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204016 Best Practice for retail

B E S T

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F O R

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T H E

R E TA I L

S E C T O R

Briefing on KPMGs Corporate Sustainability Reporting


Survey 2002

G l o b a l

S u s t a i n a b i l i t y

S e r v i c e s

2003 KPMG International, a Swiss nonoperating association. All rights reserved.

204016 Best Practice for retail

Overview

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Retail companies face many social and environmental issues which pose potential risks
to business performance, brand, reputation and consequently shareholder value. Such issues
include employment practices, packaging and waste, energy consumption and emissions,
transport, product safety/integrity and animal welfare. Major reputational risks can also be
exposed within companies supply chains - those organizations found to be operating in
ways that do not meet public expectations, can find themselves facing global campaigns
and unprecedented criticism.
Tackling these issues can be a daunting task, particularly when organizations are faced with
mounting regulations, standards and guidance aimed at improving various aspects of social
and environmental performance. These include, The Johannesburg Declaration on Sustainable
Development, United Nations (UN) Convention on Biodiversity, standards such as ISO14001,
AA1000 and SA8000, the Global Reporting Initiative, UN Global Compact and Organization
for Economic Co-operation and Development (OECD) Guidelines for Multi-National
enterprises.
These, along with investor and stakeholder expectations, pressure from Non-Governmental
Organizations and demands for improved corporate transparency are all encouraging
companies to examine their approach to the management, measurement and reporting of their
social and environmental performance.
Companies embracing this agenda claim that business performance can be enhanced in many
ways, by proactively managing and reporting on their sustainability performance.
Specifically by:
Adding to the value of the company through the financial markets appreciation
of good sustainability performance.
Reducing potential liabilities through integrated risk management.
Gaining better access to investors capital.
Improving reputation and brand value through integrity management.
Reducing operating costs and improving efficiency.
Developing innovative products and services for access to new markets.
Recruiting and retaining excellent people.

Key findings

June 2002 saw the publication of the KPMGs Fourth International Survey of Corporate
Sustainability Reporting (CSR). The survey covered the reporting of health and safety,
the environment, community involvement, and social and ethical issues among some of
the worlds largest companies1.
In comparison to the results of the last survey, carried out in 1999, the key findings were:
The proportion of the worlds largest companies reporting on their sustainability related
performance, had increased significantly from 35 percent to 45 percent.
Across the broader range of company sizes, sustainability reporting is not yet as common,
but had still increased from 24 percent to 28 percent during the same period.
The focus of reporting is shifting, from the inclusion of environmental only performance
to combined environmental, social and economic reports.
An increasing number of companies are seeking external verification of reports
to enhance credibility.
Companies are adopting new approaches to reporting - such as Web-based reports,
developing reports for specific stakeholder groups or issues, and preparing shadow
accounts that incorporate social and environmental costs into their overall
performance reporting.

This briefing highlights some of the key results from the international survey that relate
to the Retail sector, and compares the performance of these companies to the
global corporate world.

1 The survey studies the top 250 companies ranked by revenue in the Global Fortune 500, Fortune Magazine and the top 100 companies,
based on nationally published lists of largest companies in 19 countries: Australia, Belgium, Canada, Denmark, Finland, France, Germany,
Greece, Hungary, Italy, Japan, Netherlands, Norway, Slovenia, South Africa, Spain, Sweden, United Kingdom and United States.
2003 KPMG International, a Swiss nonoperating association. All rights reserved.

204016 Best Practice for retail

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Sector comparison

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Sector analysis of the Global Fortune 250 (GFT250) showed that the Transport, Mining,
Forestry, and Chemicals and Synthetics sectors are leading the field of reporting, with 100
percent of companies in each of these sectors publishing reports. Retail company performance
was considerably lower, with only 26 percent of companies producing a separate non-financial
report. Within the Top 100 sample2, there were similar comparative results. However, within
this sample only 15 percent of companies in the Retail sector produced reports, lower than the
sample average which stands at 23 percent.
The difference between market sectors could be because, unlike the resource intensive sectors
above, there has been less pressure to date on Retail companies to report on non-financial
issues.

Percentage of companies in the Top 100s producing separate


non-financial reports, compared by sector
Figure 1 :

Source: KPMG International Survey of Corporate Sustainability Reporting 2002, The Netherlands.

