SUSTAINABILITY INTEGRATION INTO BUSINESS PROCESSES. A Study of Leading Canadian and International Companies. Sponsored by: July 2007.

SUSTAINABILITY INTEGRATION INTO BUSINESS PROCESSES A Study of Leading Canadian and International Companies Sponsored by: July 2007 Prepared by: Stratos Inc. 1404-1 Nicholas Street Ottawa, Ontario K1N 7B7 tel: 613 241 1001 fax: 613 241 4758 www.stratos-sts.com

OUR VISION A world where decision makers at all levels integrate sustainability into their actions to improve ecological and human well-being. OUR MISSION To provide business, governments and organizations with expert advice, information, and tools that will assist the development and implementation of more sustainable policies and practices. We encourage you to print on recycled paper. Stratos uses 100% post-consumer content recycled paper.

TABLE OF CONTENTS 1 INTRODUCTION... 1 2 APPROACH... 1 3 KEY FINDINGS... 2 3.1 GOVERNANCE FOR SUSTAINABILITY... 3 3.2 INTEGRATION OF SUSTAINABILITY INTO BUSINESS PROCESSES... 5 3.2.1 Strategic Planning... 5 3.2.2 Business Planning... 8 3.2.3 Business Development... 9 3.2.4 Risk Management... 11 3.2.5 Project Management... 12 3.2.6 Disclosure... 14 3.2.7 Assurance... 15 3.3 STAKEHOLDER ENGAGEMENT... 16 3.3.1 Community Relations... 16 3.3.2 Investor Relations... 18 3.4 HUMAN RESOURCES MANAGEMENT AND SUSTAINABILITY... 18 3.4.1 Recruitment and Orientation... 18 3.4.2 Training... 19 3.4.3 Performance Appraisal and Compensation... 20 4 CONCLUSIONS... 21 APPENDIX 1: LIST OF INTERVIEWEES... 26 APPENDIX 2: SUSTAINABILITY INTEGRATION ANALYTICAL FRAMEWORK... 27 APPENDIX 3: COMPANY CASE STUDIES... 31 BELL CANADA... 31 HEWLETT-PACKARD... 31 RIO TINTO... 31 ROYAL DUTCH SHELL... 31 SUNCOR... 31 VANCITY... 31 VODAFONE... 31 TABLE OF FIGURES Figure 1 - Business Processes... 2 Figure 2 - Business Purpose for Integrating Sustainability... 3 Figure 3 - CO 2 Integration at Shell... 14 Figure 4 - Integration of Stakeholder Engagement into Reporting and Business Planning Processes... 17 i

1 Introduction Companies manage sustainability 1 issues for sound business reasons to manage new risks, to gain business opportunity or to position themselves for the long term by extending the company role in society. While many companies are struggling with how to better integrate sustainability into their business, a number of global and Canadian companies are well along the learning curve. This study looks inside a sample of these leading companies. With the support of Industry Canada, Stratos conducted a study with seven companies, in Canada and internationally, to assess how they are integrating sustainability into their business processes. The results of this study demonstrate the range of processes and tools which can be used or adapted by other companies interested in further integrating sustainability into their business at the corporate, divisional and operational levels. 2 Purpose and Approach The purpose of the study was to investigate best practices in the integration of sustainability into businesses processes. Focused interviews were conducted with two or three representatives of each of seven companies, in a range of sectors that are considered to be leaders in addressing sustainability effectively. Using the results of these in-depth interviews, Stratos prepared case studies for each company that highlight the approaches and tools they use to integrate sustainability practices into their business processes. Each case study was validated by company representatives. The following companies were included in this study, and a full list of interviewees is provided in Appendix 1: COMPANY OWNERSHIP (Canadian or International) SECTOR Bell Canada (Bell) Canadian Information and Communication Hewlett-Packard (HP) International Manufacturing Rio Tinto International Mining Royal Dutch Shell (Shell) International Oil and Gas Suncor Canadian Oil and Gas Vancity Canadian Financial Services Vodafone International Information and Communication 1 A note on terminology: The case study companies use different terms - sustainability, corporate responsibility, global citizenship, community leadership - according to their culture and the nature of their business. Each term has a common basic meaning covering environmental, social (including ethical) and economic performance and management. This report uses the term sustainability. 1

Stratos developed an analytical framework and questionnaire to guide the interview discussions. The framework is provided in Appendix 2. This study presents the findings from these case studies. It focuses on how companies integrate sustainability into their standard business processes; including processes of governance, human resources management and stakeholder engagement that underpin the integration of sustainability into business (see Figure 1). The report serves as best practice guidance to other companies on how they can more effectively integrate sustainability into their own business processes. Figure 1 - Business Processes Governance Processes Business Processes: Strategic Planning Business Planning Business Development Risk Management Project Management Disclosure Assurance Human Resources Processes Stakeholder Engagement Processes 3 Key Findings The key findings are organized around the analytical framework used to conduct the study. References are made to the specific practices of companies involved in this study. The seven company case studies are provided in Appendix 3. As a starting point, leading companies have been found to integrate sustainability for different business purposes. Some companies are focused on managing risk to respond to changing business environments and stakeholder expectations. Others are looking to gain business opportunities by maintaining and accessing new markets and resources, and developing new business partnerships. Still others are extending their role in society by meeting societal needs and thereby establishing a long-term position. The figure on the following page is an indicative map of business purposes for the companies reviewed (see Figure 2). 2

