Why is the 'triple bottom line' so important?

Growing community expectations of the corporate world to keep the environmental, social and economic dimensions of business in balance have led many organisations to adopt a triple bottom line approach.

The Australian corporate world is slowly evolving towards sustainability. A whole raft of organisations including Amcor, BHP Billiton, Coles Myer, Ford Australia, Insurance Australia Group (IAG), Orica, Origin Energy, Sydney Water, Toyota and Westpac are pouring resources into producing annual sustainability reports, most along the lines of the Global Reporting Initiative (GRI). This is a common framework that provides a useful guideline for companies wanting to prepare a sustainability report.

Other companies, like Billabong International, simply take social and environmental responsibility in the areas they operate in, seeing this as a normal part of business and not something they necessarily make a song and dance about.

[image] Billabong uses dramatic natural imagery to link its brand to the environment.

In the common parlance of yesterday, the term 'sustainability' was linked with the financial viability of an enterprise, but today's world is much more demanding. Increasingly, consumers and shareholders alike want to know that the companies they buy their goods from and put their money into as shareholders are acting responsibly in the environmental and social arenas, as well as making a profit.

Just as it is no longer acceptable for a mining company, for example, to come into an area, strip minerals out of the ground and create an unmitigated environmental catastrophe for the local people before moving on to the next mine site, the community also has a say in how much packaging they will accept at the supermarket and how much environmental damage a company creates in the process of getting the food onto their tables, furnishings into their homes and clothes onto their backs.

It is not only the company that is under scrutiny, but the whole supply chain. For organisations that have gone down the sustainability road, all their suppliers need to demonstrate that they are acting responsibly in the 'triple bottom line' sense of the term.

Billabong International provides an interesting example of a company that is meeting the new community expectations for companies to do more than simply make a profit. It is an Australian company with about 1300 employees in countries including Australia, Japan, New Zealand, Hong Kong, the United States, Canada, Brazil, France and Spain.

For a company that makes and sells surf, skate and snowboard clothing and accessories it is only natural that it would link its brand to the environment. The company has done this very successfully, with its dramatic use of surf, snow and athletic imagery that has become synonymous with the Billabong brand.

It is only a short step from there for Billabong to financially support environmental and social initiatives around the world. The company is a sponsor of Surf Aid International, a non-profit organisation whose mission is to improve the health of people in the malaria-prone Mentawai Islands of Indonesia. It also supports the Surfrider Foundation, another non-profit organisation that promotes the conservation and regeneration of foreshores.

Early this year, Billabong contributed $500,000 to assist with the tsunami relief, primarily around Sumatra, an area rich

in surfing heritage. That Billabong undertakes many social and environmental initiatives without a great deal of fanfare is to its credit.

Internally, the company sees the social side of the business as critically important to maintaining the unique Billabong culture, which is based on individuality, teamwork and a challenging of convention. Career advancement is a priority, the benefits being continuity of performance, the retention of proven performers, personal and professional growth amongst employees, a greater pool of candidates for future promotion and a broader skills base of employees. The environmental practices Billabong follows in its workplaces include recycling screen printing ink, recycling 90% of cartons from imported goods and minimising packaging materials for finished goods.

Corporate responsibility for environmental and social performance extends to the supply chain as well, with the company regularly evaluating each supplier and factory site as to physical facilities, environmental management, health, safety, quality performance, employment ethics, working hours and wages. Child labour, forced labour and factories where emergency exits are blocked or locked are not tolerated.

While Billabong has not yet prepared a sustainability report, it is clearly on the path.

One organisation that has recently completed its first sustainability report is Insurance Australia Group (IAG), owner of NRMA Insurance, SGIO, SGIC, CGU and Swann Insurance in Australia and NZI in New Zealand. IAG was awarded 'Best First Time Reporter' by the Association of Chart-ered Certified Accountants (ACCA) at the Sustainability Report Awards in May 2005.

IAG released the report in November 2004 in response to feedback from stake-holders who wanted to see the organisation provide a transparent report on its business operations, beyond simple financial measures.

"The Sustainability Report is important because it looks at IAG's business performance holistically - across economic, social and environmental dimensions," said Lynette Thorstensen, IAG Head of Community & Environment. "It outlines how sustainability is central to the Group's business practices and why IAG believes that conducting business in a sustainable manner will deliver greater business results, community trust and employee satisfaction."

According to Thorstensen, IAG believes that operating sustainably at all levels delivers long-term shareholder value. This involves ensuring excellence in the Group's performance across economic, social and environmental dimensions. "IAG's value, and future sustainability, comes from continuing to deliver on the expectations that both customers and the community have by paying claims, pricing risk, managing costs and helping to reduce risks," she said.

