NZBCSDSustainable Development Reporting:

Case Studies

A report prepared for the Ministry for the Environment by the New Zealand Business Council for Sustainable Development, June 2001.

Dedicated to Making a Difference

What is the NZBCSD?The New Zealand Business Council for Sustainable Development (NZBCSD), established in May 1999, is a coalition of leading businesses united by a shared commitment to sustainable development via the three pillars of economic growth, environmental protection and social progress. Membership of the Council is listed on page last page of this guide.

The NZBCSD is a partner organisation to the World Business Council for Sustainable Development (WBCSD), a coalition of 150 international businesses with members drawn from more than 30 countries and 20 major industrial sectors. We also benefit from the WBCSD’s global network of 30 national and regional business councils and partner organisations, involving some 700 business leaders globally.

Our MissionTo provide business leadership as a catalyst for change toward sustainable development, and to promote eco-efficiency, innovation and responsible entrepreneurship.

Our AimsOur objectives and strategic directions, based on this dedication, include:

Business leadership – to be the leading business advocate on issues connected with sustainable development.Policy development – to participate in policy development in order to create a framework that allows business to contribute effectively to sustainable development.Best practice – to demonstrate business progress in environmental and resource management and corporate social responsibility and to share leading-edge practices among our members.Global outreach – to contribute to a sustainable future for developing nations and nations in transition.

What is Sustainable Development Reporting?SDR is defined as public reports and information communicated by corporations that provide internal and external stakeholders with: 1.a clear picture of corporate values and principles2.a transparent picture of performance information on economic,

environmental and social dimensions3.a description of the corporation’s contribution to the sustainable

development of society4.the management response to performance - the commitment to

improvement.

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Table of Contents NZBCSD SDR Case Studies 4

Case studies for businesses that had begun the SDR process 5Sanford 5BP NZ 11Hubbard Foods 16The Warehouse Group 22

Case studies for businesses with no experience in the SDR process 30City Care 30Interface Agencies 39Telecom 44Urgent Couriers 53

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Case Studies

All NZBCSD businesses are required to produce a sustainable development report within three years of becoming a member. To help businesses understand the process that should be undertaken, eight NZBCSD member businesses, including four that had not begun planning for a sustainable development report and four that had already started the process, were chosen as case-study businesses. These eight businesses were assisted by facilitators to reach the next in creating their own SDR plans. The case study group committed to ‘learning by sharing’ to help other NZBCSD businesses.

NZBCSD businesses Landcare Research and URS were facilitators for the eight case study businesses and worked with them to scope the work required to reach the next stage of their SDR.

The following, is the detailed case study reports from each of the businesses.

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Case studies of businesses that had begun the SDR process

Case study: SanfordFacilitator: URS

Introduction

Sanford Limited (Sanford) is a founding member of the New Zealand Business Council for Sustainable Development (NZBCSD) – a coalition of leading New Zealand companies with a shared commitment to balanced social, environmental and economic development. The NZBCSD was recently awarded funds from the Ministry for the Environment (MfE) to prepare case studies on eight New Zealand businesses preparing sustainable development reports. Sanford was one of the selected companies and this reports outlines the outcomes of the case study, completed during June 2001.

The project objectives were to facilitate: the initiation of SDR in more NZBCSD companies progress on SDR within companies that had some experience.

This was achieved by: assisting with the next stage of facilitating SDR within a group of eight NZBCSD

case study companies sharing the SDR plans of these companies (by means of a

half day workshop and case study report) so that other NZBCSD companies can learn and be assisted in creating their own SDR plans.

Sanford prepared their first report in 2000 and are currently proceeding with development of their second SDR report for 2001. The main objective of the case study work was to provide input into the development of this second report. This was achieved through discussion with Sanford representatives and submission of a draft table of possible performance indicators and how these could be presented in report format. Recommendations were also made for completion of the process of report preparation, that had already been embarked upon by Sanford.

Sanford’s business case for its report is multifaceted and includes: Contributing to the sustainable management of New Zealand’s fish resources –

New Zealand has a Quota Management System (QMS) based on proportional harvest property rights. An annual harvest right is generated from quota ownership based on the percentage of the Total Allowable Commercial Catch (TACC). Sanford commits to comply with the rules and regulations in respect to Fisheries and other relevant New Zealand Law. Sanford actively participates in the collection and analysis of data to ensure realistic and cost effective research programs are developed to underpin the sustainable utilisation and management of New Zealand’s marine resources

Supporting Sanford’s Sustainable Seafood Logo Meeting Customer Expectations

Profile of Sanfords Limited

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Sanford is a large and long established fishing company. Its business is the harvesting, farming, processing, storage and marketing of New Zealand seafoods. Sanford has approximately 1,500 employees nationwide and has processing plants, aquaculture operations, fishing and freezer fleets and offices all over New Zealand. Sanford is also the only actively trading fishing/seafood company listed on the New Zealand Stock Exchange. Sanford supports the sustainable utilisation and management of seafood and wild fisheries f romNew Zealand’s unique marine environment.

Sustainable Development Reporting Experience

SDR Reporting HistoryThe first Sanford “Triple Bottom Line Report” was produced for the financial year 1999/2000 with some initial assistance from URS. The report was a standalone document and separate from the Annual Report for the same year. It provided information on Sanford’s economic, social and environmental performance, according to the following set of policy commitments: Ensuring that operations are sustainable Maximising positive social outcomes from both the

employee and general community perspectives Maximising the economic growth and prosperity of the

company for the benefit of shareholders, staff, customers, suppliers and the general community.

Sanford considered the report as an important first step towards incorporating sustainable thinking into its operations, performance evaluations and reporting.The report was divided into four sections namely: Sustainable Seafood (explaining the company’s sustainable strategy Environmental Sustainability Social Sustainability Economic Sustainability.

The environmental and social sections provided an overview of historical initiatives and achievements in these areas. The economic section discussed financial sustainability (financial soundness and ability to foster the means of its own growth and renewal).

The environmental section described the company wide Environmental Management System (EMS) implementation and certification to ISO 14001, and environmental sustainability initiatives for the three main operational areas (i.e. fisheries, aquaculture and processing).

The social section described staff training programmes, employment levels, donations, health and safety and some community interactions. It included some social performance indicator data such as percentage of staff achieving NZQA unit standards, and the number and percentage of staff with superannuation plan membership.

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The economic section provided performance information against financial indicators that highlighted recent economic performance, financial sustainability, and added value for stakeholders.

Existing SDR Plan

Sanford’s existing SDR plan is described in the “Triple Bottom Line Report” 1999/2000 as a Draft Sustainability Strategy. The first version of this Sustainability Strategy contained the company’s initial commitments with respect to future sustainability goals and potential indicators to measure whether these had been achieved. It was intended that both the goals and the indicators would be further developed in subsequent reports. Potential indicators were initially developed for the following five areas – representing the important elements of sustainability from Sanford’s perspective: Corporate Governance Shareholder Value Stakeholder Satisfaction Employee Orientation Environmental Performance.

Sanford has experienced widespread internal (boardroom through to staff levels) and external support for their initial Sustainable Strategy, and publication of their first report. In addition, more internal ownership and participation in the strategy has been experienced since the publication of the first report. The senior managers have developed a better understanding of sustainability principles and objectives for both the strategy and the report itself.

Sanford is currently preparing their second report., A staff data collection questionnaire based on the performance indicators used for last years report, with the addition of several new indicators, is being developed. These performance indicators have been expanded further during this case study and, once agreed within Sanfords, will be used to update the proposed data collection questionnaire to staff. The questionnaire will be issued to area managers to obtain feedback on the report content, and data, as per the agreed indicators.

Some of the output from this case study, including the revised and expanded draft Sustainability Strategy and the recommended methodology for report preparation, will be considered for Sanford to assist with internal preparation of their second report.

Suggested Future Direction and Methodology for SDR

Future DirectionFindings from the case study highlighted a number of general SDR issues and some possible future directions that could be taken by Sanford to enhance incorporation of sustainable development into their business. These case study findings have been grouped into three key areas - planning (including development of policies and performance indicators), corporate governance and stakeholder engagement.

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Planning (Policy, Indicators etc.)It is recommended that Sanford develop a set of sustainable development policy statements, performance objectives and indicators, that can then be communicated to stakeholders in the 2001 report. The initial set of sustainable development policy statements and possible indicators included in the first report (and entitled the company’s Sustainability Strategy) should be significantly updated and expanded upon to include: Policy statements – including an overview statement and

three sub-statements on environment, social and economic performance; Performance objectives – both narrative and numerical

objectives that are transparent and measurable. For example a project related narrative objective such as developing an environmental procurement programme or a numerical objective such as a reduction in water usage.

Performance indicators – providing a means of measuring and reporting on whether the performance objectives (and therefore the underlying policy commitments) are being met – on a year to year basis. Examples of performance indicators may include number of suppliers that have been screened on environmental grounds, or water used/tonnage of fish processed.

One of the specific deliverables arising from this case study has been the further development of Sanford’s iniital Sustainability Strategy including sets of possible indicators for environmental, social and economic performance. A total of approximately 65 indicators have been submitted to Sanford (covering environmental, economic and social areas) for future consideration. Sanford propose to discuss these indicators internally and use this case study deliverable as a basis for finalising their Sustainability Strategy for incorporation into the 2001 report. For the purposes of this Case Study report, the following have been selected as examples of the environmental indicators developed for Sanford. The selected examples range from narrative, project type indicators through to specific numerical indicators that can be readily presented in graph format.

Sustainable Harvest: Research Programmes to determine total allowable catches Number of NZ MSC Certifications Percentage of fish product that is lost/converted to

fishmeal/sold

Resource Use (Energy, Water) Diesel Fuel consumed/production volume Staff training on energy efficiency

Environmental Effects: Reduction in oyster loss to sea; Solid Waste emissions

Corporate Governance Corporate Governance (or “making it happen”) is critical to the success of Sanford’s sustainable strategy. It requires embedding responsibilities and procedures into the

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company culture to ensure that the policy statements/commitments are met. Sanford has experience in embedding systems with the successful implementation and certification of ISO 14001. Sanford currently use some measure of health, safety and environmental performance to evaluate their business units. It is recommended that the potential for more formal quantitative measures of selected individual and business unit performance, based on sustainable development objectives, be evaluated. It is also recommended that Sustainable Development issues be formally incorporated into Board and Management Team meetings and specific responsibilities are assigned for specific areas.

Stakeholder engagementSanford’s first report was compiled with some internal discussion but limited external stakeholder dialogue. At this stage, the second reporting process does not include definitive plans for stakeholder engagement. A focussed, structured stakeholder engagement programme will provide Sanford with more information on what their stakeholders wish to have included in the report and why. For the 2001 report, it has been recommended that Sanford consider some limited stakeholder dialogue, perhaps with a few key customers and shareholders. Following preparation of the 2001 report, Sanford should carry out a scoping exercise on stakeholder engagement. This would included a clear analysis of the intended objectives and benefits and the ensuing, targeted programme.

MethodologyThe following methodology or programme for moving to the next stage in the SDR process is recommended:1. Refine Corporate Governance Policies and performance targets for board,

management and individuals.2. Agree on scope and boundaries for the report (e.g. internal only, not suppliers,

contractors) based on an analysis of the sectors which Sanford has jurisdiction or other influences over.

3. Discuss all proposed policy statements, performance objectives and indicators with Management Team to establish collective “buy-in” and provide education on the range/types of parameters that data is required for.

4. Consider some discussion of the policy statements, performance objectives and indicators with other key stakeholders, in particular shareholders and overseas customers.

5. Edit staff questionnaire according to agreed list of parameters established from management feedback and targeted stakeholder discussions.

6. Circulate questionnaire and compile data.7. Present data in recommended format that clearly links policy, performance

objectives and actual data.8. Prepare remaining sections of the report according to the general GRI format

(CEO statement, Profile of Reporting Organisation, Vision and Strategy, Policies, Organisation and Management Systems, Performance)

9. Evaluate benefits of verification and options for completing this exercise. 10. Print report and circulate with an attached stakeholder feedback form11. Depending on stakeholder engagement achieved during 2001, develop targeted

stakeholder consultation programme for 2002.

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Relationship of Methodology to GRI and AA1000

Global Reporting InitiativeThe report content and format recommended by URS to Sanford generally complies with that recommended in the GRI Guidelines. The report would therefore include sections for the CEO statement; Sanford profile; executive summary; vision and strategy; policies, organisation and management systems; and performance.