Figure 2 - Business Purpose for Integrating Sustainability The following sections describe how these case study companies integrate sustainability into their governance processes, business processes such as strategic planning and risk management, stakeholder engagement, as well as human resource management processes. 3.1 Governance for Sustainability A company s governance and accountability structure is an important pre-condition for integration of sustainability into a range of business processes, and is a key factor in a company s ability to achieve progress on sustainability. Clear accountabilities which explicitly address sustainability factors define the respective roles and relationships between the governance levels in a company, including the shareholders, Board, officers and executive, and employees. Clear accountabilities and effective oversight help drive improved sustainability performance. Four of the seven case study companies (Rio Tinto, Shell, Suncor and Vancity) have dedicated Board Committees addressing sustainability issues. Comparatively, Bell and HP spread responsibilities for sustainability across various Board Committees. At Vodafone, sustainability performance is reported to the Board once per year, but it is the company s Group Executive Committee (ExCo) that has responsibility for oversight. The ExCo is chaired by the Chief Executive Officer and comprises high-level executives from across the company. All of the other case study companies, with the exception of Vancity, also have an executive-level committee that plays a role in sustainability management. For example, HP uses a series of Councils to effectively manage sustainability across the company by bringing together employees with expertise in specific areas to focus on key issues for the company. Executives from business units, regions and relevant corporate functions have formed Councils working on a range of issues such as diversity, ethics, 3

privacy and supply chain. These groups meet periodically to establish goals, ensure integration of the strategy into the business, oversee implementation and measure progress. HP places a high value on managing corporate ethics, which is demonstrated in the ethics governance structure it has put in place. A new position of Vice President and Chief Ethics and Compliance Officer is responsible for ensuring adherence to HP s ethical guidelines/standards of Business Conduct (SBC). A management Ethics Committee receives monthly case activity reports and oversees the development and enforcement of HP s SBC. A Global SBC Team manages the ethics process and an SBC Compliance Team oversees and monitors complaints and investigations. GOVERNANCE FOR SUSTAINABILITTY SUSTAINABILITY IN PERFORMANCE SCORECARDS A number of the companies interviewed use scorecards/dashboards to track and communicate performance to senior management and the Board. Sustainability factors have been integrated into these performance scorecards. Royal Dutch Shell s Group Scorecard has four performance factors with sustainability accounting for 20% of the score. Similarly, the Vancity Board receives a monthly performance dashboard that includes three specific community leadership key performance indicators (KPIs). Vodafone has a suite of quantitative indicators to measure and report to stakeholders on its impact. A qualitative set of key performance indicators (KPIs), designed as questions, are used to measure internal performance; local operating companies answer these on a quarterly basis, reporting on issues such as energy efficiency, waste management, handset collection, reuse and recycling, health and safety (H&S) and community contributions. Each question is given a score of 0-15 to assess the level of commitment, integration, management of the issue, and implementation. Annual results from this review process are rolled up into a scorecard and reported to the Group Board of Directors. Rio Tinto has an Executive Committee which plays a similar role to that of HP s Councils. Rio Tinto s Sustainable Development Leadership Panel (SDLP) is composed of senior executives from the six product groups and different corporate functions including HSE, economics or procurement. Part of the Panel s mandate is to ensure that sustainability is built into the operating processes of each business, and to develop tools to ensure the consistent application of sustainability policies across the Group. The SDLP developed a set of sustainable development decision-making criteria to help Rio Tinto businesses and departments incorporate sustainable development considerations into their formal and informal management systems. At the corporate level the criteria are included in project evaluation guidelines. Rio Tinto also has a senior manager to champion sustainable development at the business unit level for each of its operations. 4

