From Environmental to Value Reporting

Accepting the award for Best Sustainability Report last month at the annual Ceres conference, Nike’s Hannah Jones said that it was time to move from “environmental to value reporting.” In her speech, she made a compelling case for why sustainability reporting is moving from an off-balance sheet activity to being core data for manager, investor, and customer decision-making. In other words, sustainability is becoming vital performance data for modern corporations and organizations.

We know that all that fuzzy green and social data tells us a lot about communities, people, and the environment, but is it really ready to take center stage in determining a company’s future? How is such data likely to serve top managers, corporate strategy, and external stake/shareholders?

Jones argues that two outcomes of reporting are driving this trend: transparency and resiliency. Clearly, transparency does a lot for companies.  The better the visibility into resource, energy use, and non-financial indicators, the greater the potential for innovation as employees, managers, customers, and suppliers use data to transform and optimize operations. Transparency allows more peer-to-peer innovation as groups compete on new metrics like the energy intensity of buildings or finished products

Equally important is the impact that transparency has on managing risk. Widespread availability of data, video, and other records can help internal decision-makers, but also increase the likelihood that mis-steps and inefficiencies will reach a broader audience. Knowing that anything your organization does could end up on Youtube or Twitter means that more stakeholders are involved in policing the riskiest behaviors and activities.

Reporting also drives resiliency because it exposes an organization’s critical vulnerabilities. Is there a CEO today that shouldn’t know the potential impact of oil price shocks on their business? Where their company’s water needs and local water availability collide? Or what an eventual price on carbon could do to their 30-year capital investment plans?

At Nike and other consumer-facing companies, this view has emerged from decades of being buffeted by human rights and environmental surprises out of supply chains that were expanding with inadequate transparency and monitoring. The new horizon for them is about global resource challenges, from reducing greenhouse gas emissions and conserving water to optimizing energy use and renewables. For the largest players, resource efficiency is vital to keeping pace with expanding consumer markets and the growing demand for sustainable products.

This revolution in reporting affects far more than consumer-facing companies. The real estate sector has enthusiastically adopted LEED standards, but it is now facing the transparency challenge when it comes to ongoing building performance. Once LEED certification is achieved, property owners and managers have found themselves accountable to tenants for the building’s ongoing energy and environmental performance. And owners of large building portfolios are increasingly accountable to investors, insurers and portfolio-wide customers for the energy performance of entire geographies.

We are on the verge of a deep transformation in resource use within global commercial real estate. Dozens of cities around the world (New York, Washington, Paris, London…) have now mandated annual energy audits and disclosure for large buildings in an effort to drive a market for energy efficient buildings. The high-end market has responded by creating the Greenprint Foundation, where AAA real estate portfolio owners come together to share key metrics so that performance can be driven across the industry.

Transparency has been a theme for the Federal government for at least the last 20 years, but the Obama Administration has focused particularly on energy and natural resource use and reporting across the federal government.

No one has embraced these new requirements with more gusto than the Department of Defense. Besides the fact that they use over 90% of all energy consumed by the feds, they have a number of operational rationales for their enthusiasm.

From commercial to industrial to governmental organizations, the practices we use today to evaluate large corporations and organizations are, in fact, based on “value reporting” –quantitative measures of the financial value being generated by specific business sub-units and the business as a whole. What Hannah Jones and a host of leaders are saying is that these measures of financial performance are increasingly driven by all the measures we traditionally think of as environmental and social. As a result, retailers, property managers, the US military, and scores of other sectors are starting to explicitly link environmental, energy and resource performance to value creation. For large organizations, this reporting is becoming the base from which organizations are driving change, optimizing their resource use, and playing to win.