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Week5Sustainability_IntegratedReporting_Amended.pptxW5: Sustainability & Integrated Reporting
Learning Objectives
Define what is sustainability
Explain why sustainability is an issue
Explain why an entity might adopt sustainable development and corporate social responsibility practices
Discuss stakeholder influence on sustainable business practice
Describe a range of methods used to report on social and environmental performance
Describe the commonly used guidelines for sustainability reporting
Explain what is emission trading scheme
What is Sustainability
Sustainability is about meeting the needs of the present without compromising the ability of future generations to meet their own needs.
The ability to be sustained, supported, upheld, or confirmed the quality of not being harmful to the environment or depleting natural resources, and thereby supporting long-term ecological balance
Sustainable development refers to three main areas – economic development, environmental development and social development.
Why is sustainability an issue
Changes are happening in the world that may effect your business
Resource consumption
Climate change
Air pollution
Water scarcity (purity)
Population growth (demographics)
Working conditions
Human rights
Reflection: Stakeholder vs Shareholder theory - Do companies have a duty of care to society?
The world of tomorrow, today
We know the future is uncertain and confusing
However if some trends continue there will be large challenges for ‘business as usual’
Accounting for sustainability at its heart is trying to identify changes and plan for those challenges
Check out this video on sustainability development:
Corporate Social Responsibility (CSR)
The concept of corporate social responsibility (CSR) traditionally focuses on organisations’ impacts on society.
It highlights that while companies may primarily be focused on making profits, they also have an effect on, and responsibility to, society.
Specifically, the notion of an organisation’s ‘social contract’ refers to an expectation (rather than a formal agreement) that organisations act in ways acceptable to society.
Sustainability and Corporate Social Responsibility
Reasons for adopting sustainable and corporate social responsibility practices:
Embracing sustainability could make good business sense for an organisation.
Compliance with mandatory obligations.
Voluntary activity, guided by an organisation’s ethical or moral position.
Strategic activity, which benefits the environment, society and the organisation.
Similarity and Differences between Sustainability and CSR
Similarities:
* Both focus on helping companies run in a way that allow them to be ethically profitable.
Differences:
Vision – CSR looks backward and reflects on what companies have done; sustainability looks forward and develops sustainability strategies for the future;
Target – Targets of CSR initiatives are opinion formers eg, media, politicians, pressure groups; sustainability looks at the whole value chain.
This is part of financial accounting too
AASB guidance, if climate change risk is material, disclose it
Dollar focus
Stakeholder Influence
Contemporary organisations must now consider a range of stakeholders — individuals and organisations affected by a company’s operations — in their decision making.
These might include employees, customers, suppliers, the media, government, superannuation funds and other institutional investors, lenders and community groups.
Stakeholders are increasingly concerned with issues of sustainability.
Stakeholder Influence
Ethical investment:
Ethical investment and ethical investment funds represent a growing influence on corporate sustainability performance and reporting.
Entities are challenged by the social, environmental and regulatory pressures as institutional investors increasingly voice their concerns about the economic, financial and regulatory risks of business.
Check out Shell’s 2019 Sustainability Report and find out how Shell engages with its stakeholders and also the governance mechanism in place to address sustainability
Sustainability Reporting
The term sustainability reporting refers to reporting on social and environmental aspects of an organisation’s operations.
‘sustainability reporting’ is now commonly adopted and a number of other terms are also often used (e.g. corporate social reporting; corporate social responsibility reporting; triple bottom line reporting; environmental reporting; social audit; environmental, social and governance reports; and stakeholder reports).
The term ‘triple bottom line reporting’ was introduced in the late 1990s and refers to reporting on three aspects of performance — financial, environmental and social.
Check out Shell’s 2019 Sustainability Report and find out Shell’s business strategy and approach to sustainability
Sustainability Reporting
Companies that adopt sustainability reporting are likely to include information on financial, social, environmental, and governance related performance.
Difference between sustainability reporting and traditional financial reporting:
Traditional financial reporting focuses on recognising the financial effects of an entity’s transactions.
Sustainability reporting involves reporting on the environmental activities of the entity as well as its social impacts.
Integrated Reporting
Integrated reporting is an initiative designed to improve sustainability reporting.
