CENTROTEC
Themes and performance indicators sustainability report
Sandra Bultman
Rijksuniversiteit Groningen Faculteit Bedrijfskunde
November 2004
CENTROTEC:
Themes and performance indicators sustainability report
Sandra Bultman (1226819)
Supervisors University of Groningen:
H.Hainja E.P Jansen
Supervisors CENTROTEC G.Huisman
H.Lochmueller
Brilon, November 2004
The author is responsible for the contents of this thesis. The copyright
In your hands, you have my thesis, which I have written for CENTROTEC Sustainable AG, Germany. This research was the last part of my university degree in Accountancy at the Rijksuniversiteit Groningen. The subject of my research is sustainability reporting and which themes and performance indicators can be included in CENTROTEC’s sustainability report.
I would like to pay my gratitude to Gert Jan Huisman and Henning Lochmueller for the internship possibility at CENTROTEC. In the last six months I have analysed the
possibilities for which themes and performance indicators CENTROTEC can include in her sustainability report. It was an interesting period in which I have learnt a lot. In the six months Gert Jan Huisman and Henning Lochmueller gave their supervision. Moreover, they gave me feedback and advice on my research for CENTROTEC. Their advices have been helpful and useful for me to succeed.
Also I would like to thank the people behind CENTROTEC. The employees have been of great help for me to analyse and research which performance indicators are suitable to publish. Therefore I would like to thank them.
Furthermore, I want to say thanks to my supervisors from the University: Henk Hainja and Pieter Jansen. Through their supervising, feedback and advising the quality of my research improved.
Al last I would like to thank my parents, sister, boyfriend and friends for their support during my internship at CENTROTEC and the overall university education program.
Sandra Bultman Zwolle
November, 2004
Summary
Present-day many companies publish beside a financial annual report also a sustainability report. The reason for this is that beside financial results in the modern society also more and more attention is paid to social and environmental aspects of companies.
These aspects can be placed in a so called sustainability report. The components are: people, profit and planet. The intention of these three aspects is to integrate them so a successful way of entrepreneurship can be achieved. CENTROTEC likes to show her efforts on sustainability to a broader public by means of a sustainability report. Another reason for CENTROTEC to publish a sustainability report is the reason investors and clients are highly interested in sustainable companies and a sustainability report will give the possibility to communicate CENTROTEC’s efforts and achievements on sustainability to investors. Through dialogue with clients and investors this need became visible. CENTROTEC struggles with the next problem: the board of directors has the intention to publish a sustainability report next year, and although there are some ideas, the board of directors wants to know exactly which themes and performance indicators can be used.
The central research goal of this research is:
To give insight and recommendations which themes and performance indicators can be used in the sustainability report, taken into account the visions of CENTROTEC, so that the board of directors will have an indication which themes and performance indicators can be included in the sustainability report of CENTROTEC.
Based on the background of the problem and the central research goal the central research question for this research is:
Which themes and performance indicators can be included in the sustainability report and how can the quality of these performance indicators be optimized?
This summary includes the conclusion of the research question and several recommendations for CENTROTEC.
The most appropriate way to measure sustainability is the use of performance indicators. This will not always be an easy job, because sustainability includes issues which may be outside the direct control of the organisation, and which are difficult to characterise and often are based on value judgements rather than hard data. Sustainability is most of the time measured in a split -up of economic, social and environmental performance.
The first part of the central research question includes which themes and performance indicators can be included in the sustainability report. With the help of the Global Reporting Initiative, the visions of CENTROTEC, sustainability reports of other companies and last but not least relevant literature was tried to come to a suitable final framework of themes and performance indicators. First theory which can be applied to CENTROTEC is the theory by Kaptein. This theory will be applied to CENTROTEC, especially to discover which themes CENTROTEC can include in her sustainability report. The second theory used is the theory by Keeble. This theory is included especially with respect to the performance indicators.
CENTROTEC emerged. Chapter ten includes the final key performance indicator framework.
The performance indicators which are included in this framework will also be included in the sustainability report.
Next scheme lay down the framework of the themes and visions on which the performance indicators are based. It includes the results of the different inputs.
Direct economic impacts
o Achieving relevant market position in medical technology o Leader for gas flue systems for condensing boiler technology o Leader for energy-saving climate control
o Innovation leader for plastics technology Environmental
o Products help to save energy
o Increasing comfort through minimal energy input o Promoting health through products
Labour practices and decent work
o Integrating the socially marginalized through deeper added value o Equal treatment and diversity employees
o Long-term sense of mutual responsibility (employees company) o Sustained production techniques
o Safety and health
o Promoting entrepreneurship o Satisfaction employees Human rights
o Human rights Society
o Involvement society
o Social aspects with respect to suppliers Product responsibility
o Promoting health through products
As mentioned above this scheme represents the themes of the sustainability report. These themes have led to the final performance indicators. Moreover some additional performance
included in the sustainability report have been optimized with the help of this study.
To come to that conclusion, a well-considered balance is made of the different inputs. This has lead to several selections of the performance indicators. Through this selection only those performance indicators which are suitable to CENTROTEC have been left.
In chapter nine the different contributions of the inputs are described. Together these inputs contributed to reliable performance indicators. Each input had its own unique contribution and helped to answer the central research question.
Moreover there are several recommendations and challenges for CENTROTEC with respect to their sustainability report. The recommendations are with respect to:
• Measurement of some additional performance indicators: for CENTROTEC’s first sustainability report as much as possible performance indicators are measured and published. However, it is impossible to measure all performance indicators of the GRI first time. It is a challenge for CENTROTEC to publish each year on more
performance indicators. Finally, within several years CENTROTEC may publish fully conform the GRI. To publish on all performance indicators will take some extra efforts of CENTROTEC. She can choose how far she likes to put effort on extra performance indicators. As mentioned in chapter eight CENTROTEC has to keep in mind the reasonability of certain performance indicators. Reasonability in a way a company is not over-questioned, that there are no signs of unbalanced questioning and arbitrariness. Reasonability in a way the disclosure of a company is comparable to similar companies. CENTROTEC needs to decide if they want to measure more environmental or social performance indicators next year. Moreover they need to keep in mind, if the value added of measuring some environmental or social performance indicators can weight to the costs of gathering this information.