The recommended performance indicators relate specifically to a stated objective and at a more general level, to an overriding environmental, social or economic policy statement. As such, URS have not recommended the distinctions used by GRI for performance indicators, including those defined as “systematic” or “cross-cutting”.

AccountAbility 1000The overall SDR process of planning, embedding, auditing and accounting which is described in this standard is being developed by Sanford. This process is already well established for the company’s environmental performance (implementation of EMS) whilst the company’s social performance is less structured with no auditing currently used. There is also a need to align social and community activities with the company’s corporate values. It has also been recommended that a more targeted programme of stakeholder engagement is established by Sanfords , as is indicated by AA 1000.

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Case study: BP Oil New Zealand (BP NZ) Facilitator: URS

Executive Summary

In New Zealand, BP’s core business is the supply, distribution, and marketing of fuels and lubricants as well as convenience retailing. The New Zealand operation, including Castrol, employs approximately 300 staff and generates a turnover of 1.5 billion. There is a network of over 400 BP/Castrol petrol stations throughout the country and the company accounts for just over 25% of the market share, on total products.

BP NZ sees the development of an SDR as a way of harnessing their long-term business vision and as a way to approach the many issues and competing demands that arise in its business, in a holistic manner. SDR began globally for BP in 1998 and in 1999 was integrated into the financial report for that year. BP is now committed to yearly reporting on its Health, Safety and Environment and social performance as well as its financial performance. BP report in two ways: against policies and by location. BP NZ have been working on the development of the New Zealand location report for some time and are proposing to have the document finalised and published in October this year.

An analysis of the difficulties encountered by BP NZ in completing the SDR process identified a number of lessons to be learnt. These include the clear establishment of a report scope and boundaries from the outset, the relevance of key global issues for location reports, the selection of both narrative and quantitative performance indicators and the importance of non-technical performance indicators.

Findings from the case study highlighted possible future directions that could be taken by BP NZ to enhance their SDR development. These have been grouped into three key SDR processes - planning (including development of policies and performance indicators), corporate governance and stakeholder engagement. A methodology has also been recommended to facilitate preparation of BP NZ’s first SDR.

Comparison of the proposed report content and SDR process against the GRI Guidelines and AccountAbility 1000 standard, respectively, has been made. The report content and overall format currently used by BP generally complies with that recommended in the GRI Guidelines whilst the overall SDR process of planning, embedding, auditing and accounting which is described in the AA1000 standard is a system that is already part of the BP culture.

Profile of BP New Zealand Limited

BP is one of the three largest integrated energy companies in the world. The main global activities are exploration and production of crude oil and natural gas; refining, marketing, supply and transportation; manufacturing and marketing of petrochemicals; and a growing activity in solar power generation.

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Following a series of mergers and acquisitions, the BP brand now brings together the former British Petroleum, Amoco Corporation, Atlantic Richfield (ARCO), and most recently, Burmah Castrol. The combined group has a market value of over $200 billion.

In New Zealand, BP’s core business is the supply, distribution, and marketing of fuels and lubricants as well as convenience retailing. The New Zealand operation, including Castrol, employs approximately 300 staff and generates a turnover of 1.5 billion. There is a network of over 400 BP/Castrol petrol stations throughout the country and the company accounts for just over 25% of the market share, on total products.

Sustainable Development Reporting Experience

SDR Reporting HistoryBP has a strongly embedded culture of health, safety and environmental performance, coupled with responsiveness to community and staff needs. BP NZ’s business case for developing a SDR initiative is summed up by the following quote from the CEO:

“Our objective is to bring a creative, progressive, distinctive and responsible approach to sustainable development challenges, and to do so in an ethical way in line with our core values and business policies. In particular we regard the greater transparency and accountability associated with sustainability as an opportunity for leadership and innovation.”

BP NZ sees the development of an SDR as a way of harnessing their long-term business vision and as a way to approach the many issues and competing demands that arise in its business, in a holistic manner.

SDR began globally for BP in 1998 and in 1999 was integrated into the financial report for that year. BP is now committed to yearly reporting on its HSE (progress made towards policy goals of no accidents, no harm to people and no damage to the environment) and social performance (progress made towards the commitments in ethical conduct, employees and relationships policies) as well as its financial performance.

BP report in two ways; against each of the policies and by location. The policy reports are prepared by functional teams. To ensure consistency of data reported across the organisation, guidelines (e.g. Environmental Reporting Guidelines) are produced to help the business units report data. The location reports address the relevant business issues in each location. So far this year location reports have been prepared for operations in Australia, China, South Africa, Scotland and Texas.

Existing SDR PlanBP NZ have been working on the development of the New Zealand location report for some time and are proposing to have the document finalised and published in October this year. An initial draft report was prepared in 1999. One of the deliverables from this case study has been an annotated table of contents to use as a basis for revising the original draft and preparing the final report.

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Future Direction and Methodology for SDR

Lessons Learnt To DateBP NZ has a wealth of available corporate information on sustainable development practices and reporting. Nevertheless, the company has had a draft SDR available internally for nearly one year and has found difficulty in completing the reporting process. Lessons learnt from an analysis of this situation, which occurred as part of this project, are listed as follows:

The scope and boundaries of the NZ report must be clearly established from the outset, and reflect the NZ operations as opposed to trying to fully cover all of the global environmental and social issues, for example greenhouse gas emissions

Despite the restricted scope with respect to specific policies and performance indicators, the report must reference key global issues, and summarise BP’s policy, actions in relation to these. Examples include climate change, alternative fuels

Once the scope and boundaries of the report are defined, a list of narrative and quantitative performance indicators should be selected

Non-technical performance indicators (e.g. corporate governance) are as important, perhaps more important, than the technical indicators (e.g. emissions)

Internal resources need to be clearly defined to enable policies and performance indicators to be established and reported on.

Future DirectionFindings from the case study highlighted possible future directions that could be taken by BP NZ to enhance their SDR development. These have been grouped into three key SDR processes - planning (including development of policies and performance indicators), corporate governance and stakeholder engagement.

Planning (Policies, Indicators etc)The policies and performance indicators used for the BP NZ report will be defined by an analysis of “how New Zealand operations fit in the global picture”. BP New Zealand will need to clearly state in the report: The scope of the New Zealand operations and how these differ from the global

picture – for example, company owned retail stations are a large part of BP’s New Zealand operations, whereas some of the offshore operations will be dominated by large production facilities

How the company uses the overall corporate policy statements to define targets and indicators that are relevant to the New Zealand operations.

The performance indicators that are chosen should parallel the corporate reporting requirements, for example, the use of data collection systems that are already in place within the company. During the case study process and a review of BP NZ’s draft SDR a number of performance measures previously unconsidered by BP NZ were identified namely corporate governance, environmental procurement policy and BP’s Design for the Environment concept.

Corporate GovernanceBP already has an embedded “Project” (or “Just Do It”) Culture within its orgranisation and this will ensure that the behaviour of the company “on the ground”

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will align with the policies described within the SDR. To reflect this project culture, the SDR report needs to use both narrative and quantitative performance indicators, splitting them up to cover projects and on-going trends respectively. Detailed cumbersome procedures that can arise from sustainable development commitments (and provide little value) must be avoided as these will not take hold in a “hands on” culture. A better approach will be clear assignment of staff responsibilities whilst promoting a culture of “no blame” incident reporting.

BP employs a rigorous individual, management and business unit performance evaluation system which includes specific reference to Health, Safety and Environmental Performance. This system should be maintained and some consideration given to expansion into community or any other stakeholder related areas of performance that are covered by the SDR but not yet by the performance evaluation system.

Stakeholder EngagementBP NZ has access to a significant volume and breadth of information regarding stakeholder analysis. Extensive stakeholder analysis projects have been completed globally and very recently in Australia.

Additional New Zealand specific analysis is considered unlikely to be able to provide significantly more information to contribute to the BP NZ report. The development of the SDR would, however, provide an opportunity to commit to a brief evaluation of the global and Australian information, from a New Zealand perspective.

In the longer term (for example during the preparation for BP NZ’s second report), the scope of an “appropriate” stakeholder engagement programme should be evaluated and decided upon. BP NZ is already very “connected” to the community. The public are aware of the brand and the product and the retail stations are high profile in many communities. The objectives of any stakeholder engagement programme should not be restricted to the collection of information about relevant issues, concerns, suggestions etc. The stakeholder programme, if scoped well, could also provide an opportunity to enhance trust between the company and its customer base.

The establishment of what is an appropriate stakeholder engagement programme for BP NZ (i.e. “divisional” vs corporate practices) is an important issue and is not addressed by AA1000.

MethodologyThe following methodology for moving to the next stage in the SDR process is recommended:12. Establish an internal project team and agree on the methodology to be used

(including any need for stakeholder input), resource requirements, overall timeline, need (if any) for external input

13. Agree on the scope and boundaries for the report14. Agree on all BP NZ policy statements, narrative and quantitative performance

indicators and any targets that can be committed to 15. Allocate sections of the report to individuals16. Prepare the draft report

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17. Prepare the scope of verification by a third party. The verifier should be asked to ensure that:

– The report presents a comprehensive evaluation of BP NZ economic, environmental and social data

– The policy statements and performance commitments appropriately reflect the underlying management philosophy, culture and behaviours of BP NZ staff

– The information and data provided is accurate18. Obtain independent verification of the report19. Print the report and circulate within BP NZ with an attached feedback form20. Depending on stakeholder engagement achieved during 2001, begin developing a

targeted stakeholder consultation programme for 2002.

Relationship of Direction and Methodology to GRI and AA1000

Global Reporting InitiativeThe report content and overall format currently used by BP generally complies with that recommended in the GRI Guidelines. The recommended content includes CEO statement; BP NZ profile; executive summary; vision and strategy; policies, organisation and management systems; and performance are all included in the report format. URS has recommended the use of both narrative and quantitative performance measures to reflect the project nature of many of BP NZ’s operations.

AccountAbility 1000The overall SDR process of planning, embedding, auditing and accounting which is described in this standard has been recommended to BP NZ by URS and is a system that is already part of the BP culture. It has been recommended that a programme of stakeholder engagement is considered by BP NZ. Although development of this programme is at an early stage it is likely that it will differ from that described in the standard as the issue of what is an appropriate level of engagement for divisional operations is not covered by the standard.

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Case Study: Hubbard Foods Facilitator: Landcare Research

Executive Summary

Hubbard Foods Ltd (Hubbards) have been committed to preparing a Sustainable Development (SD) report for two and a half years and the NZBCSD project has provided them with the resources and pressure to prepare it. Through the short project period (3 weeks), Hubbards have made significant progress toward the report. The Hubbards team have displayed extensive commitment to the process.

Profile of Hubbards

Hubbards is a privately owned company that has been making cereal since 1988. The company employs approximately 100 staff and currently manufactures all its cereal from its factory in Mangere.

The company turnover is approximately $27 million and it manufactures a wide range of breakfast cereal, which is sold in New Zealand, the United Kingdom, Asia and Australia.

The profile of its CEO and founder, Dick Hubbard has been synonymous with social responsibility. This has impacted on the reputation of the company and is reflected also in the company’s membership and representation at the executive of Businesses for Social Responsibility and the New Zealand Business Council for Sustainable Development.

SDR experience to date

Hubbards will be releasing its first sustainable development report on the 31 July 2001. Hubbards’ decided they would prepare a TBL report two and a half years ago. Since this time, they have commissioned engagement with their stakeholders through the Murphy Stakeholder Audit Model. They have also undertaken an environmental audit through the Auckland Environmental Business Network (AEBN), and have had a CO2 emissions audit conducted by Landcare Research. Some of this information has been used in the preparation of the sustainable development report.

Facilitator’s feedback on existing sustainable development report plan

Although there was an intention to report, there was no detailed plan in place and therefore there was nothing on which the facilitator could provide feedback.

Description of process and next steps

The proposed process for preparing the sustainable development report is reproduced below. Step 4 focuses on identifying the area to be reported upon, before selecting the indicators for each performance area. The method uses a Key Performance Area Driver model to ensure that all sustainability issues are identified, even the tough issues. The facilitator believes this is important to ensure that the report shows a

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balanced view, rather than a too rosy picture of the company, or one driven by readily available data.

Step 1: Review purpose of reporting

Step 2: Determine scope of report

Step 3: Perform a gap analysis on corporate values, mission, and policy, to highlight where sustainable development principles are not reflected.

Step 4: Review the Key Performance Area Drivers (using the Key-PAD model below) to determine the content of the ‘performance’ section of the report.

Step 5: Determine the way the KPA will be addressed in the sustainable development report.

a) Acknowledge but no measure – plan to address in futureb) Acknowledge may be an issue but don’t know for sure – plan to check. c) Acknowledge and measured) Acknowledge and tell story.