Utilities

50%

Communication & Media


Chemicals & Synthetics
Forestry, Pulp & Paper

46%
45%
43%

Oil & Gas

38%

Transport

37%

Mining

33%

Pharmaceuticals

30%

Automotive

28%

Food & Drink


Electronics & Computers

25%
25%

Metals, Engineering & Other Manufacturing

24%

Retail

15%

Finance, Insurance & Securities


Construction & Building Materials

12%
9%

Other
GFT 250

6%
45%

Average of Top 100s sample

23%

Reporting on specific issues

10

20

30

40

50

As Figure 2 shows, of the GFT250 reporting companies in the Retail sector, 73 percent
included information on ISO certification. The importance of both Greenhouse Gas (GHG)
emissions and supply chain issues was also recognized, with 64 percent of companies
choosing to report on these. One in three included information on biodiversity, while one
in ten chose to report on child labor.

2 Given that the GFT250 sample is very small in some sectors and therefore not particularly representative, the Top 100s sample
was analyzed in a similar way.

2003 KPMG International, a Swiss nonoperating association. All rights reserved.

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Specific issues reporting in the GFT250 Retail Sector


Figure 2 :
Source: KPMG International Survey of Corporate Sustainability Reporting 2002, The Netherlands.

80
73%

70

64%

64%

60
50
40
27%

30

18%

20

18%
9%

10

9%
0%

0%

0%

0%

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The fact that ISO certification is commonly included in reports may indicate the tendency of
Retail companies to focus on issues directly related to compliance with codes and guidelines.
However, reporting on other issues demonstrates the sectors increasing recognition and
appreciation of current hot topics:

Climate change is increasingly representing one of the most pressing issues for business
for the new Millennium. All developed countries are now looking at ways to encourage
reductions in energy use and greenhouse gas emissions and companies are now having
to deal with emerging issues related to new taxes, emissions limits and emissions trading
opportunities. As the world moves towards a low-carbon economy, companies now need
to understand the emissions intensity of their operations and be prepared to incorporate the
costs of emissions into strategic plans and forecasts.

Supply chain integrity issues are recognized as an area of key reputational risk for Retail
companies. Retailers rely on their ability to source products on a global basis in order to
provide a wide choice for customers at competitive prices. However, this can engage
companies with suppliers in countries where working conditions and employment
practices may be significantly different. As a response to stakeholder concerns, retailers
are publishing Supplier Codes of Conduct, covering labor rights and working conditions
issues and reporting on how these are being implemented and monitored throughout the
supply chain.

Following the UN Convention on Biodiversity, national governments are now developing


local strategies, for example Working with the grain of nature Biodiversity strategy for
England. This is especially relevant for food retailers as issues of biodiversity and
sustainable agriculture are closely intertwined.

There is increasing pressure for large retailers to consider their impacts on local economies
and infrastructures. Retailers have realized that good local relations are essential for
maintaining community support and obtaining access to new sites.

2003 KPMG International, a Swiss nonoperating association. All rights reserved.

204016 Best Practice for retail

Global trends

Figure 3 :

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The prevalence of reporting was analyzed by country in both the Top 100s and
GFT250 samples.The results for the Top 100s sample are presented in Figure 3.
Percentage of companies in the Top 100s producing separate nonfinancial reports, compared by country
Source: KPMG International Survey of Corporate Sustainability Reporting 2002, The Netherlands.

Japan

72%

UK
USA
Netherlands

49%
36%
35%

Finland

32%

Germany

32%

Norway

29%

Sweden

26%

Denmark

25%

France
Canada

21%
19%

Australia

14%

Italy

12%

Belgium

11%

Spain
South Africa

11%
10%

Hungary
Slovenia

8%
5%

Greece

2%

10

20

30

40

50

60

70

80

Japan is the clear leader in the production of separate non-financial reports, followed by the
United Kingdom. The high proportion of reporters in Japan could be a result of the guidelines
on environmental performance indicators and reporting issued by the Ministry of Environment
in Japan in 2001. Similar guidelines and regulatory frameworks have also been issued in the
UK and continental Europe, and additional initiatives are under development3.
The UKs position highlights the level of importance placed by UK businesses on the
reporting of non-financial issues. Eleven UK Retail companies are included in the top 100
survey, with five of these producing a separate report. This is a reasonably high proportion
compared with other sectors and countries, indicating the UKs performance at a global level
is relatively good.
Countries that lead the field in full sustainability reporting were Canada with eight out of
19 companies producing a separate sustainability report, followed by the USA with seven out
of 36 and Germany with six out of 32.
Verification
In the absence of generally accepted assurance standards for sustainability reporting,
verification practices differ widely within the survey sample, both in terms of approach
and geography. Japanese Top 100 companies lead with 26 percent of reports independently
verified, while the US lags far behind with only three percent. As Figure 4 shows, less than
one third of the companies in the Top 100 and the GFT250 had their reports verified.
The Retail sector is slightly below the GFT250 average with respect to report verification.