• Code of conduct: especially with respect to the social performance indicators a code of conduct can be helpful. To answer and measure social performance a reference can be made to the code of conduct. A code of conduct is a formal statement of the values and business practices of a company and sometimes its suppliers. It is a statement of core standards together with a pledge by the company to observe them and to require its contractors, subcontractors, suppliers and licensees to observe them. Some
companies use their code of conduct in connection with their sustainability report. The code of conduct is a written document which can be referred to in the sustainability report. Therefore it could be useful for CENTROTEC to have a code of conduct.
• External verification: CENTROTEC’s first sustainability report will not be externally verified. For sustainability reports there is a possibility to an external verification. It is not obligated yet. Although there is a trend toward external
verification, only few companies have their reports verified at present. CENTROTEC can choose to have an external verification for their next reports.
performance indicator: satisfaction employees. This is more or less a combination of several social performance indicators. Another possibility to measure the satisfaction of employees is to have a questionnaire. With the help of the questionnaire and the benchmark of these questionnaires each year, the satisfaction of employees can be measured.
• AA-series: The institute of Social and Ethical AccountAbility is an international organisation. In 1999 AccountAbility introduced the AA1000-Standard.
The standard is designed to guarantee quality in the process of the social en ethical auditing and reporting and to improve accountability and performance by learning through stakeholder engagement. Dialogue between the organisation and her stakeholders are the key object in the Standard
The principle underpinning AA1000 is inclusivity. The building blocks of the process framework are planning, accounting and auditing and reporting. It does not prescribe what should be reported on but rather the 'how'. In this way it is designed to
complement the GRI. Because of the fact the AA-series are complement to the GRI, it may be useful for CENTROTEC to use the AA-series complementary.
• Feedback stakeholders: CENTROTEC could decide to have sustainability meetings together with stakeholders next years. These sustainability meetings will integrate the communication between stakeholders and CENTROTEC. Stakeholders will have the possibility to give their feedback on CENTROTEC’s with respect to sustainability.
CENTROTEC can use this feedback to improve other sustainability reports.
Table of Contents
TABLE OF CONTENTS ...1
CHAPTER 1 INTRODUCTION...3
CHAPTER 2 INTRODUCTION CENTROTEC SUSTAINABLE AG...6
2.1 ORGANISATIONAL STRUCTURE...6
2.2 DIVISIONS AND PRODUCTS...6
2.2.1 Gas flue systems...6
2.2.2 Climate systems...7
2.2.3 Medical Technology & Engineering Plastics ...7
2.3 CENTROTEC AND SUSTAINABILITY...9
CHAPTER 3 RESEARCH ASSIGNMENT...11
3.1 BACKGROUND RESEARCH...11
3.2 FORMULATION OF THE PROBLEM...12
3.2.1 Central research goal ...12
3.2.2 Central research question and sub-questions ...13
3.2.3 Conditions...14
3.3 METHODOLOGY OF THE RESEARCH...15
3.3.1 Introduction methodology...15
3.3.2 Typology of the research...16
3.3.3 Conditions of research...16
3.3.4 Research model and conceptual model...18
3.3.5 Data collection...22
3.4 THEORETICAL FRAMEWORK...23
3.4.1 Sustainability reporting funnel by Muel Kaptein ...23
3.4.2 Using indicators to measure sustainability performance by Justin Keeble ...24
3.4.3 GRI Guidelines ...25
CHAPTER 4 AN INTRODUCTION TO SUSTAINABILITY ...26
4.1 HISTORY AND DEFINITION OF SUSTAINABILITY...26
4.2 CONCEPT OF SUSTAINABILITY: TRIPLE P...28
4.3 SUSTAINABILITY REPORT: WHY REPORT ON SUSTAINABLE ISSUES...29
4.4 REPORTING GUIDELINES...32
4.4.1 Global Reporting Initiative (GRI)...32
4.4.2 The Global Compact...33
4.4.3 OECD guidelines ...33
4.4.4 AA1000-Standard...33
CHAPTER 5 WHY AND HOW TO MEASURE SUSTAINABILITY ACCORDING TO LITERATURE? 35 5.1 WHY TO MEASURE SUSTAINABILITY? ...35
5.2 HOW TO MEASURE SUSTAINABILITY...36
5.2.1 Atkisson: use of indicators effective way to meausure...36
5.2.2 Kaptein: the funnel of sustainability reporting ...37
5.2.3 Global Reporting Initiative ...40
5.2.4 Keeble: using indicators to measure sustainability at a corporate level ...44
5.3 CONCLUSION...46
CHAPTER 6 OTHER COMPANIES AND SUSTAINABILITY REPORTING ...47
6.1 RESEARCH COMPANIES & SUSTAINABILITY BY KPMG AND UVA ...47
6.1.1 Introduction research ...47
6.1.2 Different sorts of sustainability reports ...47
6.1.3 Aspects of sustainability and performance indicators ...48
6.1.4 Conclusion ...49
6.2 RESEARCH COMPANIES AND USE OF GLOBAL REPORTING INITIATIVE BY ERNST &YOUNG...49
6.2.2 Environmental performance ...50
6.2.3 Social performance ...51
6.2.4 Economic performance ...51
6.3 CONCLUSION SURVEYS WITH RESPECT TO OTHER COMPANIES...52
CHAPTER 7 MAIN ISSUES FOR CENTROTEC RELATED TO THE THEMES OF SUSTAINABILITY ...54
7.1 WORKSHOP IN BRILON...54
7.2 ECONOMIC ISSUES...56
7.3 ENVIRONMENTAL ISSUES...57
7.4 SOCIAL ISSUES...58
CHAPTER 8 THE LITERATURE APPLIED TO CENTROTEC, TAKING INTO ACCOUNT THE GRI, VISIONS OF CENTROTEC, AND OTHER COMPANIES ...60
8.1 SELECTION OF THEMES FOR THE SUSTAINABILITY REPORT...60
8.1.1 Input Global Reporting Initiative...61
8.1.2 Input visions of CENTROTEC ...61
8.1.3 Input other companies ...62
8.1.4 Conclusion ...63
8.2 SELECTION OF PERFORMANCE INDICATORS FOR THE SUSTAINABILITY REPORT...65
8.2.1 Establishment of a full indicator pool...65
8.2.2 Agree criteria for selection, select shortlist, and screen and select performance indicators ...71
8.2.2.1 Workshop at Brink Climate Systems and Ubbink ... 71
8.2.2.2 Conclusion... 77
CHAPTER 9 THE ARISE OF THE FINAL PERFORMANCE INDICATORS ...78
9.1 INPUT OF THE GLOBAL REPORTING INITIATIVE...78
9.2 INPUT BOARD OF DIRECTORS AND EMPLOYEES OF CENTROTEC ...78
9.3 INPUT RESEARCHES AT OTHER COMPANIES...79
9.4 INPUT RELEVANT LITERATURE...79
CHAPTER 10 FRAMEWORK OF THE KEY PERFORMANCE INDICATORS ...80
