The Paradox in Sustainability Reporting

By | April 10, 2014

I have recently engaged with an engineer for an outdoor equipment design and manufacturing firm. This design engineer is very keen on bringing a formalized environmental (sustainability) management system to his company. He knows it’s the right thing to do. Intuitively, and through the initial sustainability metrics he has gathered and analyzed, he knows moving to integrate sustainability issues into product planning will pay off. He knows that by paying close attention to the types and how much energy is used in the manufacturing process, greenhouse gas footprint, and material choices will positively effect the environmental/sustainability performance. Sustainability management creates efficiencies spurring a new exciting dynamism within the company’s global operations. Now he needs to “sell” his ideas to the C-suite, preparing a compelling business case by answering the question, “will this be profitable, can we beat out the competition?” This is where we ran into the looming paradox of sustainability management he’ll have to overcome.

The paradox is simple to understand, and is quite difficult to overcome from the framework that created the paradox in the first place. Credible sustainability efforts across multiple industries are founded on the transparency of the reporting process. This includes information on energy and water consumption, emissions and waste generation, etc. There continues to be “green-washing” in the world, and promoting the most minimal effort as something more grand. We’ve all been faced with misleading and incorrect perceptions, often driven by intentional ignorance and/or conscious marketing efforts to obscure and evade, so there is a great deal of skepticism in the marketplace when a company makes unsubstantiated claims. If you are serious about sustainability, you’ll want to report publicly. You may want independent 3rd party assurance, or at least open up part of your “books” to investigators and doubters of your sustainability data. Here’s the rub, my design engineer friend knows that the C-suite won’t buy off on sustainability reporting, if it means revealing any information that could take away from having that important competitive edge.

Knowing a facility’s energy use, carbon footprint per unit of production, or even water use can tip off your competitor to what you’re doing internally. It’s not likely that a CEO of a cutting-edge design manufacturer that hasn’t already embraced their inner environmentalist will go for a plan that doesn’t absolutely protect the company’s Intellectual Property (IP). “No way!” is often heard echoing throughout the C-suites of America and beyond when the question of sustainability reporting is proposed. Yet the argument goes, that being more sustainable you will be more resilient long-term through new innovative management, informed by the impact of your sustainability efforts. And your sustainability results by design, are best for your organization if they are transparent, gaining support and recognition from employees, stakeholders, shareholders and local jurisdictions.

Obviously, many organizations are getting through this paradoxical situation. There is a plethora of Corporate Responsibility Reporting, some even with 3rd party assurance. There are reporting programs, such as the Higgs Index managed by the Sustainable Apparel Coalition (SAC).  However, the SAC has not yet set a timetable for a consumer-facing scorecard on Higgs, and requires that no data is to be shared in any marketing, advertising or promotional materials without the expressed written permission of the SAC. Here the paradox of a competitive market vs. being transparent is carefully and conservatively being managed by the SAC. Another reporting mechanism, the Carbon Disclosure Project (CDP) is dealing with this perceived competitive risk head-on.

The CDP is all about transparency – disclosure is in the name! If you sign up and report to CDP, you are disclosing and getting scored on your report – fostering transparency of your sustainability accounting. The philosophical underpinning of the CDP is breaking through the paradoxical tension between IP and transparency. From the CDP website:

“Evidence and insight is vital to driving real change. We use the power of measurement and information disclosure to improve the management of environmental risk. By leveraging market forces including shareholders, customers and governments, CDP has incentivized thousands of companies and cities across the world’s largest economies to measure and disclose their environmental information. We put this information at the heart of business, investment and policy decision making.”

This is exactly what my design engineer friend wants to do – help his company put sustainability information at the heart of the business. We discussed and agreed that sustainability information isn’t the driver of every business decision, but the issue of “is this sustainable” needs to be considered at every important decision point. Long-term sustainability and resilience has to now be considered for all operations as we simultaneously deal with climate change, a changing regulatory landscape and dynamic social changes we see as evolving attitudes and perceptions. Collectively, we have to learn how to effectively grapple with these changes – bringing the C-suite together with employees and communities – this leads us to a new paradigm of operations.

To resolve any paradox, if resolvable, can only be done from a different framework then from the one in which the paradox has arisen. The old framework of holding tight to all corporate information, revealing only the information required by law and minimizing disclosures is the frame (or paradigm) that the SAC, via the Higgs Index is coming from. I do commend the SAC for the use of the Higgs Index as an important assessment tool for the apparel industry, but if an organization doesn’t have to disclose publicly, a company may choose to continue to employ sweatshop environments and toxic dyes in their production, for as long as possible – as the C-suite is risk adverse to making fundamental changes to a business model that has served for many years. Yet, once the public and the NGO community, or even some responsible government institution gets a handle on what they are doing, they’ll want to make changes or be called out as a pariah. Nike is now a leader in the development of the Higgs, a company that once did take advantage of an economically disadvantaged workforce, operating in a country with inadequate environmental regulation and without equitable social justice.

Bounding over this paradox of sustainability reporting, a company who is a reporter to the CDP is demonstrating that it is more important to disclose – revealing key sustainability information, than not to disclose at all, even if it means receiving a “D” when scored by the CDP. The “D” score can be improved on, and the organization is on the way to finding ways to thrive in a more sustainably minded and carbon constrained world.

The new frame in which to get over the perceived paradox of sustainability reporting comes from a more enlightened mindset. Sustainable behavior is the common ground where all successful organizations in the future will be standing. I’m not sure how my engineer friend is going to get his company executives to embrace a new paradigm of transparent sustainable behavior, but I know that only through recognizing the imperative of this new paradigm, a new way of thinking – a more enlightened viewpoint, will the paradox of sustainability reporting melt away. Ultimately our new paradigm of operations will reveal how all organizations find their path to sustainability; working towards being more responsible to not only their shareholders but to all aspects of operations, finally becoming fully responsible members of the world community.

Lightstone Consulting continues to help businesses develop sustainability management systems, and to measure and report their carbon footprints.  Contact gary@lightstoneconsulting.com for more information.