Sustainability Report

Sustainability

Week 11 Workshop

MBA402 Governance, Ethics and Sustainability

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Bill Gates

Play Video

• What does US President Donald Trump mean when he says:

Small Group Discussion

I have made the tough decisions, always with an eye toward the bottom line.

Perhaps it's time America was run like a business.

• In groups, create a strategy for Gary to achieve his two tasks without negatively impacting Southwest Airline’s bottom line.

Gary C. Kelly, Chairman and CEO of Southwest Airlines, has a problem. A large scale redesign of all 737-700 aircrafts is proposed to reduce the weight of each plane thereby saving the company hundreds of thousands of dollars each year in fuel.

The redesign includes the replacement of the leather passenger seat covers – approximately 80,000 in total – with an alternative lighter weight material. For the redesign initiative to succeed, Gary must achieve two things without having a negative impact on the company’s bottom line: firstly, he must choose an alternative seat cover material and, secondly, he must dispose of all the unwanted seat cover leather, all 43 acres of it.

Small Group Challenge Dallas, US 2015

Sustainability

• Sustainability is the capacity a practice has to be maintained indefinitely.

• Sustainability is about meeting the needs of the present without compromising the ability of future generations to meet their own needs.

Sustainability Risk

• There are increasing calls globally for companies to address matters of sustainability and increasing demand from investors for greater transparency around sustainability risk, so that they can properly assess their own investment risk.

Principle 7

7. Recognise and manage risk Companies should establish a sound risk framework and periodically review the effectiveness of that framework.

Local Impact • How companies conduct their business

activities impacts directly on a range of local stakeholders, including: o Shareholders o Employees o Customers o Suppliers o Creditors o Consumers o Local communities

How might each of these stakeholders be affected?

Global Impact

• After an extended period in which cost- cutting has been the number-one business priority, the hidden social and environmental costs of transferring production and services to low-cost countries such as China, India, and Brazil have become increasingly apparent to western consumers.

Recommendation 7.4

7.4 A listed entity should disclose whether it has any material exposure to environmental or social risks and, if it does, how it manages or intends to manage those risks.

The Bottom Line • The bottom line is a company’s profit or

loss, the traditional benchmark of company performance.

• The triple bottom line is a process by which companies manage their economic, environmental and social sustainability risks, sometimes also referred to as profits, planet, and people.

The Triple Bottom Line • A company’s bottom line indicates profit. • But their asbestos mine causes

thousands of deaths from asbestosis and their copper mine pollutes a river.

• The government spends taxpayer dollars on health care and clean up.

• The company’s single bottom line profits do not reflect the broader environmental and social costs.

World Population Growth

Play Video

• What does American physicist Murray Gell-Man mean when he says:

Small Group Discussion

Sustainability is living on nature’s income rather than living on its capital.

• In groups, figure out a way the couple can acquire more than one golden egg per day.

One morning a poor farmer and his wife were collecting the eggs from their geese when they found a goose sitting on a heavy, yellow egg that glittered in the sunshine. Thinking it was prank the farmer’s first reaction was to throw the egg away but his wife suggested he have it appraised by the local smith to be safe.

The egg was made of pure gold! The couple sold the egg to repay their debts. To their astonishment the goose laid a second golden egg the next day. And the next. Before too long the couple were fantastically rich and lived a lavish lifestyle but their desire for even greater wealth soon outpaced the goose’s laying capability and they grew impatient each day waiting for the next golden egg.

Small Group Challenge

Economic Sustainability

• Economic sustainability is the ability of a company to continue operating at a particular level of economic production over the long term.

• Economic sustainability is about using the assets of the company efficiently to allow it to continue functioning profitably over time.

Global Reporting Initiative • The Global Reporting Initiative (GRI) is

an international independent standards organisation established to provide guidelines to companies reporting on sustainability.

• The GRI Standards represent global best practice for reporting publicly on a range of economic, environmental and social impacts.

Material Topics • Sustainability reporting based on the

GRI Standards provides information about a company’s positive or negative contributions to sustainable development.

• Companies identify material topics from the GRI Standards that reflect their significant economic, environmental, and social impacts.