10.1 LEVEL OF EFFORT TO ESTABLISH THE INDICATOR WITHIN ORGANIZATION...80
10.2 HOW QUICKLY COULD THE DATA BE COLLECTED?...80
10.3 THE FINAL PERFORMANCE INDICATORS...81
10.3.1 The final economic performance indicators...81
10.3.2 The final environmental performance indicators ...83
10.3.3 The final social performance indicators ...85
CHAPTER 11 CONCLUSIONS AND RECOMMENDATIONS ABOUT THE SUSTAINABILITY REPORT OF CENTROTEC...87
LITERATURE...90
Chapter 1 Introduction
Last years there has been a growing interest in the subject of sustainability. Sustainability is about living and working in ways that meet and integrate existing environmental, economic and social needs without compromising the well-being of future generations.
Present-day many companies publish beside a financial annual report also a sustainability report. The reason for this is that beside financial results in the modern society also more and more attention is paid to social and environmental aspects of companies.
These aspects can be placed in a so called sustainability report. A sustainability report encompasses three different components: the so called triple bottom line. The components are: people, profit and planet.
CENTROTEC likes to show her efforts on sustainability to a broader public by means of a sustainability report. Another reason for CENTROTEC to publish a sustainability report is the reason investors are highly interested in sustainable companies and a sustainability report will give the possibility to communicate CENTROTEC’s efforts and achievements on
sustainability to investors. Through dialogue with investors and clients this need became visible. CENTROTEC struggles with the next problem: the board of directors has the intention to publish a sustainability report next year, and although there are some ideas, the board of directors wants to know exactly which themes and performance indicators can be used.
The central research goal of this research is:
To give insight and recommendations which themes and performance indicators can be used in the sustainability report, taken into account the visions of CENTROTEC, so that the board of directors will have an indication which themes and performance indicators can be included in the sustainability report of CENTROTEC.
It seems that if sustainability is to be measured, performance indicators are a useful tool.
First theory which can be applied to CENTROTEC is the theory by Kaptein. This theory will be applied in chapter eight to CENTROTEC, especially to discover which themes
CENTROTEC can include in her sustainability report. The second theory used is the theory by Keeble. This theory is included especially with respect to the performance indicators.
At last use will be made of the Guidelines of the GRI. The GRI has developed performance indicators on three dimensions. These indicators will be studied to find out if they can be of any use to CENTROTEC. Together with the visions of CENTROTEC, the literature can be a helpful source to develop performance indicators.
The findings of this research are recommendations to CENTROTEC about which themes and performance indicators she could use in her sustainability report.
The chapter-classification will be the following:
In chapter two a brief description of CENTROTEC is given. With this description a picture is created about the company. This is helpful, because the research with respect to sustainability reporting and themes & performance indicators is executed at CENTROTEC.
Chapter three contains the research assignment. This means it will describe how the research will be approached and what will be researched. It includes the background of the research, the formulation of the problem (a central research goal, a central research question and conditions of the research), the methodology of the research and an introduction of theories which will be used.
In chapter four a description of sustainability is given. It starts with the history and definition of sustainability. Moreover it provides insight in the concept of sustainability; especially the triple bottom line will be emphasized. At last reasons to report on sustainable issues and some guiding institutes are described.
Chapter five contains if sustainability can be measured according to literature. In the first sub- paragraph is described why to measure sustainability. The second sub-paragraph contains the question if there is any literature which tells us how to measure sustainability. And most important: is there any relevant literature which can be applied to CENTROTEC?
Chapter six contains the question how other companies measure sustainability; which themes and performance indicators do they use. Therefore use will be made of two different surveys, one executed by the KPMG and UvA and one by Ernst & Young. Both surveys contain a well-balanced selection of companies and their sustainability reports. The first survey
includes a selection of the Global Fortune 250 and which themes and performance indicators these companies use in their reports. Emphasize is placed on the measurement of social performance. The second research by Ernst & Young includes companies using the Global Reporting Initiative. This survey includes the performance indicators by the GRI and how companies report on these performance indicators: which performance indicators are used in sustainability reports and which performance indicators are not used? Especially the
environmental and economic performance indicators are useful in this research by Ernst &
Young.
Chapter seven deals with the visions of CENTROTEC. This will be split up into three sub- paragraphs on each of the dimensions of sustainability, namely environmental issues, social issues and economic issues. It includes the visions of CENTROTEC and which themes CENTROTEC find important to mention in their sustainability report. There has been a workshop on the third of June, 2004 to discuss these topics.
Chapter eight deals with the question how the literature can be applied to CENTROTEC, taking into account the GRI, visions of CENTROTEC and other companies. This part of the study will be based on prior results gained in chapter five, six and seven of the research.