Step 6: Develop KPIs for those KPAs that will be measured.

Step 7: Targets and accountabilitiesIt has been a challenge setting targets before knowing what information the organisation has on each of the key performance areas selected.

Step 8: Develop measurement systems

Step 9: Decide on structure of report

Step 10: Verification and credibility issues

Step 11: Practical report issues – web, distribution etc.

Step 12: Feedback – address how feedback on report will be obtained.

Step 13: Embed learning and continue to learn and improve

Throughout the entire process described above it is important to address changes that can be made to existing processes, strategy, policy, vision etc to better reflect the triple bottom line.

The approach described above is not linear. The timing of the different components is different for every organisation. This is evidenced by the fact that Hubbards completed steps 1 to 5 and 9, 10 and 11 during the case study period. This leaves steps 6-8 and 12 to complete later.

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Stakeholders

Stakeholders have been addressed in step 4 above. The aim of using stakeholders as a driver for the sustainable development report is to ensure that the report is relevant to the stakeholders. Much reporting in the past has included what the organisation considered important with little consideration for what was important to the readers.

What Hubbards’ want to know is what is important to each stakeholder group in relation to the company’s performance. They may also want to know the stakeholders’ perception of Hubbards’ performance in each area, and possibly to be involved in the development of KPIs for the report.

The facilitator and reporting team went through the process of identifying Hubbards’ stakeholders, and which of these stakeholder groups will be engaged for the report in question. Where Hubbards are not dialoguing with a group, the justification for such exclusion was discussed. This is contained in the table below.

It is particularly interesting that as a small company, Hubbards conducted some of the stakeholder dialogue in-house as opposed to using outside experts. However, the company did engage the Murphy Stakeholder Audit Model to conduct some research on perceptions in 2000, some of which has been relied on as evidence of important issues to some classes of stakeholders.

Stakeholder Will we include in 2001 SD report?

Will we dialogue with this stakeholder group now

Customers - consumers Yes No – we know what is important to them through previous research

Customers - trade Yes No – next year – we have anecdotal evidence only

Employees Yes Yes

Shareholders No Justification – Dick Hubbard is representative of their interests

Local Community No Justification – deal with in subsequent report -although stories of community involvement will be included

Suppliers Yes No – we know what is important to them already through previous research

Governance

Hubbards has established a Board in the last few months. Its relevance to the SD reporting process and its distinction from public boards is interesting.

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Part of the rationale for establishing the Board was to ensure all stakeholder interests are represented, rather than just shareholders. The Board members have not been selected because of their representation of a particular stakeholder group however, they have been expressly instructed to take into consideration the needs of all stakeholders equally.

This can be compared to the Board of a public company who are legally required to look after just the interests of the shareholder.

As the Board of Hubbards is only a few months old, it will be interesting to observe the role it plays in protecting the diverse needs of stakeholder groups.

Rationale of process suggested and deviation from existing plan

The process outlined above has been developed as a result of work with other New Zealand organisations preparing TBL reports, and the facilitator’s experience on their own sustainable development report. It has integrated AA1000 where it adds value and has added a number of dimensions that add value to the process.

Relationship of process suggested and changes made to AA1000

The AA1000 process is outlined below.

Planning

CommitmentsIdentify stakeholdersDefine/review values

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Accounting

Identify issuesDetermine process scopeIdentify IndicatorsCollect InformationAnalyse information, set targets and develop improvement plan

Audit and reporting

Prepare reportAudit report Communicate report and obtain feedback

Embedding

Establish and embed systems

The process recommended by the facilitator differs from AA1000 in two major ways:

AA1000 is focused on producing a report, with internal management processes being considered, but only briefly. The recommended process is broader and is designed for organisations to not only produce a report but also to use it as an internal tool for change. For example, stakeholders are just one of eight drivers for content in the process outlined below, whereas AA1000 relies very heavily on stakeholders to determine content.

Secondly, AA1000 is a very rigorous standard when it comes to stakeholder engagement. The recommended process acknowledges the size of many New Zealand businesses in that formal stakeholder engagement is sometimes difficult to do given resources available. In the case of Hubbards, significant stakeholder research has been undertaken to determine issues of most importance to stakeholders. However, involving stakeholders in the development of key performance indicators, as is required by AA1000 is not on the horizon.

The facilitator strongly supports the stakeholder stance taken in AA1000 and encourages organisations to follow it as much as they can where their size enables them to invest significant resources in stakeholder dialogue and involvement.

Relationship of process suggested and changes made to the GRI guidelines

GRI is a valuable content standard for organisations preparing SD reports. Hubbards have used GRI in two ways: firstly in determining the SD report structure ie:

CEO statement Profile of reporting organisation Executive Summary and Key Indicators Vision and Strategy Policies, Organisation and Management Systems Performance

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Hubbards have considered this as a framework for the content of the report and have decided to adopt some of it. The reason for not using it all is reflective of the size and ownership structure of the business.

The structure for the Hubbards report is: CEO statement Profile of the company SD Performance – issue based (rather than in the 3 ‘silos’ of social,

environmental and economic). Credibility statements (to be confirmed) Feedback collection piece

Some discussion of policies, vision, values and management systems will be included in the CEO statement.

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Case Study: The Warehouse GroupFacilitator: Landcare Research

Profile of The Warehouse Ltd The Warehouse Group was established in 1982. It now comprises three trading operations: Warehouse Stores (74 stores, the “Red Sheds”) selling general merchandise in New

Zealand Warehouse Stationery (since 1991; 32 stores selling small office and home office

products) Australian business (acquired on 1st Aug 2000, Clints and Sollys are two discount variety

stores; 116 stores).

The Warehouse marketing approach is based on two brand statements: “where everyone gets a bargain” and “where quality is affordable”. This approach is backed by a “money-back” guarantee. The product range in New Zealand exceeds 90,000 lines, reflecting a very large number of individual suppliers both domestic and overseas. The company sells a number of own-label products, together with an increasing range of international brands.

The Warehouse and Sustainable Development

The Warehouse and its founder, Stephen Tindall, and both are household names in New Zealand. Early in 2001, Greg Muir became Chief Executive Officer, and Stephen Tindall moved from his role of Managing Director to that of Founder of The Warehouse. Stephen Tindall has maintained an active role and continues to act as champion for sustainable development initiatives, along with the company’s environmental coordinator, Richard Morley-Hall.

Within The Warehouse a number of initiatives have reflected the Founder’s commitment to sustainable development.

People First was adopted as a philosophy, focusing attention on the five key stakeholder groups: customers, team members, suppliers, shareholders, and the community. This philosophy is supported internally by “The Warehouse Way” – a written policy. In 2000 this philosophy was extended to “People First Everywhere”.

A Supplier Code of Conduct was introduced in 2000, which, in addition to dealing with the rules of commercial engagement, begins to impose standards of environmental and social performance on suppliers. The company recognises that the Code is an initial step in this direction, and that verification of supplier performance will be required.

A “Zero Waste” philosophy exists in the company. “Reverse logistics” have been developed to return packaging, store, and product waste through the company’s distribution system to central sorting points. From those it is sent to recycling operations or to landfill, as appropriate. In this way the company has brought the majority of its stores into line with the zero-waste goal, removing the waste skips and local disposal costs.

In 1999 the company was a founding member of the NZ Business Council for Sustainable Development (NZBCSD), which is promoting the present case study work on SD reporting. Since late 2000 Stephen Tindall has been the chairman of the NZBCSD and contributed to the work of the World Business Council for Sustainable Development.

In 1999 the company joined the Annual Survey of Corporate Environmental

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Responsiveness, a programme run by Delyse Springett of Massey University. This has focussed attention on environmental policies and performance, and enabled the company to benchmark itself against other New Zealand companies.

In 2000 The Warehouse joined the pathfinder programme of The Natural Step, along with around ten other New Zealand organisations, thus becoming part of an international movement to implement the four system conditions for sustainability set down by The Natural Step.

In the same year the company joined the Redesigning Resources (RR) conference group of six organisations putting their progress towards greater sustainability under the public spotlight. Conference workshops in Christchurch exposed the company to the scrutiny of others and brought forward suggestions about how it could improve its performance.

The most significant goals for The Warehouse were identified as influencing the supply chain to improve its performance, and driving greater consumer demand for sustainable development.

Arising from the RR conference was a Triple Bottom Line (or sustainable development) workshop series led by Landcare Research. This series aims to take those organisations along the pathway to reporting by the time of the next RR conference in 2002. The Warehouse takes part in those workshops and has made significant progress towards comprehensive reporting.

The Warehouse has supported the NZ eco-labelling scheme, Environmental Choice since its inception, and carries a number of products which have certification under this programme.

The Warehouse has also supported the community in a number of ways including a tree-planting scheme through its credit card points programme, “Clean-up New Zealand”, Project Kiwi, and support for schools and national organisations, e.g. Plunkett and Surf Life-Saving.

The Warehouse is highly regarded and has won national awards for its energy efficiency management. The company has had its greenhouse gas emissions assessed by the Landcare Research Ebex21 programme with a view to linking energy efficiency to investment in the restoration of native biodiversity.

The company commissioned a “values audit” by Social Audit NZ.

Australia presents new challenges and opportunities in relation to sustainable development.

The Warehouse and SDR

What have they done?The company’s annual reports have included 1-2 pages on environmental initiatives since 1998. These reports have not included performance measures or data.

Where are they now?The company is now committed to SD reporting, and is developing a report structure and deciding upon priorities for content, as described below. They recognise that for many aspects of SD performance data may not yet exist, and measurements will need to be established. Some areas will therefore be discussed at this stage until

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performance data become available.

Why do more?The opportunities presented by SD Reporting are to: Better manage corporate risk through a comprehensive assessment of social and

environmental performance Internal discipline, influencing what the company does, and forcing it to do better Provide a platform for influencing stakeholders, especially others in the New Zealand

business community, to improve their own contribution to sustainable development Build enduring stakeholder support for The Warehouse through shared values, trust, and

demonstrated integrity Build brand awareness and reputation in a society where values are shifting towards

greater sustainability Show how The Warehouse itself has benefited by implementing sustainable development

thinking and technology Acknowledge issues of concern to stakeholders, and talk about what The Warehouse is

doing to address them Achieve greater resource-use efficiency and reduced operating costs Encourage innovation in product and service lines and marketing to enhance to

company’s advantage gained from applying SD principles Benchmark the business against others reporting in the sector around the world.

Issues for The Warehouse in Adopting SDR

Board and Executive commitment: need to achieve buy-in from the senior management team. As Founder of The Warehouse, Stephen Tindall is strongly committed to SD reporting and has driven many of the initiatives recorded above. The Board is committed to sustainable retailing. Senior management and Board members have different levels of awareness and understanding of the concepts of sustainable development and reporting.

Developing a reporting team with a champion and suitable representation. The SDR project is led by the Company Secretary assisted by the Environmental Coordinator. Departmental heads are being called upon for data, but are not directly represented on the reporting team. At this early stage in comprehensive SD reporting, the company may need to establish a reporting team with wider representation.

Few models exist for the retail sector. Unlike manufacturing, the retail sector worldwide has provided few examples of SD reporting. In terms of SD performance, however, The Warehouse has learnt from the practices of several organisations. For example, B&Q, the UK do-it-yourself retailer, has provided models for reducing packaging and the use of sustainably-harvested timber sources.

The risks in SDR. SDR is an opportunity to build stakeholder trust and support through an honest account of both successes and those areas where performance needs to be improved. The Warehouse is committed to a “warts and all” report of its performance.

The company has a very high public profile in NZ and is establishing a higher profile in Australia. Any reporting on corporate SD performance is likely to attract significant attention.

The large-scale discount retailing sector has attracted criticism in many countries, not least

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NZ, for its impacts on society. The perceived problems include the impacts of opening such stores on local communities, the encouragement of consumerism and family debt, poor working conditions and child labour in the supply chain, and the increased volumes of waste from packaging, etc.

The Warehouse shares these issues with other members of the retail sector. Therefore by publishing a comprehensive SD report, the company is taking the opportunity to lead the retail sector in addressing these issues collectively.

But by putting itself forward as being committed to sustainable development, with “People First Everywhere”, “Affordable Quality”, and “Zero Waste” ethics, The Warehouse will put its own performance under the spotlight.

Stakeholders will make their own judgements about the completeness and transparency of the company’s reporting. For any organisation there are risks, perhaps greater risks, associated with not recognising or disclosing sensitive matters. These risks include uncontrolled disclosure by other parties, and exploitation by the media and competitors.

