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BNSF and Kansas City Southern: Still in the roundhouse.

By William D Alessandro on April 02, 2015 at 5:40pm.

Context:
Two railways in the US happen to deliver their company's environmental and social responsibility information at the same time and for the first time.  Both contain data for 2013.  Burlington Northern Santa Fe (BNSF) follows the Global Reporting Initiative (GRI) G4 guidelines.  Kansas City Southern (KCS) does not.  By chance they serve as a proving ground for the new version of the GRI standard.  

BNSF is  America’s largest railway measured by tracks.  It has 32,000 route miles and 43,000 employees.  Kansas City Southern is the smallest of the seven largest (Class I) railroads by revenue.  It has 6,400 miles of track and employs 6,200 people. 

BNSF has a convoluted history starting in 1849.  The outcome is a consolidation of nearly 400 rail companies.  Capping the mergers and acquisitions over the course of 160 years, Warren Buffett's Berkshire Hathaway bought the company in 2009 for  US$26.5 billion.  Shareholders have been handsomely rewarded.   Dividends paid out by BNSF by the end of 2014 already compensated the Berkshire investors for most of what they paid.

The clairvoyant financier Arthur Stilwell, later in life a poet, author, and philanthropist, founded KCS in 1887.  Eventually he connected the booming Midwestern markets by rail to the Gulf of Mexico at Port Arthur, Texas, a city Stilwell created from scratch.  

KCS is traded on the New York Stock Exchange.  Its pet name, not always used fondly, is ‘the Nafta railroad’.  KCS owns Kansas City Southern de Mexico serving the ports of Tampico and Veracruz on the East Coast, and Lázaro Cárdenas on the Pacific Ocean.  KCS also has a 50% interest in Panama Canal Railway Co., but that holding is not covered in the sustainability report.


Content:
GRI leaves room in the guidelines wide enough to drive a locomotive through.  Even so, neither railway aces their entrance exam. 

BNSF reports “in accordance with” G4, the newest version of the voluntary international guidelines.  The report aspires to meet GRI’s “core” requirements.  This means the company must give information on 34 prescribed items out of the 58 deemed to be basic elements of disclosure of corporate economic, environmental, social, and governance performance.  (Reporters who choose the “comprehensive” track must answer to all of them.)

G4 directs reporters on either track to focus on the aspects of operations having a material impact.  BNSF  identifies 13 priority topics and devotes a few pages to discuss each one.  The 56-page report ends with a four-page GRI index, which is a requirement of G4. 

Although KCS does not centre on, or even mention, materiality, the report contains much the same type and level of information as the G4 report from BNSF.  This is not surprising for two reasons. 

BNSF fashioned the report by examining what peer companies have done and by reading media coverage of the railroad industry.  And KCS says their report is “informed by” the GRI guidelines. 

Such a declaration by KCS has no formal standing.  The 46-page report, however, has a GRI  index.   Entries on it claim coverage against 23 of the 58 essential indicators in G4 (40% of them).  

GRI’s G4 also divvies up 91 additional indicators into economic, environmental, and social categories.  To be “in accordance with” G4 “core” reporters must cover at least one of these so-called “specific standard disclosures”  for each material aspect they identify.  (The “comprehensive” G4 track, by comparison, expects companies to address every “specific standard” indicator in the category associated with a material aspect.)  BNSF deals with 13 material issues, and the report  addresses 19 specific indicators.  KCS reveals facts about 15 of the 91 indicators. 

Here is a rundown of a representative sample comparing the number of G4’s specific standard indicators addressed in each report:

• Of 16 labour practices and criteria relating to decent work conditions: KCS = 3; BNSF = 2 (but incompletely).  

• Of 34 environmental aspects: KCS = 7; BNSF = 11.

• Of 11 impacts on society: KCS = 0; BNSF = 1.

• Of 12 human rights indicators: KCS and BNSF = 0.  G4 requires disclosures of specific standard indicators only if the company identifies the category they relate to as an aspect of significance, i.e., material.  Neither company does so for human rights. 

