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The Crown Estate: Avant-garde reporting

By William D Alessandro on July 02, 2013 at 2:55pm.
Content:

This is an experimental sustainability report. It marks a radical departure from what has been evolving as the norm for triple-bottom-line disclosures.

For the moment, forget about the international guidelines for disclosing environmental, social, and governance performance from the Global Reporting Initiative. That framework carries no weight here.

Almost nothing in the 29-page report is typical. The Crown Estate is not an ordinary commercial property management company either. The assets held by this landlord — worth about £7.2 billion (€8.4 billion, $10.9 billion) in March 2012 — belong to the monarch of the UK.

The holdings are not actually the private property of any reigning Queen or King (although they do get a percentage of annual net revenues). An independent commission oversees the portfolio for the public good. The sites include famous places like Windsor Park, Ascot racecourse, and Regent Street in London. The Crown Estate also owns half the seashore and all of the territorial seabed around the UK.

The profits generated from these fabulous properties go into the UK treasury. For fiscal year 2011-2012, the surplus amounted to £240.2 million (€282.5 million). The total return (capital growth, net capital receipts, and net income as a percentage of capital employed) was 16.8% for the reporting year, compared with the standard property management industry’s benchmark of 9.5%.

Starting with this report, The Crown Estate embarks on the task of identifying “total contribution”. The goal is to express the financial value of all the enterprise’s activities, beyond net revenues. So, for example, social well-being is tallied as the value in monetary terms to tourists who visit the sites. Cost savings are calculated for avoiding damage from greenhouse gas emissions through sequestration forestry practices at the Glenlivet national park. Savings on public health costs are tabulated for the Vattenfall electric utility’s 30 wind turbines situated 10 kilometres off the coast in the Irish Sea.

“Total contribution” itself is made up of several components. It is probably worthwhile to understand a little more about them.

Direct gross value added (GVA) is a measure of the impact on the UK economy by The Crown Estate’s in-house activities (turnover minus cost of goods and services). Indirect GVA measures the impact on the economy by The Crown Estate’s supply chain. Roughly two thirds of the indirect contribution comes from developments undertaken on the enterprise’s urban properties.

The third element of “total contribution” is enabled GVA, which is harder to grasp. It represents the impact that The Crown Estate’s customers have on the economy. The level of confidence in these metrics is lower, and the results are more speculative.

The Crown Estate’s economic contributions are analysed in the report in four dimensions: (1) direct, indirect, and enabled GVA; (2) direct, indirect, and enabled employment; (3) investment (direct only); and (4) contribution to the treasury (direct and indirect).

The report includes four two-page, full-bleed photographs overlain with text briefly explaining specific projects.

Along with several dozen others, The Crown Estate is participating in a pilot programme run by the International Integrated Reporting Council. Eventually, what they learn from their test methodology will be incorporated, i.e., “integrated”, into their year-end annual report.

Communication:

Determining “total contribution” is a relatively new concept. The Crown Estate hired NEF Consulting (a subsidiary of the New Economics Foundation) to construct methods to calculate it. NEF’s consulting partners are Route2 Sustainability and Landman Economics.

NEF has penned a 60-page technical paper to explain the system. The NEF document is indispensable. The Crown Estate’s report, read alone, leaves far too many questions unanswered. The NEF report fills in most — but certainly not all — of the information gaps.

The Crown Estate, like all organisations, does not collect data on social outcomes and impacts of its activities across its entire organisations. The report confesses: “We acknowledge that there is more we need to do to understand our social contribution and as we progress we wish to collect more primary data to understand what would have happened without our involvement and the impact one activity may have on another.”

However, the Crown Estate report is clear about the path forward: “We have set out a three year roadmap to integrate total contribution into our annual report so that we can express the true value that we contribute to the UK over the short, medium and longer term”.

Credibility:

The report poses a credence conundrum. What level of scepticism is fair at this stage of the process? How harshly should the methodology be criticised when the procedures are incomplete and under study?

The Crown Estate makes some clarifying admissions in the report:
“Although we aim to capture both positive and negative outcomes from the activities across our portfolio, and to report the resulting net contribution, we acknowledge that in this first baseline report this has not always been possible.”

The truth is that the report focuses exclusively on positive economic and social impacts. So tourism only adds value. Meanwhile, research on ecological footprints suggests that people in the richest nations must nearly cease international air travel and cut back on their domestic leisure transportation if civilisation is to proceed sustainably and equitably.

“As we develop better systems to capture data we intend to investigate more deeply the range of potentially negative outcomes and provide a more balanced report on our performance,” The Crown Estate report declares. “This 2011/12 report is an important first step in the right direction and future updates of The Crown Estate’s total contribution will be better able to account for all impact considerations.”

Other worrisome considerations come to mind. One of them is a 2009 report from NEF entitled “A Bit Rich”.

Investigating six different professions, the NEF study concluded that the earnings commanded by investment bankers in the City of London come at a huge cost due to their “damaging social effects”. The authors say the City’s leading bankers destroy £7 of social value for every pound in value they generate.

The NEF study raises a question: Are the jobs at the whisky distillery at Glenlivet, as well as employment “enabled” by The Crown Estate on all their other properties, similarly discounted?

To the credit of The Crown Estate, Chief Executive Alison Nimmo, who previously was responsible for the design and early delivery of venues for the 2012 London Olympic Games, invites “suggestions for improvement” for the “total contribution” approach to environmental, social, and governance reporting.

Recommendations:
  1. Do not assume an integrated report based on a perfected “total contribution” method can replace a sustainability report. Face up to that now. You will have to publish more than one report to satisfy other stakeholders.
  2. Assuming you gain complete faith in the “total contribution” approach, spare no expense in promoting and explaining it.
  3. Have an editor who is neither a UK citizen nor a British English speaker take a look at the report just before you publish it. Otherwise, some content and a few expressions might be harder than necessary for outsiders to understand.
William D’Alessandro is president of Victor House News Co., an independent agency reporting on law and the environment for trade publications and executive newsletters. He also edits Crosslands Bulletin www.crosslandsbulletin.com covering strategic corporate environmental management and sustainability issues.