What do NGOs want from corporate performance-related
information?
Presentation to Business in the Environment Conference, A Measure
of Progress, 20th September 2000, at the British Library
by Duncan McLaren, Head of Policy and Research, Friends of the Earth
Introduction
This paper seeks to explain why Friends of the Earth - and other NGOs
- want companies to measure performance and provide performance-related
information; illustrate how we use such information; and draw conclusions
for the regime for performance measurement and disclosure.
Why measure and disclose?
FOE and other NGOs use performance information to empower various stakeholders
to hold companies to account - in a similar way as investors require
companies to account to them in financial terms. We do this by interpreting
and analysing information that companies provide - either voluntarily,
or under legal duties - and communicating it in forms that stakeholders
can use.
Empowering information
Since 1985 sales of tropical timber in UK markets have fallen by over
one third. Consumers - both individuals and businesses - have become
increasingly aware that tropical timber is largely logged unsustainably,
threatening wildlife and indigenous peoples. FOE undertook investigations
of timber logging and sourcing, and informed consumers about corporate
performance in the world's rainforests; and about the alternatives -
through the 'Good Wood Guide' (now supplanted by the Forest Stewardship
Council certification scheme). Companies which supply sustainably produced
timber have won market share.
The 'Green Energy League Table' was based on a similar approach - research
into the performance of electricity supply companies on their investment
in renewable power and provision of energy efficiency (the tools needed
to avert dangerous climate change) - provided a simple ranking of environmental
performance to help consumers in the newly liberalised energy markets
choose a new supplier. The second edition, being researched now, will
also provide similar information to investors, keen to know which companies
are most ready to respond as measures to control climate change are
imposed by governments.
For consumers, the best performance-related information must be simple
to understand. It was very easy for consumers to respond to information
about genetically-modified food in the products on supermarket shelves,
and to choose to shop where they knew that such products would be avoided,
or at least labelled. FOE linked consumer awareness campaigns with mechanisms
whereby customers could communicate their views to supermarket managers.
Companies that pro-actively seek such stakeholder input - rather than
reacting to it, sustain higher brand loyalty.
But for local communities, desegregated, detailed - but still intelligible
- information is essential. FOE's project Factory Watch took the data
provided by the Environment Agency's Chemical Release Inventory (inspired
by the US Toxic Release Inventory (TRI)), verified it and analysed it,
using sophisticated (and innovative) relational database and geographic
information systems, and made it directly available, through the internet,
so that communities and individuals could identify hazards in their
neighbourhoods. The web-site links data on release permits with information
about the risks associated with those chemicals. It also provides league-tables
of polluters - a mechanism that proved effective in stimulating significant
cuts in emissions in the US as a result of the TRI. FOE has taken the
challenge to the boardroom and AGM of the league-topping company ICI,
informing shareholders too.
NGOs will seek to inform and empower any stakeholder - including company
employees. We handed out leaflets to staff arriving at work at Esso's
UK head office to inform them about their employer's stance on climate
change. This is a matter of political performance - Exxon (Esso's US
parent) has lobbied strongly to prevent US ratification of the Kyoto
Protocol, even after other more progressive companies turned attention
to how best to cut emissions. With such an attitude, Esso will find
it ever harder to recruit and retain quality staff, concerned about
the future their children will grow up with.
In 'Capital Punishment' FOE turned its attention to the financial sector.
Sadly we couldn't get detailed information on the corporate holdings
of pension funds, but managed to compile data on similar insurance funds.
Our aim was twofold. First we sought to highlight to fund managers that
their choice of investments was a sustainability issue, by examining
their exposure to companies involved in climate change, forest clearance
and toxic pollution (all issues with financial as well as environmental
risks attached). Norwich Union (prior to their merger with CGU) turned
out to have the greatest exposure. Second we aimed to begin to inform
green consumers and activists that apparently innocuous products such
as insurance and pensions, have significant environmental implications.
Companies might ask "why provide information if it leads to targeting
in these ways by NGOs?" There are four parts to the answer. First, NGOs
will make comparisons anyway - companies might as well ensure that the
data they use is precise and correct. Second, only the worst companies
get targeted, and the best benefit. Third, measuring performance is
critical to help companies manage and improve performance. Fourth, hiding
information risks companies reputation with the public and investors.
Key issues
These examples raise a lot of issues about measuring and reporting
'environmental performance':
Access to data - for example FOE had to struggle to get even
data that companies were legally obliged to report to regulators to
undertake the Factory Watch project. In the US chemical companies have
resorted to spurious arguments about terrorist threats in an effort
to prevent communities getting access to data on the potential risks
of accidents on their sites. How much will disclosure need to be mandatory?
Timeliness - By the time we get, and verify data, it is rarely
up-to-date. Where the risks borne by stakeholders occur in real time,
how can we ensure prompt measurement and disclosure?
Comparability - Comparative data is not easily available to
compile performance league tables, or to undertake benchmarking - except
where reporting standards are mandatory. As a result crude indicators
tend to replace sophisticated ones. What standards should be set to
ensure that performance measurements are both meaningful and comparable?
Verification - The quality of data is variable, as well as its
content. We always check geographic data particularly carefully, to
ensure that all the factories in the data-set are on dry land to begin
with (there are always some with such inaccurate grid-references that
they appear to be in the middle of the North Sea!) But who should verify
environmental performance data, and how?
Interpretation - different users need data analysed in different
ways. Investors like to know which company is best (or worst) in a sector,
but local communities need to know which companies have a negative impact
in their area. Some of our projects have taken on this role, but that
implies that the companies involved aren't relating well to their own
stakeholders. Can the internet help companies 'slice and dice' their
performance information in more and better ways?
Reach - supply chain issues, going far beyond the UK, are clearly
critical to stakeholders interests. How can they best be measured?
Some conclusions
1. Disclosure is critical - measuring environmental performance can
help managers overcome 'organisational failure' (inadequate information
to improve performance - and take the 'free-lunches' in energy and materials
efficiency that exist in many companies); but unless other stakeholders
can get at the information too, then it won't help overcome 'market
failures' (and most environmental problems in the real world can be
seen as market failures of one kind or another). At present consumers,
communities, regulators and investors clearly get inadequate information
from companies - or else we wouldn't have such demand for our information.
2. Performance measurement must permit meaningful comparisons - but
such comparisons are only a first step. Corporate environmental performance
does not just need to improve, it needs to improve to a level at which
the total impacts of our economic activities are sustainable. Therefore:
3. Performance measurement needs to be against intelligent and informed
targets for absolute improvements in total impact - not just relative
measures that compare performance with other companies, or per unit
of product (so-called 'eco-efficiency' measures).
4. Independent verification is critical to build trust amongst stakeholders
that performance information is fair and valid. Who should verify? We
would be inclined to trust environmental consultants - at least those
with their own brand and reputation to worry about, more than accountancy
firms, but both probably have some role to play. Ideally the stakeholders
themselves should also have a role in verification, and indeed in determining
what gets measured in the first place.
5. Voluntary performance measurement and disclosure is no panacea.
Responsible companies will push for a level playing field of accountability
mechanisms and standards, so that the costs of environmental protection
and enhancement are fairly shared. This is especially true where the
environmental problems are real externalities and dealing with them
does raise costs (even if those costs are partly or wholly offset by
intangible benefits such as risk management or reputation).
NGOs will continue to play a watchdog role for the corporate sector,
but we cannot undertake that function alone. Without collective regulation
to ensure a fair framework, civic accountability will inevitably be
partial. In this respect, the UK company law review is shaping up to
be a gigantic missed opportunity to improve business performance in
society's interests.
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