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Triple Bottom Line Measurement and Reporting in Australia: Making it Tangible

The Allen Consulting Group
ISBN 0 9578337 2 5

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Executive Summary

Transparency and accountability for economic, environmental and social corporate performance are the core notions embedded in the triple bottom line. While relatively few companies formally issue triple bottom line reports in Australia, a groundswell of interest is now evident across Australian business. The next few years will see a increase in business planning and reporting to take account of this new sense of accountability - although practices will vary widely according to the sector and context of the company.

This research examined the views and practices of 29 Australian companies and seven overseas companies, as well as consulted with a range of industry bodies and non-government organisations. An important objective was to look behind the 'big ideas' to illustrate current practices for measuring and reporting corporate performance and to explain the benefits and challenges that companies identify. Care was taken to avoid a didactic approach to how corporations should or should not behave. Instead, the focus has been on understanding the business logic for companies' practices. This enables other companies to benchmark their experience and identify tangible options for adoption. It also enables government and other interested corporate stakeholders to better understand the business rationale and see where they might work with companies.

Triple bottom line has clearly caught the imagination of many companies and others in the community. Triple bottom line, a phrase coined in the 1980s, encapsulates the three major dimensions of sustainability - economic, social and environmental - and proposes that a company's performance and impact can and should be measured and communicated to stakeholders. Many companies are searching for ways to understand the boundaries of their non-market accountabilities and responsibilities and to engage with those stakeholders that matter to their business. Triple bottom line presents one approach for companies to consider.

Core characteristics

The core characteristics that companies display when embracing triple bottom line are: accepting accountability and being transparent - probably the most powerful ideas embodied in the triple bottom line and fundamental to good governance; integrated planning and operations where a company's contributions to economic prosperity, environmental quality and social well-being are reflected in strategic planning and management systems; a commitment to stakeholder engagement; andmulti-dimensional measurement and reporting.

In practice, companies indicate that there is no 'right way' to identify, measure and report on non-financial inputs or outcomes. Moreover, businesses prefer approaches that grow out of their own priorities and commercial logic. Some companies incorporate elements of internationally recognised reporting frameworks such as the Global Reporting Initiative, The Institute of Social and Ethical Accountability's standard and others listed in Appendix B

The motivation for greater company transparency and accountability is considerable. Companies throughout the world are experiencing unprecedented challenges. Forces are reshaping the context for business success as companies face increased global competition and the imperative of adapting to technological change. The pursuit of sustainable development - meeting the needs of the present without compromising the ability of future generations to meet their own needs - is endorsed by the Business Council of Australia as an important, legitimate and fundamental aspect of business responsibilities. As business structures and activities in the post-industrial era will barely resemble those of earlier periods, so too will business responsibilities and accountabilities be transformed.

Against this background, there are more immediate pressures that focus attention on the nature and quality of the relationship between business and society at large. Simply put, companies are now asked by many more stakeholders for information about their impacts on the environment, the economy and the society, and to attest to the ethical conduct and sound governance of their business. Companies are faced with deciding whether to resist these questions, or respond with available data, or whether to seize the opportunity to gain deeper insight into the impact of their own practices, as well as to become truly transparent and accountable.

Triple bottom line measuring and reporting: a work in progress

Five broad categories capture the current diverse state of play in performance measurement and reporting in Australia. (Some British companies were also included to illustrate the additional dimensions that will probably develop in Australian companies over the next few years.) All these practices are valid and the categories are not judgemental. The five categories are more to show the varied business rationales and interpretation of community expectations for triple bottom line measuring and reporting.

  1. 'Wait and see' is the category where companies are satisfied with their present approaches to communication and accountability, such as Fosters and Woolworths. Either a change is not a business priority and 'not on the radar', or there is a sense of potential benefit, but it is far too early to proceed without understanding more about the context and the directions for the rest of business.
  2. Other companies make a commitment to their stakeholders to be open and transparent, observing 'the community right to know' principle and endorsing the notion of greater accountability to the community for their performance. To meet this commitment they assemble and 'package' internal information for an external audience. This information reveals the standards they seek to meet, how well they perform against those standards and a description of their activities. Some companies in this area are international leaders in environmental reporting such as Wesfarmers and Orica. They continue to develop their data collection, reporting and verification approaches, but do not see that a change in approach to embrace social or economic dimensions to the same extent would necessarily yield additional business benefits.
  3. A few companies have 'started from scratch' and systematically seek alignment between stakeholders' expectations and corporate strategy. This approach requires establishing new management systems and is a long and often resource-intensive approach. WMC is an example of a company that seeks to continue to develop in this direction and a number of other companies have embarked on the first steps, such as Westpac, and others are poised to go down this track, such as ANZ.
  4. A few companies, mostly international, such as Rio Tinto and Shell, shape their response to stakeholder expectations into principles that guide their business activity: sustainability principles or partnership principles for example. This approach is directed at embedding these principles into management practices - again an intense and, for some, a problematic journey. AMP has recently initiated processes to proceed in this direction.
  5. Finally, some companies, mostly in private ownership, define their business purpose and their commitment to sustainability values and accountability as fully integrated - their business success depends on this cultural perspective. The Body Shop is the often-quoted example and the Co-operative Bank in the United Kingdom, but also Visy Industries in Australia embraces this holistic approach.