Decision on the phasing of content. It is normal that companies work up to full SDR over a period of years. This reflects the time taken to both identify the issues of importance to stakeholders, and gather meaningful and reliable data. The Warehouse has been reporting upon SD projects over the past 2-3 years. A much more comprehensive framework is being proposed for the next annual report. Decisions will be needed on subsequent content, especially in those sensitive areas discussed above, where reliable data is not yet available and will be harder to access.

Multiplicity of SD initiatives in TWL. The Warehouse has engaged in a number of sustainable development initiatives. These reflect both the commitment of Stephen Tindall to supporting SD in NZ, and on the diversity of approaches to SD that have sprung up in NZ in recent years. While some see this diversity as a strength, for others it has the potential to cause confusion. The SD report will need to show how the different approaches complement one another.

The financial costs of reporting. There can be significant costs associated with SDR, in terms of stakeholder engagement, data gathering, and preparation of material. However, the Warehouse expects these costs to be offset by cost-savings resulting from monitoring and reporting performance across the business.

The Warehouse does not expect to establish dedicated reporting systems, but rather to integrate SD data gathering into standard management reporting, like health & safety, and financial measures.

The Warehouse’s policy statements. The reporting team recognises that some areas of policy are under development or yet to be addressed. The Reporting process will help to identify and prioritise these, and can provide guidance, from international practice, on closing the gaps.

The SDR Process

Reporting teamThe reporting process is led by the Company Secretary, who is responsible for annual reporting. He is supported by the Environmental Coordinator. The main thrust for SD reporting comes from Stephen Tindall. An SD reporting team, with committed representatives from different departments, has not yet been established. This may need to be

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addressed as the process begins to source new types of performance data from across the business and require detailed understanding of the rationale and implications of SD reporting.

Overview of approach The Warehouse is a member of the Redesigning Resources group of organisations taking part in a Triple Bottom Line (SD) reporting workshop series, led by Landcare Research. The approach they have followed to date, towards their next report, is summarised below. The status of each activity at The Warehouse is shown in brackets. Ensure the top level commitment to SD reporting and allocation of the necessary

resources. (Done) Select the SDR champion. (Done) Prepare a system for documenting the decision process and activities in producing the SD

Report (this is essential preparation for external verification). (Incomplete) Decide upon the reporting entity, scope, and time period covered by the report. (Done) Identify stakeholders and what they would expect of the report. Develop a programme for

engaging key stakeholders which clearly indicates which groups will be engaged, when, and the reasons for including or excluding specific groups. (Incomplete)

Identify key performance areas on which to report using the Key Performance Area Driver model or similar framework (see “Report content”)

Document the reasons for selecting the Key Performance Areas (KPAs) on which to report, as below. (Incomplete)

a) Acknowledge KPA, report performance.b) Acknowledge KPA, plan to address in future.c) Unsure about KPA, plan to assess its importance.

Assign key performance indicators to the key performance areas, ensuring balance, comprehensiveness, and objectivity. (Incomplete)

Build upon existing scorecards and performance measures but avoid presenting a report skewed towards internal priorities. (Incomplete)

Document internal management processes and identify gaps in policies, accountabilities, planning, and monitoring. (Incomplete)

Where appropriate set performance targets for the next reporting period. (Incomplete) Select approach to report verification and stakeholder comment. (Incomplete) Develop the report content, format, illustration, and dissemination, taking care to reflect

the values of the company (e.g., use of recycled/recyclable materials, gender and ethnic depiction, use of jargon, invitation of feedback, contact points, etc). (Incomplete)

Use of International Reporting Standards

Global Reporting Initiative (GRI) guidelinesGRI is to be used extensively as a checklist of report content and candidate Key Performance Indicators. However, as with other organisations in the NZBCSD, there are likely to be two areas where The Warehouse’s approach differs from the GRI format.

Influencing potential“Influencing potential” is seen by Stephen Tindall to be a major part of the company’s strategy for contributing to sustainable development both in New Zealand and overseas. For example, improved performance can be demanded in the supply chain, and customers can be introduced to the concepts of SD and helped to implement measures such as waste reduction, selection of products with a better SD profile, etc.

But the GRI does not yet offer measures of influencing potential.GRI presently focuses on the direct impacts of an organisation’s activities. It is expected that GRI will develop in this direction, and that The Warehouse’s experience in developing

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relevant measures of “influence” will be of international importance.

Integrated performanceIn the second area of divergence, GRI tends to consider social, environmental and economic performance in distinct “silos”. Integration of indicators is limited to rather simplistic context-setting by using ratios (e.g., carbon dioxide emissions per $ turnover).

This approach omits the linkages between social, economic, and environmental performance in the context of any one issue.

The reporting team has considered the value in taking an issue-based approach to SD reporting. This means that once key performance areas have been identified, they will be analysed in terms of their social, economic, and environmental components.

Take solid waste as a simple example. This is a key performance area for The Warehouse, which has a Zero Waste goal. Solid waste has: Economic dimensions (for example, cost of disposal, cost of product returns, staff time

costs in handling both, relative costs of reverse logistics, cost of providing recycling facilities for customers, liability for higher waste charges pending future legislation, etc)

Social dimensions (for example, influencing staff and customer behaviour to reduce solid waste, effectiveness of training and other approaches, acceptance of waste sorting, recycling, etc)

Environmental dimensions (for example, landfill demands, additional greenhouse gas emissions from producing new versus recycled material, environmental contamination from hazardous wastes (e.g. batteries), etc).

That example demonstrates how the three dimensions of SD are woven together. Only when those linkages are made explicit does the reader gain a comprehensive understanding of the significance of the organisation’s performance in relation to that issue. GRI is valuable, however, in selecting the individual performance measures to be used in telling the story.

AccountAbility (AA1000) processAA1000 is a process standard dealing with the engagement of stakeholders in the full cycle of SD reporting, from establishing vision, values, and goals, through planning, implementation, monitoring, review, reporting, and embedding in the organisation.

The company’s “People First Everywhere” vision puts stakeholder engagement in the spotlight for The Warehouse. If reporting is not to be a one-way communication from the company to stakeholders, how can the company engage them in a cost-effective manner? Similarly, the company’s desire to embed SD thinking throughout its management processes and staff raises the need for an effective mechanism.

AA1000 provides such a mechanism. It is used internationally, but the approach is unfamiliar in New Zealand. As accredited consultants become available, the Warehouse will review the use of the standard and what value it offers to their reporting.

Report ContentScope, entity, and timeframeReporting will cover The Warehouse Ltd, only. It is still to be decided of the report will be stand-alone or integrated with the Annual Report. The activities, performance, and policies of suppliers and contractors may be included in later reports, but only inasmuch as they are influenced directly by The Warehouse as part of its

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supply chain management policy.

StakeholdersThe reporting process and the content will strongly reflect the key stakeholder groups and their interests. Key stakeholders have been identified as follows: Shareholders: no plan for engagement beyond the usual interactions Staff: views recently surveyed by Social Audit NZ, but not so as to develop KPAs and

relevant indicators Customers: views recently surveyed on levels of customer service in the stores, and a

survey is in progress on customer attitudes to sustainable development issues Communities: surveys in relation to the sites of new stores Suppliers: informal contact in relation to implementing the Supplier Code of Conduct.

No plan for further engagement in relation to reporting.

Key performance areas (KPAs)A process of identifying KPAs has begun, based on the following approach, provided by the facilitators.

The KPA driver model developed by Landcare Research, reflects: International standards for reporting (such as GRI, AA1000) Frameworks for sustainable development (such as Agenda 21, the CERES Principles, and

The Natural Step) Report assessment criteria used by organisations such as SustainAbility and ACCA in the

UK.

This approach “throws a net out” for matters that should be reported upon, based on a number of KPA drivers, described below. In each case one or more examples illustrate the KPAs on which The Warehouse will consider reporting. However, these examples may not reflect the final choices of The Warehouse.

Key Performance Area drivers1. Visions, values and goals - Given the company’s stated vision, values and goals, what areas of performance would stakeholders expect to see reported upon? For example, The Warehouse’s ethic of “People first everywhere” creates an expectation that the report will assess the positive and negative impacts of The Warehouse’s business on people in all of its stakeholder groups everywhere, both within and outside the company. The report may explain what the company means by “people first” and how its performance matches that vision.

2. Stakeholders - Given their own values and needs, what performance areas would the stakeholders expect to see addressed? For example, customers may wish to see information concerning product quality and value; staff may wish to see investment in training and its impact on career development and remuneration reported; local communities may want to have a balanced assessment of the impact of a new store on their social, economic, and environmental welfare.

3. Risk management - How does the company identify and manage risk in its environmental and social performance, and the potential impact of environmental and social issues upon itself? For example, what does The Warehouse do to manage the risks to its business associated with trading as a mixed mass merchandise discount retailer? How does the company manage risk associated with product safety?

4. Internal management - What management systems exist and how well do they

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perform in translating the vision, values, and goals of the company into sustainable performance? For example, how comprehensive and effective are The Warehouse’s policies for environmental management in ensuring high levels of staff performance and desired outcomes?

5. Global issues of sustainable development - What impacts does the company have on the major global issues, and what impact do those issues have upon the company, both now and in the future? For example, what is The Warehouse’s production of greenhouse gases and solid waste, use of ozone depleting substances, and other hazardous chemicals in its products? How effective are measures to reduce these? What does the company’s “Zero Waste” goal mean in practical terms?

6. Strategic elephants - What are the most uncomfortable issues of sustainable development for the company and how is it addressing its performance at home and overseas? For example, how does The Warehouse perceive and implement its responsibilities for overseas supply chain management? 7. Influencing potential - What opportunities does the company take to lead its stakeholders towards sustainable development, and how effective is that leadership? For example, outcomes can be achieved by engaging customers and other stakeholders in the company’s “Zero Waste” goal? What is being achieved by engaging the retail sector in discussion of sustainable development?

8. Compliance, checklists, and existing frameworks - What regulations must the company meet, and what existing checklists, scorecards, or other frameworks can be used in reporting upon its performance? For example, to what extent has the company met the requirements of resource consents and other mandatory performance targets?

Indicators and data issuesThe Warehouse is working to develop a range of performance indicators from the different SD initiatives in which it is engaged (e.g. Triple Bottom Line reporting with Landcare Research, The Natural Step, the NZ survey of corporate environmental responsiveness, Social Audit, etc).

Verification

The Warehouse intends to include stakeholder commentary and/or an official verification statement in its SDR. This is seen as a way of ensuring credibility, as with financial accounts.

Presentation and Media for Dissemination

A final choice is to be made between a stand-alone sustainable development report and the inclusion of 4-8 pages in the next annual report. The report will be available on the web.

Case studies for businesses with no experience in the SDR process

Case Study: City CareFacilitator: Landcare Research

A Profile of City Care

City Care was formed as a Council-owned Local Authority Trading Enterprise in December 1999, having previously been a Unit of Christchurch City Council.

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The principal objective of City Care is to operate a profitable, sustainable, and innovative business so as to maintain a strong market presence in all areas of construction and maintenance of the infrastructure and amenity assets owned by the shareholder, Christchurch City Council. The second objective is to grow the business profitably with other customers and in other regions.

Why Publish a Report?

The CEO and Board agree that as a publicly-owned entity, City Care has an ethical obligation to report publicly, and that this accountability extends to all aspects of performance covered by the SCI.

Statement of Corporate Intent (SCI)The need to manage against the principles of sustainable development are set out in City Care’s SCI: Operate the business in a way which generates strong financial returns and

dividend streams to the shareholder Be a good employer in providing a work environment that recruits, fosters, and

retains competent, motivated, committed, and productive employees Be committed to excellence in health and safety management Be a good corporate citizen in the community meeting our social obligations Act in an environmentally responsible manner and progressively implement

environmentally sustainable practices to its method of operation Ensure all business activities comply with all legal requirements.

Moves by the ShareholderThe company’s owner, Christchurch City Council, is also beginning to plan and report its performance against similar principles. Hence City Care’s move towards sustainable development and SDR is timely.

The NZ Business Council for Sustainable DevelopmentCity Care joined the NZBCSD so as to learn from the experience of other organisations and contribute to the implementation of sustainable development principles by NZ business. In joining the NZBCSD, the company committed to publishing an sustainable development report within the next 1-2 years.

Opportunities presented by SDRThe CEO sees the principal value in SDR as discharging a public accountability. SDR will be comprehensive and integrated, setting out the objectives set for the year and the levels of performance achieved.

