver
Integrated Reporting as an output
• Helps to create a conversation between different parts of the business and with the supply chain e.g. suppliers’ behaviours are often driven by content and messaging of their customers’ reporting (who may have very different demands & differ in accountability from one another)
• Attracts longer-term investors
• Hard to achieve coherence: from anecdotal information about non-financial performance to understanding of overall value creation
• Difficulty of reporting on future prospects in meaningful way
• Challenge to communicate complicated information in a simple format
• Difficult to keep making big advances after the first Integrated Report
• Integrated Reporting needs to be widely adopted by the market, with standardised approaches to assessing ‘materiality’ of non-financial information
Ask a citizen if it’s important to have a sustainable water system, and the answer is typically “yes”. Ask a customer to pay for it, and the answer is probably “no”. How can B2C businesses engage with the citizen using transparency, co-creation & more?
How do companies tell their customers about their sustainability initiatives? For example; do labels on products work?
• Labels can be complex, misleading and selective. They do not communicate the wider issues.
• There is the risk that companies will develop their own labelling system, which will add more confusion to the marketplace;
• Do customers understand and care about labelling? E.g. unsuccessful CO2 labelling on crisp packets;
• There are too many issues for customers to choose what matters and the brand should be making the decision for them. For example, a consumer could expect that the ‘brand’ is doing the right thing and making the best possible choice with their products. Do customers trust companies? Transparency is important;
• disagree – customers are becoming better at reading information and ‘big data’;
• Good example: A supermarket successfully promoted their sustainable food products by giving 20 influential people from the local community £500 to spend on these items –they sold to family, friends and media. The supermarket is giving trust to their customer base.
What do customers want to know?
• CPD gave customers a choice of preferences on a web portal (e.g. water & CO2) however they found they do not have time to tell companies specifically what they care about;
• Companies have to create demand for sustainability and tell the customer what they want to know (we have done this successfully for many years when selling products);
• Difficult for companies to know where to start?
• Sustainability has to be part of the business plan;
• CPD research found that companies are incorporating sustainability in to the business plan, as the risk of not doing it is too high;
• Being sustainable is not about the brand/product, it is also a saving on the bottom line £. E.g. smart metering will allow customers to track water consumption.
How do you spread the message?
• Example: water companies launched a large campaign to educate local communities on environmental and sustainability issues created by the sewage network. Due to this knowledge transfer, they have seen a radical turnaround in “flushing” behavior. This was measured by the cost reduction on solving the problems in the area;
• Educating the public of the their impacts (environmental and cost) is important;
• Israel Tech Hub: Water in Israel is more tangible than CO2 and water savings are made at design point. This should be transferred to private sector by government making more upfront decisions;
• Example: B.L.E.U is a French bottled water company setting a good example in social corporate responsibility. B.L.E.U are a social enterprise and C02 neutral, they promote the use of tap water over their bottled water. All profits are put back in to CR and sustainability programme;
• In comparison to B.L.E.U – Nestle chairman recently announced he believes ‘access to freshwater’ should not be a human right.
In a recent YouGov poll, 74% said they’d pay an extra 5% for their clothes if there was a guarantee that workers were paid fairly and working in safe conditions. What are the opportunities and risks for an organisation as it embraces supply chain transparency?
- People care more about what they are putting inside (ie food) rather than what they are putting on (ie clothes). Particularly with clothes, a consumer will be influenced by trends and will compare products on brand, image, price point and quality.
- Business models are based on low price point with high sales figures which is generally reflected as low labour costs.
- There is a lack of transparency in the market and so if clothes had a 5% mark up, there is no guarantee it would be passed on to the workers. The expectation is that it would get swallowed up by the supply chain.
- There is a baseline cost that if a company goes below they are unable to achieve basic environmental standards.
- The garment industry is fragmented and therefore, it is very difficult to understand what is happening in the supply chain past the first tier. Companies often do not know the conditions of the second tier suppliers e.g. dying or spinning factories.
- Consumers often say what they think they should be saying e.g. not all consumers will actually pay 5% more when it comes to paying at the till.
- Corruption is the biggest problem in Bangladesh. If you do not engage in corruption then you will not be able to operate. However, this is often seen as a Government issue rather than a Corporate issue.
- The Board needs to become more transparent and to be able to communicate positive and negative issues. A good example was Tesco with the Horse Meat Scandal or the ‘Food Waste’ Campaign. The Tesco ‘Food Waste’ campaign allowed it to have a positive spin on what could have been a potentially negative matter.