Developing indicators and assessment

Developing high-quality indicators is an enormous challenge, and there is no one easy or correct way to develop and report them. While some companies are successfully adopting the Global Reporting Initiative and other frameworks, others take a more eclectic approach where they review indicators used by other companies and adopt the most appropriate from various sources.

In general, companies develop indicators that are most relevant to the issues they face and the concerns of key stakeholders, but, perhaps more importantly, they are choosing indicators that are useful for informing strategic decisions within the business - the extent to which environmental and social factors are integrated into management decisions does however vary. Within this context, several indicators are comparable within and across industry sectors: the common environmental ones tend to be the amount of energy consumed and its origin, resource and material usage, emissions, and effluents and waste management; the common social indicators relate to health and safety and community involvement; and economic indicators beyond financial results are, for example, taxation paid and estimates of wealth created by the company.

While companies have adopted a variety of qualitative and quantitative approaches to measure their performance, there are several common main features such as: the mix of input, output and outcome measures; the use of performance targets; and benchmarking practices and verification processes (see Box E.1).

Box E.1 Main Features of Performance Measures
Main features of performance measures adopted by companies include:
  • input measures are the least difficult to develop and hence are the most common, whereas outcomes measures are rare;
  • performance targets are used to varying degrees. Most do not set targets but compare incremental performance improvements over time, and set short to medium-term targets (objectives) and assess performance against these. A few companies set aspirational targets and measure performance against these over the long term;
  • few companies explicitly link performance measures with the social, environmental or economic impact of the measured processes or events;
  • while there are few opportunities for companies to benchmark performance against key competitors (except in the resource sector) some companies are benchmarking against legal licence limits (that is, emissions and so on);
  • indicators are verified in a variety of ways, the most common are external verification and systems incorporating external input. There are several leading companies verifying indicators based on feedback from readers and program recipients. While environmental indicators are increasingly externally verified, this is more difficult for social indicators; and
  • leading companies enable data to be disaggregated to the local level and customised through web-based reporting. A few companies are 'going live' with their data, which challenges the status of the more static traditional paper based reporting.
Source: The Allen Consulting Group

Creating value

Uncovering the value creation of triple bottom line or making 'the business case' operates at two levels. There is a 'soft' but nevertheless compelling business case that concerns management and performance improvement through the use of data, reputation enhancement, market differentiation and greater social legitimacy or the securing of 'the licence to operate'. Companies are adamant about the value of these benefits, especially when triple bottom line is part of a more holistic view of corporate citizenship and sustainability. Identifying more tangible financial benefits shareholder value, revenue, access to capital and market growth is not yet settled. Positive links between sustainable development and financial results are being identified in research so, again, if triple bottom line reporting is truly reflective of a companies adherence to sustainable development practices, more tangible financial benefits should become apparent.

In the minds of Australian businesses, triple bottom line measurement and reporting is not a precise measurement technology; it is more a clever concept for establishing a new vision for a range of corporate responsibilities.

Adopting more transparent and accountable practices must be built on a business case that is widely discussed and understood in the company. To achieve enduring benefits companies need to 'own' their own approach, one that is built on well-conducted research and rigorous execution. Changes of this sort need to be well integrated into core management systems including planning, operations, employee relations, and management appraisal and reward systems.

In looking forward, many companies believe there is a role for government that includes facilitating discussion, especially around the characteristics of an environmental, social and economic vision for Australia what are the community's environmental, social and economic goals that should inform business objectives? There are many current regulatory and administrative instruments that already include public consultation and reporting (such as the National Pollutant Inventory). As a first step, the impact of these should be considered in the light of triple bottom line expectations.

Industry groups have an important role in taking triple bottom-line thinking further. There is no one-size-fits-all approach but most industry sectors are well placed to develop approaches that suit groups of like-minded companies such as occurred with the chemical and minerals industries in developing codes of practice in the 1990s.

The findings of this review are reported as follows: