A stronger business case: Providing information on environmental performance

In too many cases, businesses simply are not convinced of the strategic advantage of providing information on their environmental performance. This is not for lack of theory. For many years, business theorists, NGOs, and others have advanced the idea that openness adds to a company’s reputation – its “branding” as responsible and deserving of the continued right to operate. They have also argued that companies should see performance reporting as an opportunity to improve internal processes and reduce potential liabilities, rather than as a threat.

Many outside of business find this convincing. A 2000 survey of 100 leading European investors, policy-makers, regulators, media, and NGOs found that two thirds of those surveyed believe that a company’s reputation for social responsibility is crucial to business success. Nearly half also believe that it will have a direct impact on company share prices (Burson-Marsteller 2000).

But for many business managers, the argument remains theoretical. They may believe in the value of their company’s brand name, but see little analytical evidence that the expenses related to disclosure will bring sufficient compensation in terms of better branding. They lack data on how much their efforts toward better environmental performance contribute to the overall value of the company’s reputation. Nor is there much movement to rectify this analytical gap. A 2001 study found no corporate efforts or studies that quantify the link between corporate environmental actions and the company’s brand value (Reed 2001:15).

Programs like the Global Reporting Initiative are guiding businesses to the indicators they need to understand how good environmental practice can connect to good financial performance. However, only a handful of companies have gathered and organized data that show the impact on earnings of various environmental programs, such as reducing or creating revenue streams from waste. Baxter International, a global medical products and services company, is among those estimating the net financial impacts of its environmental programs. Baxter reports that these programs contributed income, savings, and cost avoidance of about $75 million in 2000 (Baxter International Inc. 2001:45). IBM has released similar data showing that the operating margin from its environmental efforts is 1.1 percent (Reed 2001:10). Even so, neither of these companies attempted to quantify the added brand value that their actions created.

Some Japanese companies, such as Kirin, Matsushita, and Ricoh Japan are also linking sustainability investments to good business practice in their reports, perhaps because government guidelines encourage detailed reports on environmental costs and savings (SustainAbility and UNEP 2002:45-47). There is also evidence that the effort to compile an environmental report can itself result in cost savings as businesses identify ways to refine processes and reduce waste. Some 25 percent of the businesses taking part in the Danish Green Accounts program, which requires corporate environmental reports from more than 1,000 Danish businesses, say their Green Account reports have helped them realize such savings (Danish Environmental Protection Agency 2003). To advance the internal rationale for disclosure, this kind of effort by businesses to quantify the benefits of their environmental investments to the bottom line and the brand name must expand markedly.