Paragraph 8.1 contains the selection of themes for the sustainability report. This study of the themes will be based on the theory by M. Kaptein. After there has been a selection of themes, paragraph 8.2 contains the selection of performance indicators. Paragraph 8.2 will be based on the theory by J. Keeble.
Chapter nine describes the way the final performance indicators did arise. The final
performance indicators did arise with the help of the Global Reporting Initiative, the input of the board of directors and employees, researches at companies and relevant literature. Each input has a different influence.
Chapter ten contains the final framework of the key performance indicators which will be used in CENTROTEC’s sustainability report. The final framework is established through the input of the GRI, visions of CENTROTEC, researches at other companies and relevant literature (see chapter nine). According to J. Keeble the final step of the process of
determining a set of indicators is to establish a reporting framework for the organization. This involves different aspects, namely what level of effort would be required to establish the indicator within the organization and how quickly the data could be collected. The last paragraph of chapter ten includes these final performance indicators.
The last chapter of this paper, chapter eleven, contains the conclusions and recommendations about the sustainability report of CENTROTEC. The conclusions and recommendations will contribute to the quality of CENTROTEC’s sustainability report for next year. However, also some recommendations and challenges for the future will be given in this chapter.
Chapter 2 Introduction CENTROTEC Sustainable AG
This chapter includes a brief description of CENTROTEC Sustainable AG (further in this paper CENTROTEC Sustainable AG is mentioned CENTROTEC), because CENTROTEC is the client of this research. For a better understanding of the research it is necessary to have an insight in the organisation of CENTROTEC. This research is about sustainability; therefore paragraph 2.3 deals with CENTROTEC with respect to sustainability.
2.1 Organisational Structure
New technologies call for high-performance materials. The need to save energy means that new solutions need to be sought. CENTROTEC is able to turn this situation to its advantage.
CENTROTEC, a specialist for energy-saving systems and engineering plastics, has enjoyed substantial growth since going public in 1998. Revenue has risen from EUR 13.6 million to in excess of EUR 115 million. The company is represented by its own subsidiaries in all main EU countries. CENTROTEC is the European leader in pioneering areas of gas flue systems for economical condensing boilers and energy-saving climate control.
In appendix 1 an overview is given of the organisational structure and which subsidiaries of CENTROTEC will be involved in the research. The subsidiaries involved will mainly be manufacturing subsidiaries and subsidiaries in which CENTROTEC has a majority interest.
2.2 Divisions and products
CENTROTEC has actually three main divisions in her product line, namely gas flue systems, climate systems and medical technology and engineering plastics. This paragraph includes a brief description of the different products.
2.2.1 Gas flue systems
CENTROTEC’s gas flue systems division produces:
• Plastic gas flue systems for condensing boiler technology
The Gas Flue Systems business area supplies original, equipment manufacturers, in other words brand manufacturers, and technical dealers throughout Europe with plastic gas flue systems for condensing boiler technology. Systems made from plastic have now almost entirely supplanted the traditional metal systems, as they are more resistant to the acid that occurs in the gas flue systems of condensing boilers. Gas condensing boiler systems are increasingly taking the place of traditional gas and oil-fired heating systems, as they use
2.2.2 Climate systems
CENTROTEC’s climate systems division produces:
• Controlled climate systems (heat recovery) and air heating technology for low-energy houses
Two strands of development in customer requirements used to be directly in conflict with one another: growing environmental and health awareness on the one hand, and the need for fresh air and a pleasant climate inside buildings on the other. People like to have a pleasant climate and fresh are, but usually this wish was at the cost of the environment. Intelligent ventilation systems with heat recovery are now in a position to overcome this conflict. They substitute fresh air for stale air, without any significant loss of energy (efficiency 95 %). Apart from the insulation of buildings and the use of condensing boiler technology, no other energy-saving measure achieves such a good input-to-CO2 emissions ratio. Brink heat recovery systems are also the leaders in terms of market penetration.
2.2.3 Medical Technology & Engineering Plastics
The Medical Technology & Engineering Plastics Division comprises the sub-divisions
• High-temperature plastics as semi-finished products or semi-finished components,
• Advanced composites, and
• The newly incorporated area of medical technology
The division as a whole is CENTROTEC’s powerhouse for new ideas. Here, new applications and sales markets are probed, suitable materials and products developed and put into
production, then marketed. Next products are produced:
• Development and production of high-temperature semi-finished plastic products
The High Temperature Plastics area has successfully been developing and manufacturing technical products for a variety of special applications for many years now.
These products, made from high-performance plastics, are used by renowned clients in the fields of mechanical and plant engineering, medical technology and food processing.
• Prototyping/small-series production of advanced structural elements from high- performance plastics
• Series production of super-lightweight and high-strength advanced composites in the form of semi-finished and prefabricated articles
This is an automated production technique for thermoplastic advanced composites. It has previously only been possible to produce these high-strength, super-lightweight materials by manual processes. The material Tepex® is the first of its kind that can be produced in an industrial process and subsequently machined automatically.
One achievement is for instance the development of a Tepex® sole for a high-tech sports shoe for Puma.
• Apparatus and components for analytical procedures, medical technology and precision mechanics
In purchasing the division of medical technology, CENTROTEC has taken the strategic step from an out-and-out plastics processor to a developer of systems and applications.
Medical technology, activities in this area are focused on:
• Aesthetic surgery, both for the treatment of people with metabolic or skin ailments and as a result of the steady, and in response to the increasing awareness among healthy people of their bodies.
• Analytical/laboratory medicine, where increasing automation is fuelling demand for
• Nano-coating technology, with the aid of which ultra-thin, high-performance anti- adhesion, wettable or decorative coatings are applied.
• The development of pharmaceutical functional packaging with supplementary functions (injection, inhalation, etc.) for the pharmaceutical industry.
Its list of clients includes most major medical technology companies in Germany, as well as many specialized medical product distributors which supply submarkets under their own brand name. There exist longstanding relations and intensive partnerships on various levels with most clients; the quality of the products and the technical expertise are the basis of these customer relationships. Thanks to close cooperation with clients on research and development matters, CENTROTEC’s new subsidiary is constantly unveiling new products and techniques that are protected by patents and utility models.