Many of the case study companies have corporate-level Vice Presidents to lead sustainability within their organization. Suncor, in addition to a corporate-level Vice President of Sustainable Development, has a Vice President, Sustainability, Oil Sands, integrating these responsibilities into the business unit. Similarly, Shell builds sustainability into the portfolio of business unit leads at the Executive Vice President level. Vodafone believes that sustainability issues are most effectively managed as part of core business processes rather than as a separate 'add-on'. Sustainability is therefore managed within the company s mainstream management systems with responsibility assigned to operational line managers. Local operating companies play the key role in implementing sustainability policies and the CEO of each local operating company has overall responsibility for sustainability. Every operating company has employees dedicated to sustainability who work directly with the Group Corporate Responsibility team and local business functions. The size of these teams varies among local operating companies. The case study companies illustrate a range of different governance and accountability structures and processes which then influence the integration of sustainability into other standard business processes and management practices. 3.2 Integration of Sustainability into Business Processes Seven standard business processes have been identified and assessed through this study: Strategic planning; Business planning; Business development; Risk management; Project management; Disclosure; and Assurance. 3.2.1 Strategic Planning Each company reviewed has its own approach to addressing sustainability in strategic planning processes. The approach used impacts on the degree to which, and how, sustainability is integrated into the other business processes, and can establish the basic understanding and terminology for sustainability used throughout the company. Five of the case study companies develop separate sustainability strategic plans (Bell, HP, Rio Tinto, Vancity and Vodafone), whereas Suncor integrates sustainability into its overall corporate strategic plan with a specific sustainability sub-component. Shell uses global scenarios, which include sustainability factors, to identify challenges and foster adaptability. A number of companies (Bell, HP and Vancity) identified that their sustainability strategic plans were aligned closely with the overall corporate guiding 5

principles, statement of values and/or their business strategies. Such alignment illustrates greater integration. Four of the companies (Bell, HP, Suncor and Vancity) also identified that their sustainability strategic plans are informed by external stakeholder engagement. One of HP s priority areas in its global citizenship strategy is increasing access to information technology. This strategic focus area involves a strong social element which illustrates that HP is looking at how its products and services can contribute to meeting societal needs. A similar position is evident in Vancity s community leadership strategy where helping people build assets (promoting access to mainstream financial products such as bank accounts and low cost loans and mortgages particularly to those living on low incomes) and strengthening communities (in particular helping build the capacity and long-term sustainability of non-profit organizations, social enterprises and cooperatives) are two strategic priorities. Vodafone also takes this approach with a strategic priority being capturing the potential of mobile technology to bring socioeconomic value through increased access to communications. Vodafone has a number of interesting initiatives underway supporting this strategic priority. This kind of external approach, focused not only on how the company will benefit, but on how its products and services can contribute to meeting societal needs, illustrates best practice. The companies taking this approach believe that it adds value to their business, and builds more customers in the long-term. They feel it also illustrates true integration of sustainability into the company s decision-making. 6

SUSTAINABILITY IN STRATEGIC PRIORITIES Company Terminology Used Strategic Priorities BELL CANADA HEWLETT- PACKARD RIO TINTO ROYAL DUTCH SHELL SUNCOR VANCITY VODAFONE Corporate Responsibility and Environment Deliver strong and sustained economic performance that benefits all stakeholders Maintain solid governance principles and oversight systems to monitor compliance, while managing our business with transparency and integrity Act responsibly and engage with stakeholders to identify opportunities beyond compliance to create benefits for both society and the company Develop leading edge telecommunication services that contribute to sustainability and demonstrate leadership by successfully applying them. Global Citizenship Reducing product environmental impacts Raising standards in HP s global supply chain Increasing access to information technology Sustainable Development Developing: o A sustainable development culture o Key performance indicators o Effective communication Taking account of sustainable development in business processes such as: o Risk management o Long term planning for mines of the future o Supply chain management Sustainable Development and Contribute to meeting the global energy challenge by: Health, Safety and o Providing the massive amount of extra energy Environment needed to fuel development and reduce poverty; o To keep supply secure from disruption; and o To do this in a socially and environmentally responsible way (e.g. reducing CO 2 emissions). Providing competitive financial returns. Sustainable Development Operations excellence; High performance culture; Profitable growth; and Sustainability. Community Leadership Protecting the environment with a focus on climate change; Helping people build assets promoting access to mainstream financial products such as bank accounts and low cost loans and mortgages particularly to those living on low incomes; and Strengthening communities in particular helping build the capacity and long term sustainability of non profit organizations, social enterprises and cooperatives. Corporate Responsibility Maintain high ethical standards; Understand and respond to our stakeholders' priorities; Ensure our operating standards are consistent across the Group; Deliver on our promises in three key areas: o Responsibility to our customers o Reuse and recycling of mobile phones o Energy and climate change; and Capture the potential of mobile to bring socio economic value through access to communications. 7

