A series of Q&A questions. (case study) The knowledge of Business and Sustainable Development is required
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MGMT 2004: Business and Sustainable Development
Lecture 9
Sustainability Reporting
The Hype and Reality of Reporting Initiatives
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By the end of this lecture you will be able to:
explain the rise of corporate reporting initiatives;
describe the nature of sustainability reporting;
describe existing reporting standards and frameworks; and
evaluate the value and effectiveness of sustainability reporting.
Sustainability Reporting
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Why do businesses bother to report on sustainability, and, what is the value of such reporting for companies as well as stakeholders?
Lecture 9
Lecture 9
Environmental Issues in Business 201
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Environmental Issues in Business 201
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CSR is generally understood as being the way through which a company achieves a balance of economic, environmental and social imperatives (“Triple-Bottom-Line- Approach”), while at the same time addressing the expectations of shareholders and stakeholders.
Drivers of Sustainability in Business and the Corporate Social Responsibility (CSR)
Discretionary
Mandatory
Lecture 9
Lecture 3
Environmental Issues in Business 201
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Environmental Issues in Business 201
- A window through which light can be shed on key elements of corporate performance to help investors
- A tool used by companies to undertake the process of socio-environmental audit
- A transparent practice of measuring, disclosing and being accountable to stakeholders for organisational performance towards non-financial goals
- Hence, non-financial reporting is also often referred to as:
sustainability reporting, responsibility reporting, accountability reporting, CSR reporting, Triple Bottom Line reporting, community reporting, social reporting and most recently shared value reporting
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Various attempts towards improving financial performance as well as environmental and social improvements need to be documented and accounted for
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- Accountability
Companies are increasingly made to face the effects of their actions
polluter pays principle
- Accounting
Companies have started to collect information on aspects (beyond financial) for which accountability is required
e.g. environmental and social accounting
- Reporting
Companies making information publicly available via corporate reports for their stakeholders
Increasingly asked for by investment community and law makers
Lecture 9
Lecture 9
Environmental Issues in Business 201
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Environmental Issues in Business 201
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A sustainability report is published by a company or an organization about the economic, environmental and social impacts or improvements caused by its activities (Source: GRI 2014). It not only presents the organization's values and governance model but also communicates the link between their actions and commitment to triple bottom line
Financial reporting
- Well established
- Clear audience
- Clear set of rules
- For what it captures (an incomplete picture) it captures well
Non-financial reporting
- Newly arrived and evolving
- Multiple audiences
- Vaguely expressed and debatable rules
- It captures something important, but not well enough
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The State of Bhopal Today
- Clean-up of the site is still pending until today, those who survived the disaster still don’t have alternate livelihood opportunities and victims are still suffering.
- The company abandoned the factory site without cleaning and restoring it to its original state and families too poor to move continue to live in the vicinity - exposed to toxic chemicals through groundwater and soil contamination.
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Corporate Register (2009)
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~ 90% of institutional investors rely on sustainability reporting to make investment decisions
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Companies choose to report for a variety of reasons, including:
to inform non-shareholder stakeholders of impacts of the company's performance and strategies to improve impacts,
to inform shareholders and the market how well the company is dealing with non-financial and financial risks, and
to identify areas of key risks and mitigate or minimise the potential impacts
(Source: Parliament of Australia, 2010)
The main target audiences for sustainability reports are employees (87%), customers (79%), shareholders (74%), local community (67%), institutional investors (54%), suppliers (59%), analysts (51%), and governments and NGOs (28%).
Lecture 9
Corporate distress occurs when promises to creditors of a company are broken or honoured with difficulty.
If such distress cannot be relieved, it can lead to bankruptcy
Lecture 9
Environmental Issues in Business 201
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Environmental Issues in Business 201
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https://www.globalreporting.org/information/sustainability-reporting/Pages/reporting-benefits.aspx
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p.13
- The International Standard on Assurance Engagements – it is developed by the international federation of accountants and outlines guiding principles for external auditing.