2.3 CENTROTEC and sustainability
Because this research is about CENTROTEC’s sustainability report, this paragraph deals with CENTROTEC in relation to sustainability. A brief description is given about CENTROTEC and what sustainability means for CENTROTEC.
Last year CENTROTEC changed her name. CENTROTEC had evolved internally and aimed to communicate this changed state of affairs by adopting a new name: CENTROTEC
Hochleistungskunststoffe has become CENTROTEC Sustainable AG. This name sets out CENTROTEC’s agenda for the future. ‘Sustainable’ denotes not simply an approach to corporate management that takes account of ecological, social and ethical concerns, but above all to the nature of the products of CENTROTEC. The board of directors associate the new name with the commitment to a corporate strategy that focuses on the criteria of sustainable management. They aim to create sustainable corporate value in the long term for their stakeholders and for the society in which we live.
CENTROTEC owes its growth to products that contribute towards greater environmental acceptability and towards the preservation of resources. Examples of these include systems for climate control with heat recovery, gas flue systems for condensing boiler technology, super-lightweight fibre composites and, to an increasing degree, components and systems that improve medical care for people.CENTROTEC products helps to create a healthy interior climate in many households. Meanwhile the products satisfy high standards of comfort, at very low levels of energy consumption. Next figure shows CENTROTEC’s sustainable products and the revenue of these products last years. As can be seen, there has been a growth of the revenue of sustainable products.
The annual report 2003 includes some pages about sustainability and the visions of CENTROTEC with regard to the subject of sustainability. Next subjects are mentioned as challenges for CENTROTEC
• exploiting additional business opportunities in new markets for sustainable products,
• strengthening confidence in our customer, which will also be manifested in the guise of “market value”,
• implementing ecological criteria based around the economical use of resources and efficient production methods, and
• promoting responsibility and enterprise among the people who make the company what it is.
In 2005 CENTROTEC’s first sustainability report is to be published. Several reasons have led to this decision. First reason is CENTROTEC’s sustainable product range. The products of CENTROTEC contribute towards greater environmental acceptability and towards the preservation of resources. Another reason for CENTROTEC to publish a sustainability report is the reason investors and clients are highly interested in sustainable companies and a
sustainability report will give the possibility to communicate CENTROTEC’s efforts and achievements on sustainability to investors. Through different meetings and dialogue with clients and investors this need became visible. Moreover the government is establishing more and more rules with respect to the environment. An example of this is the reduction of CO2.
The Dutch government has set the target that the CO2 emissions have to decline before 2010.
With her products CENTROTEC can fulfil certain targets of the government. Because of the evolving interest of different stakeholder groups CENTROTEC has decided to publish her first sustainability report next year.
Chapter 3 Research assignment
This chapter contains the research set-up; this means it will describe how the research will be approached and what will be researched. Paragraph 3.1 contains the background of the research. The background of the research will lead to the formulation of the problem.
In paragraph 3.2 the formulation of the problem will be divided in a central research goal, a central research question and conditions of the research. Paragraph 3.3 contains the
methodology of the research, including a conceptual framework. This chapter ends with paragraph 3.4, an introduction of theories which will be used. The research assignment has a relation to different aspects of research:
Figure 3.1 A research assignment includes three components: theory, methodology and context/question
This figure shows a research assignment includes three aspects, namely theory, methodology and context /question. These three components overlap each other and form together the research assignment. Next paragraphs include these aspects and this will lead to the overall research assignment.
3.1 Background research
Present-day many companies publish beside a financial annual report also a sustainability report. The reason for this is that beside financial results in the modern society also more and more attention is paid to social and environmental aspects of companies.
These aspects can be placed in a so called sustainability report. A sustainability report encompasses three different components: the so called triple bottom line. The components are: people, profit and planet. The intention of these three aspects is to integrate them so a successful way of entrepreneurship can be achieved.
CENTROTEC is a young company which has been very successful last years. For the next years CENTROTEC also expects to be successful and to realize a growth.
Last year CENTROTEC has changed her name from CENTROTEC Hochleistungskunststoffe AG to CENTROTEC Sustainable AG. This name sets out CENTROTEC’s agenda for the future and the direction in which she has moved last years. “Sustainable” denotes not simply only to the corporate management that takes account of environmental and social concerns, but above all to the nature of the products that CENTROTEC makes.
Context/
Question
Theory Methodology
Examples from the sustainable product range include systems for climate control with heat recovery, gas flue systems for energy-saving condensing boiler technology, super-lightweight fibre composites and components and systems for the area of medical technology.
CENTROTEC likes to show her efforts on sustainability to a broader public by means of a sustainability report. Another reason for CENTROTEC to publish a sustainability report is the reason investors are highly interested in sustainable companies and a sustainability report will give the possibility to communicate CENTROTEC’s efforts and achievements on
sustainability to investors and other stakeholders. Through different meetings and dialogue with clients and investors this need became visible.
With the publications of sustainability reports also the criticism on the content of these reports arises. Particularly because the choice of themes can be freely made and the responsibility rest at the company itself, it is important that companies publish a well-considered report. If a company wants a sustainability report to be effective and useful, than a well-considered decision has to be made about the themes and performance indicators which will be included.
CENTROTEC struggles with the next problem: the board of directors has the intention to publish a sustainability report next year, and although there are some ideas, the board of directors wants to know exactly which themes and performance indicators can be used.
This research deals with the question:
- Which themes and performance indicators can be useful information in the sustainability report of CENTROTEC and
- How the quality of these performance indicators can be optimizedÆthis results in reliable information for the stakeholders and users who read the report.
