This article was first published in the April 2011 Ireland edition of Accounting and Business magazine.
Sustainability reporting enables the creation of long-term value for organisations. It is forward looking and includes quantitative and qualitative reporting measures. Financial analysts and investors are demanding more coherent information on company reports to help them understand risks and allow more confidence in investment decisions.
Several tools developed by independent rating agencies track the financial performance of the leading sustainability-driven companies worldwide, including the Dow Jones Sustainability Index and the FTSE4Good. Bloomberg and Thomson Reuters analyse company sustainability reports, the majority of which are based upon the Global Reporting Initiative (GRI) framework for investors globally.
So important is disclosure of sustainability performance for some investment analysts that the NASDAQ Global Sustainability Index (QCRD) recently removed Microsoft, Cisco and Oracle from the QCRD because they did not disclose the minimum 40% of core GRI metrics needed to qualify.
There is a link between financial performance and sustainability in terms of return on investment and there can be immediate and longerterm pay backs in incorporating sustainability into an organisation, for example, short-term efficiencies uncovered through materiality tests with associated cost reductions and longer-term recognition of a best place to work attracting top people to the organisation.
Some of the wider stakeholder issues do not end up on an organisation’s balance sheet but do add long-term value to an organisation, which accountants should be aware of.
Role of private sector
The future of corporate reporting is the integration of financial and nonfinancial reporting into one report. At the recent 2011 World Economic Forum annual meeting in Davos, Switzerland, this topic was discussed by the Big 4, GRI and the managing director of the World Economic Forum, where they stated that any development in integrated reporting should be driven by the private sector, which includes accounting and financial professionals.
They also recognised the long-term investment benefits of including environmental and social impacts in mainstream reporting. In 2010, a new International Integrated Reporting Committee (IIRC) was set up to create a globally accepted integrated reporting framework, which brings together financial, environmental, social and governance information in a clear, concise, consistent and comparable format.
Members include: representatives from Accounting for Sustainability; the Global Reporting Initiative; the International Federation of Accountants; the main global accounting firms and bodies; the UN; the International Organisation of Securities Commissions; the World Bank; the IMF; the Financial Stability Board (as observers); the International Accounting Standards Board; and the Financial Accounting Standards Board; as well as from a range of businesses, investors, NGOs and academic institutions.
The IIRC will present their proposals for an integrated framework at the G20 meeting in November 2011.
Sustainability reporting has moved on from environmental impacts and philanthropy. It now includes:
- Health, safety and environmental performance;
- Organisational governance;
- Labour practices;
- Fair operating practices;
- Product labelling and marketing;
- Supply chain management and procurement;
- Wages and benefits, government transactions and community investments; and,
- An assessment of the strategies and operations of both the organisation reporting and its stakeholders.
The GRI developed the most widely used international sustainability reporting framework standard over 10 years ago and is the only globallyrecognised voluntary reporting framework for sustainability reporting. GRI’s framework gives guidance on how and what to report on, and identifies KPIs for measuring and reporting progress.
The GRI works closely with international bodies such as the UN Global Compact, the UN Environment Programme, OECD and the International Finance Corporation of the World Bank Group. The management disclosure recommendations and KPIs used in sustainability reporting in the GRI framework are designed to complement existing performance indices, risk management systems and reporting systems.
The International Standards Organisation (ISO) has recognised the need for guidance on sustainability through the recent international publication of ISO 26000 on social responsibility, which gives additional recommendations on sustainability issues and supports the GRI reporting structure.
Sustainability has been debated by ACCA for over 20 years and ACCA has been an organisational stakeholder member of the GRI for many of those years, working closely on a number of initiatives, including the 2009 report Getting It: Expert Perspectives on the Corporate Response to Climate Change. ACCA is represented on numerous GRI committees and has recently been awarded the GRI’s C certification for their first-ever CSR 2009–10 report. GRI’s de facto sustainability reporting standard is also promoted in the IFAC’s (International Federation of Accountants) Sustainability Framework.
Sustainability reporting can be undertaken by all types, sizes and sectors of organisations, public and private, from multinationals to SMEs. At the 2010 Ernst & Young/GRI conference to understand the business value and risk assessment benefits of sustainability reporting, GRI stated that 75% of Global 250 companies now report their CSR performance using the GRI framework.
Some of the financial sector organisations operating in Ireland who use the GRI standard for reporting include: HSBC; RSA Group; Investec; State Street; KBC Group; Citi Group; Rabobank; Danske Bank; and Irish Life & Permanent plc. Other Irish-based organisations who use this framework for sustainability reporting include: CRH; Musgrave Group; Vodafone; Rusal (Aughinish); Johnson & Johnson; IBM; Shell; Allianz; and Diageo. Governments have begun to create sustainability reports at a national level with the governments of Austria, Belgium, Canada, Denmark, Finland, Germany, Netherlands, Norway, Sweden and the United States, formally referencing the GRI framework in their guidance documents.
Disclosure of sustainability performance is unavoidable in future corporate reporting. It is already mandatory in the Nordic countries and it is only a matter of time before some element of sustainability reporting becomes mandatory across the EU. To prepare for this, accountants need to develop their understanding, expertise and involvement in sustainability issues, which will increase the scope and importance of current annual reporting practice.
Eva Cahill is CEO of Kinelea