3.2.2 Business Planning In standard practice, the strategic planning process influences the objectives and targets set in the business planning process for individual business units. Business units look to determine how they can contribute to meeting the strategic objectives of the company. The majority of companies mentioned that they do not have specific tools that assist business unit managers in integrating sustainability objectives into business planning. Rio Tinto, which uses sustainable development criteria to address sustainability issues in the business planning process, has developed such a tool. The company has a set of sustainable development decision-making criteria for which a yes answer triggers the proponent to specify a number of things, including: Direct and indirect benefits; Negative effects; Describe risk mitigation; Describe stakeholder engagement and participation measures, including how: o Stakeholder relationships will be affected; o Conflicts will be resolved; o Capacity will be built in stakeholder groups (where needed); o Learning will be captured and shared across Rio Tinto; and Verifying that sustainability measures have been properly implemented. Vancity uses the process of preparing its accountability report to measure its social, environmental and economic performance and to respond to key areas of concern by setting future targets and action plans. These targets are assigned to management and are integrated into organizational and departmental business plans and included in performance plans. This integration helps the company to ensure that its values, Ethical Policy and accountability reporting process inform decision-making and drive improvement throughout the Group. Through the requirement of business unit quarterly reporting against specific targets and action plans, it became clear to Vancity that there were varying levels of understanding and integration of community leadership among the different lines of business and business partners (or subsidiaries). Vancity has made a decision to direct dedicated resources to help the business units and partners fully integrate community leadership into their business planning processes and operations, and the Sustainability Group was recently reorganized in order to provide the necessary support 8

STRATEGIC AND BUSINESS PLANNING PROCESSES AT SUNCOR Suncor s Four Big Rocks, one of which is sustainability, provide the framework in which Suncor s strategic and business planning processes are conducted. The annual strategic and business planning process updates the company s ten-year rolling plan. The process is outlined below: Annually, the Board of Directors meets to discuss business strategy. Under the Sustainability Rock, the current focus is on quantifiable targets for energy, water, and land use (driven by a new corporate Environmental Excellence Strategy), as well as how community engagement and stakeholder relations are carried out; The Business Planning Group develops guidance for the business units on these strategic objectives, including broad targets for sustainability; Business units examine their own business plans and explore how they can contribute to the broad targets; Business units present their long-range plans (LRPs), and the Business Planning Group integrates these plans into a long-term corporate plan; The Board of Directors reviews the integrated long-term corporate plan and launches the budget planning process; Metrics and targets in the company s scorecard are updated once the budget process is complete. Other than a select few at the corporate level, metrics and targets are generated at the business unit level. Metrics get reported in the LRP and throughout the budget process. Bridging comparisons are done from year to year (e.g. not just previous years). The LRP plan then incorporates these findings and a multi-year view gets reported and ultimately gets rolled into future LRPs. In addition to involvement in the ten-year strategic and business planning process, the Business Planning Group looks at activities beyond 2012. For example, one of Suncor s corporate goals is to double shareholder value every five years, which requires vigorous, sustained growth. The Business Planning Group is looking at how this goal can be achieved while still maintaining high performance under the Sustainability Rock (e.g. a zero CO2 upgrader, no water-use mining, etc. Both Shell and Vodafone use an issue management process to identify and share environmental and social issues across their businesses, in order that trends across the company and new issues are identified and incorporated into both strategic and business planning processes across their companies. 3.2.3 Business Development The study reviewed how companies integrate sustainability into business development activities such as mergers and acquisitions (M&A), product development, and resource identification/exploration. Shell has integrated the consideration of sustainability factors directly into its Business Principles which state that investment decisions must take into account social and environmental considerations and an appraisal of the security of the investment. The company has developed different tools and processes to meet this 9

requirement and ensure that business development decisions, such as new exploration, take sustainability factors into consideration. For example, in the Gas and Power business unit, projects must pass through a funnel, and only projects that meet specific criteria at various stages of the funnel are executed. Projects at the early stage have to produce risk and issues matrices and engagement plans, which are considered integral tools to business development. There are also assurance checkpoints where an independent person assesses the project before it advances to the next phase, and decision points where specific reporting requirements ensure that the global environmental, health and safety (EH&S) perspective is brought to bear on business development decisions. Similarly, Rio Tinto applies its sustainable development decisionmaking criteria that incorporate economic, social and environmental considerations into its decision-making process of identifying new exploration locations, including a no-go criteria related to exploring or mining in World Heritage properties which are designated for their biodiversity value. Vancity integrates community leadership into different business development activities, such as mergers. When Vancity is considering merging or acquiring another organization, Vancity screens potential partner organizations using a questionnaire tool that is aligned with its Statement of Values and Commitments and its Ethical Policy. Based on the level assessed, the potential partner is subjected to different screens, involving discussions and engagement with the merger company s executives and Board members to ensure that there is alignment between the organizations. As an example, the Human Resources department is part of any Vancity assessment team. They investigate and ask questions related to management style, number and types of employee grievances, labour disputes, human rights complaints, etc. in order to guide the decision on a potential partnership. Since 2002, Vancity has been using its Ethical Policy to integrate ethical screening into existing business practices, and it has developed common tools and resources, including a shared database of Ethical Policy screening results. This integration continues and the company has aligned its lending, investment and procurement policies with the Ethical Policy, and has implemented the Policy for relationships in business banking, suppliers, treasury investment, granting and marketing. Vancity also integrates community leadership/broader sustainability elements into its product development as exemplified by the company s socially responsible investment (SRI) options through screened funds and securities; access to capital for "risk groups"; discounted financing for hybrid cars; and a climate change mortgage, to name a few. Similar to Vancity, Vodafone considers sustainability factors in M&As and product development. A Global Corporate Responsibility team member is included in the team that conducts due diligence reviews of a potential new company. Vodafone considers a range of sustainability issues relating to the country of operation, such as the local supply chain, environmental regulations or levels of bribery and corruption, as well as reviewing the acquisition s existing sustainability policies and programs. The M&A team incorporate in the country report the information provided by the Group Corporate 10