3.2 Formulation of the problem
This paragraph contains the definition of the problem. A formulation of a problem is the complete set of reasoning with which the researcher tries to translate and define the research problem in a tangible research question and goal. A formulation of a problem encompasses a central research goal and a central research question. Together they form the basis of the research and embody what will be researched and why it is researched and under which conditions it will happen. (Jonker en Pennink, 2000)
3.2.1 Central research goal
In a central research goal is embodied what will be done in the research and for who it will be done, what the probable outcomes will be (theoretical or practical knowledge, a model, recommendations) and why it is relevant. (Jonker en Pennink, 2000)
The central research goal for this research is:
To give insight and recommendations which themes and performance indicators can be used in the sustainability report, taken into account the visions of CENTROTEC, so that the board of directors will have an indication which themes and performance indicators can be included in the sustainability report of CENTROTEC.
According to De Leeuw (2001) there are several requirements to the content of a problem, namely:
• Relevance: this means that the outcome of the research meets the needs of knowledge.
The board of directors needs to know which themes and performance indicators are
• Possible to research: this requirement is about the possibility to research the problem.
This means that the central research question can be researched. Indeed this is possible through literature reviews and other research methods.
• Lead to attaining the goal that has been set: this requirement is about efficiency and functional research. This research will be done within a minimum of costs. To get a more functional research there are several limits. The research is limited to some divisions of CENTROTEC. It should be executed within approximately seven months.
3.2.2 Central research question and sub-questions
The research central question is the translation of the original problem into a more tangible starting-point. The central research question is the question that must be answered to get insight into the problem and is an important starting-point for the design of logical sub- questions. Based on the background of the problem and the central research goal the central research question for this research is:
Which themes and performance indicators can be included in the sustainability report and how can the quality of these performance indicators be optimized?
The central research question will be split-up into more concrete sub-questions. This is done to get a clear structure in answering the central question. To answer the central research question the following sub-questions are included:
1 What is sustainability?
This sub-question is about sustainability and the ideas behind this concept. It gives an introduction to the meaning and history of sustainability. Furthermore sustainability reporting and guiding institutes will be treated in this sub-question.
2 Can sustainability be measured according to literature?
Why to measure it?
How to measure it?
The second sub-question deals with the question if, why and how sustainability can be measured according to literature. Is there any literature which tells us how to measure sustainability and how specific/detailed is that literature? And most important: is there any relevant literature which can be applied to CENTROTEC?
3 How do other companies measure sustainability?
This question is about how other companies measure sustainability. In the third sub- question other companies and their sustainability reports are studied to find out how other companies measure sustainability: which themes and performance indicators do they use?
This sub-question will be answered with the help of surveys executed by KPMG and Ernst & Young.
4 What are the main issues for CENTROTEC related to the major themes of sustainability?
Environmental issues Social issues
Economic issues
The fourth sub-question deals with which issues are important for CENTROTEC with
It includes the visions of CENTROTEC and which themes they find important to mention in their sustainability report. A workshop at CENTROTEC will contribute to the answer of this sub-question.
5 How can the literature be applied to CENTROTEC, taking into account the GRI, the visions of CENTROTEC and other companies?
This question deals with how the literature can be applied to CENTROTEC. In the second sub-question was investigated if there is any relevant literature about if and how
sustainability can be measured. With the answers of the study of sub-question two, the visions of CENTROTEC and relevant literature is tried to find an answer to the question which themes and performance indicators can be used by CENTROTEC to measure sustainability. This includes the theory of the theoretical framework, namely The funnel of sustainability reporting by Muel Kaptein and Using indicators to measure sustainability performance at a corporate and project level by Justin Keeble.
6 In what way do the final performance indicators arise?
Input literature
Input Global Reporting Initiative (Æwhat stakeholders expect) Input board of directors / employees (workshop)
This sub-question deals with how the final performance indicators did arise. This includes the input of literature, the global reporting initiative and the input of the board of directors and employees.
7 Which themes and performance indicators has the final key performance framework of sustainability reporting?
This chapter deals with the final key performance framework. It includes which different sustainability themes and performance indicators will be included in CENTROTEC’s sustainability report.
8 Which conclusions and recommendations can be made with respect to
the themes and performance indicators and how can the quality of the performance indicators be optimized?
The last question gives an answer to which conclusions and recommendations can be made to CENTROTEC.
3.2.3 Conditions
Conditions include restrictions and requirements a research has to fulfil.
• The paper has to fulfil the demands of the Rijksuniversiteit Groningen.
• CENTROTEC likes to base her sustainability report on the Global Reporting Initiative.
• Confidential use of information
This research pays no attention to the distinction between terms such as sustainability, business ethics, triple p, social corporate business and other variations about the theme of sustainability. This are only a few of the many terms which relate to sustainability in some way. All these terms reflect the same need of society, namely: companies need to act in a responsible way with regard to social, economic and environmental recourses. There are also
In literature still a lot of confusion exists about the exact meaning of the different terms. It is too far out of reach to examine all definitions for this research. For that reason next definition of sustainable development will be used:
“Sustainable development is development which meets the needs of the present, without compromising the ability of future generations to meet their own needs.”
(The Brundlandt Report, 1987)
3.3 Methodology of the research
3.3.1 Introduction methodology
This paragraph contains the methodology of the research. According to Jonker and Pennink (2000) methodology is a research concept: it includes the approach of the researcher to the central research question and the different steps and conditions of the research. This affects the quality of the research. Next figure represents the “box of bricks”.
Figure 3.2 The ‘box of bricks’ (Jonker and Pennink, 2000)
As can be seen in above figure a research starts with a problem. The background of the problem of CENTROTEC is described about in paragraph 3.1. The problem leads to a central research question and sub-questions (see paragraph 3.2). After the formulation of the central research question next steps can be made. With the help of models, concepts and theories can be searched for a direction which will lead to the answer of the central research question. Not only models, concepts and theories will lead to an answer, also practical research will have a great influence.
