Paul Holmes 01 Jan 2006 // 12:00AM GMT
This year, according to the 2005 KPMG International Survey of Corporate Responsibility Reporting, the majority (52 percent) of the world’s largest companies issued separate reports detailing their corporate social responsibility performance, up from 42 percent the year before. And this year, for the first time, GE was one of them.
GE’s first corporate citizenship report, Our Actions, details the company’s performance, progress and challenges in areas including compliance and governance; globalization; community investment; the environment, health, and safety; products and research and development; and its commitment to employees and other stakeholders.
According to Ben Heineman, the company’s senior vice president of law and public affairs, “In an increasingly global and transparent world, we measure our performance in a context broader than financial results and stock price. Everyday, we strive to be a responsible citizen, to perform with integrity and to serve our customers, investors and other stakeholders responsibly.”
Our Actions is unusually long (77 pages) and detailed, packed with the kind of rigorous metrics that GE famously applies to all aspects of its business, and already experts in CSR reporting are predicting that it will raise the bar for other companies at a time when citizenship activities are increasingly important to employees, customers, and shareholders.
According to KPMG, corporate responsibility reporting has been steadily rising since 1993 and has increased substantially in the past three years. In 2005, 52 percent of the 250 largest global corporations and 33 percent of the largest 100 companies in 16 countries issued separate CSR reports, compared to 45 percent and 23 percent respectively in 2002. (If the survey was expanded to include annual financial reports with CR information, these percentages are even higher: 64 percent and 41 percent.)
At the same time, there has been a significant change in the type of CSR reporting, from purely environmental reporting before 1999 to sustainability (social, environmental and economic reporting), which has now become mainstream among Global 250 companies (70 percent) and is fast becoming so among National 100 companies (50 percent).
“Corporate responsibility reporting is easier said than done,” says Professor George Molenkamp, chairman of KPMG Global Sustainability Services. “The real challenge is in the integration of corporate responsibility into the strategy and operations of a complex organization in a more and more globalizing economy.
“Corporate responsibility performance has definitely caught the eye of the financial sector as is reflected in recent developments, such as the so-called Equator Principles, the Dow Jones Sustainability Index (DJS) and the FTSE4 Good Index on the stock markets and the emergence of Social Responsible Investment funds. The awareness of the financial implications of climate change issues on businesses is also growing among the financial sector after the introduction of the European Union Emissions Trading Scheme and the ratification of the Kyoto Protocol.”
At the national level, the two top countries in terms of separate CSR reporting are Japan (80 percent) and the United Kingdom (71 percent). The highest increases in the 16 countries in the survey are seen in Italy, Spain, Canada, France and South Africa.
Industrial sectors with relatively high environmental impact continue to lead in reporting. At the global level, more than 80 percent of the companies are reporting in the electronics & computers, utilities and automotive & gas sectors. At the national level, over 50 percent are reporting in the utilities, mining, chemicals & synthetics, oil & gas, forestry and paper & pulp sectors. But the most remarkable increase last year came from the financial sector, which shows more than a two-fold increase in reporting since 2002.
But GE’s decision to get into the CSR reporting game has a symbolic value more powerful than those numbers. GE is still a role model for many companies, and its newfound commitment to measuring and reporting on its citizenship activities—along with its recent commitment to develop environmentally friendly technologies—suggests that it now believes the company’s performance on traditionally “soft” measures can have an impact on hard financial results.
Says chairman and CEO Jeffrey Immelt in his introduction to the report, “We have a history of firsts in technological innovations and in management practices that have influenced the way businesses grow and lead. And we are known for a performance culture that consistently delivers results.
“But these accomplishments alone will not ensure our leadership in the future. Leaders and companies that seek to continue to lead must perform with an unyielding integrity that earns the trust of our stakeholders: integrity in our relations with customers and suppliers; integrity in our disclosure to shareholders and creditors; integrity in our products; integrity in our relationships with our employees; integrity in our compliance with legal and financial rules; and integrity in our interactions with regulators, media and communities.”
Gary Sheffer, the company’s executive director of communications and public affairs, says the initial impetus for Our Actions came from the company’s employees.
“We had a class at Crotonville [GE’s management training facility] that centered on citizenship,” he says. “In the wake of the scandals, we asked our senior people how they viewed citizenship and what role we should be playing, and they recommended that we start reporting on our citizenship activities and telling our story better.
“We also heard from a lot of our investors that this was something they expected.”
GE came relatively late to the citizenship reporting game, Sheffer says, because “it was not the character of the company to get up on a soap box. We felt we had good systems and good programs and we thought that was good enough. But it’s not. Stakeholders have a different set of expectations these days, and we need to meet those expectations.”
It would be easy for an outside observer to make the assumption that GE’s new leadership—Jeffrey Immelt succeeded the legendary Jack Welch in September of 2001—was a major factor in the shift. The Wall Street Journal described Immelt’s personal style as “less domineering” than his predecessor’s, and he has generally projected a less prickly public persona.
But Sheffer says any assumption that the CSR report results from a change of leadership styles is an oversimplification.
“Clearly Jack Welch cared about citizenship,” he says. “He established diversity forums within the company. The GE Foundation grew considerably while he was CEO. Volunteerism grew under Jack Welch. We just didn’t talk about all the things we were doing. We were more focused on other activities. But 9-11 and the corporate scandals changed a lot of things. There are different expectations today.”
