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Credible, but Light on Results

By Michelle Bernhart (True Blue Communications) on July 29, 2009 at 3:55pm.

An 80-year-old company, one of Corporate Responsibility Officer’s 100 best corporate citizens in 2009, and the owner of North America's largest natural gas pipeline system, El Paso Corporation is nevertheless an organization many have never heard of. But that may suit the leaders of El Paso just fine. With an emphasis on integrity, ethics, and safety, the company projects an earnest and humble portrait in its 2008 corporate sustainability report.

Content:

What it fails to do, however, is establish many sustainability goals. With a natural gas pipeline that spans 43,000 miles and exploration and production operations on three continents, El Paso no doubt creates significant environmental and social impacts - and has opportunities to make significantly positive contributions as well. Yet the only goals identified in the report relate to solid waste recycling, safety, and carbon neutrality for one pipeline.

As a key player in a carbon-heavy industry (El Paso’s exploration and production activities include oil in addition to gas), the company has a responsibility to vigorously track and identify ways to reduce emissions. The report includes results of a 2007 GHG inventory, but provides no 2008 data. The text also mentions that El Paso was the first natural gas company to join the California Climate Action Registry (CCAR), was the first to obtain a complete CCAR-approved GHG emissions inventory, has maintained longstanding participation in the U.S. Environmental Protection Agency Natural Gas STAR program, and has “reported more than 59 billion cubic feet of natural gas reductions, which equates to approximately 24 million tonnes of CO2e",  but the timeframe and other specifics are largely absent. No graphs are provided to track reductions over time and no mention is made of efforts to measure emissions in 2008 or 2009. This, coupled with the lack of emission-related targets, leaves readers to wonder about the company’s objectives and commitments.

A more robust section of the report is “The Place to Work,” which documents in detail the company’s workplace culture, commitment to employees, and ethics and values, topics that may be particularly important to El Paso stakeholders given the Enron disaster, with its market sector and geographic proximity to El Paso (also headquartered in Houston, Texas, not far from the former Enron epicenter of corruption). The El Paso report makes clear this is a company that does not stray from its core values.

El Paso employees seem to agree. A 2008 survey (with an impressive response rate of 96 percent) showed that 99 percent consider ethical and compliance implications when making decisions in their daily work and 98 percent said they fully support El Paso’s values. Fully 91 percent said they were proud to work at El Paso. The company has also done a transparent job of reporting on the year’s internal investigations into various allegations and complaints, which resulted in termination of nine employees (a few bad apples are inevitable anywhere).

Employee diversity earns some real estate as well, and a widespread company inclusion program is addressed, but no coverage is afforded to women or minorities in leadership positions, nor to any specific efforts to get them there. This would seem like an important issue at a company that is 74 percent male and 74 percent white, with one African-American male and one white female board director. Among the company’s corporate officers are one white female and no people of color.

Communication:

Both the online and PDF reports (which are identical) are generally easy to read and manageable in size. Questions linger in this reviewer’s mind throughout, however. What are the material issues and how did El Paso select them? Where are the sustainability objectives? If this is El Paso’s second sustainability report, why does it read like a baseline report (i.e., some figures reported but no progress)? Why is continuous improvement never mentioned? Why is discussion of GHGs and other environmental issues limited to six lightweight pages at the back of a section called “The Neighbor to Have,” which also includes nine detailed pages on philanthropy, volunteerism, and political accountability? How were stakeholders identified?

To the latter point, the website includes an excellent reader survey that should provide fodder for future decision making. The company also used an employee advisory group to provide input to and review the report. This is pretty standard practice, however, and no additional credibility is gained by having those who contributed material to the report also review it, beyond verifying the information is reported as provided. This report begs for further stakeholder identification and dialogue, along with a materiality analysis and establishment of some measurable targets.

In spots, the otherwise clear language lapses into financial jargon. Five pages (almost 10 percent) of the report are grouped under the title, “Our Commitment to Shareholders,” and discuss financial performance using terms designed to reassure investors. The report also occasionally devolves into marketing speak: “In addition to preserving our natural resources by conserving paper. . .and saved printing and postage costs as well. That’s good stewardship no matter how you look at it.” A surefire way to turn off sustainability report readers, this kind of syntax also erodes credibility.

Likewise, the environmental remediation section seems directed toward investors rather than those who might actually care about El Paso’s environmental management practices. Explaining that the “environmental reserve liability” has decreased, the report notes that “this trend is just one measure of how accurately we assess and report clean up costs before a project begins.”   It makes sense that El Paso, like companies everywhere, wants to get these sites off its balance sheet. But what approaches is El Paso using to remediate these sites? Is the company exploring new technologies? Finding ways to restore sites for some form of reuse and creating jobs in the process? Do sustainability report readers really care about “reserve liability” or would they like to see the information presented in terms of number of sites cleaned up and closed? Even the profile of an award-winning remediation effort includes no details about the project itself, not even the factors leading to the award. One is left to wonder or perhaps search online, but without any clues to pique the curiosity, it seems unlikely readers will bother. One suspects that El Paso is doing a lot of things right, but based solely on this report, it can be difficult to discern exactly what.

To this end, data is hard to assess because most of it is raw, not normalized. The number of employees participating in training has dropped dramatically since 2006, for example, but the report indicates neither the number of hours per employee nor how the drop compares to the total number of employees.

Finally, a minor gripe. The report’s footnotes quite helpfully anticipate questions readers will have. However, all notes are relegated to the end of the document. Sustainability report reading should not be made more difficult by having to flip 56 pages to find a footnote.

Credibility:

The report seems credible because so much space is devoted to discussions of ethics and values. But without stakeholder or materiality analyses, it’s hard to be confident. One assumes that the three major stakeholder groups are employees, neighbors, and investors, since that’s how the report is organized. For any company, employees are among the most important stakeholders, and El Paso’s report does a nice job of reporting its focus on employee career development, training, wellness, and volunteering programs. In addition, employee photos appear throughout, which is welcome, but who are they, exactly? Readers might feel more connected to the company if the report provided names and roles. Further, it seems odd, given the report’s positive focus on employees, that the cover shows pipelines and a tank with nary a human being in sight.

Finally, the excellent transparency about political and association contributions is most welcome, with additional credibility arising from the disclosure that the board’s performance ranks better in corporate governance than 99.6 percent of energy companies.

Recommendations:

1. Make more effort to engage with stakeholders (including and beyond employees) and conduct a materiality analysis to ensure selection of the right issues.
2. Implement a system to identify and establish sustainability objectives and measurable targets.
3. Report on progress against these targets. 
4. Use the results of the reader survey to inform the company’s approach to sustainability goals, performance, and disclosure, and report on these results in the next report.
5. Consider assurance.

Michelle Bernhart is the founder of True Blue Communications LLC, which helps organizations strengthen sustainability performance, achieve strategic objectives, enhance brand, and manage risk through credible and engaging communications. http://www.truebluecomm.com