Based on that reporting function, the CEO believes the sustainable development report provides opportunities to:o Build enduring stakeholder support for City Care through shared values, trust, and

demonstrated integrityo Better manage corporate risk through a comprehensive assessment of social and

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environmental performanceo Build brand awareness and reputation in a society where values are shifting

towards greater sustainabilityo Develop new markets for City Care by demonstrating the contribution of its

services to sustainable developmento Promote innovative thinking and technology as solutions to the challenges of

sustainable developmento Show how City Care itself has benefited by implementing such innovative

thinking and technologyo Acknowledge issues of concern to stakeholders, and talk about what City Care is

doing to address themo Influence stakeholders to improve their own contribution to sustainable

developmento Benchmark the business against others reporting in the sector, nationally and

around the world.

SDR experience

This will be the first sustainable development report produced by City Care.

Where are they now?City Care is at an early stage in the NZBCSD case study. The CEO has prepared a draft set of performance indicators based upon the SCI and influenced by the World Business Council for Sustainable Development’s work on eco-efficiency indicators. These indicators cover the following areas:

Economic performance (for example, revenue, net profit, return on equity) Environmental performance (for example, energy consumed, greenhouse gas

emissions, total waste) Social impact (for example, indicators for staff, community and suppliers) Relationship with key stakeholders Organisational health (for example, innovation, quality of management

systems)What is the goal?City Care will produce its first sustainable development report in 2002. The principal tasks are to confirm the key performance areas and indicators, and to gather data against them. The company will also seek an appropriate level of stakeholder engagement in the reporting process.Reporting teamThe CEO is driving the process, with assistance from relevant staff.

Use of International Reporting Standards

WBCSDThe World Business Council for Sustainable Development guidelines for reporting are generally valuable for the manufacturing sectors and provide useful indicators of resource consumption per unit of trade (eco-efficiency indicators).

Global Reporting Initiative (GRI) guidelines

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GRI is being used as a checklist of report content and candidate Key Performance Indicators. GRI guidance is particularly helpful in the introductory parts of the report (CEO statement, reporting entity, management structures, etc). It is also useful in providing us with standardised measures for economic, environmental, and social performance which will allow us to benchmark ourselves against other organisations.

AccountAbility’s AA1000 processAA1000 is a process standard dealing with the engagement of stakeholders in the full cycle of SDR, from establishing vision, values, and goals, through planning, implementation, monitoring, review, reporting, and embedding in the organisation.

AA1000 is not seen as an appropriate tool at this stage for an organisation of the size and resources of City Care. However, it does provide a checklist which is useful in planning the level of stakeholder engagement which suits City Care. This decision will be reviewed as SDR progresses.

Looking Ahead

The following sets out a possible way forward for City Care’s SDR over the next 1-2 years, based on the work done by the facilitator with other organisations. It does not reflect any commitment on the part of City Care to report on these matters or in this way.

Top level commitment and overviewAn introduction and overview written by the CEO. In addition to profiling the business highlights, this section may introduce SDR and the rationale for City Care’s reporting.

City Care and Sustainable DevelopmentBecause of its direct involvement with infrastructure, City Care’s business touches several areas where Christchurch has become widely known for sustainable development initiatives. SDR provides an opportunity for the company to discuss its role in solid waste management, parks and waterways maintenance, and roading.

Specific themes may be discussed relating to the company’s business activities, such as the impact of its fleet on city air quality, greenhouse gas emissions, the use of hazardous chemicals, and commercial interaction with solid waste recycling schemes.

A central theme of the company’s strategy promotes innovation. This may be discussed in relation to sustainable development, with some examples of what has been achieved.

City Care, through its relationship with the City Council, and dominant position as a provider of contract services, is also in a position of significant influence. The company may report on how that influence is exerted and to what effect.

Scope, entity, and timeframeThe report will cover the entire City Care operation.

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The activities, performance, and policies of sub-contractors may be included, but only inasmuch as they are influenced directly by City Care as part of its supply chain management policy.

The report will be integrated with the Annual Report.

StakeholdersThe reporting process and the content will strongly reflect the key stakeholder groups and their interests. Key stakeholders have been identified as follows:

City Councillors as shareholders City Council officers as customers Other non-Council customers Staff Community (but not as customers) Suppliers and partners

Key performance areas (KPAs)High level performance areas have been set down in the SCI in consultation with the shareholder. The KPA driver model developed, by Landcare Research, will also be used to identify other KPAs. This model reflects:

1. International standards for reporting (such as GRI, AA1000)2. Frameworks for sustainable development (such as Agenda 21, the CERES

Principles, and The Natural Step),3. Report assessment criteria used by organisations such as SustainAbility and

ACCA in the UK.

This approach “throws a net out” for possible report content, based on a number of KPA drivers.

KPA driversKPA drivers are those things which dictate that an aspect of an organisation’s performance is of especial importance. In the following tables the driver is described on the left and City Care’s progress or plans are described on the right. For most companies certain KPAs recur under different drivers. This repetition in itself is a measure of their importance.

Driver 1: Vision, values and goals

Given the company’s vision, values and goals, as stated in the SCI, what areas of performance would stakeholders expect to see reported upon?

Reporting expected upon:Financial returns and dividends.Good employer.Health and safety.Corporate citizenship.Environmental performance

Driver 2: Stakeholders

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Given their own values and needs, what performance areas would the stakeholders expect to see addressed?

Shareholder expectations are broadly reflected in the SCI.A plan may be developed for engaging other stakeholders in setting KPAs and KPIs.

Driver 3: Risk management

How does the company identify and manage risk in its environmental and social performance, and the potential impact of environmental and social issues upon itself?

Report on ISO14001 and ACC certification of environmental and accident risk management.

Assessment to be planned for other risk factors.

Driver 4: Internal management

What management systems exist and how well do they perform in translating the vision, values, and goals of the company into sustainable performance?

ISO14001 and ACC systems.Training programmes.External financial audit.

A plan to be developed for auditing internal policies, structures, and accountabilities against sustainable development principles and identifying gaps.

Driver 5: Global issues of sustainable development

What impacts does the company have on society and the environment in terms of the major global issues?

What impact do those issues have upon the company, both now and in the future?

Assessment may be made of KPAs in relation to key sustainable development issues:

Poverty (e.g. minimum salaries)

Community health (e.g. use of hazardous chemicals)

Community welfare (e.g. local

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sourcing of labour)

Biodiversity (e.g. waterways maintenance)

Protection of ecosystems (e.g. solid and liquid waste)

Protection of the atmosphere (e.g. emission of greenhouse gases, ozone depleters)

Protection of natural resources (e.g. use of water, fossil fuel, soil)

Ethnic minorities (e.g. staff diversity, cultural identity at work, community involvement),

Support trade with the develop-ing world (e.g. product sourcing)

Change consumption patterns (e.g. recycle own materials)

Minimise waste and hazardous materials (e.g. design services for recycling, use of renewables).

Driver 6: Strategic elephants

What are the most uncomfortable issues of sustainable development for the company and how is it addressing its performance?

To be assessed.

Driver 7: Influencing potential

What opportunities does the company take to lead its stakeholders towards sustainable development, and how effective is that leadership?

The company may report upon:

Purchasing policy (suppliers).

Stakeholder education on sustainable development.

Innovation for more sustainable development services.

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Measures of change in stakeholder behaviour.

Driver 8: Compliance, checklists, and existing frameworks

What regulations must the company meet, and what existing checklists, scorecards, or other frameworks can be used in reporting upon its performance?

Statement of Corporate IntentLocal Government ActGRI, AA1000, WBCSD, etc.ISO14001, ACC

Indicators and data issues The company may set performance targets alongside KPIs and ensure they are related to meaningful goals.

In this or future reports, dollar values may be put on environmental and social investments, and in future, a cost-benefit analysis may be feasible for areas such as training.

In this way the company will start to integrate indicators across the three themes of social, economic, and environmental performance.

Under ISO14001, the company may consider adding data for number of incidents, complaints, etc, and include a measure of legal compliance.

Resource use data could include water usage and waste water production. This assumes that equipment cleaning is a big water user and that the waste water is contaminated with oil, etc.

Staff indicators may include information about Equal Employment Opportunity policies and performance, diversity, gender, etc.

The company may consider including objective measures of code of conduct, especially in relation to tendering.

Report Verification

Verification enhances the readers' trust in not only the data, but also the management statements and qualitative information. City Care is considering the value to be added by verification. The CEO believes that the company's certification under ISO 14001, ISO 9001, tertiary level ACC, and financial auditing, together ensure many aspects of company performance are already authenticated.

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What Issues does SDR Raise for City Care?

Shareholder commitment: need to achieve buy-in from the board.There has been strong support for the approach by the Board, who will need to sign off the final report.

Key staff need to be familiarised with principles of sustainable development and its implications for corporate sustainability.An initial report can be driven by the CEO but embedding sustainable development thinking requires wider buy-in. This could be achieved by one or more internal seminars involving external business representatives who have made the commitment, and bring their own experience. This is a topic addressed by AA1000.

On what issues of Sustainable Development can City Care have greatest influence?City Care is proud of its track record of innovation. Infrastructure companies overseas have been innovative in the areas of City Care’s business. For City Care, innovation requires an effective partnership with the client. Tender specifications which set environmental and/or social performance criteria serve to stimulate innovation. City Care will be able to discuss such issues in its report as one way of influencing stakeholders.

Decide on boundary issues and accountabilities for services provided by City Care.As a contract services provider City Care sees the principal customer as the contracting agent (e.g., the City Council) rather than the general public who benefit from the service. The CEO believes that it is appropriate therefore to use the Council as a proxy for the views of the public, and not to engage them as a stakeholder in preparing the sustainable development report.

Decide on the phasing of content (what in first, second, third report, etc).It is normal that companies work up to full SDR over a period of years. This reflects the time taken to both identify the issues of importance to stakeholders, and gather meaningful and reliable data. City Care has some data on its operations and has also engaged in communication with staff and the shareholder. It can therefore expect to cover a limited range of issues in its first sustainable development report.

Prepare the audience/stakeholders through consultation on the issues, report content, medium of presentation, etc.The intention to produce an sustainable development report has not yet been widely communicated. Because of the significance of this type of reporting to stakeholders it is the CEO’s intention to consult with their representatives during the preparation of the report.

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Case Study: Interface AgenciesFacilitators: Landcare Research

Executive Summary

Interface Agencies Ltd (Interface) has proceeded some considerable way down the path of preparing a sustainable development report in the short space of this project.

The company is grateful for the support of the NZBCSD through this project, as it has encouraged the company to make a time-based commitment to reporting. The outcome of this is the aim of releasing the first sustainable development report on the 31 August 2001.

Profile of Interface and background

Interface is a flooring importer and distributor and is the smallest member of the NZBCSD with just eight employees. It is a privately held company owned by Robb and Christine Donze. The relationship between Interface and Interface Inc is one of agency only. The international company has no ownership in the New Zealand company. Further, Interface distributes flooring products manufactured by three other companies in addition to Interface’s Lonseal and Tuftmaster products.

Interface Inc operated a subsidiary in New Zealand for three years prior to Interface taking over the agency. The subsidiary operations had not been financially viable. Indicative of the changes that came with changing from subsidiary to agency is freight costs. When it took over from the US subsidiary, Interface employed an operations manager who managed freight costs amongst other operational activities. Freight savings more than covered the cost of the Operations Managers salary in the first year.

The company’s commitment to sustainable development is a result of the personal beliefs of its CEO, Rob Donze. The small size of the business makes it easy for this value-set to permeate the whole company. An extremely important concern for Robb is the risk of ‘green-washing’ the company through the SDR process. This has impacted on the process and content of the sustainable development report. In particular, the sustainable development report must show a fair picture of the company – the good with the bad, ’warts and all’.

The CEO has a strong desire to provide leadership in particular in the construction industry regarding sustainable development and he intends this sustainable development report to support such leadership. It is therefore important to him that this process seems accessible to those organisations thinking about going through the process.

SDR experience and plan

Interface committed to preparing a sustainable development report when it became a member of the NZBCSD. However, the company had no detailed plan about how it

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would progress the report.

Description of process and next steps

The formality of the SDR process was reduced somewhat to take account of the size of the business and the keenness of the company to not ‘over-process’ things. The company has been ingenious in its desired process of reporting, coming up with ways of making progress with the minimum amount of cost and time. The ‘keep it simple’ rule has permeated the process with Interface.

Step 1: Review purpose of reporting

Step 2: Determine scope of report

Step 3: Perform a gap analysis to highlight where SR is not reflected

Step 4: Review the Key Performance Area Drivers to determine the content of the ‘performance’ section of the sustainable development report.

