Sustainability reporting- issues and initiatives
Commentary by Katherine Sharp. Feb 2007
Business is currently caught between a rock and hard place when it comes to how it presents itself on sustainability performance . To some, the current practice of reporting is little more than self serving public relations or marketing and not worthy of the term sustainability reporting. To others - notably the Association of Chartered and Certified Accountants (ACCA) - there is merit to be found in existing approaches, Here we examine the debate and look at one project’s goals to support improvement - the Prince of Wales “Accounting for Sustainability” project.
At the centre of the debate is the proper role of the report itself - an exercise in full cost accounting or a piece of strategic business communication? With investors focused on environmental social and governance issues, has the hard work of full cost accounting got lost as commentators prefer to focus on the “G” in ES&G ? Optimists hope that the duties of directors newly codified in the Companies Act 2006 and their accompanying reporting requirements, will work in favour of sustainability goals. The hope is that Boards will improve their scrutiny of their impacts based on more reliable data reduce harm and improve social justice.
Not all are so hopeful.
Professors Jan Bebbington and Rob Gray in a paper entitled “Corporate Sustainability: Accountability and the Pursuit of the Impossible Dream” note that many leading corporations have adopted the language of sustainable development as their own and stepped up the level of claims for the sustainability of their companies’ operations but that “the business community seems strangely reluctant to produce convincing evidence to supports its claims of sustainability”. They deem unlikely any conscious steps towards greater social justice and/or reduced ecological footprint other than driven by cost reduction, risk reduction and income opportunity.
They are gloomy on the prospect of the business sector delivering on sustainability, seeing the problem as inherent in the current economic system. They conclude as evident that “discretion over the un-sustainability of the organisation’s activities available to any manager, regardless of individual commitment, is fairly slight.”
The bad news is that they condemn corporate reporting on sustainability as doomed to failure and irrelevant on the grounds that they provide only the most superficial data. For example, in the case of environmental reporting, the absence of eco-balances means that the reader cannot judge whether all environmental interactions are covered and it is not possible to assess the completeness of the reporting. Without an ecological footprint, how can the company comment on any increase and the relationship between that increase and environmental stewardship? In the case of social reporting, they find no examples of impact on social justice.
The good news is that they offer a vision of how the current impasse might be tackled - by putting the focus on the extent to which corporations are not capable of delivering sustainability. “It is this - accountability for the extent to which a corporation cannot be sustainable, socially responsible and/or environmentally benign - that is the real potential of corporate reporting”. Such information they suggest would allow societies to learn whether to reform corporations, whether self reform is possible and the sorts of incentives and penalties to introduce.
This is not a paper to encourage or offer practical guidance and it doesn’t set out to be. What is does offer the practitioner is useful academic perspective, expressed trenchantly.
Less gloomy are the ACCA awards judges although they inspire their fair share of depression in the enthusiastic first division corporates - as the same merry go round of leaders appears on the short list year after year. In 2006 we see many previous winners - Anglo American plc, BP plc BT Group plc ,Co-operative Financial Services, Shell International Ltd.
Through its annual sustainability reporting awards ACCA says that it promotes greater transparency in the reporting of organisations social and environmental impacts. The core judging criteria are completeness, credibility and communication. “Our Award winners demonstrate that, by emphasising these key elements, companies can target significant improvements in the quality of information disclosed during the reporting process.”
Interestingly, this year the ACCA have removed the categories for best social report, best environmental report and best sustainability report and welcomed all non-financial types of reports and reporting. The reason given is that “ACCA recognises the trend towards more integrated reporting across the environmental, social and economic dimensions of performance, which had led to growth in both hybrids of reporting types and different scopes of reports”
The ACCA website provides an archive of judges reports with comments on award winners which give us some insight into how the wind is blowing in rewarded reporting practice - whether or not that is working towards reduced un-sustainability on the part of the reporter.
ACCA - as does Professor Bebbington- plays a role in the Prince of Wales “Accounting for Sustainability” project as part of an impressive project team. At the end of 2006 they released some information on progress and plans. The language here is in stark contrast to the scathing tone of the Bebbington/Gray paper and the benign commendation of the ACCA judges. The paper sets out with management consultancy confidence its goal “to develop a range of measures to help organisations embed sustainability into their decision-making processes and report their performance in this respect more clearly and consistently.”
Meanwhile reports which assert and convince that corporate responsibility is a strategic issue and provide reassurance that management is achieving its ambitions in this respect are likely to continue to garner praise, driven by factors including Business in the Community’s own CR Index, the methodology of Sustainability in their survey of the Fortune top 50, the publication of the Materiality report from Accountability and the strengthening of the materiality principle from the Global Reporting Initiative. The project is not limited to reporting but includes: considering a kite marking system for companies which voluntarily adopt better acccounting for sustainability; a look at extending cap and trade schemes beyond carbon and other emissions to resources lie water, wetlands, forestry and agriculture; and how sustainability information can be made clearer, verifiable and more consistent in packaging of products.
Further information:
http://www.st-andrews.ac.uk/management/csear
http://www.accountingforsustainability.org.uk