Even after the decision was made to create a citizenship report, Sheffer says, the production process moved relatively slowly. It took about 18 months to develop the report, and GE approached the process with characteristic thoroughness, undertaking a thorough study of best practices in the CSR reporting arena.
“We looked at IBM, we looked at a lot of pharmaceutical companies, we looked at McDonald’s and how it addressed the obesity issue, we even looked at the some of the oil companies, which had addressed environmental issues head on,” says Sheffer. The company also met with NGOs to discuss their expectations.
In addition, GE used the Global Reporting Initiative 2002 Sustainability Reporting Guidelines as a basis for the development of the report, which features a GRI content index to help readers match company programs and results with the recommended GRI guidelines.
“We recognized that if the report was going to be credible, we had to have a voice that was true to the character of the company,” Sheffer says. “So we wrote the report in a very factual, straightforward way. We didn’t try to hype the programs we have in place, and we tried to explain the challenges and be candid about those areas where there is room for improvement.”
So the company outlines its obligations to each of seven distinct stakeholder groups, from investors (good governance, fiscal responsibility, a sustainable business model) to NGOs (engagement in social, environmental and economic issues, consideration of alternate inputs, ethical actions beyond financial and legal requirements).
The company also reveals that it paid more than $1 million in air- and waste-emission penalties over the past two years. And it discusses—if not quite as apologetically as some observers would have liked—its ongoing responsibilities related to the discharge for PCBs into the Hudson River in the 70s, a source of considerable controversy for the company in recent years.
In most cases, the company seeks to apply meaningful metrics. It provides hard numbers on its workplace injury and illness rates, greenhouse gas emissions, total energy use, and diversity activities. And it sets forward-looking targets: a 30 percent reduction in greenhouse gas intensity by the end of 2008, along with a 1 percent reduction in absolute terms by the end of 2012.
Says Sheffer, “We want to have as many metrics as we can. In the environmental, health and safety section of the report there are a lot of metrics to talk about. In other areas, real metrics just don’t exist, they don’t add value. But it was apparent when the report came out that the media and others went straight for the numbers. Anything that you put into a report like this that has hard and fast numbers will get people’s attention.”
Among the most impressive numbers:
• Between 2002 and 2004, GE assessed more than 3,000 suppliers to make sure they are compliant with laws that require them to treat workers fairly, provide a safe and healthy work environment and protect environmental quality;
• In the wake of the tsunami that struck South Asia, the GE family provided $20 million in cash, products, and services and helped raise millions more. Overall, in 2004 the GE family contributed more than $150 million to support service organizations in communities around the world.
• GE achieved the best safety performance ever in 2004 with an 11.5 percent improvement in injury and illness rate over 2003 (594 fewer injuries), and a 14.4 percent improvement in lost time rate. G
• In 2004, GE’s revenues from the developing world reached $21 billion, a 37 percent increase. GE expects to achieve as much as 60 percent of its future revenue growth from emerging markets including China, Russia, Eastern Europe, India and the Middle East.
The report also covered topics such as product-use issues, outsourcing and supplier requirements, policies in emerging economies and privacy issues.
As the report hit the streets, Immelt was also presenting the company’s new $1.5bn investment in environmentally sound technology, a project called Ecomagination. Immelt says GE will double its investment in research for cleaner technologies by 2010 and double its revenue from environmentally friendly technologies to at least $20 billion by 2010 by introducing more than 30 new products, including wind turbines, solar panels, coal-gasification plants, and more energy efficient appliances.
Ecomagination products will “significantly and measurably improve customers’ environmental and operating performance,” the company says. And an independent environmental consulting company, Green Order, will verify the company’s claims.
While the Ecomagination initiative will require greater transparency, Sheffer says the timing of the announcement—just weeks after the release of the first citizenship report—is a coincidence. “Actually, we had hoped to get the report out earlier,” he says.
Still, the response from all stakeholders to both initiatives has been encouraging.
“Inside the company, the response has been very positive,” says Sheffer. “We held a webcast to talk about the report that was very well received. There have been a lot of suggestions from employees about how to improve the report next time around, especially from people who meet a lot with customers, from our sales force and our senior executives. They are the ones who get asked questions about GE from a citizenship standpoint, and we have given them the tools to answer some of those questions.”
The external response has been almost as positive, with several other companies calling GE for a copy of the report.
“The next step for us is to put together a process to go out to talk to various stakeholders and get their reactions to the report, and their input on areas where we can improve,” says Sheffer.
He admits that not everyone is going to respond positively, and says there were some within the company who worried that the publication of a citizenship report would just provide ammunition for the company’s critics.
“There are some folks who are going to beat us up whatever we do or say,” he says. “They are going to be telling their story whatever happens, so let’s at least let our investors and customers know there is another side to the story. It’s always better if we tell people why we take the positions we do, how we come to the decisions we make.”
Sheffer and the rest of GE management understand that social reporting is an ongoing concern, one that requires constant communication, and the company’s website will feature frequent updates to the report as the company seeks to keep stakeholders informed.
Says Bob Corcoran, GE’s vice president of corporate citizenship, “Our new citizenship website provides an in-depth view of the policies, procedures and practices we employ to make our commitments a reality. Links in the report allow readers to pursue topics in greater depth, and the web format allows the report to be a living document which can be supplemented and updated as developments occur.”