Sustainability Reporting: Straight to the Bottom Line

ABN AMRO, headquartered in Amsterdam, is one of the world's largest banks and a global leader in sustainability reporting, a process that now sits at the heart of risk management and performance improvement for forward-looking companies. "Risk management is at the very center of the bank," says CFO Hugh Scott-Barrett. "It is part of our core business, and so is sustainable development."

With $1.3 trillion in total assets and 110,000 employees in 53 countries, ABN AMRO serves consumer and commercial clients, including a number of multinationals. Every year, the bank issues a 100-page sustainability report along with its annual financial report as a measure of its success in protecting its assets and adding value to the organization.

Two-thirds of the 250 largest companies in the world have adopted sustainability reporting as a tool to gauge future performance. This approach has little to do with vague concepts of corporate social responsibility or public relations ploys and everything to do with long-term business strategy. It is a crucial companion to financial reporting that provides data on nonfinancial factors related to environmental, social and governance issues that affect future performance, income generation and value preservation.

"Sustainability reporting builds client intimacy and brand value and attracts investors," Scott-Barrett explains. "In the coming period, we aim to integrate sustainability even more into the mainstream business activity of the various parts of our organization. We also want to integrate sustainability reporting into our financial reporting."

The evolutionary course of sustainability reporting is now taking shape as more companies move from informal statements to formal reporting with a full array of metrics tied directly to business performance and risk management. ABN AMRO follows Global Reporting Initiative (GRI) 2002 guidelines for sustainability reporting but is moving to G3 reporting, a new version of the GRI guidelines released in October 2006. The Global Reporting Initiative is a decade-old nonprofit organization based in Amsterdam that created the sustainability reporting framework and guidelines and works closely with the UN Global Compact.

Although the internal push for higher productivity and lower risk continues to propel the move toward sustainability reporting, powerful external forces are now driving adoption among reluctant firms. U.S. companies lag far behind their European counterparts in sustainability reporting, but insurers, banks and investors are increasingly demanding that they close the gap.

"In the insurance industry, financial reporting is viewed as very low-beam, with a narrow focus on risks in the center of the road," notes Erik Thomsen, distinguished scientist at Hyperion Solutions Corp., a global business performance software provider headquartered in Santa Clara, Calif. "Sustainability reporting is high-beam, in that it illuminates broader side-of-the-road risks. These risks can have very large-scale impacts. Sustainability reporting includes provisions for forward-facing risks by redefining what is considered relevant information."