3 Environmental reporting in Denmark (Green Accounts), Netherlands (under the Environmental Management Act), Norway
(Corporate Green reporting) and new legislation in France (part of economic regulations), UK Pension Law, UK Company Law
Review, the EU Commission White Paper on CSR.

2003 KPMG International, a Swiss nonoperating association. All rights reserved.

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As the investor community begins to adopt CSR related criteria into their decision making,
the same emphasis will need to be placed on accuracy and robustness of CSR related
information as financial data. Key stakeholders need to be consulted in order to determine
what type of verification is expected to ensure credibility.

The percentage of non-financial reports that are verified


Figure 4 :
Source: KPMG International Survey of Corporate Sustainability Reporting 2002, The Netherlands.

29%

30

27%

26%

25

20

15
11%

10

0
Average of
Top 100s

Retail in
Top 100s

Average of
GFT250

Retail in
GFT250

Types of report The trend in reporting is moving away from separate environmental reports towards more
comprehensive sustainability reports accessible via diverse media, which include wider
social, economic and community related issues as well as health, safety and environment.
An increasing number of companies have a stated aim of producing a fully integrated
sustainability/CSR report covering economic, social and environmental performance.
There is also a clear move towards the inclusion of information or narrative about
sustainability performance in company financial reports. The survey revealed that 49 percent
of respondents included environmental, social or sustainability information in their financial
reports. However, within the Retail sector, this was slightly lower at 41 percent. This summary
information is increasingly being discussed within the context of the wider business objectives
and occasionally is used to outline the way the sustainability agenda has been built into the
companys overall governance processes.
More detailed sustainability reports are being increasingly tailored towards specific
stakeholder audiences. In particular, Web-reporting is gaining in popularity and has brought
with it the opportunity to move closer to real-time.
Key conclusions

CSR Performance Management


Good environmental stewardship and social responsibility are examples of good
management and there is no disputing the link between good CSR management and
business performance. The survey demonstrates that the sustainability agenda is not only
being integrated into core business processes and aligned with overall objectives, but
increasingly perceived as a business critical boardroom issue requiring a strategic response.

CSR reporting practices


The market place is becoming more environmentally sophisticated and the public is
increasingly showing a willingness to respond to companies who implement corporate
responsibility strategies. While many CSR issues have long been part of doing business
for leading Retail companies, the survey results suggest that the Retail sector is not
currently maximizing the opportunities presented by reporting CSR performance.

2003 KPMG International, a Swiss nonoperating association. All rights reserved.

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External verification of reports


There is an increasing focus on information that is both reliable for internal decision making
and credible to external stakeholders. This demands a rigorous assurance process which
enhances the credibility of the information reported and highlights opportunities to improve
reporting processes.
If carefully implemented and fully integrated into existing internal and external assurance
processes, verification can become a strong component of the overall corporate strategy
to manage, monitor and report on sustainability performance.

Suggested best practice

KPMG believes that leading companies should seek to balance the following four key
elements in developing and implementing CSR management and reporting:
Strategy

Linking CSR to business objectives.

Clearly articulating the business case and desired CSR market positioning.

Formalizing responsibilities at the highest level of governance.

Performance Management

Building stakeholder engagement processes that inform report content and the setting
of improvement objectives.

Focus on materiality or significance to the business and key stakeholders.

Integrating CSR management with core business processes and controls for
example risk management.

Linking CSR objectives with performance appraisals and remuneration.

Reporting

Discussing challenges and dilemmas relating to completeness and reporting boundaries.

Balancing the reporting focus between past performance and future direction.

Developing specific indicators relevant to the industry.

Referring to emerging standards such as the Global Reporting Initiative,


while detailing only relevant content.

In financial reports, summarizing the CSR themes most pertinent to the business.

Providing further detail in separate, often stakeholder-specific reports.

Using a diverse reporting media appropriate to different stakeholders.

Assurance

Seeking assurance over the process rather than just data accuracy.

Integrating internal and external assurance mechanisms.

Seeking assurance over hot spots.

2003 KPMG International, a Swiss nonoperating association. All rights reserved.

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Contact Details
Kate Hay, KPMGs Global Sustainability Co-ordinator
E-mail:hay.kate@kpmg.nl
www.kpmg.com

The information contained herein is of a general nature and is not intended to address the
circumstances of any particular individual or entity. Although we endeavor to provide
accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the future.
No one should act upon such information without appropriate professional advice after a
thorough examination of the particular situation.

February 2003

Best Practice for the Retail Sector

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