Why sustainability reporting is good for business
Sustainability reporting is more than “greenwashing” - it is about doing business better
- In 2015 Air New Zealand published its first sustainability report, 17 pages of information on the company’s environmental impact and targets and more about its community engagement and employee diversity
- The airline had created a panel of experts to advise on the path towards being an exemplar of sustainability in its industry, and for New Zealand business
- But, although the company is regarded as a leader in the vanguard of sustainability, as evidenced by its commitment to develop aviation bio-fuel, the sustainability report was published separately to both the company’s annual financial reports and shareholder report
In 2015 Air New Zealand published its first sustainability report, 17 pages of information on the company’s environmental impact and targets and more about its community engagement and employee diversity.
It also contained a foreword by UK environmental crusader, Sir Jonathon Porritt, newly appointed by the airline as chair of its Sustainability Advisory Panel.
“Air New Zealand has embarked on an ambitious journey of change,” wrote Porritt of the company’s sustainability commitment.
The airline had created a panel of experts to advise on the path towards being an exemplar of sustainability in its industry, and for New Zealand business.
But, although the company is regarded as a leader in the vanguard of sustainability, as evidenced by its commitment to develop aviation bio-fuel, the sustainability report was published separately to both the company’s annual financial reports and shareholder report.
The sustainability report, while being comprehensive, was not created according to any one international standard — such as the Global Reporting Initiative (GRI) now in its fourth iteration – but had taken a number of them into “consideration” in its preparation.
Air NZ’s approach is a good example of where many organisations are up to with sustainability reporting.
Sustainability is on the way to becoming a dominant lens through which the company analyses its business process and practices.
It is a key influence on many decisions but sustainability reporting is not yet widely integrated within the overall annual report which still focusses on financial metrics.
“While integrated reporting hasn’t been commonly adopted in Australasia, organisations are definitely looking at sustainability more strategically and aligning it with the business,” says Paul Dobson, national lead partner in Deloitte’s Sustainability Team in Sydney.
“Not everything can be translated into financial terms, so reporting is about balanced information to shareholders and understanding where the linkages come from and value is created.
“It is in this conversation that all this comes together and reflects the environmental and commercial context in which the company operates.”
So while Air NZ is a good example of the growth of “integrated thinking”, where corporates are sensitive to a wider range of social and environmental impacts in their decision making, it does not deliver an integrated report.
The question is, does this really matter given that the point of sustainability reporting was to create momentum for changing business practice?
Companies which have integrated thinking are driving change even if they aren’t delivering an integrated report.
The trend is to move to integrated reporting and that requires integrated thinking first, so that is part of a journey.
Outside of the integrated report debate, separate sustainability reporting has its own momentum. KPMG estimates that 60 per cent of the world’s largest companies are producing sustainability reports, up from 20 per cent, with the most uptake in countries where regulators are onside.
New standards, such as the G4 Sustainability Reporting Guidelines issued by the GRI, go further into quantitative issues in the supply chain to create reports which don’t just tick the compliance box but are created from a deeper view based on data analysis.
“The last few years have seen significant changes in the type of reporting,” says Deloitte’s Paul Dobson CA.
“Now it is more material on issues relevant to the organisation, and how sustainability links to the business strategy not just internally but externally through the supply chain.
“Companies now understand they have to take responsibility and make sure their products are being produced in an appropriate way, and that means understanding business partners and what they do.”
In New Zealand, Abbie Reynolds is executive director of the Sustainable Business Council (SBC), a division of BusinessNZ which represents 85 organisations, 71 of them from the private sector, comprising one third of the country’s GDP.
The SBC requires its members to produce a progress report on their sustainability practices. Most do this through a sustainability report which is also publicly released. Around a dozen report according to the framework of the GRI.
The goal is for companies to communicate their sustainability practices and impacts in ways which make sense for shareholders. For some that is a fully integrated report. For others it is a statement on their website.
In terms of integrated reporting, two SBC member organisations currently deliver integrated reports, with the number growing to four next year.
“The trend is to move to integrated reporting and that requires integrated thinking first, so that is part of a journey,” says Reynolds.
“It needs to be embedded in the business before they can take the next step to integrated thinking and reporting, so a lot of the members are just at the point where they are moving to do separate sustainable reports.
There are a combination of factors driving sustainable reporting in NZ. Initiatives from organisations such as the NZ Stock Exchange, which is looking at governance guidelines around disclosing non-financial assets, and the Financial Markets Authority are adding to the momentum.
Then there are expectations from shareholders, investors and major bank lenders, and also current and future employees, who are clearly attracted to organisations with a sustainability commitment, and are more inclined to stay with companies with good credentials.
Companies which are doing it right in NZ, says Abbie Reynolds, are generating significant “brand love” based on their sustainable commitment and are differentiating themselves in the market.
“And then there are the cohort of chief executives,” she says.
“The group of CEOs of New Zealand’s largest organisations is quite small, and they are all looking at each other. They influence each other quite heavily and some are very deeply engaged.”
The SBC’s manager of sustainable leadership, Belinda van Eyndhoven, also sees changes in the nature of reporting, with governance, ethics, diversity and supply chain a major focus. The council produces a Value Chain Guide which is helping drive this perspective.
“There’s a much broader focus of reporting and organisations are going much deeper and much wider on their key issues,” she says.
“Sustainable supply chain management is a major area of focus, and businesses are using data and relationships to understand and manage their supply chains better and realise risks and areas where they can innovate.”
In all of this change, accountancy and finance professionals are at the centre of things.
Melbourne-based Michael Nugent is a chartered accountant who sits on the GRI’s Global Sustainability Standards Board, and through his role with the International Federation of Accountants (IFAC) is also working for the International Integrated Reporting Council.
Nugent believes that data is now “a new starting point” for businesses to really understand the impact they are having.
“It is not until they start gathering data that they can understand, because you can’t manage what you don’t measure,” he says.
“Then this gets into the c-suite and raises issues around cost savings and managing risk and opportunity. And the reason a lot of small and medium-sized (SME) enterprises are moving in the sustainable direction is because they have to pump data back up to the companies they supply.”
Nugent’s colleague at IFAC, Stathis Gould, says that with their “helicopter view” of the business, accountants in the finance function are well placed to break down the silos in the organisation that can prevent an integrated understanding emerging — and impact a firm’s ability to create value over time.
“Accountants can bring information together from across the business and deliver it in a more consolidated way for decision makers,” says Gould, the IFAC’s Head of Professional Accountants in Business and Integrated Reporting.
“This can really help drive the connections which are a part of integrated thinking, and make sure impacts are better understood, evaluated and managed.”
Ultimately, reporting and disclosure is only useful if it leads to change.
“Reporting can drive behaviour but we can’t achieve the right goals without the integrated thinking piece,” says Gould.
“And to meet goals of sustainable development you have to do things differently and move with the times.
For the leading organisations of the world reporting is not about “greenwashing” it is a part of doing business differently.
“The win-win is when we improve sustainable outcomes at the same time as creating more value for investors,” says Gould.
For more sustainability reporting devlopments and resources visit charteredaccountantsanz.com/library
This article was first published in the November 2016 issue of Acuity magazine.