7

Measuring and Reporting Corporate Impact

When stakeholders across sectors and industries are convened to share experiences, approaches, and lessons learned, discussing metrics and defining terms and language are incredibly important, stressed Clarion Johnson from ExxonMobil. Otherwise, after presentations of information and ideas, there is the risk of individuals leaving with different understandings of what has been discussed. Metrics are a powerful tool for creating coherence and common understanding. Corporate reporting provides opportunity for transparency, accessibility, and dialogue, and several workshop speakers illuminated opportunities and efforts to use metrics and reporting to do so. Specifically, Alyson Genovese from the Global Reporting Initiative (GRI) discussed building transparency and trust in sustainability reporting; Sanjay Sehgal from Nestlé presented the company’s approach to creating shared value and GRI reporting; Brett Tromp from Discovery Health in South Africa described efforts to include health metrics in corporate reporting; and Joy Phumaphi from the African Leaders Malaria Alliance discussed opportunities presented by the Sustainable Development Goals (SDGs). The key messages from their presentations are summarized in Box 7-1.

SUSTAINABILITY REPORTING

Building Transparency and Trust in Sustainability Reporting

Alyson Genovese, Global Reporting Initiative

Companies and other organizations issue sustainability reports because of the expectation to disclose to their key stakeholders financial and nonfinancial data about their social, economic, environmental, and human impacts. Sustainability reports are a mechanism for disclosing this information. Alyson Genovese, Head of Corporate and Stakeholder Relations for the United States and Canada at GRI, shared that sustainability reports often are issued in concert with annual financial disclosure, but sometimes are issued separately, are performance based, and reflect past activities as well as look to the future. She emphasized that it is important to think of reports not as a static end document, but as a continuous improvement tool for corporations and others.

Reflecting on the evolution of sustainability reporting, Genovese explained that originally companies reported their sustainability activi-

ties to mitigate risk. Such reporting provides a tool to understand and measure their risk from a regulatory standpoint in terms of disclosure. However, over time, a myriad of reasons why companies and other organizations report on their sustainability activities has developed. Risk mitigation remains central, but companies and others also view reports from a proactive opportunistic standpoint with benefits that may include recruiting and retaining key talent; attracting new investment opportunities; identifying research and development opportunities; and providing a competitive advantage. Genovese emphasized that managing sustainability impacts provides companies and other organizations with opportunities to examine the impacts both reactively and proactively.

Genovese believes the value of the sustainability reporting process is in ensuring that companies are transparent in considering their impacts on a range of critical issues in terms of risks and opportunities. In her opinion, this increased transparency fosters greater trust and better dialogue among stakeholders, who are now equipped with the information needed to interact more effectively with the organization.

Sustainability reporting is carried out by companies and organizations of all types and sectors. Ninety-three percent of the world’s largest 250 corporations report on their sustainability performance. GRI manages a publicly available sustainability disclosure database of all sustainability reports uploaded by companies every year. Genovese noted that there has been a significant uptake in sustainability reporting globally, and GRI includes about 30,000 reports that can be sorted by year, sector, and type of report issued. Growth in reporting is seen every year, and about 8,000 organizations are currently represented in the database (Global Reporting Initiative, 2016). Recent reports indicate that sustainability reporting among companies in the S&P 500 increased from 20 percent in 2011 to 75 percent in 2014 (Governance & Accountability Institute, 2015). Genovese observed that there have been improvements in the effectiveness and credibility of reporting, which has attracted the attention of the investment community. In 2014, one in every six dollars or assets under management in the United States were in socially responsible investing, a 76 percent increase from 2012.

The Global Reporting Initiative seeks to create an environment where sustainability is integral to the decision-making process of every organization by providing a global standard for companies and other organizations to report on their sustainability activities and a thorough process of material and stakeholder engagement. Its sustainability reporting standard is probably how most people know GRI, Genovese observed. She explained that there are other standards globally, but about 78 percent of companies that report on sustainability use GRI standards. GRI standards are deeply focused on materiality and on how companies can evaluate

which sustainability-related topics are of most concern to them. GRI also provides support and services to organizations that are reporting as well as stakeholder communities, including nongovernmental organizations (NGOs), foundations, investors, and governments.

