In addition to producing a global sustainability report, a growing number of multinational companies (MNCs) are reporting on local sustainability performance at the regional, country, and site-specific levels—a trend that holds true for 27 out of the 100 largest global companies.
In our latest report, “Going Local: Increasing the Value of Local Sustainability Reporting,” we found that while stakeholders generally view this trend as a positive development, they caution that in order to be valuable for both business and society, local sustainability reporting needs to move beyond a pure communications exercise. In the report, we offer a framework by which sustainability practitioners may approach local reporting in a manner that generates value for both the company and its stakeholders. Drawing on our experience in China—a dynamic and important market where local sustainability reporting is growing quickly—we offer an approach to local reporting that is based on local engagement, internal coordination, and the use of proven reporting frameworks.
Local Reports Taking Different Forms
Local sustainability reporting takes a number of forms—from standalone sustainability reports to country-specific “balanced scorecards” to country key performance indicators (KPIs) listed on the corporate website—and is evolving in its sophistication as companies learn more about the opportunities that can be captured from doing it well and the risks that may accrue if it is done poorly. The following are examples of how MNCs in China have approached local sustainability reporting:
Each format has its advantages and disadvantages. What is clear is that a company should choose the format that is most appropriate for the audience it is intending to reach. Before doing this, however, companies need to determine whether there is enough motivation to produce a local report in the first place.
Why Report Locally?
A number of external factors are motivating MNCs to produce local sustainability reports, including increased reporting by local competitors, consumer expectations, and government, regulatory, investor, and community pressures. In addition, there are internal drivers—including legacy issues, employees, and risk management—that are motivating MNCs to report locally. Below, we touch on two external factors important in China: government pressure and reporting by local competitors.
In 2008 in China, the State-Owned Assets Supervision and Administration Commission of the State Council issued sustainability reporting guidelines for state-owned enterprises directly under the central government. Along with related guidelines from both the Shanghai and Shenzhen stock exchanges, these government prompts have been the main driver of the growth in reporting among Chinese companies. Shortly afterward, the Ministry of Commerce issued guidelines suggesting that foreign-invested companies in China also voluntarily adopt annual sustainability reporting. Although these have not had a significant impact on foreign MNCs to date, they do indicate the direction the Chinese government is going and what the government would like to see from MNCs investing in China.
China is certainly not alone in this regard. On almost every continent, governments are increasingly mandating corporate disclosure on certain environmental, social, and governance (ESG) issues. In those countries where disclosure is not yet mandatory, governments often have established sustainability reporting guidelines or indicated that legislation is imminent.
Another trend is the increase in number of local, “home grown” companies issuing sustainability reports. Consequently, MNCs feel competitive pressure to produce their own local reports as a means to keep up with the competition. This has also raised local stakeholders' expectations that MNCs produce local reports on performance. Often, local stakeholders have higher expectations of foreign companies to demonstrate that they are addressing local issues and applying the same standards in China that they use in their home market. We have seen an increase in the extent by which foreign companies with operations in China are targeted by local governments and the media to disclose more information on their local sustainability performance. This media pressure, in particular, appears to be weighted more heavily toward foreign companies than domestic ones, as exemplified by the media’s coverage of a report by the Chinese Academy of Social Sciences that criticized foreign companies’ lack of disclosure on sustainability and implied that this indicated poor performance. This is not particular to China. MNCs are recognizing that increasing sophistication in sustainability reporting by emerging global leaders in the Global South—in China, Brazil, and India—is creating an environment of expectation and competition that cannot be addressed by global sustainability reports alone.
Increasing the Value of Local Reporting
From our interviews with experts and corporate practitioners, it is clear that reporting at the local level is a costly and time-consuming exercise, which, if managed poorly, can quickly erode its value. The following approach calls for local engagement, internal coordination, and the use of proven reporting frameworks as a means by which a company can produce a local report in a way that helps realize and protect value—for both the business and stakeholders.
Local stakeholder engagement, whereby companies proactively talk with local individuals or groups and then demonstrate that they have listened, provides a company with invaluable insight into a number of areas of material importance to the business that can then be communicated through a local sustainability report. For example, engaging locally helps companies surface license-to-operate risks among local communities. Intel China, for example, engages with local Chinese communities in advance of a decision to build a facility in or to exit a particular locale. A community impact measurement framework based on local learning is then used to communicate performance in both its local and global sustainability reports.