- A company needs to perform a social assessment and then set targets to work towards.
- Disclosing a company supply chain can be a competitive advantage for a company with good working practices.
- Often the best measures are not higher wages but improved work place benefits which can have a much greater impact on the wellbeing of an employee. In Bangladesh, when wages were increased a similar increase was seen in accommodation prices and therefore, the cost of living did not improve.
- Echo Sourcing: Every single customer pays more for better working conditions for workers. The brands accept that for ethical issues they are required to pay more.
- Nike experienced a dip in their share price when there were reports about sweat shop labour in their supply chain but consumers and investors forget. It was not long before the share price had bounced back again.
- Apple is expected to be the next Nike as they do not have a transparent supply chain and have reported to have poor working conditions.
DEBATE: Does the provision of data to frameworks such as the DJSI and CDP unduly influence sustainability programmes? Instead of aiming to improve ratings, would it be better for companies to determine their materiality and find other ways of being transparent about their performance?
The Government’s mandatory Energy Savings Opportunity Scheme has been designed to catalyse energy efficiency investments at large organisations. Guidance is due at the end of June 2014, leaving organisations just 19 months to demonstrate compliance. This table will discuss how business should prepare for this new level of auditing, and whether it is likely to succeed.
i. Should require companies to achieve a certain reduction that ESOS audits highlight
ii. Should look for actions that have co-benefits with other department, for example, in energy use and transport
iii. Important distinctions should be made in capturing quantity and quality information – for example, there may be a trade off in carbon reductions but increasing water use and this information is currently missing from the reporting/auditing requirements
i. “This will make no difference to our strategy” because it doesn’t require you to make a change
ii. It is purely a box ticking exercise and another layer of paperwork
iii. ESOS is punishing companies that are already doing something
iv. It delivers no additional value to the company and it doesn’t require any changes to be made
v. Need to bring together energy and transport departments to achieve greater reductions in carbon emissions. The problem with this is that it moves energy into a perceived ‘wishy washy’ sustainability team and less action will result.
i. Lack of consistency and clarity from the EC and the inconsistent application of the Directive by Member States
ii. Only pockets of opportunities for retrofitting. Complete overhauls are too expensive and not economically viable
i. It will only require us to survey 18 out of 270 sites
ii. Regional energy managers audit sites more than once per year but ESOS requires us to pay an independent auditor (£5 - £15k per site) to do the same work in order to tick a box.
Companies generate large quantities of data that are typically regarded as confidential. We ask the table to assess ways that a company can use data for societal benefit – GSK going public on drug trial data, Tesco publishing its food waste data, sharing data with the CDP, Sedex & more.
There are many reasons why companies fear transparency, such as lack of confidence in their data or concerns over how the information will be used. This leads many to avoid transparency, but are there ways of weighing up risks against opportunities and coming to a different decision?
The table began with a poll “how many people at the table think the benefits of transparency outweigh the disadvantages?”
• 5/8 believed it was better to be transparent
• However, those who disagreed were in sectors (banking/finance) where they believed personal data should not be transparent and kept confidential, majority of the table agreed with this point.
• One thought that if you proactively tell your story, you get stakeholders on your side
When many companies approach transparency issues, they say “it’s too complex” then they quit. There are other ways of sharing information and being transparent without revealing too much information, these companies need to take a harder look, and rather than quit, figure out a way of giving a level of transparency without disclosing personal or client data. EX: descriptions of processes, averages, third party assurance etc.
It was discussed as to whether a tabloid or bad news story could hinder transparency in business, but a table member said “Bad news stories are going away as a result of our transparency”. By baring all and sharing with the public domain, there is nothing to hide. Trust can also be lost in positive news stories, it’s better to talk about what they did poorly and how they intend to improve.
Barriers to being transparent:
• Cost and internal staff resources
• Fear of putting your head above the parapet (initial jump)
• Freedom of information
• Divulging personal information (particularly finance related)
• Commercial sensitivity
Brent Spar was discussed; Although Shell had carried out an environmental impact assessment in full accordance with existing legislation, and firmly believed that their actions were in the best interests of the environment, they had severely underestimated strength of public opinion. It was a problem of Greenpeace producing incorrect information. The problem with Brent Spar was not environmental impact, but rather miscommunication and failure to establish a transparent (open) decision-making process, to involve a cross-section of the public in discussions from an early stage.
