Corporate Sustainability

Integrating Performance and Reporting

Ann Brockett, Zabihollah Rezaee

• Publisher: Wiley
• Year: 2012
• ISBN:
  9781118238066
• Edition: 1
• Topic: Economics
• Subtopic: Sustainable Development
• Index: Economics

Invaluable guidance for complete integration of sustainability into reporting and performance management systems

Global businesses are under close scrutiny from lawmakers, regulators, and their diverse stakeholders to focus on sustainability and accept responsibility for their multiple bottom line performance. Business Sustainability and Accountability examines business sustainability and accountability reporting and their integration into strategy, governance, risk assessment, performance management and the reporting process. This book also highlights how people, business and resources collaborate in a business sustainability and accountability model.

• Looks at business sustainability and accountability reporting and assurance and their incorporation into the reporting process
• Focuses on how the business sustainability and accountability model are impacted by the collaboration of people, business, and resources
• Presents laws, rules, regulations, standards and best practices relevant to business sustainability performance, reporting and assurance

Organizations worldwide recognize the importance of all five EGSEE dimensions of sustainability performance and accountability reporting. However, how to actually assess sustainability risk, implement sustainability reporting, and obtain sustainability assurance remain a major challenge and best practices are evolving. Straightforward and comprehensive Business Sustainability and Accountability hits on all of the hottest topics around sustainability including multiple bottom line (EGSEE) performance and reporting, related financial and non-financial key performance indicators (KPIs), business social responsibility and environmental reporting.

Part I

An Introduction to Sustainability Performance, Reporting, and Assurance

Chapter 1

Introduction to Business Sustainability and Accountability Reporting

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ExecutiveSummary

In this chapter, we introduce the concept of business sustainability and corporate accountability, its importance, relevance, and its various components. The wave of financial scandals in the early 2000s, the 2007–2009 global financial crisis, and subsequent regulatory responses have galvanized considerable interest in business sustainability, corporate governance, ethical, and corporate accountability. Businesses and professional organizations worldwide have also responded by developing a business sustainability framework consisting of five overriding dimensions of economic, governance, social, ethical, and environmental (EGSEE) performance.

The most important and commonly accepted dimension of EGSEE is economic performance, which is the cornerstone of business sustainability. Organizations survive and produce sustainable performance when they continue to be profitable and produce enduring performance that creates shareholder value. However, EGSEE dimensions are not mutually exclusive, they supplement each other and trade-offs can occur between them. On one hand, organizations that are run ethically, governed effectively, and are socially and environmentally responsible are expected to maintain sustainable performance, create shareholder value, and gain public trust and investor confidence. On the other hand, more economically profitable and viable organizations are in a better position to create jobs and wealth, which enables them to better fulfill their social and environmental responsibilities. Although the primary goal of many business entities will continue to be creating shareholder value through producing sustainable economic performance, organizations must also effectively deal with ethical, social, and environmental issues to ensure they are adding value to all stakeholders involved.

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Introduction

For business, sustainability is defined in several ways. For example, the 2010 United Nations’ (UN) publication “Corporate Governance in the Wake of the Financial Crisis” broadly describes business sustainability as “conducting operations in a manner that meets existing needs, without compromising the ability of future generations to meet their needs and has regard to the impacts that the business operations have on the life of the community in which it operates and includes environmental, social and governance issues.”¹ The UN report further links business sustainability to corporate governance and suggests that sustainability information pertaining to social, governance, ethical, and environmental issues be incorporated with financial information in a single report that includes professional assurance on sustainability information.² The 2009 International Federation of Accountants' (IFAC) “Sustainability Framework” makes a similar recommendation. The IFAC suggests that sustainability be integrated into all aspects of business models from strategic decisions to operations, performance, and communication with stakeholders.³ The IFAC's approach as described in “Sustainability Framework” addresses four different perspectives: “business strategy, internal management, investors, and other stakeholders.”⁴ Corporate sustainability can be summed up as conducting business to create value for present shareholders while protecting the rights of future shareholders and stakeholders.