Engaging at the local level also helps MNCs better understand the audience of their local communications, which differs in relative importance by market. To date, knowing the target audience for local sustainability reports has been more trial and error than scientific process. Local reports have tended to target too broad of a group of readers and have been less effective than they could or should have been. In China, the government is an important target audience for local reports, especially for business-to-business companies looking to leverage their sustainability performance in bidding for government-sponsored contracts. Alcatel-Lucent has found that government representatives and regulators read its China sustainability report with interest. In other markets, and for companies in more consumer-facing industry sectors, the government representative, relative to other stakeholders, is clearly a less important reporting target. Without engaging locally, companies cannot discern important differences between audience types, and could, as a consequence, end up producing voluminous local reports at vast expenses that have limited positive impacts on their business.
In any sustainability management structure, gaps exist both inter- and intra-regionally among different business units and functions. The consequences of these gaps typically manifest themselves in the production of inaccurate, non-representative, and immaterial information on sustainability performance. We have found that in order to bridge the gaps, companies need to establish the right level of internal coordination among country managers and global headquarters. This means ensuring that there is a coordination process that does not stifle local leadership.
Cross-functional sustainability working groups at the local level that cover the main business functions offer one means to establish an appropriate level of internal coordination. Such groups enable companies to capture what is happening in situ and break these activities down into strategies, policies, activities, performance targets, goals, and case studies at the local level. The cross-functional nature of the group also gives it legitimacy and a critical mass to push back as needed when it comes to deciding on such elements as the look and feel of a particular local report.
Large Chinese companies now issuing local reports for different subsidiaries within China or overseas have also found the creation of cross-functional groups to be critical. China Mobile is one such company. Most of its provincial subsidiaries release local reports and have established internal working groups to help coordinate the process. Despite this finding, it is clear that in China, MNCs are still not developing enough of an internal coordination mechanism for local reporting. As a consequence, many departments and business units are sidelined during the report-development process, thus reducing the potential for management learning, increased sustainability awareness, and leverage with clients.
APPLY PROVEN REPORTING FRAMEWORKS
Finally, we have found that companies applying proven reporting frameworks to their local reports enable them to achieve the right balance between global consistency, integrity, and meeting local circumstances. Providing country-level sustainability teams with a well-recognized good practice template for reporting can save them time and ensure the completeness of the report. Often, such templates for local reporting (or in some cases guidelines) encourage a similar structure as global reports. While the Global Reporting Initiative (GRI) is widely used by companies in China, there are also a number of local standards related to sustainability performance that are developed by industry associations, academic research institutions, and central or local government authorities. These include:
Moving From the Ad Hoc to the Strategic
As MNCs become more advanced in their approach to global sustainability reporting, it will become even more critical that they have a strategic as opposed to an ad hoc approach to local reporting. From our review of local sustainability reporting around the world, it is evident that local sustainability reporting can add value, especially when companies engage stakeholders at the local level, establish the appropriate level of internal coordination , and apply proven reporting frameworks.
For more information on local reporting, contact Guy Morgan in Paris.
- Supplements to global sustainability reports: Nike, in preparation for the Beijing Olympics, developed a China-specific supplement to its global report. The supplement was available in English as well as Chinese to maximize both local and international accessibility.
- Brochures: Cargill has created fairly short and easy-to-read brochures with stories and sustainability targets. The brochures target the local government and media and mostly cover community and environmental activities.
- Disaggregated sustainability information: Bayer includes information on its local website and has specific printed materials on each of its local sustainability initiatives and projects.
- Standalone sustainability reports: For years, Shell has developed extensive sustainability reports in China that cover the full scope of their activities and include detailed sustainability performance data.
- The Guidelines for China Corporate Social Responsibility Reporting (known as CASS-CSR 1.0), developed by the Chinese Academy of Social Sciences, is a Chinese version of the Global Reporting Initiative guidelines.
- The China Sustainability Reporting Guidelines for Apparel and Textile Enterprises (CSR-GATEs), developed by the China National Textile and Apparel Council, are specifically tailored for apparel and textile companies in the Chinese context.
- The Guidelines on Corporate Social Responsibility for Banking Financial Institutions, developed by the China Banking Association (CBA), strongly recommend that every banking financial institution in China submit a sustainability report to the CBA every year stating how they are fulfilling their responsibilities.
- The Shanghai Municipal Local Standards on CSR, developed by the Shanghai Bureau of Quality and Technical Supervision, provides incentives to companies to be assessed. Over 100 companies have volunteered to be assessed by the standard’s 67 indicators and have their performance results released to the public.