In addition to an increase in companies choosing to report, GRI is seeing growth globally in government regulation of sustainability reporting. Genovese shared that more than 40 governments have specific requirements for companies that operate within their jurisdiction to disclose sustainability data. Looking forward, Genovese expressed that SDGs are changing the conversation for companies around expectations and their ability to demonstrate impact on social and development issues. Part of GRI’s role is to help translate SDGs for companies to be able to understand their role in supporting them. Genovese noted that GRI championed a strong private- sector role in the development of target six of goal 12 that states countries are encouraged to require companies, especially large and transnational companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycle (UN General Assembly, 2015). Genovese noted that GRI has worked with the World Business Council for Sustainable Development and the UN Global Compact to develop the SDG Compass (see Figure 7-1). The objective of the SDG Compass is to guide companies on how they can align their strategies as well as measure and manage their contribution to SDGs. The SDG Compass is designed to help companies understand their existing strategic goals and activities, map them against SDGs, and develop new approaches and activities aligned in the goals.

When asked to provide recommendations for how NGOs can engage in the stakeholder processes of developing reporting standards and frameworks and increasing the inclusion of health impacts as part of reporting, Genovese responded that the GRI framework includes a feedback process for stakeholder groups, and the framework is always evolving based partly on this feedback.

Nestlé’s Approach to Creating Shared Value and GRI Reporting

Sanjay Sehgal, Nestlé

Providing an individual company’s experience with GRI reporting and shared value creation, Sanjay Sehgal, vice president of Nutrition, Health and Wellness at Nestlé USA, described what the company identifies as its key milestones in its shared value journey and lessons learned from its approach to reporting. According to Sehgal, for Nestlé, creating shared value is a mindset that requires redefining a company’s business priorities, processes, and organizational structures. The process toward

shared value creation sets in place the infrastructure and the metrics on which companies can report.

Sehgal said that the goal of Nestlé globally is to improve the lives of millions of consumers by offering tastier and healthier products, engaging with its supplier network, and contributing to the economies in which it operates. In addition to directly employing 339,000 people, Nestlé supports the livelihoods of more than 700,000 farmers and contributes to the earnings of more than 4 million farmers.

Sehgal noted that Nestlé’s mission statement “to be the recognized leader in Nutrition, Health and Wellness and the industry reference for

financial performance, trusted by all stakeholders” has three important dimensions—Nestlé is a commercial organization, the company has a responsibility to its shareholders, and the company desires being the industry reference for the best financial performance service in a manner that is trusted by stakeholders and contributes to the health and wellness of the population. Sehgal explained that these three dimensions are not mutually exclusive and together drive what Nestlé defines as its shared value creation. Sehgal noted that shared value creation within an organization needs a top-level endorsement, to be driven by the entire leadership of the company, and supported by internal management.

Sehgal provided an example of a shift in Nestlé’s operating model that the company points to as part of its movement toward shared value. For years, Nestlé has used a tool called 6040, which is a blind product test that all strategy products go through to assess consumer perceptions of their taste and to ensure products are competitive in terms of taste. When the company began its journey to shared value, Nestlé realized it needed to introduce a nutritional dimension to its product testing. Today, Nestlé has an internal set of criteria that all of the products manufactured globally are assessed periodically on nutritional dimensions in addition to taste. Sehgal noted that Nestlé did not start with the goal of reporting on the nutritional profile of its products, but rather developed the tool to help focus internal business leadership.

In terms of reporting, Sehgal summarized how Nestlé’s global reports have transitioned from reporting on achievements to reporting in alignment with the comprehensive reporting standard set by GRI, the GRI G4 criteria. In 2010, Nestlé hired Bureau Vitas Solutions, an external body to ensure that its reports give stakeholders confidence in the accuracy and validity of the reporting as well as the reliability and objectivity of the information. In 2011, the report met the GRI plus requirements indicating that the report was held against highest levels of disclosure and transparency, and that the report was externally assured by GRI. For the 2014 report, Nestlé transitioned to reporting in accordance with the comprehensive option of GRI G4 criteria, which it will continue to use, Sehgal noted. While reporting on these global achievements, Nestlé started to evaluate individual markets and noted the trend toward producing national reports based on particular markers. Nestlé USA released its first Creating Shared Value report in 2014. The second report (Nestlé USA, 2015) outlined the company’s accomplishments and forward-looking commitments in nutrition, health and wellness; environmental sustainability; and social impact.

Regarding health metrics, Sehgal noted that Nestlé has surrogate measures of behavioral changes that reflect possible positive health outcomes. He added that Nestlé is also looking to build a collaboration of

like-minded organizations and individuals that can get behind a community to develop a scalable model. With such programs, outcomes can be actively measured. For example, with the Nestlé Healthy Kids Global Program, Nestlé is actively working with nearly 300 partners in 80 countries to raise nutrition and health knowledge, and promote physical activity among school-age children around the world. This program reaches approximately 8 million children globally.

