Henkel's 20-Year View of Sustainability Reporting

Two Steps Forward

Henkel's 20-Year View of Sustainability Reporting

I got a PR pitch recently about a multinational company’s just-published sustainability report. Nothing new there; I get those dozens of times a year. They’re sometimes interesting, though only rarely newsworthy.

This one was for the Henkel, the German-based maker of brands and technologies for laundry and home care products, cosmetics and toiletries, and adhesives. Henkel’s report seemed solid -- the company’s sustainability performance was outpacing its targets, etc. No big deal. I prepared to move on to the next thing.

But one thing jumped out: This was Henkel’s 20th annual report. That puts the company at the head of the class. Only a handful of firms have issued such reports annually for 20 years.

Intrigued, I reached out to Uwe Bergmann, Head of Sustainability Management at the Dusseldorf-based company. I wanted to know what Henkel had learned about sustainability reporting over the past two decades.

Bergmann has been with Henkel since 2000, “so technically this is my eleventh,” he quickly pointed out. But he’s no stranger to reporting. “I did my first bachelor project on reporting in 1995 and included Henkel’s report back then, and then again in my master thesis later on.”

Henkel’s first sustainability report came in 1992, the year of the Rio Earth Summit. That event spurred a handful of companies -- probably no more than a couple dozen -- to publish reports on their environmental commitments and performance, among them Bank of America, Baxter, British Telecom, Ciba-Gigy (now part of Novartis), Dupont, and Shell. These weren’t the first companies to report -- a few others first issued reports in the 1980s, notably from the chemical industry, which was under fire by activists for toxic misdeeds.

At Henkel, the assumption was that its first report would be followed two years later by its second -- a pace other companies were taking. But, says Bergmann, “There was so much internal and external feedback that we decided that we were going to account for it annually.”

He recalls: “The first one was very much centered on Germany and the data was basically just the headquarters, our biggest production site. Over time, the number or production sites we included increased to the bigger international sites. Nowadays we cover [sites representing] 98 percent of the production volume.” The quality of reporting grew, too, to include more aspects of Henkel’s operations, and some of its suppliers’ impacts. Over the years, the scope of the report broadened from environmental topics to include safety and health (starting in 1998), and sustainability (starting in 2001).

I plied Bergmann with questions to garner some of the lessons Henkel has learned from all these years of reporting. Following is an edited summary of what he shared.

Is the report an end unto itself or a tool for continuous improvement?

I would say it’s the end of a process. I mean, we report about our progress of the previous year. So, whatever is in there we have done and conceptualized. But the discipline of writing the report obviously gives some rationale to continuously work on your systems, on your coverage of reporting systems and gives the whole exercise an element of discipline.

You have to separate between the sustainability report and our internal reporting tools. We have tools to report our data from the sites and they do a quarterly reporting on their environmental data. And you have occupational health and safety reporting tools where you track any accident that happens.

Who is the principal audience for the report?

There are a number of expert audiences, especially in the socially and ethical investment community, and they will spend a lot of time reading it very intensively. Also universities. Internal audiences or customers won’t be reading it as intensively back-to-back but will be going through picking out interesting stories. So it’s basically a Swiss Army knife.

We try to write it in a way that it’s understandable for interested lay people, and there’s a lot of them around. They can be working for our customers. They can be working for authorities, or they can be interested teachers in the community or just interested consumers. So, they have to be able to understand it. It also has to be relevant and substantial enough for the expert audiences social and ethical investment specialists or even sustainability specialists, such as customers who assess their suppliers.

So, we try to cover all of those. And the feedback so far has been that we’re doing fairly successfully by having a pretty compact format, having the relevant examples, but pretty understandable language.

One of the challenges about reporting is length and depth versus brevity and readability -- that a long credible report isn’t readable, but a short readable report isn’t credible. Where do you find the balancing point?

In 1998 or 1999, we decided that we were not happy with their report, or with the reception to the report based on a stakeholder survey. We discussed with stakehoders the length, and it was that 40 to 50 pages was their ideal length. And consecutive surveys have reconfirmed that. So, that’s the length we’re working with. That’s where we feel you can get a good balance between readability, brevity, and substance.

Over the years we’ve moved some environmental data into the Internet. So, if you’re interested in our sulfur dioxide emissions you can look them up on the Internet. They don’t necessarily have to be in the printed report. So, you shift topics that are important to a few stakeholders, but are important for overall credibility into the internet. About six years ago did a survey of people who’d contacted us via the Internet, and sent out questionnaires to find out how they’re using our website. We found out that some were spending basically up to an entire day on our website. Those were people from the socially investment community.

I think brevity also comes from a level of understanding of the topic, being clear on strategy and what you want it to achieve. So, obviously there is a limit to brevity, but length doesn’t always make it better.

Many reports I read are not written by the people within the company. They’re written by outsiders, so they find it much harder to focus on the relevant aspect. They don’t have the same in-depth understanding of the strategy and the connections.

What have you learned doing this that would help other companies just starting out?

The key is finding out what really are the relevant topics for your audiences, and for your company. What should you be talking about? Because if the contents in your report are not important to your stakeholders and not important to your business, then why should anybody read it?

It’s also understanding your business world. That’s always been one of our strengths. We understand our business pretty well and are engaged with all those people delivering that information. So we discuss with our marketing people, with our IT people, what the sustainability contributions of our products are, what their sustainability characteristics are. It helps you to get the story relevant and down to the point.

If you get an external agency that goes out and talks to your R&D people, talks to your marketing people and later on writes an article, all that knowledge moves out of your direct sphere of control. And you haven’t gained much in the company. You need to build a relationship of mutual trust with people who will start feeding interesting stories to you. And then you’re much better adapted explaining those topics to outside audiences, as well as asking than inside audiences or your information providers the right questions.

People need to take the time to find their own way. Today, there are a lot of consultants and reporting frameworks. Our advantage in a way was that all that information wasn’t easily available and there weren’t many consultants when we started reporting. So, we had the time to find our own opinion.

But, nowadays it’s easy to have a consultant that will write you a report and that might actually be fairly similar to a report he wrote for another company, because they have their view on the world. And they will help you express things very smoothly and quickly and in a language stakeholders will like, but it doesn’t really carry the DNA and the convictions of your company.

Where is Henkel’s sustainability report headed? What’s the next evolution?

The data on factory operations are very well established. So, now things will get more interesting on the product level. How can you report quantitative data on a product level? If you’re an auto maker it’s fairly easy, because you’ve got average fuel consumption. So, the first challenge is aggregating that over your different product categories. But if you have a broad portfolio, such as ours, adding that causes some interesting challenges to having the right balance between examples and an overall storyline.

There’s also the challenge of how to report on your broader impact along the value chain -- the Scope 3 reporting and supplier data. It’s easy to invest a lot of energy too without getting very meaningful data. So, we still have to find approaches.

The biggest challenge overall is finding some way to aggregate all the different individual indicators into a meaningful message, or maybe into a meta-level indicator measurement. Because you say, “Well, you’re making some progress on carbon and some on heavy metals here and there, but how does it all up? What does it really mean?” We need to provide that kind of context.

Finally, I asked Bergmann, “Does reporting get easier over time?”

“It’s always a struggle building up the data systems,” he responded. “But once a process starts running more smoothly, you can focus more on content and then things start get more interesting. And you get more output for your input, so to say. So, it does get easier, but never easy.”