What the dot-com era can teach us about CSR reporting
<p>Early startups publicized narrow business metrics to measure success before moving to the important ones, like profits.</p>
During the height of the dot-com era, Internet startup CEOs commonly talked about the number of users or "eyeballs" on their sites as the most important measure of their business. Investors, however, began asking about profits, costs and ultimately, of course, revenues. As Internet businesses matured, the measures of business success became more demanding in order to get the full picture of a company's prospects.
This evolutionary process of focusing on one set of indicators in the early days of an enterprise, relative to another set as the business matures, is quite common. Interestingly, though seldom noted, this dynamic also is under way within corporate sustainability measurement and reporting.
Early corporate social responsibility reports focused on select measures anecdotes, before giving way to measures that were standardized around specific content and formats, such as the Global Reporting Initiative.
Today, another shift is emerging. We are moving from an exclusive focus on discrete, individual measures to questions that will bring to light cumulative and cascading effects on the social and ecological systems within which businesses operate. It is the seemingly arcane domains of natural capital and ecosystem services that are ushering in this evolution of new approaches to corporate measurement, reporting and disclosure.
For years, it has been sufficient for companies to report on the direction in which single parameters, such as carbon emissions and water usage, would ideally be headed downward. Emerging questions about ecosystem services are simply a way of asking about the broader business context. That is, even if your company's water usage is decreasing, what is the status of total water demands in the watershed in which a company operates? What are the recharge rates of underground aquifers, particularly in light of changing rainfall patterns? What is user demand versus supply of water likely to mean for corporate access to water over time?
These kinds of questions will likely be increasingly asked as ecosystem services analytical approaches gain traction and uptake in public and private sectors. The rationale for ecosystem services assessments is to gain a better understanding of business risk and opportunity within the context in which companies operate.
In a newly issued BSR report, "Seeing the Future Business Context: Scenarios of How Ecosystem Services Issues May Play Out and Affect the Private Sector," we quoted investors and government officials who responded to a survey asking why they are looking to new indicators and approaches to assess corporate risks through the lens of ecosystem services. A leader in the financial services sector clearly asserted:
"An ecosystem services approach provides a context for decision-making. Who would know, without context, whether a company that was emitting 400 kilos of silicon tetrachloride was really, really bad or just sort of bad? Thinking of things in terms of 'what does this ecosystem produce and how is that valued?' is a really useful way to think this kind of problem through. Environmental analysis is easier to do if all one does is count up emissions, but much harder to do in terms of thinking through whether these quantities are problems, or how big the problems are."
This rationale for a new approach to assessing corporate performance and risk is resonant with the response of a government official, to the same BSR survey, who stated:
"Cumulative impacts can be evaluated much more effectively with the application of ecosystem services approaches and outputs from new models. Imagining looking at quantitative model projections of the supply of ecosystem services over the next 50 years under alternative management scenarios. This would be a powerful decision-making tool at local, regional, state and national scales."
Looking forward, Dave Batker of Earth Economics predicts that we are in the process of a seismic shift in how both private and public sector performance is assessed and measured. In a 2008 BSR roundtable he summarized the thesis that he laid out in his book: "One hundred years ago, we didn't have the dozens of macro-economic measures in use today. The U.S. Securities and Exchange Commission did not exist, nor did reporting requirements for investors. The Great Depression presented circumstances that could not be addressed without new tools and metrics. Today is an equivalent era for environmental issues."
For corporate decisionmakers, the questions that lay ahead are clearly laid out in the Millennium Ecosystem Assessment:
• Have we assessed our reliance on ecosystem services, whether these demands are sustainable and what potential alternatives exist?
• Do we have adequate information on the current and projected state of these ecosystem services over the time frames relevant to our business?
• Have we evaluated the potential for changes in services on which our suppliers depend?
• Do we have any programs or plans to minimize impacts on ecosystems or contribute to maintenance and enhancement of ecosystem services?
• Do we have the diversity of expertise that we need to manage these issues?
The times are changing. Are we ready?
Dot-com image by Adrian Matthiassen via Shutterstock