Note that this step includes the stakeholder engagement. See below for a detailed discussion of stakeholders.

As a small company it was also important to include areas where the company already had measures so as to make the process attainable as well as include issues that are a ‘stretch’ for the organisation.

Step 5: Determine the way the KPA will be addressed in the sustainable development report. a) Acknowledge but no measure – plan to address in futureb) Acknowledge may be an issue but don’t know for sure – plan to check. c) Acknowledge and measured) Acknowledge and tell story.

Step 6: Develop KPIs for those KPAs that will be measured.

Step 7: Targets and accountabilities

Step 8: Develop measurement systems

Step 9: Decide on structure of report

Step 10: Verification and credibility issues

Step 11: Practical report issues – web, distribution etc.

Step 12: Feedback – address how feedback on report will be obtained.

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Step 13: Embed learning and continue to learn and improve

This process is not linear. The timing of the different components is different for every organisation. Throughout the entire process it is important to address changes that can be made to existing processes, strategy, policy, vision etc to better reflect the triple bottom line of sustainable development.

Stakeholders

We have addressed stakeholders in step 4 above. The aim of using stakeholders as a driver for the sustainable development report is to ensure that the report is relevant to the stakeholders.

What we want to know in particular is what is important to them in relation to our performance. We may also want to know what their perception is of our performance in this area and possibly involve them in the development of KPIs for the report.

The organisation went through the process of identifying who the stakeholders were whom the company impacted most significantly. And then which of these stakeholder groups would be engaged with for the first report. And where we are not dialoguing with a group justification for such exclusion. This is contained in the table below.

Stakeholder Will we include in 2001 TBL report?

Will we dialogue with this stakeholder group now

Staff and their families Yes Yes

Customers Yes Yes

Suppliers No No

Stakeholder engagement in a small company

It is important that SDR processes take into consideration resource limitations in all senses of small businesses. In particular, stakeholder engagement cannot be a highly formalised affair, as the resources both financial and people-based do not exist. For example in Interface, engagement has been committed to with two stakeholder groups; customers and staff and their families. The process for conducting this engagement with one of these groups, staff and their families was as follows:

Step 1 - Find out what the purpose of engagement with each stakeholder group is. For example the purpose of engaging with staff and their families is:

To help them think about sustainability To influence other organisations as to how you prepare sustainable

development reports Document a system in the business to allow for employee input in a structured

way To find out what is important to staff To find out what their concerns are, assuming informal dialogue misses some

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issues

Step 2 - Once the company and the facilitator had a thorough understanding of the purpose, the facilitator drew up an interview questionnaire where there was the opportunity for employees to provide feedback to a third party

Step 3 - Interface reviewed questionnaire and made changes where appropriate

Step 4 - Facilitator conducted the engagement and summarized the information gathered

Step 5 - Interface to share results with employees and include in SDR and review results in line with changes to internal management processes.

This process has not been based on any particular standard. It is just one way for a small business to be able to overcome the resource challenge of stakeholder engagement. Rationale of process suggested and deviation from existing plan

The process outlined above has been developed as a result of work with other New Zealand organisations preparing TBL reports, and the facilitator’s experience of preparing their own sustainable development report. It has integrated AA1000 where it adds value and has added a number of dimensions that add value to the process.

Relationship of process suggested and changes made to AA1000

The process recommended by the facilitator differs quite substantially from AA1000 in two major ways:

AA1000 is focused on producing a report, with internal management processes being considered, but only briefly. The recommended process is broader and is designed for organisations to not only produce a report but also to use it as an internal tool for change. For example, stakeholders are just one of eight drivers for content in the process, whereas AA1000 relies basically exclusively on stakeholders to determine content.

Secondly, AA1000 is a very rigorous standard when it comes to stakeholder engagement. The recommended process acknowledges the size of many New Zealand businesses in that formal stakeholder engagement is sometimes difficult to do given resources available. In the case of Interface, significant stakeholder research has been undertaken to determine issues of most importance to stakeholders. However, involving stakeholders in the development of key performance indicators, as is required by AA1000, is not on the horizon.

However, the facilitator strongly supports the stakeholder stance taken in AA1000 and encourages organisations to follow it, where their size enables them to invest significant resources in stakeholder dialogue and involvement.

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Relationship of process suggested and changes made to GRI

GRI is a valuable content standard for organisations preparing sustainable development reports.

The recommended process relies on GRI in two ways: firstly, it uses the content outline as recommended in the standard:

CEO statementProfile of reporting organisationExecutive Summary and Key IndicatorsVision and StrategyPolicies, Organisation and Management SystemsPerformance

Interface has used GRI to determine the structure of the sustainable development report. The structure decided on includes:

CEO statement Profile of the company Vision and strategy Performance

And secondly GRI provides a useful check on content using the KPI section of the report under ‘performance.’

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Case Study: TelecomFacilitator: Landcare Research

Profile of Telecom

The goal of Telecom is to be the best performing customer-focused online and communications company in Australasia.

Telecom is committed to creating value for shareholders through the provision of valuable services to customers. The company is committed also to making a strongly positive contribution to the economies in which it operates.

The Telecom group provides a full range of Internet, data, voice, mobile and fixed line calling services in New Zealand and Australia. In New Zealand, Telecom provides network access and other services to 1.3 million households and more than 100,000 businesses. In Australia, the group’s AAPT voice and data business serves more than 850,000 customers.

The Group includes leading Internet service providers in New Zealand and Australia. It is a leader in e-commerce services, which includes an alliance with Microsoft and EDS in New Zealand. It also has a leading role in managing Australia’s largest commercial contract for the outsourcing of IT and telecommunications services.

Telecom owns and operates robust and diverse fixed-line and mobile networks in New Zealand, and has advanced network access capabilities in Australia. It also has strategically-located network assets internationally, and these include the Southern Cross Cable system which provides vast Internet and data capacity between Australasia and North America.

Telecom fully recognises the responsibilities arising from its size and reach as one of New Zealand’s largest enterprises. The company is the second largest funding provider for schools in New Zealand (after the Government) and provides substantial support for many community and sporting activities. Telecom is also dedicated to maintaining good relations with its stakeholder groups on both sides of the Tasman.

Telecom and Sustainable Development

Up to now, Telecom has not consciously focused upon sustainable development in its business strategy. However, it has several programmes to support communities and disadvantaged groups; it has been developing an environmental policy; and it is a major contributor to the economic performance of New Zealand.

Community support totals around $19m per annum, and covers a wide array of projects, including technology support to community groups and the elderly. Telecom is a major donor to NZ schools.

The company has a dedicated Environmental Manager and is developing an environmental policy. The company’s intranet has replaced a huge volume of paper communication (e.g. 36,000 staff magazines which were produced each year).

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The company now uses tele- and video-conferencing extensively, and has an aggressive energy-saving programme.

Telecom has invested around $6 billion in the NZ communications infrastructure over the past 10 years. It is the country’s biggest tax payer ($2.5 billion over 10 years), and one of the biggest spenders in NZ ($12.5 billion to staff and suppliers over 10 years).

The Value of SDR

Telecom has been a member of the New Zealand Business Council for Sustainable Development since 2000. The company is committed to building on its excellent reputation for reporting to shareholders by exploring the best, most meaningful forms of SDR to other stakeholder groups.

Communication is core business for Telecom. Reporting is about communication. But the company sees additional benefits and opportunities presented by SDR, for example:

o Build enduring stakeholder support for Telecom through shared values, trust, and demonstrated integrity

o Better manage corporate risk through a comprehensive assessment of social and environmental performance

o Build brand awareness and reputation in a society where values are shifting towards greater sustainability

o Develop new markets for Telecom by demonstrating the contribution of the “online” world to sustainable development

o Promote innovative thinking and technology as solutions to the challenges of sustainable development

o Show how Telecom itself has benefited by implementing such innovative thinking and technology

o Acknowledge issues of concern to stakeholders, and talk about what Telecom is doing to address them

o Provide a platform for influencing stakeholders to improve their own contribution to sustainable development

o Achieve greater resource-use efficiency and reduced operating costso Benchmark the business against others reporting in the sector around the world.

Telecom has established a SDR team, encompassing diverse professional and technical competencies. The team understands fully the need to report performance fairly, with honest recognition of what is both achieved and not achieved.

There has been an unprecedented response to the SDR case study project within Telecom management. The short timeframe galvanised a very positive commitment, with 14 senior managers making themselves available for half-day meetings at one day’s notice.

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The team has found natural buy-in. They see new life being breathed into the “Values” process. They have been surprised by the extent of their company’s existing activities. And they are excited by what they call the reconnection with old data, offered by the reporting process.

The team recognises the potential for divergent views, especially around uncomfortable issues, but welcomes such diversity and debate.

They see that Telecom can be part of the sustainable development “solution” for New Zealand, through its enabling technology and outreach into supply chains and consumers.

They suspect that SDR can be a catalyst for cultural change within the organisation, and will look specifically for linkages into other areas of corporate change (e.g. branding, misson/values development, etc).

Issues for Telecom Adopting SDR

Executive commitment: need to achieve buy-in from the senior management team.The senior management and Board members have different levels of awareness and understanding of the concepts of sustainable development and reporting. Those in the newly established reporting team are a fair cross-section of senior management (perhaps under-representing the commercial side, including the esolutions business). But obtaining wider executive commitment is seen as an early priority.

Therefore, key staff need to be familiarised with principles of sustainable development and its implications for corporate sustainability.This could be achieved by one or more internal workshops involving external business representatives who have made the commitment, and bring their own experience. A link-up, say by videoconference, with an overseas organisation in the same sector could be considered as a way of helping build this commitment.

Ethical business practiceThe business reasons for SDR take many forms, the balance of which is unique to each organisation. As a member of the NZBCSD, Telecom made a commitment to SDR within the next 1-2 years. This commitment reflects Telecom’s support of ethical business practice, including transparency in reporting and responsiveness to stakeholders’ concerns.

The risks in not reportingSDR is an opportunity to build stakeholder trust and loyalty through an honest account of those areas where performance needs to be improved. For any organisation there are risks, perhaps greater risks, associated with not recognising or disclosing such matters. These risks include uncontrolled disclosure by other parties, and exploitation by the media and competitors.

The costs of reporting

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There can be significant costs associated with SDR, in terms of stakeholder engagement, data gathering, and preparation of material. However, these costs are expected to be offset by the likely benefits of monitoring and reporting in performance and operating costs.

The decision on timingTelecom is now considering how to prepare an sustainable development report and how it will fit into the annual reporting cycle. Work in parallel on Telecom’s values statements.The decision to become engaged with SDR coincides usefully with Telecom’s work on its value statements and organisational culture. The SDR process is expected to assist those activities through raising awareness and understanding of the company’s values and mission, and the relevant areas of its performance.

Decide on the phasing of content (what in first, second, third report, etc).It is normal that companies work up to full SDR over a period of years. This reflects the time taken to both identify the issues of importance to stakeholders, and gather meaningful and reliable data. Telecom has a very significant amount of data on its operations and has also engaged in extensive communication with staff and customers. It can therefore expect to cover a wide range of issues in its first sustainable development report.

Prepare the audience/stakeholders through consultation on the issues, report content, medium of presentation, etc.Because of the significance of this type of reporting to stakeholders it is the reporting team’s intention to consult with their representatives during the preparation of the report.

The timeframe of producing the first report may preclude extensive stakeholder engagement this time. Telecom is evaluating AA1000, the international process standard for stakeholder engagement, as a framework to follow for future reporting cycles.

Identify and address the strategic elephants, sector issues, and gaps (e.g., policies, data collection)All organisations have performance issues of special significance to them, and to their sectors. The reporting team recognises that there are such issues around the communications sector and it will work with stakeholders to identify the most appropriate ways of reporting performance in these areas.

The team has investigated some of the reporting done by inter-national companies in the same sector and has useful information on likely issues to be covered in SDR

The team also recognises that some areas of policy are under development or yet to be addressed, and that data may not be available for some of the indicators of relevance to sustainable development. The reporting process will help to identify and prioritise these, and can provide guidance, from international practice, on closing the gaps.

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The Process

Reporting teamThe reporting team is led by three members of Telecom’s Executive Group: the General Managers of Corporate Communications, Human Resources, and General Counsel. It also comprises representatives of Property, Finance, Risk Management, Sales and Service and Government Relations.

Telecom is about to appoint to a new position, focussed on corporate positioning. A part of this person’s role will be the championing of SDR.