Responsibility team regarding the main sustainability issues Vodafone will be faced HP INTEGRATION OF SUSTAINABILITY INTO PRODUCT with, what the local company is currently DEVELOPMENT doing, and if Vodafone might face negative reputational impacts by acquiring the local company. In terms of product development, HP has a Design for Environment (DfE) program that incorporates design criteria Vodafone is increasingly working at into its products development, including: integrating sustainability into its decisionmaking. In 2002, Vodafone began considering how its products and services could meet societal needs instead of just customer needs energy efficiency, materials innovation, and design for recyclability. The company also has a Network of Product Stewards that play a key role in ensuring these priorities are integrated into new product related to network coverage. Social research design by sitting on each of the product identified that people with phones were design teams, and bringing specific impacted and empowered, having a stronger expertise related to reducing the sense of well-being, an increased social environmental footprint of HP products. network and increased economic status. Considering this research, Vodafone began exploring how its products and services could further enhance positive impacts and address To assist with this integration, HP has developed guidelines for environmental product design considerations (e.g. DfE some of the societal challenges facing various Standard, Design for Recyclability Standard, and a list of chemicals that people around the world. As an example, the cannot be used in the design of new company pilot tested a program in Kenya that products), as well as for packaging. HP facilitates financial transactions through also has developed the Robust mobile phones, where they act like virtual bank accounts, receiving cash, or through a Orientation Size effect (ROSe) calculator to help engineers develop packaging combination of PIN numbers, facilitating design to minimize the amount and cost payments. Such a service addresses the issue of packaging materials, with a resultant of financial exclusion and makes money 40% reduction in energy used to ship transfers easier, as funds can be received each unit of a particular category of PC. from various outlets and the sender/receiver does not need a bank account, as well as supports areas that do not have local bank infrastructure. 3.2.4 Risk Management Most of the companies interviewed do not have an enterprise or integrated risk management process in place. However, they have well established risk management processes, including identifying EH&S risks, as well as processes to identify broader socio-economic risks and reputational impacts. Bell is developing a risk matrix for social issues where the severity and likelihood of occurrence, as well as reputation/image impact and financial impact will be assessed. The company s approach also considers public and employee perception into the overall assessment of those risks. The company s focus is to establish a sound approach to addressing sustainability issues/risks and then to address the most pressing risks. 11

Vancity also involves stakeholders in its risk analysis and actually inventories its enterprise-level risks by risk category, as well as by stakeholder group. Vancity specifically develops action plans to address identified gaps from the risk identification process, and conducts self-assessments of the risk mitigation strategies put in place. Shell uses the input of external parties, in this case expert panels, to inform its understanding of risks. These panels provide feedback to the company on issues of significance (e.g. animal testing). Shell has a risk control framework which is supported by a set of risk-based standards that establish rules and instructions on enterprise-wide risks that require common treatment across the company. Identified risk factors at the global level include sustainability issues such as impacts of climate change, doing business in politically sensitive or unstable areas, and loss of business reputation due to perceived failure to meet the Business Principles. In addition to global risk management, all businesses must have a risk management system framework in place that takes local contexts into consideration, and businesses maintain their own risk matrices. Vodafone s Corporate Responsibility team feeds into three unique processes that help the company to manage sustainability risks. The company has an issues management process that identifies potential implications to Vodafone of issues that might impact the business. The company also uses a reputation risk management program to identify the views of stakeholders, media coverage and legal views, and to define issues that could pose a risk to Vodafone. The third risk management approach taken by Vodafone is an internal audit control questionnaire which incorporates a range of sustainability questions and is completed by all local operating companies once a year and signed off by their CEOs. 3.2.5 Project Management Project management as a business process has more applicability to resource-based companies. Some interesting practices of effectively integrating sustainability into existing project management processes are evident through the tools and processes in place at Rio Tinto. Rio Tinto s Operational and Technical Excellence Group provides independent reviews and advice on the adequacy of risk identification and mitigation at key gates in the project approvals process: concept; order of magnitude; prefeasibility; feasibility; and execution. Sustainable development decision-making criteria are considered at each gate and are factored into decision-making. The Evaluation team also works to the company s Health, Safety, Environment and Community (HSEC) standards and brings additional expertise on other sustainability aspects to the analysis if needed. Ideally, every decision runs through a sustainable development decision-making process that would incorporate the sustainability analysis conducted at each gate of a project. The Project Development and Evaluation Group within Operational and Technical Excellence has developed a tool for qualitative ranking the importance of sustainability factors in the net present value (NPV) assessment of a project. Up to five key 12