Communication:
Without question railroads are photogenic.  These reports do not clutter their sustainability reports with pretty pictures.  The BNSF photos are strictly chapter dividers.  KCS judiciously sprinkles a dozen or so throughout the report mainly for graphic relief.
 
The reports closely resemble one another even though KCS uses a landscape format.  Both have plenty of white space and easy-to-read text. 

The BNSF report  leans heavily on hyperlinks— 37 of them (KCS uses five).  They often connect to BNFS’s financial statement for the US Securities and Exchange Commission or to a different section under the same tab “Communities” on the home page web site.  The clicks are hit-or-miss.  Some links lead to information meant to satisfy passing interests not for a deeper dive into the company’s sustainable profile.

Credibility:
Neither report is assured by outside auditors.  No matter.  The nature of the information and its dearth is testament enough.  The companies have a weak grasp on triple-bottom-line reporting. 

They explain minutiae: KCS uses heaters to keep switch points free of snow and ice;  BNFS recycled 3.8 million ties.  To reduce fuel use KCS uses automatic start/stop systems on all switch locomotives; BNSF does, too, on more than 90% of theirs.  And so on and so forth.

In 2014 BNSF transported more than 2.2 million carloads of coal, or 22% of freight by volume.  At least 14% of the revenues at KCS come from coal, sand used for fracking, and petroleum products.  Climate activists have referred to the similar shipments as “death trains”.   But the lone mention of the business risks of global warming by either company is this passing remark by BNSF:  “… changes in clean air laws or regulation of carbon dioxide emissions could reduce the demand for coal and revenues… .”

KCS explains the particulars of security measures in place and describes newly installed surveillance technology on the network.  But the complexion of the problem passes without a word.

KCS is the only railway with assets on both sides of the Rio Grande at Laredo, Texas.  Revenue is booming across the railway bridge at Nuevo Laredo.  The company wants to expand capacity and ease custom clearances.  Meanwhile migrants and unaccompanied children from Central American countries hitch rides through Mexico on the freight trains bound north to the US border city.  The place is a cauldron of violence and human rights abuses.   Cartel murders and executions, drug smuggling, and contraband are everywhere.  
 
Other key issues are handled the same way in the reports.  For instance, BNSF transports enough crude oil to fill more than 656,000 motor vehicles with petrol every day.  KCS wants permission to develop a unit train terminal in Port Arthur to capitalise on the demand for movement of heavy crude oil from Western Canada to refineries on the Gulf Coast. 

Both reports delve into corporate efforts underway and expenditures being made to refurbish the aging rail infrastructure in the US and improve safety.   But a spate of oil-train derailments, including by BNSF, has inflamed the public. 

Millions of gallons of fracked oil now travel through many communities and several cities every week.  State regulators are worried about the potential for catastrophic explosions.  They are demanding disclosure of shipments, which the railroad industry, including KCS, wants kept secret.  A Crude-By-Rail Safety Act has been introduced in Congress to outlaw older tank cars. 

None of this is discussed in the sustainability reports.

G4 states: “Information on performance should be placed in context.  The underlying question of sustainability reporting is how an organization contributes, or will contribute in the future, to the improvement or deterioration of economic, environmental and social conditions, developments and trends at local, regional or global levels.”

For everyone’s benefit and their own, GRI must help ensure that reporters understand and comply with the G4 methodology for disclosing management’s approach to material issues.  Otherwise all the work done in the past to make sustainability reporting more relevant will go down the drain.

Recommendations:
1.  The engines are running.  Welcome aboard!  Now let’s get the sustainability train moving.

2.  You are looking through the wrong end of the binoculars.  Turn around and start reporting the big picture.

3.  Describe how sustainability topics relate to long-term organizational strategy, risks, and opportunities.

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 http://www.crosslandsbulletin.com covering strategic corporate environmental management and sustainability issues.