Formulation of the problem
Formulation of central research question
Formulation of the problem
Answer central research question Use of models/
concepts and theories
Search for answers with directive ideas
Combine data collection and data analysis
Realizable outcome Execute plan of
search strategies
Research has to lead to useful (relevant and reliable) results. This has requirements for the research, namely an answer to two questions:
1. What do you like to know and why? The answer to this question is the core of the central research question.
2. Which steps do you have to take to get an answer to the first question? This is the planning of the research process.
The requirements of methodology are shown in the next scheme:
requirements to product of knowledge
requirements central research question
requirements research assignment
relevant relevant effective
reliable possible to research reliable
lead to goal that has been set (suitability)
lead to goal that has been set (suitability)
lead to goal that has been set (suitability)
Scheme A Demands of methodology (De Leeuw, 2001)
3.3.2 Typology of the research
According to De Leeuw (2001) there are three different researches possible 1. problem solving research
2. policy supporting research 3. scientific research
The research for CENTROTEC can be typified as ‘policy supporting research’. Policy supporting research intends to provide useful knowledge which can be used in a specific situation by a client and also satisfies a part of the total need for knowledge.
Policy supporting research supports the client by means of useful knowledge. Useful knowledge implies that knowledge is qualitative high. (De Leeuw, 2001) The next sub- pharagraph deals with this subject.
3.3.3 Conditions of research
Two indicators can measure the quality of a research, namely relevance and reliability.
Reliable Not reliable
Irrelevant Not useful Not harmful Relevant Useful Dangerous
Scheme B Quality of research (De Leeuw, 2001) Relevance can be divided into three criteria:
• Available in time: this paper will only be relevant if it is available in time.
CENTROTEC likes to have this report in November/December. If it is not in time, the results will possibly not be useful anymore.
• Comprehensible: this means the client understands the research and the results. The research has to fit into the specific situation of CENTROTEC and the needs of CENTROTEC. The paper will be written in English, this language is comprehensible for the people who will have to work with the results of the research.
• Link with the problem of the client: is the research applicable to the problem of CENTROTEC and is CENTROTEC interested in the research results? The board of directors of CENTROTEC asked for the research, this implies they are interested in the results.
The reliable indicator can be split-up in three indicators:
• Correctness: a research is only reliable if it is correct and right. If you do not know if something is true, or worse if something is not true, the research will not be reliable.
• Consistency: for the research all data used has to be consistent. If data is not consistent, the data is not reliable and therefore not useful.
• Accuracy: results need to be accurate. If results are not accurate you do not know in which situation they are applicable and if they fulfil certain conditions. Also the results of the research have to fit into the client’s case.
3.3.4 Research model and conceptual model
A research model gives an abstract overview of the different steps in order to reach the central goal of this paper. Sustainability reporting is the key concept of this research. There are several resources for which themes and performance indicators to publish in CENTROTEC’s sustainability report. Namely literature about sustainability, sustainability reports of other companies, the Global Reporting Initiative and last but not least the visions of CENTROTEC.
Together these resources lay the foundation of which themes and performance indicators can be published. These outcomes will be compared and analysed, so that the final themes and performance indicators will arise. These final themes and performance indicators are recommendations to CENTROTEC to include in her sustainability report.
Scheme C Research model
Literature Other companies
Global Reporting Initiative
Board of directors:
Visions
CENTROTEC
Outcome: which themes and performance indicators measure sustainability Æcompare and analyse outcome
Final themes and performance indicators
Conclusions and recommendations Report on findings
Sustainability report of
CENTROTEC
The literature block of the research model consist a more detailed overview. Next scheme represents the processes and steps which will be subtract of the literature.
Process to determine the social expectation gap Process to determine the social responsibility
Literature
Screen and select key performance indicators Establishment full indicator pool
Select shortlist Agree criteria for selection
Construct key
performance indicator framework
Process to determine the social relevance
Process to select performance indicators with social effectiveness of the information
Process to select social correct and true
performance indicators
Process to select performance indicators with a social
reasonability
Process to select social properly performance indicators
Scheme D Literature which is included in the research model
Theory by Kaptein
The yellow blocks refer to the literature by Kaptein regarding the selection of themes. They represent the first steps of the funnel of sustainability reporting (see paragraph 3.4). The blue blocks also refer to the theory by Kaptein, but they include the selection of the performance indicators. These blocks represent the last steps of the funnel of sustainability reporting. The theory by Kaptein will be useful in this research, because it is a theory which is helpful to make a selection of a lot of information. The theory by Kaptein helps to make a selection and a shifting with the purpose to establish a final set of sustainability themes and performance indicators.
Theory by Keeble
The pink blocks refer to the theory by Keeble; this theory will be used to select the
performance indicators for CENTROTEC (see paragraph 3.4). This theory is complementary to the theory of Kaptein. The theory by Kaptein will especially be used for the selection of the themes, whereas the theory by Keeble will be useful for the selection of the performance indicators. The theory by Keeble goes deeper in detail about the performance indicators than the theory by Kaptein. For that reason the theory by Keeble will be used additionally.
The conceptual model reflects the different sub-questions of this research. The conceptual model includes concepts which are important in this research and their relations.
Theory by Kaptein
See the description above for explanation of the blocks with respect to the theory by Kaptein.
Global Reporting Initiative (GRI)
The Global Reporting Initiative is an international guideline for sustainability reporting, CENTROTEC likes to base her sustainability report on the GRI. Therefore, the GRI will give direction to the establishment of the final themes and performance indicators.
Visions of CENTROTEC
Furthermore the visions of CENTROTEC will lead to the themes of the sustainability report.
The visions of CENTROTEC are important, because through their visions CENTROTEC likes to distinguish herself from other companies and sustainability reports.
Together, all these blocks lay down the foundation of the sustainability report of CENTROTEC.
Scheme E Conceptual model
Themes sustainability report
Social relevance
Social responsibility
Social expectation gap
Global reporting initiative
Visions of CENTROTEC
Performance indicators sustainability report
Social effectiveness information
Social correct and true
Social reasonability
Sustainability report CENTROTEC
Social properly
3.3.5 Data collection
This sub-paragraph contains the data collection of the different sub-questions.