sustainability factors relevant to the project are identified and applied to the NPV assessment to determine whether the project will have a net positive or negative impact on sustainability (see box to the right). Positive Impact NPV (with SD factors) Rio Tinto s Top Three Sustainability Factors: Climate Change Biodiversity Local economic development NPV Threshold: 20% NPV Similar to Rio Tinto, Suncor s (without SD Project Implementation Model factors) (SPIM), is a gated system that requires projects to be audited and validated at six steps along their Negative Impact lifecycle. Sustainability factors are built into SPIM, including the requirement for Life Cycle Value Assessment. Specific requirements for stakeholder mapping and engagement are built into SPIM through early project approval processes, which include environmental and social impact assessments. Suncor s staged approvals process includes an independent review of budgets, engineering, design specifications and stakeholder relations plans. This helps ensure stakeholder concerns are integrated and addressed early in the design and planning stages of a project and throughout its development. NPV Shell s project management approach integrates impact assessments and stakeholder management plans, and any new projects must have a stakeholder engagement plan in place. Once a project moves forward, the Group Diversity Framework requires annual diversity plans, and a human rights compliance tool provides managers with a step-bystep approach to help them avoid violating the basic human rights of employees and local communities during a project. Shell has made good progress in integrating CO 2 management into project management. A checklist and guidance on how to take account of CO 2 related issues are applied in the project management process, and the company includes CO 2 costs in its base economic decisions for projects (see Figure 3 on the following page). Although not a resource company like the other examples, Vodafone has developed social assessment criteria that help to integrate sustainability when new projects are being considered. The checklists used to assess new opportunities include a specific section on sustainability and direct Vodafone staff to consider certain sustainability factors (e.g. social benefit) and apply a score. If scores are below a certain threshold, then the project will not go ahead as these may impact in the reputation of the company and the brand. 13

Figure 3 - CO 2 Integration at Shell 3.2.6 Disclosure All of the case study companies produce stand-alone sustainability reports covering performance data and information across a range of issues. Some, such as Rio Tinto, Shell and Vodafone, also produce subsidiary business or country-specific reports as well. The study looked beyond sustainability reports to the degree of sustainability disclosure in company financial reports. Royal Dutch Shell, Vancity and Vodafone include the most substantive discussions of sustainability in their annual reports, while Suncor and Rio Tinto dedicate only a page to sustainability issues. Although these two companies only dedicate a page, the page does highlight some of the key issues for each company Rio Tinto discusses biodiversity, climate change and water; while Suncor addresses renewable energy, CO 2 offsets, the labour gap and the need to contribute to community development to address pressures from oil sands development on local infrastructure. HP s annual report addresses environmental liabilities (remediation and costs), potential risks related to a restriction of hazardous substances and labelling provisions related to its products, and presents a qualitative discussion of the potentially significant liabilities the company could face in connection with product take-back legislation. Bell's 2007 14

Business Update contains an entire section on sustainability, as does its annual report. The more detailed Annual Information Form (AIF) includes a section on the company s Corporate Responsibility Policy and an overview of the key policies, commitments, and spending on environmental activities. The AIF also discusses sustainability risks such as renegotiating labour agreements, potential legislation restricting in-vehicle use of cell phones, health concerns about radio frequency emissions, etc. The integration of sustainability into financial reports demonstrates that sustainability is being mainstreamed within a company. The degree to which a company s annual report and other financial disclosures include substantial sustainability risk, management and performance information is a key indicator of sustainability integration. 3.2.7 Assurance Effective assurance programs and the use of different assurance mechanisms are a key element of effective implementation of sustainability objectives. All of the case study companies use both internal and external assurance mechanisms that incorporate sustainability factors. Shell uses a number of different assurance mechanisms including: A formalised self-appraisal and assurance letter process by which country and other senior managers provide assurance on compliance with Group business principles and standards; Risk-based audits of the Group s operations by Internal Audit; A business control incident reporting process; and An ethics and compliance program; EH&S management system audits; and Different report assurance mechanisms. Rio Tinto and Vodafone use questionnaire tools as part of their assurance of the management and performance of sustainability issues. Rio Tinto has an annual Internal Control Questionnaire (ICQ), completed by the managing director of each business unit, reviewed by senior management and the Corporate Assurance Team, and then presented to the Board. Vodafone provides assurance on the self assessment questionnaire and scores local operating companies submit against the corporate key performance indicators by visiting every local operating company on an 18-month cycle to test and challenge the submissions. These audits/reviews are conducted by the Corporate Responsibility Director or Corporate Responsibility Executive Director and one other Corporate Responsibility team member. Five of the case study companies (Suncor, Rio Tinto, Royal Dutch Shell, Vancity and Vodafone) use an external third-party auditor to provide report assurance for the company s stand-alone sustainability report. Vancity, as well as Shell and Rio Tinto, also use external stakeholders/experts to provide assurance of their sustainability reports. Vancity has one of the most comprehensive sustainability audit processes in place, built around the company s biennial Accountability Report. The scope of the audit covers the 15