Economic GRI Standards

• Material topics for economic impacts: o Economic performance o Market presence o Indirect economic impacts o Procurement practices o Anti-corruption o Anti-competitive behaviour

Management Approach

• For each material topic identified companies also make a management approach disclosure in their sustainability report.

• A management approach disclosure is a narrative description about how the organisation manages its material topics and their related impacts.

Example: Commbank

Source: Commonwealth Bank Corporate Responsibility Report 2016

• Do you agree with the Native American proverb:

Small Group Discussion

We do not inherit the earth from our ancestors, we borrow it from our

children.

• In groups, identify a potential solution to Larry’s problem.

Larry Fink, CEO of the world’s largest asset manager, BlackRock, has a problem. He feels too many listed companies have been trying to return money to investors through so-called shareholder-friendly steps like paying dividends and share buy backs. Companies in the United States spent close to $1 trillion in 2014 on dividends and share buy backs.

Larry believes this trend in capital divestment is happening at the expense of investment in innovation, environmental sustainability projects, and essential capital expenditures necessary to sustain long term growth.

Small Group Challenge New York City, US 2016

Environmental Sustainability

• Environmental sustainability is the ability of a company to continue operating in a manner that does not compromise the health of the ecosystems in which it operates over the long term.

Energy Usage

• Most of Australia's demand for electricity depends upon coal fired thermal generation owing to the plentiful indigenous coal supply.

• Australia is per capita the world’s second largest emitter of carbon dioxide from the consumption of energy.

Urbanisation • Australian cities have large urban

footprints and are characterised by an unsustainable low-density urban sprawl.

• This places demand on infrastructure and services which contributes to the problems of land clearing, pollution, transport related emissions, energy consumption, automobile dependency and urban heat islands.

Waste Management • Sustainable waste management is a

significant problem in Australia with large quantities of e-waste and toxic waste going into landfill.

• Australia does not have restrictions on the dumping of toxic materials that are common in other countries, such as dumping cathode ray tubes which leach heavy metals into water catchments.

Environmental Impact

• What could an individual company do to reduce or eliminate its environmental impact with regard to: o energy consumption? o urbanisation? o waste management?

Environmental GRI Standards • Material topics for environmental impacts:

o Materials o Energy o Water o Biodiversity o Emissions o Effluents and waste o Environmental compliance o Supplier environmental assessment

Example: John Deere

Source: John Deere Global Citizenship Report 2016

Nestle Baby Milk Formula

• Do you agree with Nestle Chairman Peter Brabeck when he says:

Small Group Discussion

Access to water should not be a public right.

• In groups, identify solutions to Harish’s problem and the market vendor’s problem.

Harish Hande, co-founder and chairman of the Solar Electric Light Company, has a problem. His company has been approached by a woman living in the slums to install solar lights in her home, which does not have enough windows to let in natural light.

The woman is a market vendor and needs the light to prepare snacks in the morning that she sells in the market at night. The solar system she requires to light her home will cost her 10,000 rupees. The Solar Electric Light Company is a business, not a charity, and must sell its products to survive but Harish feels uneasy about selling his company’s expensive solar lighting technology to people with very low incomes.

Small Group Challenge Bangalore, India 2016

Social Sustainability

• Social sustainability is the ability of a company to continue operating in a manner that meets accepted social norms and needs over the long term.

• Social sustainability is about identifying and managing business impacts, both positive and negative, on people.

Social Sustainability Issues

• Human dignity, justice and prosperity are the foundations of social sustainability.

• Major issues of corporate social sustainability include indigenous engagement, work-life balance and philanthropy.

Social Impact

• What could an individual company do to reduce or eliminate its social impact with regard to: o indigenous engagement? o work-life balance? o philanthropy?

Social GRI Standards

• Material topics for social impacts: o Employment o Labour/management relations o Occupational health and safety o Training and education o Diversity and equal opportunity o Non-discrimination o Freedom of association and collective

bargaining

Social GRI Standards

• Material topics for social impacts: o Child labour o Forced or compulsory labour o Security practices o Rights of indigenous peoples o Human rights assessment o Local communities o Supplier social assessment o Public policy

Social GRI Standards

• Material topics for social impacts: o Customer health and safety o Marketing and labelling o Customer privacy o Socioeconomic compliance

Example: BP

Source: BP Sustainability Report 2016

Playtime

Week 11 Workshop

MBA402 Governance, Ethics and Sustainability

Tim Cromwell, executive director and Meridian’s Chief Operations Officer, hands you a report with the results of Meridian’s employee survey.

