Investors and investment groups are beginning to look at more than a company's economic performance. They are increasingly looking at a company's safety, environmental and social performance.
Premier Farnell plc (Premier Farnell) is a medium-sized electronics distribution company with approximately 5,000 employees and $1.2 billion in annual sales. We are a UK-based company with operations in the Americas, Europe, Asia and Australia.
We made a decision two years ago to begin preparing and issuing a social responsibility report that describes our safety, environmental and social performance. It is now a regular part of the company's annual report.
Premier Farnell has received much recognition for its socially responsible performance and reporting. In the UK, we were recently named by Business in the Environment (BiE) as one of the most improved companies in their regional index of corporate environmental engagement. We have also been named to two coveted lists (or indexes) of socially responsible and ethical companies: the UK's FTSE4 Good Index (Details available at www.ftse4good.com) and the Dow Jones Sustainability STOXX Index (DJSI STOXX) (Details available at www.sustainability-indexes.com).
Why did we decide to issue a social responsibility report?
There were two events in early 2001 that led to our decision. First, the UK government's Minister for the Environment, Michael Meacher, contacted the head of Premier Farnell as well as the heads of 350 other top UK companies. He challenged them to begin preparing and issuing annual social responsibility reports. He told them that doing so would allow them to gain real competitive advantage, both through cost savings and by demonstrating to stakeholders that theirs is a well-run environmentally responsible business.
Second, Premier Farnell was named to a newly created UK list of socially responsible and ethical companies (the FTSE4 Good Index). Companies named to this list were told that annual social responsibility reporting was a requirement for staying on the list.
Premier Farnell recognized it had a duty to shareholders, prospective shareholders and other concerned parties to demonstrate it is conducting its business in a socially responsible manner. The company informed the UK government that it would begin issuing annual social responsibility reports.
How did we decide what to include in the report?
The UK's Department of the Environment, Transport and the Regions (DETR) provided guidance on what information our report should contain. We realized we would need to provide information on the:
- Injuries and illnesses that occur,
- Amount of energy used,
- Amount of waste disposed,
- Amount of waste recycled,
- Amount of water consumed, and
- Amount of greenhouse gases emitted.
We also realized we would need to establish performance targets and objectives, and demonstrate continual improvement in our performance.
What steps did we follow in preparing our report?
To prepare our report, we used a step-by-step process. The steps were:
- Have company operations collected the required information?
- Assure accuracy of collected environmental data
- Prepare company summary
- Assign targets and objectives
- Design report
Step 1: Have Company Operations Collected the Required Information?
Our goal was to make maximum use of the safety, environmental and social activity information we were already collecting. We determined the only additional information we needed to collect was data on our environmental impacts (i.e. energy usage, waste generation, waste recycling and water use). We designed an environmental reporting form and instructed operations worldwide to begin filling it out and returning it to the corporate office quarterly. We utilized a spreadsheet (Microsoft excel) program that could perform numerical calculations, and be transmitted electronically.
Step 2: Assure Accuracy of Collected Environmental Data
We programmed the spreadsheet to compute unit rates of usage and generation. This allowed us to compare data from different operations and detect errors.
We computed electricity and natural gas usage per square feet of building space. We also computed business travel, water use and waste generation on a per employee basis. We compared usage and generation rates of our various operations and looked for data that seemed out of sync. The most common error we found was the reporting of data in the wrong units. For example, an operation would report their natural gas usage in cubic meters, but the number they provided actually represented usage in cubic feet. We identified and corrected a number of errors.
Step 3: Prepare Company Summary
We prepared a worldwide summary and computed worldwide unit rates.
Step 4: Assign Targets and Objectives
We decided we had sufficient and reliable historic data to immediately establish a numerical safety target. We set a target of reducing our injury and illness rate by 5 percent within two years. We committed to take a number of actions to make this happen.
We decided we did not have sufficient data to establish numerical environmental targets. We decided we would need to collect data for two years (and monitor it for accuracy) before setting a target. During those two years we committed to obtain ISO 14001 registration at our largest distribution center in the United States (in 2003), and at our largest distribution center in the UK (in 2004).
We decided that our goal in the social performance area would be to continue our historic civic and charitable activities. We would also continue to encourage our employees to participate, both during and outside working hours, in civic and charitable activities.
Step 5: Design Report
We knew people with a wide range of backgrounds would read our report. For that reason, we decided that our safety, environmental and social write-ups needed to be easy to read and understand.
In the safety area, we decided to compare the company's workplace injury rate to the average for companies in our type of industry (see Figure 1). We also decided to compare our workplace injury rate to the rates of other types of industries (see Figure 2). We wanted to convey to readers how Premier Farnell's performance compared to its peers, as well as to other types of industries.
Fig. 1 Premier Farnell Occupational Injury Rate per 100,000 hours worked*
*Shown are the rates at which accidents (which involve more than basic first aid treatment) occurred per 100,000 hours worked. The "industry average" figures were computed by combining the most recent averages for the industry segments in which Premier Farnell operates. Source of industry segment averages: US Occupational Health and Safety Administration, Bureau of Labor Statistics.
Fig. 2 Comparing Premier Farnell plcs occupational injury rate with rates for other industries*
*Shown is the company's occupational injury rate for 2002 compared to the most recent industry segment rates compiled and published by the US Department of Labor, Bureau of Labor Statistics for 2001 (being the latest statistics available).
In the environmental area, we had a bigger challenge. There was no simple environmental indicator or method we could use to compare our performance to that of other companies. We decided to present tables that showed our energy uske, waste generation, waste recycling, water use and greenhouse gas emissions. We helped the reader put our performance in perspective by highlighting significant data and trends in the text of the report.
We decided to present our environmental data in two ways. We displayed the company's total quantity of usage or generation, and we showed unit rates of usage and generation based on company sales (see Figure 3).
We highlighted in the text of the report the company's high level of recycling (i.e. over 40 percent of the waste we generate is recycled), its relatively small amount of toxic or hazardous waste generation, and its commitment to obtaining ISO 14001 registration at its major facilities. We felt this information would demonstrate to readers our environmental commitment, and the relatively low level of environmental risk posed by our company.
Fig. 3 Premier Farnell Environmental Data
In the social performance part of the report, we discussed the various ways the company and its employees contribute to the community at large. We decided to highlight the company's donations to charitable organizations, as well as its participation in worldwide civic and charitable activities.
How Can Your Company Benefit From Doing What We Did?
Social responsibility reporting provides you with an opportunity to demonstrate to shareholders, prospective shareholders, government entities and society in general that yours is a safe and environmentally responsible company. We believe our reporting has given us a competitive advantage. It has provided us with recognition, and has helped us attract socially responsible investors.
Social responsibility reporting is a trend that is growing worldwide. We believe we have benefited by reacting sooner rather than later. We believe your company, wherever it is located, can similarly benefit.
Unless a company issues social responsibility reports and demonstrates responsible performance, it will be hard pressed to attract socially responsible investors. It will also be hard pressed to qualify for inclusion on coveted third party lists of socially responsible companies. We think the time and effort needed are modest and recommend you consider doing what we did!
Ken Manchen serves as corporate director of Safety, Health and Environmental Affairs, Premier Farnell. His geographic area of responsibility is the Americas.
Note: The full text of Premier Farnell's Social Responsibility report is available for viewing at www.premierfarnell.com.