range of CSR issues addressed in the report, and applies the principles of the AA1000 Assurance Standard materiality, completeness and responsiveness to stakeholders. The results of the reporting and audit process lead to a series of action plans and specific targets with individuals identified as having responsibility to ensure the identified gaps are addressed. 3.3 Stakeholder Engagement This section addresses how case study companies integrate sustainability into stakeholder engagement processes, specifically around community and investor relations. 3.3.1 Community Relations Companies that incorporate the views of external parties into how they manage sustainability issues, and how they incorporate stakeholder concerns into their business processes, demonstrate an understanding of how their operations fit within the larger society. Shell includes the company's responsibilities to various stakeholders in its Business Principles. All new projects must have a stakeholder engagement plan in place, and stakeholder engagement is an integral part of the company s issues management process. HP has an innovative process whereby the company established a Stakeholder Engagement Council of senior HP managers to manage the company s relationships with NGOs and other stakeholders. Each Council member works with a key stakeholder on issues of mutual importance, and Council members meet regularly to share learnings and review engagements. HP is also working at integrating stakeholder engagement into its core business practices. To support this, the company has a planning tool for stakeholder engagement, an online knowledge management database (featuring best practices, key learnings, and current activities), and an employee support center and training programs for stakeholder relations. Both HP and Vancity include stakeholder relations at the core of how they do business. Vancity engages its stakeholders to obtain their views on the company s core values and purpose and involve its members, staff and communities in measuring sustainability performance and in validating the company s public report. The arrows in Figure 4 on the following page, illustrate areas where Vancity integrates stakeholder engagement into its reporting and business planning processes. 16

Figure 4 - Integration of Stakeholder Engagement into Vancity s Reporting and Business Planning Processes Bell uses survey tools to understand the concerns of its stakeholders (e.g. community, customers and employees). Bell has also surveyed the general Canadian public, as well as government and NGOs and sustainability experts, and used the input to develop the company s sustainability objectives. The company initiated in 2006 a monthly survey that will ask specific sustainability questions and test Canadians knowledge of Bell programs and sustainability products and services such as e-billing and product takeback. Similar to Bell Canada, Rio Tinto conducts stakeholder surveys. The mining company has a community relations policy in place and requires that all operations submit and update a rolling five-year community plan on an annual basis. These plans seek to ensure that programs are in place at each stage of the mining cycle to ensure that communities know and understand the operation. The plans include the use of baseline studies and community surveys, consultation, and the delivery of socio-economic programs. Similar to Rio Tinto, Suncor has a specific Stakeholder Relations Policy that guides the company s stakeholder engagement processes. Suncor has also established an internal Stakeholder Relations Committee, made up of stakeholder relations practitioners from across the company, who meet regularly to share experience and practices, discuss emerging issues, and ensure Suncor's commitment to stakeholder engagement is being met. The committee also develops tools and resources to help employees on the front lines deal more effectively with stakeholders. Every two years, Suncor engages an 17

independent survey firm to ask opinion leaders, non-government organizations, government representatives and investors for their candid feedback related to the company s commitment to sustainability. 3.3.2 Investor Relations How and the degree to which a company communicates its sustainability performance to investors is an indicator of the materiality which it attaches to sustainability factors. Suncor has been integrating sustainability into investor briefings since 1999, led by its CEO and successive CFOs who have used sustainability as a capital markets differentiator. Suncor s investor relations material incorporates sustainability information. This information is adapted over time depending on what issues are of most relevance to investors and which ones the company is facing. HP Investor Relations people work directly with socially responsible investment (SRI) firms worldwide. HP believes that the evaluation and feedback that SRI firms provide helps educate other investors about HP s social and environmental performance and identify emerging issues. HP engages with SRI firms through direct discussion, investor conferences and the completion of questionnaires. HP also holds annual meetings with SRI investors, and distributes a notice of its Global Citizenship Report to both SRI and mainstream investors (report is electronic only so no hard-copy distribution). Vodafone has held over 14 meetings over the last year with institutional investors, both mainstream and socially responsible investors, as part of the company s sustainability investors road show. In addition, Vodafone meets with individual investors that request a meeting to discuss specific issues. This role is still being played by individuals in the Corporate Responsibility team and there are efforts to have Investor Relations staff be able to take on more of this role moving forward. 3.4 Human Resources Management and Sustainability This section addresses how case study companies integrate sustainability into human resource management processes, specifically related to recruitment and orientation, training and performance appraisal and compensation. 3.4.1 Recruitment and Orientation A number of the case study companies are integrating aspects of sustainability into their human resource recruitment and employee orientation processes. Most do not have completely integrated programs, but cover different aspects such as labour relations, health and safety, environmental protection and ethics in their recruitment and orientation initiatives. Shell s commitment to and performance on sustainability is an integral part of the company s branding and the way it presents itself to prospective employees. Shell uses sustainability themes as an integral part of the applicant assessment and new staff on-boarding processes. Community leadership is also a big part of Vancity s branding and advertising, and the company promotes awards and 18

