E7-IR and sustainability issues

Objective and overview

Purpose and content of an integrated report
Social and Environmental Issues
Environmental Reporting
Environmental Accounting Systems
Environmental and Social Audits
Economic Sustanability

Objective and overview

Objective is a report which shows how organisations create value
Overview of the <IR> Framework
The 'integrated reporting' concept
Integrated reporting (stylised as '') is the basis for a fundamental change in how to
manage and report to stakeholders.
Integrated Thinking

is the active consideration of the relationships between how an organisation

operates and the capitals it uses

There are three fundamental concepts underpinning <IR>:

1. The Capitals
These are the resources and the relationships used by the organisation
They are financial, manufactured, intellectual, human, social and
relationship, and natural capital.
However, an integrated report may not cover all capitals the focus is on
capitals that are relevant to the entity
2. Value creation
An organisations activities influences its ability to continue to draw on
capitals continuously

3. The value creation process

At the heart of the value creation process is an entitys business model
This creates outputs (products, services, by-products, waste) and outcomes
(internal and external consequences for the capitals).
Objectives and fundamental concepts of integrated reporting

To improve the quality of information available to providers of financial

capital
To communicate everything affecting how an organisation creates value
Look after the broad base of capitals and show how they depend on each
other
Make decisions that focus on creating value in the short, medium and long
term

Purpose and content of an integrated report

To explain to providers of financial capital how an organisation
creates value over time
The building blocks of an integrated report are:
1. Guiding principles
These underpin the integrated report
They guide the content of the report and how it is presented
2. Content elements
These are the key categories of information
They are a series of questions rather than a prescriptive list

Guiding Principles
1. Are you showing an insight into the future strategy..?
2. Are you showing a holistic picture of the the organisation's ability to create
value over time?
Look at the combination, inter-relatedness and dependencies between the
factors that affect this
3. Are you showing the quality of your stakeholder relationships?
4. Are you disclosing information about matters that materially affect your
ability to create value over the short, medium and long term?
5. Are you being concise?
Not being burdened by less relevant information
6. Are you showing Reliability, completeness, consistency and comparability
when showing your own ability to create value.

Content Elements
1. Organisational overview and external environment
What does the organisation do and what are the circumstances under which
it operates?
2. Governance
How does an organisations governance structure support its ability to
create value in the short, medium and long term?
3. Business model
What is the organisations business model?
4. Risks and opportunities
What are the specific risk and opportunities that affect the organisations
ability to create value over the short, medium and long term, and how is the
organisation dealing with them?
5. Strategy and resource allocation
Where does the organisation want to go and how does it intend to get there?
6. Performance
To what extent has the organisation achieved its strategic objectives for the
period and what are its outcomes in terms of effects on the capitals?
7. Outlook
What challenges and uncertainties is the organisation likely to encounter in
pursuing its strategy, and what are the potential implications for its business
model and future performance?

Social and Environmental Issues

Social and environmental issues in the conduct of business and of ethical
behavior:

Economic activity is only sustainable where its impact on society and the
environment is also sustainable.
Sustainability can be measured empirically or subjectively

Environmental Footprint

Measures a companys resource consumption of inputs such as energy,

feedstock, water, land use, etc.

Measures any harm to the environment brought about by pollution

emissions.
Measures resource consumption and pollution emissions in either
qualitative, quantitative or replacement terms.
Together, these comprise the organisations environmental footprint.
A target may be set to reduce the footprint and a variance shown.
Not all do this and so this makes voluntary adoption controversial

Sustainable development

The development that meets the needs of the present without compromising
the ability of future generations to meet their own needs.
Energy, land use, natural resources and waste emissions etc should be
consumed at the same rate they can be renewed
Sustainability affects every level of organisation, from the local
neighborhood to the entire planet.
It is the long term maintenance of systems according to environmental,
economic and social considerations.

Full cost accounting

This means calculating the total cost of company activities, including

environmental, economic and social costs

TBL (Triple bottom line) accounting

TBL accounting means expanding the normal financial reporting framework

of a company to include environmental and social performance.
The concept is also explained using the triple P headings of People, Planet
and Profit
The principle of TBL reporting is that true performance should be measured
in terms of a balance between economic (profits), environmental (planet)
and social (people) factors; with no one factor growing at the expense of the
others.
The contention is that a corporation that accommodates the pressures of all
the three factors in its strategic investment decisions will enhance
shareholder value, as long as the benefits that accrue from producing such a
report exceeds the costs of producing it.

Environmental Reporting
What is Environmental Reporting
Perhaps businesses should only report on things that are required under laws,
accounting standards or listing rules?

