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Our Insights 16 Dec 2014

Time to Call a Spade a Spade

By Lorraine Smith

Flickr image by Dennis Wilkinson

Reporting on an unsustainable business model

As I was reviewing the selections for “best report” for Corporate Register’s 2015 Reporting Awards I found myself thinking, enough is enough. The most recent round of finalists includes British American Tobacco (BAT). It is true that the company is doing progressive things and has long been used as an example of a highly transparent company in a challenging industry. But if we want to create a sustainable future, can we continue to give plaudits to companies that lead in transparency and disclosure yet have fundamentally unsustainable business models?

Good reporting focuses on the business model

A sustainability report is a reflection of a company—its purpose, its impacts and, ideally, its role in a flourishing future. An excellent report focuses on the core business model and how it generates value. The idea of value creation has been evolving as we seek to align business’ role in society with the needs of current and future generations, and within ecosystem limits. We see new language emerging to describe value, ranging from a list of a company’s “values” to more technical phrasing such as the IIRC’s “capitals.” Whatever the word choice, this gets at the point that there is more to “value” than money.

To continue picking on BAT for a moment, at the core of their corporate vision is “to satisfy consumer moments in tobacco and beyond.” With this purpose at the center, does the business model bring net value to society? Is this offer part of a sustainable future? I would suggest the very obvious answer to these questions is, “No.” Having a chapter in the report dedicated to “creating shared value” does not get around this fact.

Transparency reveals opportunities to evolve

The level of transparency needed goes far beyond reporting; it requires a willingness to explore, describe and address the basics of the business in a manner that considers the company’s role in a sustainable future. This is a fundamental level of transparency beyond describing programs and tactics. It means shedding light on how the business makes money, and how it creates (or diminishes) value for stakeholders now and into the future. And it requires real leadership where fundamental issues are revealed through the process.

There is some exciting evolution in the area of business model innovation, and it is being reflected in sustainability reports (and our research). Companies like aluminum products manufacturer Novelis are pioneering the circular economy and describing it well in their report. Brazil’s pulp producer Fíbria is using external engagement and a deeper exploration of externalities to evolve its business model, which it describes in great detail in its report. These companies are just two examples of global firms who have acknowledged—at the most senior level—that companies need to address unsustainable elements of their business model to deliver value to society into the future.

No more lipstick on a pig

If those involved in sustainability reporting don’t want to be accused of putting lipstick on a pig, they would do well to use their transparency efforts to inform decisions and drive meaningful change. If the company’s business model is a sustainable one, then reporting can deepen engagement, share learning and help a company lead by example. If the business model is not sustainable, then reporting needs to highlight the fundamental issues—an uncomfortable exercise but an important one, nonetheless—to inform ways to evolve and deliver real value and to let go of what simply does harm. That would be effective transparency. Not to be confused with award-winning reporting.

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