Some vital sustainability information is missing from Philips’ integrated report
Signposting is a word that springs to mind when reviewing Philips’ latest sustainability report, because finding it proves a bit of a challenge. The company has integrated its annual and sustainability reporting, having clearly thought hard about the needs of its different audiences. The annual report caters for investors and analysts, while interested customers, employees and business partners can look online for information about green products and activities.
Unfortunately, Philips forgot to include a clear explanation of who can find what where. It takes six clicks from the Philips homepage to reach details of the company’s sustainability performance in 2009, and most stages of the journey requires some guesswork. Clear directions on both the sustainability and annual report landing pages would improve the process.
Confusion continues within the annual report. The structure doesn’t quite work for sustainability reporting, especially when read online, with approach and performance information spread across three sections (which are not cross-referenced).
Hard to find
Commentary on trends is duplicated, with one section more detailed than another. Everything you want is in there somewhere, at least once, but it is hard to be confident that you have all the relevant material on a particular topic.
One good piece of signposting is the material sustainability issues table, which refers readers through to relevant sections of the annual report – and not just within the sustainability pages, but also under headings ranging from “professional lighting” to “operational risks”.
It’s a shame most information is tricky to find, because in fact Philips has done a decent job of integrating its financial and sustainability reporting. This is fitting for a company so clearly committed to developing green products, from energy efficient bulbs to low-power flatscreen TVs.
The company’s current Ecovision 4 sustainability strategy and associated goals are mentioned in the president’s letter, and they also sit alongside financial targets on the “our ambitions” page and in the “investment proposition”.
Further in, there is information about the strategy’s evolution, from Philips’ traditional efforts to cut operational impacts to the more visionary approach of making a difference through its products. The company also outlines the next phase of its strategy (Ecovision 5) and associated 2015 targets.
The performance reporting section also includes considerable focus on sustainability, including three of the 14 key performance indicators (sales of green products, employee engagement and operational carbon footprint) and 11 performance statement pages, not including the assurance statement and GRI table.
But what’s lacking is a clear and simple chart that lists each target and progress against it, a feature increasingly common in standalone sustainability reports. Without this, it is hard to get a snapshot of how well Philips is doing, even with the KPIs.
Stakeholder voices are another casualty of integrated reporting. Incorporating third-party feedback has become a vital and expected part of sustainability reporting, but not of conventional annual reports. If it is not feasible, then integrated reports represent a significant backwards step.
The text itself is succinct and to the point. No-nonsense commentary provides an explanation of trends during the year, but is too brief to include details of activities and innovations normally available in a sustainability report. Indeed, while Philips shows good levels of transparency (eg by reporting employee survey figures and per country supplier non-compliance), in some cases the commentary is just too brief to explain trends in sufficient detail.
There is little information about specific activities and plans. For example, Philips states that 15% of its energy comes from renewable sources, but it does not give information about plans to increase this.
All in all, Philips should be commended for a genuine attempt at integrating sustainability into its business strategy and reporting. But is the integrated reporting strategy a success? Probably not. The information needs of the sustainability audience are not adequately met and the omission of stakeholder engagement disclosure is a major drawback. The purpose of this is to reveal not just the organisations a company engages with, but also their opinions of its sustainability efforts and responsible behaviour.
This is Philips’ second integrated report and, with just a few tweaks, the third could be much improved. The wider question is whether fully integrated reporting, with its restrictions in length and content, really works for sustainability reporting. Philips has done a service for many companies that might be considering integration – by demonstrating clearly the limitations of a single report format.
Zoe Cokeliss is a senior consultant at Context.
Zoec@econtext.co.uk
www.econtext.co.uk
Snapshot
Follows GRI Yes (self-declared A+).
Assured Yes
Materiality assessment Yes
Goals Yes
Targets Yes
Stakeholder input No
Seeks feedback No
Key strength Integrated reporting shows commitment.
Chief weakness Lack of signposting; lack of stakeholder voices.
Pleasant surprise How well aligned Philips’ business and sustainability strategies are.