“Do you want the good news or the bad news first?” he asks. “Definitely the good.” “The employees love you and your leadership style. They say you’ve

turned Meridian around and successfully rebuilt the company after the devastating effects of the corporate scandal.”

“That’s nice to hear,” you smile. “Now what’s the bad news?” “There’s some issues concerning environmental and social responsibility.

The employees gave very low scores on environmentally friendly practices referring specifically to excessive energy usage and lack of e-waste management. For the social factors they stated the company offers no work life balance and doesn’t do anything meaningful to benefit the broader community.”

You read through some of the employee comments. “I guess I have been overly focused on the company’s financial performance. Thanks Tim.”

The board of directors is in a celebratory mood. Marco pops open two bottles of Bollinger champagne and hands out flutes overflowing with ice cold bubbles. The cause for celebration is the Meridian share price which has steadily increased over recent weeks back up to its pre-scandal peak of $45 per share.

Veda raises her flute. “To the Meridian board! The worst is now behind us.” The directors all cheer and gulp at their champagne. “And now that the worst is behind us,” you interject, “there is an issue

concerning Meridian’s future I would like to discuss.” “What’s that?” asks non-executive director, Vincent Delaney. “Sustainability,” you reply, “I’ve been reviewing the results of our employee

survey and I have some ideas about how Meridian can better manage its environmental and social impacts.”

“Let’s postpone that discussion to the next board meeting,” Veda says. You realise you need to present a very compelling proposal for

sustainability reporting that the board will understand and accept…

Group One In your group, prepare a proposal for sustainability reporting Focus on the following:

• Explain the concept of sustainability • Discuss Recommendation 7.1 of the ASX Corporate

Governance Principles and Recommendations • Propose three things Meridian could do to

implement the Recommendation

Group Two In your group, prepare a proposal for sustainability reporting Focus on the following:

• Explain the concept of economic sustainability • Discuss the Global Reporting Initiative Standards • Propose three things Meridian could do to

implement the GRI Standards

Group Three In your group, prepare a proposal for sustainability reporting Focus on the following:

• Explain the concept of environmental sustainability • Discuss three environmental sustainability issues

faced by Meridian and Australia • Propose three things Meridian could do to address

these environmental sustainability issues

Group Four In your group, prepare a proposal for sustainability reporting Focus on the following:

• Explain the concept of social sustainability • Discuss three social sustainability issues faced by

Meridian and Australia • Propose three things Meridian could do to address

these social sustainability issues

Group One Group Two

Group Three Group Four

• Present your proposal to implement sustainability reporting to the board of directors.

“I don’t want to spoil the fun but there are some serious issues that I believe deserve this board’s immediate attention.”

The directors, with some reluctance, stop drinking their champagne to listen. Even Tim Cromwell seems largely indifferent.

“The scandal has been a very difficult time for us but also for our employees. They are burning out rapidly and leaving us to work for other companies that offer more work life balance. Updating our human resources policies could also contribute to easing the urban sprawl in our cities. We need to talk about our energy consumption and waste management. And we could be doing far more to benefit our society generally, particularly our Aboriginal and Torres Strait Islander communities.”

“Okay party pooper,” Veda says, “what did you have in mind?”

The board seems unmoved by your presentation. “Very well,” Veda says, “our CEO has proposed to us a plan for

sustainability reporting incorporating Meridian’s management of economic, environmental, and social sustainability risks. We will now take a vote as to whether we implement the proposed plan. All those in favour of the plan please raise your hands. Thank you. All those against, please raise your hands. Thank you.”

She tallies the votes. “The board resolves to reject the proposed plan.” The decision shocks and deeply disturbs you. “I think we need to discuss

this matter further. Last year almost 90 per cent of the ASX200 companies provided at least some level of reporting on sustainability factors in their public disclosures. What am I missing here? How can you all be so obtuse?”

“What did you call us?” Veda is suddenly furious. “Obtuse,’ you reply. “Was it deliberate? Without a sustainability agenda

Meridian has no future.” “Actually, it’s you that has no future,” she hisses, “you’re fired.”