One fear is that if you start being transparent, what else is someone going to see?
Tesla, while great, is not to everyone’s advantage. Putting out IP information doesn’t work for everyone, especially finance sector. What should matter most is what affects you, the environment and society.
The golden nugget is to build trust, and transparency is a great way to do so
Are there strategies to trust information companies are putting out?
• Verifying information a consultancy is providing
• Having a genuine independent third party assure key data and descriptions of strategy, management processes etc.
• You don’t necessarily have to expose yourself completely but you can tell what processes you are doing, don’t need to provide raw data, but rather information that has been analysed from that data. Translated data (information) is easier for people to understand, and can be assured.
If you bring people along the transparency journey, hold their hand and tell them exactly what you are doing along the way, you will be able to build trust. Repetitiveness is sometimes necessary.
Why is the rationale for a growing number of companies being transparent about their externalities? By adding shadow costs for natural, social and human externalities, how do we build better businesses? Innovation opportunities, new revenues, lower costs etc.
At present valuing natural capital is premised on the assumption that sooner or later externalities will be internalised. This can be seen, for example, by better water management being driven by the benefit of achieving lower insurance premiums.
These benefits reach more broadly e.g. National Grid is seeking to maximise returns from their land-base by modelling the potential natural capital returns form internalised costs e.g. Carbon markets; Payments for Ecosystem Services; as well as developing an enhanced brand reputation.
There is the potential for social value (e.g. brand reputation) to bridge the gap where externalities are not yet costed.
In Norway a tax break is granted if companies recycle above a certain rate – this money could be used as a policy implementation tool. This makes the benefit of recycling quantifiable and comparable across difference lenses. The EU ETS is another alternative which has raised the profile of an externality to the Boardroom.
Valuing natural capital puts it on the Boardroom agenda.
Regulation can be used to internalise externalities e.g. carbon; efficiencies can bring benefits through e.g. reduced cost associated with water use; reduced insurance premiums can be achieved due to better asset management.
Valuing natural capital does not work unless there is a business demand e.g. as with the EU Emissions Trading Scheme. Looking beyond regulation to more innovative businesses, we are not yet seeing the link between valuing natural capital and sustainable growth. We need to understand and demonstrate the growth that comes from sustainable practices and risk mitigation in order to further encourage natural capital valuation.
Looking at this issue more broadly, there is a difference between the value that is provided by an asset to its owner and to wider society. A business will only make decisions based on the value arising to them.
Business decisions also rely on discount rates to value benefits and there are a lot of issues with the discount rates that are currently used. We are too cushioned and not at a crisis point – until we reach this point we will not see change, as price does not reflect value. Businesses need to be thinking about their customers 15-20 years in the future. However, to do this organisations need some clarity on the rate of conversion of externalities into costs.
One example of this issue is the current method for pricing Oil and Gas reserves, which is wrong. Most of these reserves will have to stay in the ground. However, these companies don’t think the risk of this is big enough.
Valuing natural capital enables improved business decisions.
It normalises natural capital by using the common measure of money to e.g. translate food waste into something tangible. This could impact the decision-making process.
Having some idea of the value of nature is better than none – whilst valuing natural capital may not be perfect, what is the alternative? Carbon is a good proxy for some things, but when you need to compare e.g. biodiversity with the impact of a hydroelectric plant used for processing aluminium how to you prioritise these issues? Perhaps valuing natural capital is the way forward.
Valuing natural capital creates markets, which may encourage trade-offs to do good in one area whilst performing poorly in another.
What is it like for an organisation to go naked with its stakeholders? We’re inviting a number of representatives from organisations that have undergone highly transparent processes to discuss the benefits to them and their stakeholders.
Overall the table demonstrated that different companies demonstrate varying degrees of appetite for, and outcomes as a result of, ‘going naked’ to their stakeholders. Some are more conservative in their approach and only fully share with a selected group of key stakeholders as a means to road test their strategy. A recurring question was when one decides to broaden this ‘nakedness’. One obvious choice is when their reputation is damaged and use transparency as a means of building back trust. Yet the crowd highlighted other examples of companies with intact reputation that also opt for nakedness, and in taking the reputational risk, end up in a favourable position.