Overview of approach The reporting team has recently started to consider the demands of SDR. The following approach is what they expect to include in their plans. Ensure the top level commitment to SDR and allocation of the necessary

resources Select the SDR champion Prepare a system for documenting the decision process and activities in producing

the sustainable development report (this is essential preparation for external verification)

Agree upon the reporting entity, scope, and time period covered by the report Identify stakeholders and what they would expect of the report (develop a

programme for engaging key stakeholders) Identify key performance areas on which to report using the Key Performance

Area Driver model or similar framework Assign key performance indicators to the key performance areas, ensuring

balance, comprehensiveness, and objectivity Build upon existing scorecards and performance measures but avoid presenting a

report skewed towards internal priorities Document internal management processes and identify gaps in policies,

accountabilities, planning, and monitoring Where appropriate set performance targets for the next reporting period Select approach to report verification and stakeholder comment Develop the report content, format, illustration, and dissemination, taking care to

reflect the values of the company (e.g., use of recycled/recyclable materials, gender and ethnic depiction, use of jargon, invitation of feedback, contact points, etc).

The approach described above is not linear. The timing of the different components has not yet been determined for the first Telecom sustainable development report.

Use of International Reporting Standards

Global Reporting Initiative (GRI) guidelinesGRI is to be used extensively as a checklist of report content and candidate Key Performance Indicators. However, there are likely to be two areas where Telecom’s approach differs from the GRI format.

Firstly, influencing potential is seen by Telecom to be a major part of their strategy

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for business growth and contribution to sustainable development. For example, in the online world being promoted by Telecom, people will travel less, have more time for family or work, use less energy, have fewer road accidents, use less paper, and so on. These benefits are achieved in the sphere of Telecom’s influence by making the right technology available and helping to change people’s attitudes and behaviour.

But the GRI does not yet offer measures of influencing potential.GRI presently focuses on the direct impacts of an organisation’s activities. It is expected that GRI will develop in this direction, and that Telecom’s experience in developing relevant measures of “influence” will be of international importance.

In the second area of divergence, GRI tends to consider social, environmental and economic performance in distinct “silos”. Integration of indicators is limited to rather simplistic context-setting by using ratios (e.g., carbon dioxide emissions per $ turnover).

This approach omits the linkages between social, economic, and environmental performance in the context of any one issue.

The reporting team has considered the value in taking an issue-based approach to SDR. This means that once key performance areas have been identified, they will be analysed in terms of their social, economic, and environmental components.

Take energy use as a simple example. This is a key performance area for Telecom, which is a major energy user.

Energy usage has: economic dimensions (for example, cost of provision, potential financial liability

for greenhouse gas emissions, cost of retrofitting with low-energy technology, cooling systems, etc)

Social dimensions (for example, influencing staff behaviour to reduce energy usage, effectiveness of training and other approaches, acceptance of tele- and video-conferencing to avoid travel, etc)

Environmental dimensions (for example, climate change and air quality impacts of fossil fuel use, ecosystem impacts of power generation and supply infrastructure, etc).

That example demonstrates how the three dimensions of sustainable development are woven together. Only when those linkages are made explicit does the reader gain a comprehensive understanding of the significance of the organisation’s performance in relation to that issue. GRI is valuable, however, in selecting the individual performance measures to be used in telling the story.

AccountAbility (AA1000) processTelecom’s core business is communications. It has considerable experience in communication with staff and customers, and will draw on this in its reporting. However, the reporting team is keen to evaluate AA1000 as an example of international best practice, to see how it can guide and perhaps certify its approach to communication with all key stakeholders.

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AA1000 is a process standard dealing with the engagement of stakeholders in the full cycle of SDR, from establishing vision, values, and goals, through planning, implementation, monitoring, review, reporting, and embedding in the organisation.

AA1000 is used internationally, but the approach is unfamiliar in New Zealand. As accredited consultants become available, the team will review the use of the standard and what value it offers to their reporting.

Report Content

Scope, entity, and timeframe Initial reporting is intended to cover the entire Telecom Group, including subsidiaries, in both New Zealand and Australia. There is an intention that subsequent reports will cover sub-contractor activities, especially where they result from contracts with Telecom.

The other activities, performance, and policies of sub-contractors may be included in later reports, but only inasmuch as they are influenced directly by Telecom as part of its supply chain management policy.

The report is intended to be stand-alone, published after the Annual Report at this stage, and to include activities in the financial year to end June 2001.

StakeholdersThe reporting process and the content will strongly reflect the key stakeholder groups and their interests. Key stakeholders have been identified as follows: Shareholders Government Customers Our people Community Suppliers/partners Financiers Media/ analysts

Key performance areas (KPAs)A process of identifying KPAs has begun, based on the following approach, provided by the facilitators.

The KPA driver model developed by Landcare Research, reflects: International standards for reporting (such as GRI, AA1000) Frameworks for sustainable development (such as Agenda 21, the CERES

Principles, and The Natural Step) Report assessment criteria used by organisations such as SustainAbility and

ACCA in the UK.

This approach throws out a net for matters that should be reported upon, based on a number of KPA drivers.

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KPA drivers

1. Vision, values and goals - Given the company’s stated vision, values and goals, what areas of performance would stakeholders expect to see reported upon? For example, Telecom’s goal of being the best-performing online and communications company in Australasia is underpinned by seven key business strategies. Amongst these are commitments to developing human resources and innovation.

2. Stakeholders - Given their own values and needs, what performance areas would the stakeholders expect to see addressed? For example, customers may wish to see how Telecom adds value to their business and lives, how it saves them money, and ensures the safety of the services.

3. Risk management - How does the company identify and manage risk in its environmental and social performance, and the potential impact of environmental and social issues upon itself? For example, what does Telecom do to manage the risks associated with maintaining systems integrity in a national network on which so many people depend for their security and livelihood.

4. Internal management - What management systems exist and how well do they perform in translating the vision, values, and goals of the company into sustainable performance? For example, how effective are Telecom’s policies for environmental management in ensuring high levels of staff performance and desired outcomes?

5. Global issues of sustainable development - What impacts does the company have on the major global issues, and what impact do those issues have upon the company, both now and in the future? For example, what is Telecom’s production of greenhouse gases, ozone depleting substances, and solid waste, and how effective are measures to reduce these?

6. Strategic elephants - What are the most uncomfortable issues of sustainable development for the company and how is it addressing its performance? For example, how does Telecom perceive the “digital divide” between those advantaged by being able to afford modern telecommunications services, and those who cannot? And what role does Telecom expect to play in regard to this issue?

7. Influencing potential - What opportunities does the company take to lead its stakeholders towards sustainable development, and how effective is that leadership? For example, what outcomes can be achieved by Telecom’s “online” goal for New Zealand society and what measurable targets have they set for the next 2-3 years.

8. Compliance, checklists, and existing frameworks - What regulations must the company meet, and what existing checklists, scorecards, or other frameworks can be used in reporting upon its performance? For example, how has Telecom been able to use existing data collection and monitoring to contribute to its report?

Indicators and data issuesTelecom holds large quantities of data on different performance measures across the business. This material is being considered for its value in SDR. The reporting team and staff see the prospect of giving new life to existing performance monitoring

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systems as a result of SDR. However, they are conscious of the danger of skewing the report content to reflect internal reporting needs and data availability.

Verification

It is Telecom’s intention to include stakeholder commentary and/or an official verification statement in its SDR. This approach is expected to be valuable both to the readers and to Telecom.

Presentation and media for dissemination

How the report will be presented and disseminated will be discussed with stakeholders, in keeping with Telecom’s usual practice.

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Case Study: Urgent CouriersFacilitator: URS

Executive Summary

Urgent Couriers is a specialised 1-hour courier service with 74 Owner Drivers operating in the Auckland area. Formed in 1989, it is a privately owned company with two directors; Allan Bonnici and Steve Bonnici. It operates in a changing business environment.

Urgent needs to take advantage of new technologies and must achieve brand identification that is identified with sustainable business services. Urgent believe that the commitment to a sustainable development report, will: Provide leadership and set new standards within the courier

industry Provide a resource for communicating with stakeholders Facilitate review of its management processes, including in

particular, its performance indicators.

The contents of Urgent’s sustainable development report would be based on the reporting guidelines prepared by the New Zealand Business Council for Sustainable Development (NZBCSD). The report would cover a company overview, a policy statement, objectives, performance indicators, (economic, social and environmental), success stories, management processes, statement of commitment from the Managing Director and a verifier’s statement.

Several issues would need to be addressed during preparation of the sustainable development report. In particular, it would need to address issues relevant to all small, privately owned businesses preparing sustainable development reports, (public information, leadership, opportunities for continual improvement and costs). Another issue is that Urgent’s most significant environmental effects are generated by contractors.

The report would utilise input from both internal and external stakeholders. Urgent’s participative management practices regularly seek input from staff and contractors. Urgent aims to complete the report by 31 August, 2001. The report is planned to be available on Urgent’s web-site. Urgent would not produce hard copies in consistency with its policies to reduce material consumption.

Urgent will prepare the report using internal resources, with a designated project manager. Urgent will be dependent on continued collaboration with other NZBCSD members. Urgent also plans to seek independent verification of the report, perhaps from another member of the Auckland Environment Business Network.

Introduction

Urgent Couriers Ltd, (Urgent) is a member of the New Zealand Business Council for Sustainable Development (NZBCSD) – a coalition of leading New Zealand companies with a shared commitment to balanced social, environmental and economic development. The NZBCSD was recently awarded funds from the

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Ministry for the Environment (MfE) to prepare case studies on eight New Zealand businesses preparing sustainable development reports. Urgent was one of the selected companies and this reports outlines the outcomes of the case study, completed during June 2001.

The project objectives were to facilitate: the initiation of SDR in more NZBCSD companies progress on SDR within companies that had some

experience.

This was achieved by: assisting with the next stage of facilitating SDR within a

group of eight NZBCSD case study companies sharing the SDR plans of these companies (by means of a

half day workshop and case study report) so that other NZBCSD companies can learn and be assisted in creating their own SDR plans.

Urgent believes that a sustainable development report, will have several important benefits: It will provide leadership and set new standards within the

courier industry The process of preparing the report will require Urgent to

review its management processes, including in particular, its performance indicators. Urgent will need to carefully consider integration of its economic, social and environmental aspects of its businesses, in order to complete a report that complies with accepted guidelines for sustainable development reports

The completed report will provide a valuable resource for Urgent, as it communicates with its stakeholders. In particular, the report will enable Urgent to provide credible information that differentiates Urgent from its competitors as it competes to win new customers.

Urgent are at a very early stage of preparation for the sustainable development report. Urgent produced an Environmental Report in 1997. Urgent and URS agreed that the Case Study should also develop the plan for the report, including a timeline, anticipated resources required and the processes that should be used.

This Case Study report provides a brief description of Urgent’s business and environmental footprint. It describes Urgent’s experience with public environmental reporting. It provides recommendations for the content of the report, and the process for preparing the report.

Profile of Urgent Couriers

Urgent’s BusinessUrgent Couriers is a specialised 1-hour courier service. There are 20 operations personnel and 74 contracted couriers operating in the Auckland area. Formed in 1989, it is a privately owned company with two directors; Allan Bonnici and Steve Bonnici.

Urgent operates in a changing business environment where its traditional client-base is changing. The increase in use of email and the advent of electronic signatures will

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further reduce the document-based business that messenger courier services have relied upon. To survive in this ever-changing environment, Urgent needs to take advantage of new technologies and must achieve brand identification that is identified with sustainable business services.

Technology and enhanced competencies provide the opportunity to offer new services. Brand identification of sustainable business services provides the opportunity to market to customers seeking service quality and operations that are compatible with their own sustainability goals. Operational changes to improve environmental performance, particularly those directed at the purchase, use and maintenance of courier vehicles, also lowers costs for both Urgent and its contractors.

Environmental ProgrammesUrgent initiated an environmental plan, “Urgent Greening”, in 1996. This included a Five-step Plan that addressed: Commitment Education Auditing (paper, waste, emissions, energy and purchasing) Implementation Maintenance.

Early features of Urgent’s environmental programmes included identification of environmental impacts. These included: Office effects through energy use, stationary, printing,

kitchen use, the waste stream, office equipment use, and building maintenance. Vehicle effects include vehicle use and emissions, and the

disposal of vehicle parts and fluids.

Urgent has established clear roles and responsibilities for implementing environmental improvement programmes. The Urgent Greening initiative is lead by the Managing Director. An Environmental Manager has been designated and is responsible for furthering the greening initiatives and encouraging action from employees and contractors.

An Urgent Greening Questionnaire was given to all personnel to encourage their awareness and participation in the initial Urgent Greening proposal.