Reflecting on what Nestlé has learned over the years, Sehgal said that the first step was to engage and listen to stakeholders across all relevant areas, including regulatory, academic, and scientific communities. The second step was a materiality analysis to assess the relevant issues from both the business and stakeholders’ perspectives. The third step was to identify future opportunities based on the materiality analysis. Through this process, Nestlé was able to establish an internal dialogue and evaluate potential opportunities and new directions. Nestlé now has 38 indicators, against which it measures and reports, that are assessed using the GRI system. Sehgal concluded by commenting that GRI is about ownership and accountability and should be considered as a tool to improve and focus performance.

INTEGRATING HEALTH METRICS INTO CORPORATE REPORTING

Brett Tromp, Discovery Health

From his perspective as a chief financial officer, Brett Tromp presented on the importance of health to a company’s financial performance and how his company, Discovery Health, is working to integrate health metrics into corporate reporting. To set the stage, Tromp gave a brief overview of Discovery. Discovery is an insurance company in South Africa whose purpose is achieved through a business model that incentivizes consumers to be healthier. The company is a recognized leader in shared value creation and, in 2015, at number 17, Discovery was the only insurance company included in Fortune magazine’s global ranking of companies that have made significant progress addressing major social problems as a core part of their business strategy (The Economist, 2011; MGI, 2015; Porter et al., 2014).

Tromp noted that Discovery’s model is built around behavioral economics, technology, and incentivizing individuals to be active. Vitality, Discovery’s wellness program, is the world’s largest scientific, incentive-based wellness solution for individuals and corporations. He argued that getting people active requires changing the parameters in which they operate and providing incentives. When, through research, Discov-

ery realized individuals were incentivized through instant rewards, the company partnered with Apple to start “Active Reward.” The program awards members weekly based on their level of activity. Tracked through an Apple Watch, members who achieve fitness goals are rewarded. Tromp said that they have seen a dramatic increase in how people behave by wearing a watch. This same principle is applied to Discovery’s other insurance product incentives. For example, realizing that poor driver behavior is the leading cause of vehicle accidents and fatalities, and making drivers more aware of their driving behavior has the potential to reduce their risks, Discovery introduced Vitalitydrive. Through the Vitalitydrive program, drivers are incentivized to drive well through meaningful rewards.

While Discovery has seen the returns on its own initiatives, Tromp described how the company is working to engage more companies in recognizing the shared value opportunities for their companies through health promotion. Tromp has been leading efforts to influence the chief financial officer (CFO) community in South Africa to be conscious of the impacts of health on their companies. The starting point for these discussions is that globally noncommunicable diseases will cause far more deaths than communicable diseases going forward. Tromp then reviewed a few surveys to identify the key challenges facing finance leaders in Africa, specifically South Africa (see Table 7-1). One of the surveys he

TABLE 7-1 Key Corporate Challenges Facing Finance Leaders

SOURCES: As presented by Brett Tromp on December 4, 2015; African Business Outlook survey, a joint effort among Duke University, South African Institute of Chartered Accountants, and CFO magazine.

reviewed indicated that within the top 10 issues, human capacity and productivity were issues that CFOs really worried about but did not openly address.

The Discovery Healthy Company Index is the biggest survey of workplace wellness in South Africa aimed to assess and understand the health status of South African employees. He mentioned that results from the 2012 survey, which included 19,001 employees, found that on average, employees have a Vitality Age that is 6.4 years older than their actual age (Discovery Health, 2012). Specifically, 50 percent of employees had five or more risk factors outside the healthy range, 68 percent did not meet recommended physical activity guidelines, 34 percent had poor nutrition, 43 percent were at an unhealthy weight (high body mass index), and 53 percent did not have all their preventive health check-ups. The survey also found that work absenteeism cost the South African economy $1.1 billion per year, and the average employee took 8 days of sick leave, costing the employer $700 per year. Tromp pointed to research done in the United States that showed that companies that build a culture of health by focusing on the well-being and safety of their workforce yield greater value for their investors (Fabius et al., 2013). He added that a recent study in South Africa found that corporate health and wellness contributed positively to South African companies’ financial results (Conradie et al., 2016).

At the conference of the South African Development Community, which represents 15 countries in the southern parts of Africa, Discovery’s health metric reporting strategy was endorsed (Discovery Health, 2015). He noted how he was able to mobilize South African finance leaders through a series of key engagements with the private sector and government to incorporate health metrics in corporate reporting, adding that Discovery was the first company in South Africa to include it in their integrated report. He noted that there is evidence to show CFOs that there are real tangible performance issues and productivity issues, adding that CFOs have actually started to get real tangible data in the business of how people behave based on their health. He emphasized the need for CEOs to be behind health programs, citing that Discovery founder Adrian Gore believes that companies will not be sustainable or exist at all without having a shared valued ethos or creating a culture of health.

