With the fiscal year drawing to a close for many companies, it’s writing season for corporate social responsibility (CSR) reports. As usual, reports provide a medium for communicating to investors who want to see companies creating value, customers who want to know which companies and products are leaders versus laggards, and watchdogs looking for inconsistencies.

In 2010, these groups will be particularly interested in how companies report on climate. This is due to several developments:

  • Last year’s treaty negotiations in Copenhagen, which prompted major economies to start their own, independent negotiating process (additional to the consensus-oriented UN framework), and resulted in the understanding that there is much more work to be done
  • The recent U.S. Supreme Court decision to allow spending on political campaigns
  • The Carbon Disclosure Project’s (CDP) increased emphasis on climate policy efforts in its 2010 Investor Questionnaire (due May 31), which asks companies to detail their climate policy efforts (question 9.10), as well as how those efforts fit into overall company strategy (question 9.1)

To date, however, companies have lacked direction on how to report on climate policy engagement. BSR’s new report, “Communicating on Climate Policy Engagement: A Guide to Sustainability Reporting,” provides some of the first guidance available for companies.

The following is an overview of what companies are reporting on today, what we recommend that companies focus on going forward, and how companies can approach reporting on climate policy engagement.

What Companies Are Saying Today

To learn what companies today are saying about their approach to climate policy, we recently conducted an assessment of more than 150 companies’ sustainability reports and related materials such as their websites, their responses to the CDP questionnaire, and their submissions to the United Nations Global Compact Communication on Progress.

We found that most large companies report one or more of the following:

  1. Public policy is a main pillar of their climate approach, largely because climate change may not be solved without it.
  2. Climate change is a main focus area of public policy efforts, in part because it is one of the single greatest issues of this generation.
  3. Climate policy is a strategic issue, in that it is both likely to happen and likely to disrupt fundamental business drivers—for better and worse.

What to Cover

In general, managers should include three themes in their climate reporting:

  • Greenhouse gas (GHG) impacts: First, companies should report on their impact on climate change in terms of GHG emissions and efforts to reduce them. This is probably the longest-standing climate reporting topic, and it is more important than ever as increasing attention is focused on the impacts of the world’s largest companies. Companies should report on absolute and intensity figures using the Greenhouse Gas Protocol, and try to include impacts from their supply chain and other networks. One emerging best practice is to report figures in terms of the company’s share of planetary climate boundaries, as do British Telecom and Autodesk.
  • Risks and opportunities: Second, companies should communicate the business risks and opportunities created by climate change, such as the effects spurred by new regulations and/or changing physical environments. This area has followed closely behind the development of reporting on GHG impacts, and it is now not only expected by investors, but required in new guidance issued by the U.S. Securities and Exchange Commission. Risk and opportunity reporting should include the impact of legislation and regulation, international accords, indirect consequences of regulation or business trends (such as risks driven from legal, technological, political, and scientific developments), and the relevant physical impacts of climate change.
  • Climate policy engagement: Third, companies should report on climate policy engagement. Companies are expected to show what they are doing to address climate change, and many stakeholders see policy engagement as one of the most direct ways to do that. According to this view, effective climate policy is an important instrument for creating business value, and companies can build trust with stakeholders by leading a more meaningful discourse.

    This means companies should communicate about all policy efforts, including those that go beyond traditional lobbying, such as:

    1. Calling policymakers to action by promoting specific legislation or endorsing the key objectives and parameters contained in them, as Johnson & Johnson has done in its 2008 sustainability report
    2. Informing policymakers through the provision of research and other technical insights on how specific policies could be most effectively implemented, as in IBM’s 2009 CDP response
    3. Enabling policy solutions by shaping the inputs to decision-making, such as by enhancing the state of knowledge among voting constituents, as Aspen Skiing Company is doing through its “Save Snow” website
    4. Setting the stage by advancing standard approaches to measurement and other processes that enable more meaningful dialogue about issues, as groups such as the Clean Cargo Working Group and the Electronic Industry Citizenship Coalition have done

An Effective Approach

Company managers preparing the climate-related sections of their reports should detail the governance around how climate policy engagement decisions are made, the strategy describing the broad outline of their companies’ objectives and approach, and their companies’ activities aimed at addressing climate change.

We also advise that leading reporters take the following approaches:

Be explicit. Use clear statements of position and objectives to focus the message. For example, Dow Chemical Company says that it will be “fearlessly accountable” in the pursuit of climate change solutions. This clarifies the company’s aims for stakeholders, who are, in turn, more likely to appreciate the commitment and support company efforts. Vale, one of the world’s largest mining companies, takes a different approach in its document, “Corporate Guidelines on Climate Changes and Carbon,” which acknowledges the scientific evidence of climate change and provides provisional guidelines subject to change based on the state of science.

Be the first to the punch. Aim to be straightforward about the company’s climate policy involvement. Head off potentially difficult questions by taking the time to answer them in advance. For example, let’s say a company is well known for lobbying—perhaps it’s on the Center for Public Integrity’s top 100 list or is prominently involved in a major trade association. That firm should be as detailed as possible about what it is doing and why. According to a recent study, this is especially important for companies in industries such as media, information and communications technology (ICT), oil and gas, transportation, pharmaceuticals and biotechnology, and mining and extractives, which tend to be heavily involved in policy engagement because governments either play a strong role in shaping their markets’ structure or in substantially regulating them.

Use diverse reporting channels. Climate policy engagement is a public affair, but company managers shouldn’t count on the public seeing the message if it’s only in one place. Some companies with compelling ideas and initiative aren’t saying much about their efforts, and others aren’t communicating very widely. Still others mention work in their CDP reports or websites, but omit it from their sustainability report. At the very least, companies should communicate a comprehensive and consistent message through their own websites and sustainability reports, and through the CDP. They should also consider reaching key audiences through customized channels as needed.

It’s also important to remember that communications happen not only through formal reporting, but through events such as trade association committees or government advisory groups. At such gatherings, the messenger is part of the message, so it is crucial that representatives know all the key points and have the authority to speak those messages on behalf of their company. As Matthew Bateson of the World Wildlife Fund told us, “Having the wrong people at meetings is a barrier. If they are unable to listen, to contribute, and to be constructive—that won’t work.” So, when opportunities to collaborate or speak arise where climate policy efforts might be addressed, aim to send senior and prepared leaders.

For more information, read our new report, “Communicating on Climate Policy Engagement: A Guide to Sustainability Reporting.”