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Standards for sustainability reporting
ISAE 3000
- The Assurance Standard developed by Institute of Social and Ethical Accountability- focuses on the quality of sustainability reporting-specifically in relation to accuracy and materiality of subject matter
AA1000
Lecture 9
Lecture 9
Environmental Issues in Business 201
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Environmental Issues in Business 201
- The Global Reporting Initiative [GRI] Reporting Framework contains general and sector-specific content that has been agreed by a wide range of stakeholders around the world to be generally applicable for reporting an organization’s sustainability performance.
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Source: GRI (2006, p. 3)
The Global Reporting Initiative Reporting: Framework
Lecture 9
Lecture 9
Environmental Issues in Business 201
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Environmental Issues in Business 201
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The GRI was initiated as a project group for the Coalition for Environmentally Responsible Economies, CERES (Boston) in 1997.
The objective of CERES was to develop a reporting framework to provide social and environmental information on top of financial information in order to increase organisational accountability.
GRI is the de facto standard for voluntary sustainability reporting.
Such wide acceptance is due to the support from other international initiatives e.g. the United Nations Global Compact.
The Global Reporting Initiative Reporting: History
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The Global Reporting Initiative Reporting: Scope
~70% of Sustainability Reports use GRI Framework
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Moneva, J. M., Archel, P., & Correa, C. (2006, June). GRI and the camouflaging of corporate unsustainability. Accounting forum (Vol. 30, No. 2, pp. 121-137).
Lecture 9
Lecture 9
Environmental Issues in Business 201
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Environmental Issues in Business 201
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- Economic – 7 core and 2 voluntary indicators
e.g. Economic performance
- Environmental – 17 core and 13 voluntary indicators
e.g. materials and energy
- Labour practices – 9 core and 5 voluntary indicators
e.g. Occupational Health and Safety
- Human rights – 6 core and 3 voluntary indicators
e.g. number of discrimination incidents
- Society – 6 core and 2 voluntary indicators
e.g. corruption & anti-competitive behaviour
- Product responsibility – 4 core and 5 voluntary indicators
e.g. customer health and safety
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Critically examine the internal and external value of sustainability reporting using a recent report of a company of your choice.
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http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2015/04/group-sustainability-report-2014.bin.html/binarystorageitem/file/Volkswagen_Sustainability_Report_2014.pdf
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- Difficulty for shareholders to link non-financial performance data to companies’ financial position
The business implications of social and environmental issues are not discussed. It is relatively unusual for companies to explicitly discuss the implications (if any) of environmental and social issues for the company’s strategy or key value drivers.
- Most are not externally audited, presented vaguely with positive spin
e.g. “Our injury rate continues to be one-third of the total Australian metalliferous mining industry average." + so lacks credibility
- Voluntarism and lack of uniform standards limit comparability
Companies have a “pick and mix” approach to the indicators on which they report, and these indicators frequently change every 2 or 3 years.
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- Uncertainties i.e. interpolation or extrapolation in the data provided in corporate responsibility reports are rarely acknowledged or quantified.
- It is difficult to assess how companies are performing against their own corporate responsibility policies and commitments.
- It is not clear what resources (human, financial, etc) have been allocated for the achievement of the company’s corporate responsibility objectives.
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Global 100 (2008)
Political Economy Research Institute (2008)
Toxic 100 Index
Issue 4: Trustworthiness
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Absence of reporting requirements and binding guidelines allow less meaningful ‘sustainability’ reporting and communication practices (difficult to separate fact from fiction)
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p.10
- It runs the risk of losing sight of the bigger picture for sustainability (e.g. equity, trade, globalisation)
- It prevents an integrated view of business and sustainable development by insisting on separate, non-integrated core and voluntary indicators.
- It treats three dimensions of sustainability as being equal and on the same level of priority
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- Global rise in sustainability reporting is because of changing supply, changing demand, and changing rules
- Sustainability reporting, however, is largely voluntary and their publication is largely up to corporate policy and goodwill
- Questions remain surrounding the veracity of company reports as verification is still in its infancy e.g. difficulty remains to discern ‘fact’ from ‘fiction’ e.g. BP, VW
- Future reporting formats and company rating systems will need continuous improvement in line with the aspirations of sustainability (perhaps with the help of regulation!)
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Businesses bother to report on sustainability because it demonstrates accountability (sometimes superficially) and has a positive impact on their profitability
Lecture 9
Lecture 9
Environmental Issues in Business 201
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Environmental Issues in Business 201