Tromp concluded by outlining the roadmap for stakeholders in implementing health metrics in reporting (The Vitality Institute, 2016). From a shared value point of view, Tromp suggested, a great cultural and economic change would be seen if people start to take health seriously in the workforce.

The Experience of African Leaders Malaria Alliance in the Development Arena

Joy Phumaphi, African Leaders Malaria Alliance

In her opening remarks, Joy Phumaphi, executive secretary of the African Leaders Malaria Alliance (ALMA) said she believes the concept of shared value is actually a concept that all humanity shares. She noted that shared value is the pulse of sustainable development and should be able to be measured.

Phumaphi summarized her experience in the development arena. She said ALMA is a coalition of 49 African heads of state and government working across country and regional borders to eliminate malaria by 2030. In 2011, ALMA heads of state and government requested the ALMA secretariat to establish an accountability and transparency framework to track progress, facilitate a rapid response to emerging issues and bottlenecks, and allow for the sharing of lessons learned. She noted that ALMA provides the heads of state and government with the ALMA Scorecard for Accountability and Action (ALMA, 2011), a matrix that consists of a semi-automated database that tracks progress across key indicators covering malaria policy, financing, intervention coverage, and impact, and includes tracer maternal and child health metrics. This matrix enables more focused attention on the interventions necessary to control malaria by the heads of state; strengthens country health management by increasing the availability and use of evidence for political and technical actors; improves performance and policy visibility across heads of state and government and their ministers to drive change; and increases accountability and transparency for heads of state and government, and ministry of health staff, to track action and progress on malaria and reproductive, maternal, newborn, and child health. She noted that the ALMA scorecard and quarterly reports are accessible to members of the public to provide national stakeholders with management insights for action and accountability. She continued that the results are produced in partnership with all of the world malaria partners, including civil society groups, private sector, multilaterals, countries and everybody involved in the fight against malaria. The results are as transparent and factional as possible, and focused on action and results, she noted. Phumaphi added that the scorecard supports a continuous cycle of evidence-based action and accountability.

Phumaphi noted that since the introduction of this mechanism in 2011, the progress in the fight against malaria on the African continent has really accelerated. She mentioned that based on the success of the ALMA Scorecards, heads of state and ministers of health requested support for

reproductive, maternal, newborn, and child health at the country level. She added that the countries that are operationally using this mechanism at the country level are finding it to be rewarding.

Discussing the implications of the ALMA Scorecard for SDGs, Phumaphi argued that unlike the Millennium Development Goals, which were developed by multilaterals, SDGs were developed by the people. The SDGs are a shared value agenda; they are peoples’ goals, she added. Some of the things that governments have been doing to address this issue were pointed out by Phumaphi. These include mandating businesses to institute family-friendly policies; requiring health insurance plans for all families; mandating tax breaks and subsidies to encourage businesses and other entities to adopt family-friendly policies; providing public funding for family-friendly interventions and services; granting subsidies and funding for public education; funding and maintaining family-oriented public facilities; encouraging family- and youth-friendly policies among public agencies and services; and using its influence to encourage family-friendly policies. Phumaphi emphasized that because SDGs are peoples’ goals, it is essential for CEOs, CFOs, and managers of businesses to increase the value of their products and productivity levels within their companies and not to wait for the government. She added that the peoples’ goals are actually defined by that human capital that companies want to be able to produce at its best capacity within the organization.

Phumaphi thinks that given the SDG era, a shared value approach to development and running of companies is essential. She pointed to SDG 3—Ensure healthy lives and promote well-being for all at all ages (UN General Assembly, 2015) and argued that the targets give an idea of the interests and concerns of people around the world. That is going to determine their productivity levels, and their ability and capacity to deliver that product and operate optimally, she added. Phumaphi suggested that the SDG era is the time for companies to work more closely with other corporations and institutions as well as governments and NGOs in defining this reporting, strategizing for results, and investing in people. It is also the time that companies need to ensure that the cycle of action and accountability is not limited to the area of financing and profit, but also assigned to the quality of human capital and the health of the communities in which they operate. She explained that the type of shared value matrix needed for the SDG era must be integrated into our accountability frameworks, as well as the ways in which we work, interact with our communities and society, and report.

Phumaphi said shared value is not just about profit making, but building a civilization that will not be threatened by instability. When Phumaphi was asked if integrating organization preparedness for crises

and developing indicators, and ways to report on them as part of a global plan to upgrade our preparedness as a society, may be necessary, she answered that it is absolutely critical and that the private sector has responsibilities in the shaping and facilitating of preparedness, enabling capacity to be developed, and supporting the building of that capacity.