It is a process founded on integrated thinking that results in a periodic integrated report by an entity about value creation over time.
An integrated report discloses information about how the entity’s strategy, governance, performance and prospects lead to value creation.
Integrated Reporting
The International Integrated Reporting Council (IIRC) is a global coalition promoting integrated reporting, and was formed in August 2010.
The IIRC members represent a cross-section of society, including members from the corporate, accounting, securities, regulatory, non-governmental organisation (NGO), intergovernmental organisation (IGO) and standard-setting sectors.
The mission of the IIRC is ‘to establish integrated reporting and thinking within mainstream business practice as the norm in the public and private sectors’.
Integrated Reporting Aims
Improve quality of information to enhance capital allocation
Promote the reporting of a full range of factors that affect value creation
Enhance stewardship across ‘capitals’
Support integrated decision making
Sanford’s Integrated Report 2019
Criticisms of Integrated Reporting
Not able to cover the information needs of all stakeholders
Deficiencies of the integrated reporting framework due to the composition of the IIRC governing council
A tool for influencing public perception about the company
Box ticking
The cost!
Environmental Reporting
Environmental reporting is a subset of sustainability reporting.
When preparing sustainability reports, organisations generally include information about their environmental performance and impacts.
Research on environmental disclosure has largely examined this issue in terms of an organisation’s social contract, arguing that organisations can only continue to exist in society if they operate within a value system consistent with that society.
Environmental Reporting
Organisations that have been subject to scrutiny due to concerns of poor environmental performance (e.g. high emissions, large oil spills) have subsequently been found to provide greater levels of environmental information (Deegan & Rankin 1996).
Another factor that could affect environmental reporting is firm reputation and strategic risk management.
Guidelines on Sustainability and CSR Reporting – UN Global Compact
There is a range of guidelines on sustainability reporting.
The United Nations (UN) has been responsible for a number of these, including the UN Global Compact with principles in human rights, labour, environment and anti-corruption.
Corporate entities joining the Global Compact are required to communicate annually on their progress by submitting an annual ‘Communication on Progress’ report.
Guidelines on Sustainability and CSR Reporting – Global Reporting Initiative
Global Reporting Initiative:
GRI was launched in 1997 as an initiative to develop a globally accepted reporting framework to enhance the quality of sustainability reporting.
The aim is to enhance transparency, comparability and clarity, amongst other principles.
GRI provides a framework of principles and performance indicators that organisations could use to measure and report their economic, social and environmental performance.
GRI has Over 100 measures across sustainability dimensions, e.g., percentage of materials used that are recycled
Guidelines on Sustainability and CSR Reporting – Global Reporting Initiative
Global Reporting Initiative:
GRI Sustainability Reporting Standards are intended to:
enable any organisation to understand and communicate about their impacts on the economy, the environment and society
provide flexibility to meet all sustainability reporting needs
serve as a reference for policy makers and regulators.
Environmental management systems (EMS)
These systems (typically software) help organisations to measure, record and manage their environmental performance.
Implementation of these systems indicates an organisation’s commitment to better monitor, manage, measure and report social and environmental matters.
Climate Change and Accounting
Emissions reduction schemes:
An emissions trading scheme (ETS) is often referred to as a cap and trade scheme, as it allows participants to trade excess emissions permits.
A cap or limit is set on the level of emissions permitted by organisations.
Organisations are required to obtain permits that equal the amount of their emissions.
An ETS results in both benefits and costs.
While benefits extend to the population in general, and companies through strategic and/or financial advantage, costs to organisations include the costs of future investments to mitigate and manage emissions, the costs to meet reporting requirements and costs for compliance and monitoring.
Accounting for Carbon Emission
There is currently no guidance on how to account for carbon pollution permits or emissions trading activities.
In the short term, organisations are required to account for both purchased and allocated emissions allowances.
The treatment of allowances is likely to be related to their classification as either an intangible asset or a financial instrument.
Organisations also need to consider how to account for their obligation to the government at the end of the reporting period to ‘pay’ for their emissions.
Climate change can affect the value of physical assets such as land, and assets used to produce products no longer in demand due to changes in consumer preference to ‘green’ products and technologies.
End of lecture slides