In the last two years, IAG has developed a number of initiatives that are focused on engaging individuals, local community groups and suppliers to reduce risk and decrease its impact on the environment. One of these is Risk Radar, a CD-ROM-driven tool that enables smash repairers to self-assess their businesses against environmental, health and safety standards and develop an action plan to improve the safety and environmental performance, including waste management and greenhouse gas emission reduction, of their workshops.

Other internet-based environmental tools include the GreenSafe Car Profiler, which allows motorists to compare vehicles based on environmental, safety, economy and security factors, and HomeHelp, which features a 3D virtual home that assists customers to make informed choices about building and furnishing options that home safety and environmental impacts.

[image] The NRMA Insurance crime prevention van is an IAG social initiative aimed at reducing risk and keeping the community safe.

An example of a social initiative is the NRMA Insurance Crime Prevention Van, which educates residents in targeted areas of NSW about home security and provides simple tips on how to reduce crime in the community. The van also offers a property engraving service so that local residents can permanently identify their belongings.

The important thing to note about IAG's focus on sustainability is that the Group now addresses issues like social responsibility, the environment, the community, workplace safety and stakeholder relations as core business activities and not as add-on extras. Accordingly, the Group has a Work & Life Program which focuses on ensuring employees are able to balance work and family commitments, providing flexibility and choice around work hours and employee leave time. IAG has also introduced a number of environmentally-focused internal targets including a reduction in air miles, fuel and paper use and energy consumption.

A significant environmental risk that IAG and Origin Energy are both quick to point out is climate change.

"IAG's research shows a definitive link between rising global temperatures and the increased frequency and ferocity of weather events. Today, there is a higher probability of severe hailstorms, droughts, flooding, higher winds and more severe hurricanes, all of which put IAG's customers, and the community, at greater risk," Lynette Thorstensen said.

Therefore, IAG considers weather and climate as "core business" because, according to Thorstensen, "a changing and less predictable climate has the potential to reduce IAG's capacity to calculate and therefore spread weather-related risk."

IAG is aiming to reduce its environmental footprint by introducing a range of environmentally-focused targets and encour-aging both its customers and suppliers to do the same. It is also a founding member, with the World Wildlife Fund, of the Aust-ralian Climate Group, comprising a number of respected climate change researchers.

Origin Energy General Manager - Public & Government Affairs, Tony Wood, commented, "One of the main areas driving Origin's approach to sustainability reporting relates to risk associated with greenhouse gas emissions. Origin recognises that there is limited ability to absorb these emissions without adverse environmental impacts and that these impacts need to be addressed by both government and industry."

[image] Origin's low-emission gas-fired Ladbroke Grove Power Station saves 150,000 tonnes of CO2 a year compared to generation from coal.

He explained that currently there is not a clear signal for building the cost of carbon into new energy infrastructure investments. This is a significant issue for Origin Energy and the energy industry generally, since 90% of the emissions growth from 1990 to 2020 is projected to come from the stationary energy sector. "Understanding and measuring our own impact puts us in a better position to quantify our future carbon risk and make policy and investment decisions," he said.

"Origin also recognises that we rely on our communities' consent support to develop new infrastructure projects and operate our business in Australia, the Pacific and New Zealand. Our approach to the triple bottom line seeks to allow greater understanding of our communities and stakeholders to address our impacts."

Origin Energy has now produced three sustainability reports using the Global Reporting Initiative guidelines. To improve the accuracy and completeness of its reporting Origin has engaged Ernst & Young to verify selected performance statements for two years running and to audit the 2003/04 greenhouse gas emissions from three key business units, representing more than 95% of Origin's total emissions.

Following publication of the first two sustainability reports, Origin sought feedback from its stakeholders and received more than 300 feedback forms. On average, 69% of respondents rated the company's overall sustainability performance as better than most or above average.

For Origin, addressing and reporting on the triple bottom line impacts of the business equates directly to long-term economic sustainability.

"By setting sustainability objectives and reporting back on them through the Sustainability Report, Origin has been able to achieve better outcomes for our business, its stakeholders and the environment," Tony Wood said.

"Reporting on our sustainability also improves transparency by delivering high levels of disclosure through reporting a wider range of indicators than we would have otherwise through our financial reporting. This, in addition to helping the company maintain dialogue with our stake-holders and the community, acts to both improve and maintain our reputation as a well-managed organisation. By understanding and addressing community and stakeholder perceptions and concerns, we are able to establish strategies and actions to provide better social and environmental outcomes for the community and our business."

These three examples of Billabong, IAG and Origin Energy are to be applauded. They clearly demonstrate how important a triple bottom line approach to business is in today's consumer-driven corporate world. Each one acknowledges the social, environmental and economic aspects as being inextricably linked to the extent that they are virtually indivisible and certainly vital to the continued viability and growth of their businesses.

If you are thinking of preparing a sustainability report you can read more about the process, see the full list of Australian companies that are reporting using the Global Reporting Initiative guidelines and find the 2002 guidelines themselves at www.globalreporting.org