As an example, Lloyds demonstrated the significant and largely untapped potential of transparency and engagement with internal stakeholders. In an Ideas Competition, they asked their employees for their input on internal process optimisation. Some of the most valuable insights (e.g. ATM hibernation) were directly related to the employees’ own area of expertise and could not have been easily proposed by a centralised sustainability department.
Of course this potential is balanced against the culture of the organisation, for example some cultures endorse secrecy and it is often the case that different departments contain ‘nuggets of information’ they are not necessarily willing to share. Other organisations such as Sainsbury’s have schemes such as ‘Tell Justin’ (the CEO) encouraging a two-way communications stream with responses guaranteed within 30 days. This allows employees to offer suggestions for improvement straight from the shop floor, related to anything from packaging design to sustainability concerns. The key thing being a culture of ongoing communication and knowledge sharing.
Externally, some public companies prefer a moderate level of transparency. For example Burberry’s brand equity is very valuable to the business therefore they are more comfortable to feel the ground in front of a selected and small group of external experts, be completely transparent to them and let them act the role of ‘critical friends’ before they become a naked company. In many ways it was discussed that this is the easiest first step – going naked in front of a selected group and only once they become braver to open up to the broader audience.
Other public companies prefer to be transparent to all stakeholders, and have also realised that through maintaining a high level of transparency they have solved a lot of problems before they even knew they had them (e.g. avoid damage caused by ‘naming and shaming’). Barclays for example have faced external pressure to change their culture precisely as a result of having been ‘named and shamed’, learning to become more naked in line with the trend in their market environment.
Some go even further in their approach to nakedness – for example Sainsbury’s allowed the Crowd to invite over 200 experts to rate what Sainsbury’s was doing in each area of their sustainability strategy. The company obviously lacked control of the process and in the end did not even obtain that high a score; they just trusted the process. As a result this changed the way they communicated on their strategy and they now also have annual event in place to gather feedback from people, something they never had before.
Sainsbury’s is a unique example because it required them to get over the fear of bad publicity so inherent in every organisation. In their experience this came down to the culture of the organisation and the power of the individual. Alex Cole, the outgoing director of corporate affairs, was accredited with the ability to ‘move hearts and minds’ and to convince people throughout the company to get on board this transparency exercise, despite the initiative being ‘light years’ ahead to what they were used to.
Many believe that the consumer (citizen?) does not get the sustainability information – in the right form and at the right time – for her to effect change. Does the table agree? Can it identify better ways of providing information that would drive change throughout supply chains?
PRODUCTS WHICH ARE ALREADY TRANSPARENT/WHERE WE WOULD LIKE MORE INFORMATION
• Good examples
o Ethical buildings insurance company has a slider so customers can choose priorities
o Service station (Gloucestershire) sources products from 30 mile radius, eco-building etc.
o Innocent – making product fun so customer isn’t even aware that it’s more sustainable
• Bad examples/would like to know more
o Clothes, food – sourcing (food miles, ethics and human rights)
o Services e.g. finance, holidays and restaurants – are those experiences sustainable?
o Kindle vs. books?
DO CUSTOMERS GET THE RIGHT INFORMATION AT THE RIGHT TIME?
• How do we know what level of transparency customers are actually looking for?
• How ‘naked’ should products be? How far down the supply chain do you go?
• Not necessarily a correlation between being transparent/sustainable
• Data vs. narrative
o Is transparency about building a narrative around the product? Or is this too simple and patronising – why shouldn’t customers receive more data?
o Does data empower customers or alienate them?
• Product labelling
o Better Cotton Initiative is against product labelling – can never guarantee 100% traceability, so change business practice overall rather than work on 1 niche product
BETTER WAYS OF PROVIDING THE INFORMATION
• Brand buy-in
o Customers pick the brands they trust; then each product need not be fully transparent
o But could this lead to ‘strategic transparency’; keeping secrets in other places?
• Sustainability rating apps
o E.g. Barcoo, Patagonia’s app, Honest Buy
o But these place onus on the producer to provide information
o Over-labelling is not useful
• Sustainability scales
o Could have 1-5 rating for how sustainably/ethically a product is produced
o Exposure without data overload
• Holistic views
o What happens if customer cares more about one element of sustainability over another?
o How do you map interconnectivity/chains of impacts?
COMMUNICATING THE INFORMATION
• Comms people are the missing link between complexity and consumers
• Integrity in brands communicates itself
• Is trust more important than transparency?
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