recognition for being a top employer, for recognized good governance practices, and for environmental commitments (e.g. carbon neutrality) in job advertising. Vancity also has a well-established orientation program. The orientation includes a number of speakers from various parts of organization, including the company CEO and Board Chair. An overview of the organization including its history and Statement of Values and Commitments is shared. A member of the Sustainability Group delivers a presentation on the community leadership strategy and how new employees can get involved in community leadership initiatives. Information on the Employee Code of Conduct is also integrated into employee orientation. Suncor integrates the company s sustainability values into its messaging with prospective employees, in the interview process, as well as employee orientation. The first day of new employee orientation includes a presentation from senior management on what sustainability means to Suncor, an overview of environmental and safety responsibilities, and what new employees can expect from the company with regard to the its commitment to sustainability. Similarly, Rio Tinto s employee orientation process incorporates sustainability topics. The corporate level provides a basic presentation that is used by all businesses, with some local adaptation. To improve employee orientation and understanding of the company s sustainability vision, Bell has recently developed a new Intranet site with a sustainability component. Increasingly, case study companies are conducting surveys of their employees which ask specific questions related to their perceptions of the impact of the company s sustainability programs, products, initiatives, etc. and if these affect how employees feel about the company. These efforts show the increasing experience that a company s approach to sustainability can be a strong influence on employee retention. HP Canada, for example, conducted an employee survey that specifically asked if HP s environmental programs made employees more likely to work/stay at HP. The results indicate that the programs act as a retention tool with the most recent results identifying that nearly 60% of responding employees said yes. Similarly, Vancity uses an annual employee survey to measure the awareness and support for the company s values and its Ethical Policy. Vancity believes its values and the way the company operates against these values has a huge impact on retention and recruitment levels. 3.4.2 Training Rio Tinto has introduced training and awareness-raising tools to explain the concept of sustainable development throughout the Group. Business units are asked to customize this training to their specific operations. Another, more detailed training program is used for managers, based on an e-learning tool that presents the business case for sustainable development, which is designed to equip managers with the knowledge they need to deliver on corporate priorities. Rio Tinto also conducts safety, cross-cultural, and human rights training, and again, training on business integrity is required for all managers. 19

Shell pays particular attention to sustainability training (see text box). Suncor also has strong sustainability training programs, including specific sustainability issue training initiatives related to stakeholder relations, Aboriginal awareness and life-cycle value assessment. INTEGRATION OF SUSTAINABILITY INTO TRAINING INITIATIVES AT SHELL A sustainability mindset has been integrated into the main leadership development programs at Shell the Group Business Leadership Program and the Executive Leadership Program. It is also an integral part of the curriculum in Shell s Project Commercial Academies, set up in 2005-06 respectively to raise the skill level of project managers and key commercial staff. Other sustainability-related training includes: Bell offers specialized training, using methods such as face-to-face Modules on sustainability in senior executive sessions or online programs, for training and business management courses environmental training, and health (including elements such as biodiversity, child and safety training. It has a labour, etc.); Leadership development courses; mandatory online ethics training Relevant sustainability training provided to program. Mandatory ethics training individual project teams; programs is undertaken by four of Online and face-to-face training for employees on the company s Business Principles, including the case study companies. preventing bribery and corruption; Training guide on Human Rights Dilemmas 3.4.3 Performance Appraisal incorporated into Business Principles training; and and Compensation Compulsory awareness programs and online The majority of case study training on the company s Code of Conduct. companies link sustainability Shell is developing training programs on performance and compensation. At implementing biodiversity action plans, and has in Vancity, performance reviews and profit sharing are based on both financial and non-financial goals for place an informal climate change network that spans all businesses and conducts webcasts, publishes a newsletter, runs web discussion forums, and puts in many employees. These goals place an internal network for sharing knowledge and include member/client satisfaction, best practice in this area. deliverables related to community leadership and the employee experience. At the Vice President level, there are performance partnerships where sustainability objectives are directly linked to compensation. Sustainability objectives and targets are set, such as the development of ethical investment products, socially responsible investment training, etc. At the end of the year the individual is rated and ranked in terms of their individual performance against the established objectives and targets, and bonuses and salary improvements are linked to how well they performed. The same is true for many senior managers at the Director level and up. For the rest of the organization it is more ad hoc, and for those below the Director level it is incorporated into employee appraisals but may not be linked to compensation. Shell uses its corporate scorecard to appraise business performance and reward executives. The scorecard includes key performance indicators including environmental 20