According to Baarda and De Goede there are three different ways of collecting data in order to answer questions, namely: interviews, observations and existed data. Existed data has the preference, because the costs of collecting are low and there is no need to bother busy people.
However, existing data is not always enough to answer questions. Than interviews or observations are necessary to gather information needed to do the research. The choice is dependent of what you like to know. Interviews will mostly be done when knowledge, attitudes or opinions are necessary for the research. When the necessary information is about behaviour, observations are useful.
In this research most information will be gathered through existing data. There will also be several workshops to gather information.
Sub-question Source of data
What is sustainability? Literature, internet Can sustainability be measured according to
literature?
Literature, Global Reporting Initiative, reviews
How do other companies measure sustainability?
Sustainability reports, surveys
What are the main issues for CENTROTEC related to the major themes of
sustainability?
Workshops
How can the literature be applied to
CENTROTEC, taking into account the GRI, the visions of CENTROTEC, and other companies?
Literature , Global Reporting Initiative, visions of CENTROTEC, surveys at other companies
In what way the final performance indicators arise?
Literature, Global Reporting Initiative and workshops
Which themes and performance indicators has the final key performance framework of sustainability reporting?
Literature, Global Reporting Initiative, visions of CENTROTEC, research and workshops
Which conclusions and recommendations can be made with respect to the themes and performance indicators and how can the quality of the performance indicators be optimized?
All results of the other questions will be the source of this question
Scheme F Data collection of sub-questions
3.4 Theoretical framework
3.4.1 Sustainability reporting funnel by Muel Kaptein
For the development of the performance indicators which can be used by CENTROTEC the funnel of sustainability reporting by Muel Kaptein can be leaned on (Kaptein, 2003:325-331).
This funnel is made of a seven step working method for the selection of themes and indicators for a sustainability report. Next figure represents the funnel.
Possible issues and indicators
Social relevance
Social responsibility
Social expectation gap
Social effectiveness information
Social correct and true
Social reasonability
Social properly
Final sustainability themes and indicators Figure 3.3 Funnel of sustainability reporting
Last years several frameworks are developed for information in sustainability reports.
Demands mentioned are: completeness, inclusivity and comparability. Information is characterized by these criteria. For companies and users of the reports are these criteria valuable. However, the question is how companies can publish a sustainability report which can fulfil these demands. Which steps companies have to take to publish a well-balanced sustainability report? The seven steps of the funnel are an appropriate tool to find a suitable set of performance indicators. The funnel symbolizes the sorting of themes and performance indicators which takes place. The inputs for the funnel are the possible themes and
performance indicators a company could report in her sustainability report. Per step a sorting takes place until the final themes and performance indicators for the report remain. The first three steps in the funnel intend to select themes which are likely to report (internal and
The funnel concerns social criteria for which is likely and which is not likely to include in the sustainability report. The funnel of sustainability reporting will be useful for this research, because it can contribute to the question CENTROTEC deals with, namely which themes and performance indicators can be included in the sustainability report.
3.4.2 Using indicators to measure sustainability performance by Justin Keeble
The second theory which is used refers to an article by Justin Keeble (Keeble, 2003:149-158).
This article is about sustainability and performance indicators. This study will make use of the study with the help of next model.
2
Figure3.4 The process used to determine the set of indicators
This model has similarities with the funnel of sustainability reporting by Muel Kaptein (Kaptein, 2003:325-331). Moreover it is also a new perspective. The model will be used as a supplement to the funnel of sustainability reporting in this research. Four key questions are answered in the model:
• What is critical andrelevant for the organisation?
• What commitments does the organisation need to support?
• How will they benchmark performance?
• What do stakeholders expect of them?
These key questions form the basis for informing a five step process for developing
performance indicators at a corporate level within the organisation. These four key questions are more or less similar to the first steps of the funnel of sustainability reporting, so not much
What’s critical and relevant for the
organisation?
What do stake- holders expect of them?
How will they benchmark performance?
What
commitments do they need to support in their policies?
Estabilish full indicator pool
Agree criteria for selection
Select shortlist
Screen and select KPIs
Construct KPI framework
Indicator selection process
However, the second part of the theory will be interesting for this study, because it contributes to the establishment of the performance indicators. The theory by Kaptein does not go into deep detail about the establishment and content of the performance indicators. For that reason the theory by Keeble will be used complementary. Initially an ‘indicator pool’ is established.
The pool draws indicators from a range of sources, including indicators used by other companies, those used by leaders in sustainability reporting and those proposed by
international standards. In addition, explicit commitments in the organisation are translated into potential indicators and added to the pool. In order to shortlist this ‘indicator pool’ it is necessary to establish exactly what kind of metrics would fit within the organisation. Through a facilitated process of dialogue with the company indicators that meet the specific needs of the organisation remain. In the end a reporting framework is established for the organization.
The theory by Keeble will be useful in this research, because it will contribute to the selection and establishment of performance indicators which can be used by CENTROTEC.
3.4.3 GRI Guidelines
The Global Reporting Initiative (GRI) is an institute which has published Sustainability Reporting Guidelines. These Guidelines are for voluntary use by organisations for reporting on the economic, environmental, and social dimensions of their activities, products, and services. The GRI incorporates the active participation of representatives from business, accountancy, investment, environmental, human rights, research and labour organisations from around the world. Because of this active participation it was possible to publish
guidelines. The reporting guidelines include the development of performance indicators. The performance indicators are grouped under three sections covering the economic,
environmental, and social dimensions of sustainability. Taken together the core indicator represents the issues and items that reporters and report users identified through the Guidelines development process as generally relevant and essential to comparability and transparency. Since every company is unique, there will be variations, but the core indicators serve as a generally applicable starting point for preparing reports. For the more than 120 experts that were involved in developing the 2002 Guidelines indicators they were also the key points of interest for comparison and performance benchmarking. The Guidelines will be useful in this research, because CENTROTEC likes to base her sustainability report on the GRI Guidelines. Moreover the Guidelines are a common used framework, which is developed through interactive involvement of different stakeholder groups (www.globalreporting.org).
