Drinks giant Diageo makes good start with its first integrated report, but some questions about its sustainability performance remain unanswered
Diageo, one of the world’s biggest drinks companies, joins a growing trend of publishing key sustainability information in an integrated Annual Report.
The non-investor community hasn’t been forgotten, though. A suite of communications aiming to reach all audiences supports the integrated report. Those wanting a lighter read can get a good sense of Diageo’s sustainability priorities on the company’s sustainability and responsibility (S&R) website, while the real sustainability geeks can get their fix from an extensive supplement to the integrated report structure around the GRI G4 index and the UN Global Compact index.
Diageo opts for concise over comprehensive in its Annual Report, the company’s first foray into integrated reporting. Avoiding jargon, cutting out clichés and keeping the language simple makes it accessible and readable, and strong narrative brings the business’s personality to life. This is no mean feat for a publication that serves as the company’s financial report.
In year one of Diageo’s integration expedition the company has done a good job. The Annual Report provides a clear snapshot of the business and how S&R fits in. The chairman pays equal attention to S&R performance and more traditional aspects of business, although the CEO less so.
The two key elements of the business model – economic growth and the six S&R priorities – are addressed side by side. And Diageo measures its performance against a mix of financial and non-financial KPIs. Non-financials include alcohol in society, water efficiency and employee “super-engagement”.
Gender diversity is considered a “key business performance driver” – and is a clear strength. More than 40% of Executive Committee members are women. Diageo’s risk management framework includes a number of S&R issues that have had the attention of executives and the board during the year. Citizenship and sustainability, responsible alcohol promotion, supply of raw materials and talent make up half the company’s “key risks”. The report also covers social and environmental regulations and other issues (such as water scarcity and community development) that account for variations in its markets globally.
Beyond this truly integrated content, more detailed S&R performance data, commentary on trends and case studies are included in a standalone eight-page section. This is structured around Diageo’s six S&R priorities: alcohol in society, water, community empowerment, people, governance and ethics, and value chain partnerships.
Promoting a positive role for alcohol in society is a challenge for a business whose financial success depends on selling as much booze as possible, but clearly strategic given that success is also built on the reputation of its brands. Diageo supports 373 responsible drinking programmes. It has subscribed to the WHO’s voluntary 2025 target to reduce harmful use globally by 10% and it’s one of 13 alcohol companies to join an industry-wide initiative to reduce harmful drinking.
But the impact of all this is hard to assess. It is difficult to understand the extent to which Diageo is changing drinking attitudes or behaviours. Meaningful targets to help assess performance are missing. But the company states it is rethinking how to measure the impact of these programmes.
Water, water, everywhere
Water is another big focus, bringing attention to a major emerging issue for the sector and for commerce more generally. Diageo estimates it uses an average of 6.9 litres of water for every litre of drink it produces. The business is refreshingly decisive about its focus on water use in areas of water scarcity as an environmental priority, rather than trying to address every environmental issue ever known. A helpful map shows the 23 Diageo sites operating in water stressed areas (accounting for a third of its total production).
The business has set 2015 water targets and made progress towards these. Since 2007, water efficiency has improved by 21% (target 30%). Water wasted at water-stressed sites has reduced by 25%, but this is a way off its 50% target and Diageo gives no explanation of this shortfall or plans of how to redress it. What is the company doing in Latin America, for example, where is takes a massive 20.6 litres of water to make one litre of product?
Diageo could bolster its efforts on responsible sourcing. The company relies on Sedex (a tool to share ethical data) to assess its suppliers’ performance and “sets high standards” that they must meet. But only 17% of high-risk suppliers were audited, and capacity-building to help them improve doesn’t seem to be part of the agenda. The business is, however, trying to improve farming practices and productivity through partnerships with farmers in Africa. A little more on the impact of these initiatives in improving farmers’ yields and livelihoods would be good to see.
Overall, Diageo has produced a refreshingly readable and well-integrated Annual Report. In year two, a stronger focus on the impact of S&R – on society and the business – would be welcomed.
- Follows GRI? Yes, GRI G4
- Assured? Limited assurance by KPMG
- Materiality analysis? Yes
- Goals? Yes, but not many
- Targets? For half of its priority areas
- Stakeholder input? No
- Seeks feedback? Yes
- Key strengths? Readable and focused on priority issues
- Chief weakness? Light on financial and social impact
- Pleasant surprise? Level of integration
Phoebe Hayes is a sustainability consultant at Context GroupCR report review CR Reporting Diageo food and drink