Fleet Greening initiatives have included: Driver education and training programmes Investigations and incentives/support for contractor

investment in alternative fuels and technology. Measurement of energy use and efficiencyAlternatives fuels and technology include: LPG Bio diesel (under trial) Fuel conditioning devices Engine Care systems oil filtration.

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Environmental PerformanceEnvironmental performance improvement achieved since the launch of Urgent Greening. Include: A “good housekeeping plan” for energy conservation

achieved a 26.7% saving in electricity in 1997. A stationary audit was carried out in 1997. Measures for separation of waste streams were introduced

in 1997. The number of “pedal-powered” couriers” in the Auckland

city central is increasing. Information is made available to drivers on the issues of

greener transport and new technologies. A preferred purchasing policy is being introduced.

PartnershipsUrgent is committed to partnerships with stakeholders and participation in networks, to provide opportunities to share knowledge and experience. Urgent is committed to providing leadership on reducing the environmental effects of transport fleets, through communicating lessons learned from its own initiatives. Urgent is also aware of the benefits available from the experiences of other organizations.The organizations in which Urgent actively participates include: Auckland Environmental Business Network New Zealand Business Council for Sustainable

Development Energy Efficiency and Conservation Authority.

Sustainable Development Reporting Experience

Environmental ReportsFrom 1996, Urgent has progressively implemented a series of environmental programmes based on Urgent Greening. In 1997, Urgent commissioned an independent consultant to provide an independent review of progress, and recommend strategies for future improvements. This was followed by a second review later in 1997, which was publicly circulated as Urgent’s Environmental Report.

Web-siteUrgent has a dedicated green page on its web-site. This page contains details of its green initiatives, see box below.

We at Urgent Couriers’ have made a significant commitment to improving our interaction with the natural environment. Our aim is sustainable long term methods and procedures in every area of the business. Our Environmental Goals are to: Exceed all applicable regulations on the environment in everything we

do. Educate all team members on environmental issues relating to the

workplace and home. Research and promote alternatives to fossil fuel use in transport. Use only recycled material in all accounting and promotional

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literature. Cut our use of new paper by 50%. Cut our electricity bill by 30%. Recycle all waste. We are making a worthy investment into the sustainable future and prosperity of our business, we strongly encourage any of you to implement a similar sort of plan within your organisation.We are always looking for new ideas and areas where we can improve our interaction with the natural environment. If you are able to help with or would like further information on our environmental intent please send us an e-mail.Recycling Ideas? Please let us know!

NewslettersUrgent has used internal and customer newsletters, providing information about specific environmental projects and its environmental performance.

The internal newsletter (“Urgent in Brief”) is generally produced weekly. It provides information and updates about environmental activities. For example, recent issues have included updates on LPG conversions and Bio-diesel trials.

The external newsletter (The Urgent Word) is published every six months. It provides information about services for customers and activities within Urgent. It includes “The Green Report”, which provides information about Urgent’s environmental initiatives. This will be headed as the “The Sustainable Development Report” in the future.

Proposed SDR Format and Content

FormatIt is proposed that the format contained in Annex 2 of the document, “NZBCSD: Corporate Reporting on Sustainable Development” would be adapted for use by Urgent. A possible format is outlined below:

Organisation ProfileAn overview of Urgent Couriers in terms of size, as represented for example by turnover and number of employees, its market served, and its key interactions with the physical environment.

Policy StatementA revised sustainable development policy statement describing Urgent’s public commitment to pursue economic, social and environmental goals.

The Statement would also include a commitment to promote wide understanding of Urgent’s environmental issues amongst key stakeholder groups, notably employees, customers, suppliers and shareholders.

ObjectivesThe policy statement would be supported by specific objectives to enable performance to be reported. Objectives would cover all key economic, environmental and social issues faced in terms of establishing effective

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management systems, responsible use of natural resources and control of waste generation and emissions.

Performance Performance data would be provided to comprehensively illustrate success and failure in making progress towards the objectives. The performance indicators would include:1. Economic Indicators2. Social Indicators3. Environmental Indicators

Leadership and Management Systems This section in the report would describe key responsibilities for managing various aspects of environmental/staff/community management and audit procedures.Success StoriesThe report would include descriptions of Urgent Greening and Fleet Greening initiatives.

Statement from the Managing DirectorThe report would include a statement from the Managing Director. This would clearly express Urgent’s sustainable development commitments. It would also state the commitment of the Managing Director to provide leadership and ensure adequate resources are available to continually improve Urgent’s performance as measured against sustainable development indicators.

Independent Verification StatementUrgent’s report would include a statement from an independent verifier attesting to the completeness of the report in terms of addressing all significant sustainable development issues. The verification statement would also report on the acceptability of performance and offer recommendations for systems improvement and reporting practice.

Performance IndicatorsPossible performance indicators for Urgent are outlined below:

Economic, Growth and Renewal Indicators % Increase in revenue % Increase in profitability compared to previous years % Revenue generated by services less than one year old % Turnover in operations staff / contractors Resources devoted to training, as a % of costs, compared to previous years Investment in IT as a proportion of costs compared to previous years.

Social Indicators Comparisons of remuneration levels compared with industry benchmarks

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Quality of employment opportunities (flexible work arrangements, health and safety standards, performance appraisal and career development mechanisms, training opportunities)

Client retention Use of procurement standards Activities to support social/community policy and objectives Participation within industry forums.

Environment Indicators % Reduction in resource use by contractors % Reduction in resource use within office % Reduction in emissions to air, (particulates, CO, CO2) % Reduction in energy use Response to contractor specifications /guidelines Results of external activities.

Issues for Small BusinessesThe United Nations Economic Commission to Europe and the United Nations Environment Programme have prepared a draft assessment of sustainable development since Rio 1992, in preparation for Rio+10 in Johannesburg in 2002. This includes specific reference to the environmental commitment and performance of small and medium businesses (www.unece.org/env/rio+10/draftreport.htm), see below.

There is also among Western countries a big gap between the environmental concerns and performance of leading multinationals and large companies, and that of small and medium- sized enterprises (SMEs). In the EMAS data, for instance, almost no progress can be detected among SMEs apart from positive developments in Germany. The largest companies have both the resources to invest in environmental action and the visibility to motivate such action. Small companies, which represent a major part of industrial activity around the world, have neither. How to get the positive experience of businesses at the cutting edge of environmental involvement to filter down to the mass of industrial activity in SMEs below them is one of the unresolved challenges of the moment

It is therefore critically important that barriers to SDR in small businesses are identified during Urgent’s SDR and support provided to overcome these.The Case Study has identified the following small business issues that need to be addressed during preparation of the Urgent sustainable development report: Ensuring that the report is simple and relevant Selection of information that can be made publicly

available, and choice of economic indicators which convey meaningful information without compromising necessary commercial confidentiality

Adopting a flexible approach to the structure of policies and management systems

Providing leadership to improve performance against all SDR performance measures, by motivating staff and contractors

Recognising that year to year continual improvement against all SDR performance measures will not be possible

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Using existing informal networking to consult with external stakeholders

Adopting methods to prepare and publicly circulate the SDR without incurring significant external costs.

Other IssuesOther issues that would be applicable regardless of the size of the business are: Urgent currently assess several key performance indicators

(KPIs) on a weekly basis, (for example, missed calls, late deliveries, customer complaints). These weekly KPIs are not generally consistent with the types of performance measures that will be required for an annual sustainable development report. Thus a new performance measurement and reporting system will be required

Urgent’s most significant environmental effects arise from the energy use and emissions of its vehicle fleet. Urgent’s programmes to date have investigated opportunities to reduce these effects. Urgent’s business success will contribute to reduced traffic pollution and congestion, because its business transports goods more efficiently than customers and users. However, Urgent would be unable on its own to introduce new technologies or processes that would completely reduce dependency on fossil fuels or to radically reduce emissions

Urgent’s most significant environmental effects arise from the activities of contractors. Urgent can provide goals, guidelines and incentives for contractors; it is unable to directly control them

Urgent needs to engage stakeholders to successfully obtain their contributions. This will require Urgent to clearly communicate its motivations, objectives and expected benefits from SDR.

Proposed Plan for Development of Urgent’s SDR

Description of ProcessUrgent will first need to allocate responsibilities and tasks. The Environmental Manager should be delegated the responsibility for ensuring that the agreed process for completing the report is sustained.

Urgent will consult with staff, contractors and other stakeholders as part of completing its sustainable development report. Urgent will use this Scoping Report to present proposals for the SDR. It will facilitate meetings with staff, contractors and other stakeholders on relevant portions of the proposed report. Urgent will circulate this scoping report and will seek specific responses on the current Environmental Principle, the current Environmental Policy and goals, and the proposed report format and performance indicators.

Next StepsThe recommended sequence for preparing the SDR is as follows: Direct contact with both internal and external stakeholders,

informing them of plans to prepare a report, and requesting suggestions for policies, performance indicators and success stories

Prepare policies and objectives, and check these with key stakeholders

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Collect information to enable performance to be described against performance indicators

Choose appropriate success stories.

A draft sustainable development report would be completed following these steps. This would be circulated to key stakeholders for comment.

The next draft of the report would be submitted to an external verifier. The final steps would depend on the responses from the external verifier. If the verifier identifies minor opportunities for improvement, then commitments to addressing these will be made in the Statement of the Managing Director. However, if the verifier identifies major inadequacies within the report, then these would be addressed prior to re-submitting the report to the verifier.

The process used to complete the report is compatible with other management processes within SDR. It is a participative process, relying on input from other staff and contractors. It also recognizes that it is appropriate for external stakeholders to influence the accountability of Urgent.

Brief for Independent VerfierIt is recommended that Urgent obtain independent verification of their report. To reduce costs, verification should be provided by a suitably qualified and independent person within one of Urgent’s stakeholders.

The independent verifier should be asked to ensure that: The report presents a comprehensive evaluation of

Urgent’s economic, environmental and social performance The policy statements and performance commitments

appropriately reflect the underlying management philosophy, culture and behaviour of Urgent staff

The information and data provided is accurate.

Schedule It is proposed to complete the report by 31 August, 2001. This would enable reporting on the year ending 31 March, 2001. It would become publicly available at the same time as Urgent’s annual accounts were completed.

To achieve this, the following steps will be necessary:Week Ending: Target6 July Seek feedback from stakeholders on Policies, Performance Indicators and

Success Stories20 July Meetings with Stakeholders (including internal) to obtain feedback27 July Prepare draft Policies, Performance Indicators and Success Stories10 August i. Receipt of Further Feedback from Stakeholders

ii. Collection of performance data17 August i. Engage Verifier

ii. Completion of second draft24 August Receipt of Statement from Verifier31 August Report publicly available on Urgent’s web-site

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ResourcesThe report should be tailored so that it can be developed and published, with costs commensurate to the size of Urgent. This precludes the use of external consultants and publication of a “glossy” report.The following measures would avoid incurring significant costs:

Utilising of the input of stakeholders Collaboration with other NZBCSD members who are

simultaneously preparing sustainable development reports Public availability of the internet, with a four page

summary available to circulate to stakeholders Utilising a suitably qualified and independent member of

one of Urgent’s stakeholders as the verifier.

Urgent’s report would be made publicly available on its web-site, without printing hard copies. This reflects Urgent’s commitment to progressively move to electronic business, as well as being consistent with environmental and economic targets.

Preparation of the report in this way would avoid external costs. However, in lieu of an external project manager, Urgent will face a significant challenge to complete its first report in a two-month period. Successful completion of this project will require strong leadership and direction from the Managing Director, and full “buy-in” and support from staff.

Comparison with Content and Process Recommended by GRI and AA1000The GRI Sustainability Reporting Guidelines and the AA1000 accountability standard provide complementary standards for SDR, with the GRI guidelines for content and the AA1000 guidelines for process. Urgent would use these standards as references and checklists, while developing a report that was most appropriate to its requirements.

The NZBCSD Guidelines have formed the principle reference for the report content. This is generally consistent with Part C of the GRI guidelines. The report content and format recommended generally complies with that recommended in the GRI Guidelines. This includes sections for the CEO statement; Urgent’s profile; executive summary; vision and strategy; policies, organisation and management systems; and performance. The guidance on performance, was one of the references used to develop the recommended performance indicators.

The iterative process for stakeholder engagement required by AA1000 (planning, embedding, auditing and accounting), is consistent with the process planned by Urgent. Stakeholders will be provided with opportunities to both provide input and to review content, as the report is prepared. The report will be subjected to a verification process. There is also a need to align social and community activities with the Urgent’s values. Stakeholder engagement should be more targeted than is indicated by AA 1000.

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