But maybe there's more - maybe businesses should be a bit more cool and groovy
and become citizens of society?
After all businesses benefit from society and so should give something back - be
responsible for society just like humans are.
This includes companies taking responsibility for its environmental impacts using
environmental reporting
Ok what goes into this sexy Environment Report?
Basically the environmental impact of the organisation
They can be split as follows:
a) Direct Impacts
The environmental effects of Manufacturing and Distributing
b) Indirect Impacts
The environmental impacts of the supply chain
So basically the company records, measures, analyses and then REPORTS on....
Types of Environmental Impact
a. Consumption - Inputs
Energy and world resources
b. Emissions - outputs
Pollution and by-products

Problems with Environmental Reporting

See above where we say a company should report on direct and indirect impacts?
Well the indirect is a nightmare!
Imagine a bank - it gives loans to companies so theoretically it would have to
report on the impact on the environment that those companies cause - as they've
been caused indirectly by the bank too!
Narrative or Numbers?
i.

Narrative

can be used to convey objectives, explanations, aspirations, reasons for

failure against previous years targets, management discussion, addressing
specific stakeholder concerns, etc.
Numbers

ii.

can be used for emission or pollution amounts (perhaps in tonnes or

cubic metres), resources consumed (perhaps kWh, tonnes, litres),
land use (in hectares, square metres, etc) and similar

Guidelines for Environmental Reporting

Generally it is voluntary
So theoretically adopt any approach to environmental reporting is ok, but
in practice, a number of voluntary reporting frameworks have been
adopted - in particular the Global Reporting Initiative (or GRI)

Some companies now openly say they report their voluntary information
under GRI
Others base their reporting on GRI guidelines without saying explicitly that
they do so (perhaps wishing to adopt its provisions selectively)

Where does an environmental report go?

Many possible places...

In the Annual Report

In stand alone reports
On company websites
In advertising or in promotional media

Advantages and Purposes of Environmental Reporting

These include:

A way to how their accountability to society and to future generations

To strengthen a companys accountability to its shareholders
To demonstrate their responsiveness to certain issues that may threaten the
perception of their ethics
To gain, maintain or restore the perception of legitimacy after a company
commits an environmental error
A convenient place to all about (and re-assure investors) environmental risks
and the ways that they are being managed or mitigated.
The systems and the knowledge they generate could have the potential to
save costs and increase operational efficiency

Environmental Accounting Systems

EMAS

EMAS compliance is based on ISO 14000 recognition although many

organisations comply with both standards
EMAS focuses on the standard of reporting and auditing of that reported
information.
Many companies refer to the standards in their CSR reports

ISO 14000

ISO 14000 focuses on internal systems although it also provides assurance

to stakeholders of good environmental management.

Environmental and Social Audits

The social and environmental accounting movement began in the mid-1980s,
when it was argued that there was a moral case for businesses, in addition to
reporting on their use of shareholders funds, to account for their impact on social
and natural environments.
How, though for example, could you attribute a cost to the loss of species habitat
when building a new factory?
The full cost, then, should include the cost to the environment.
What has all this got to do with audit?

Many investors now want to know about the organisations environmental

footprint and represents risk in terms of reputational damage, or similar.
Some consumers will not buy from companies with poor ethical reputations.
The same can be said with employees

Social Audit

A process that enables an organisation to assess and demonstrate its social,

economic, and environmental benefits and limitations.
Also measures the extent to which an organisation achieves the shared
values and objectives set out in its mission statement.
Provides the process for environmental auditing

Environmental audit

This allows an organisation to produce an environmental report dealing with

the concerns above
This is generally voluntary

It means organisations must start collecting appropriate data:

agreed metrics (what should be measured and how)
performance measured against those metrics
and reporting on the levels of variance.
The problem is though what to measure and how to measure it.
An organisation can use whatever it chooses
Frameworks do exist, such as the data-gathering tools for the Global
Reporting Initiative (GRI), AA1000, and the ISO 14000 collection of
standards, but essentially there is no underpinning compulsion to any of it.

Entirely voluntary?

Not always as stakeholder pressure may demand it

Most large organisations collect a great deal of data, many have
environmental and produce an annual environmental report.
Economic Sustanability

Economic Sustanability
BENEFITS TO A RANGE OF STAKEHOLDERS
Economic sustainability is the term used to identify various strategies that make it
possible to utilise available resources to best advantage.
The idea is to promote usage of those resources that is both efficient and
responsible, and likely to provide long-tem benefits.
In the case of a business operation, economic sustainability calls for using
resources so that the business continues to function over a number of years, while
consistently returning a profit.
Economic sustainability forces a company to look on the internal and external
implications of sustainability management.
This means that managing economic sustainability must consider:

the financial performance of a company;

how the company manages intangible assets;
its influence on the wider economy; and
how it influences and manages social and environmental impacts

There is some consensus that sustainability is desirable for individual businesses to

prevent the devastating and inefficient impacts of corporate premature death, and
to enable and protect social and environmental initiatives, which tend to be the
product of more mature businesses.

Economic sustainability can be seen as a tool to make sure the business does have
a future and continues to contribute to the financial welfare of the owners, the
employees, and to the community where the business is located.