Sustainability is a dynamic term that can be applied to various purposes and in a variety of settings. The modern use of the term sustainability was first developed in 1987 by the World Commission on Environment and Development (WCED)—also known as the Brundtland Commission—in a UN-sponsored study entitled Our Common Future. WCED described sustainability as an approach that “meets the need of the present without compromising the ability of future generations to meet their needs.”⁵ This captures a key component of sustainability—it is a process of establishing appropriate strategies, policies, and procedures that satisfy present needs without jeopardizing the future.

A program or an activity is considered sustainable if it meets all of the following criteria:

Creates economic value.

Increases public wealth with proper mechanisms for its distribution.

Socially justified.

Environmentally sound.

Ethically conducted.

Conforms to all applicable laws, rules, and regulations.

Several recent reports and publications, such as those by the United Nations Environment Programme Finance Initiative (UNEP FI) and the Canadian Institute of Charter Accountants (CICA), have discussed various aspects of sustainability performance in the areas of social, ethical, governance, and environmental sustainability.⁶ In this book we add one more important dimension: making a sustainable profit through transparent economic performance.

The Case for Sustainability

The 2007–2009 global financial crisis was caused by many factors, including inadequate risk assessment and management, ineffective corporate governance, and a strong focus on achieving short-term performance. Sustainable practices correct each of these failures and lead to long-term growth. Sustainability addresses all aspects of business and markets, from strategic decisions to operations, performance, and disclosures of sustainability information to investors and financial markets that could in turn prevent future economic, social, ethical, governance, and environmental crises. Integrated business practices and reporting are key factors in fostering sustainability.

Southwest's “One Report”

The first step to sustainability is transparency. Southwest Airlines annually issues the “Southwest Airlines One Report,” which was initiated in 2009 to integrate the management report on financial statements with environmental disclosures and information on other aspects of operational sustainability. This integrated report focuses on meeting expectations regarding shareholders, customers, employees, and the environment by disclosing financial and nonfinancial key performance indicators (KPIs) on all aspects of sustainability. Southwest examines the impact of business practices concerning financial decisions, suppliers, and employee training outcomes, as well as the company's environmental, social, and community impact. Southwest realizes benefits from integrated reporting through more effective and transparent communication with all stakeholders, which reflects the airline's commitment to high-quality service and good corporate citizenship beyond fulfilling its fiduciary responsibilities. It also establishes accountability, which is another key of corporate sustainability.

The 2010 “One Report” contains forward-looking information, disclosing the company's estimates, expectations, beliefs, intentions, and strategies for the future, though this cannot guarantee future performance. The report illustrates the continued steadfast focus on the triple bottom line—the performance (profit), the people, the planet—and conforms to the principles outlined by the Global Reporting Initiative (GRI).⁷ Southwest Airlines intends to continue releasing its Southwest Airlines One Report on an annual basis.

Current Status of Sustainability and Accountability

Several recent surveys have underscored the emergence of sustainability within the global business sustainability community. A study conducted by Ernst & Young in cooperation with GreenBiz Group in 2012 analyzed results from 272 executives and leaders of 24 business sectors in corporate environmental strategy and performance. The study revealed six key trends:

1. Sustainability reporting is growing, but the tools are still developing.

2. The CFO's role is increasing.

3. Employees emerged as a key stakeholder group for programs and reporting.

4. Despite regulatory uncertainty, greenhouse gas reporting remains strong along with growing interest in water.

5. Awareness is rising on the scarcity of business resources.

6. Sustainability perform...

Table of contents

• Cover
• Series Page
• Title Page
• Copyright
• Dedication
• Preface
• Acknowledgements
• Part I: An Introduction to Sustainability Performance, Reporting, and Assurance
• Part II: Dimensions of Sustainability Performance
• Part III: Emerging Issues in Sustainability Performance, Reporting, and Assurance
• About the Authors
• Index