Progress on Sustainability Reporting

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Progress on Sustainability Reporting

• Professor Doug Cerf
• Donald Bren Graduate School of
• Environmental Science and Management
• Corporate Environmental Management (ESM 281)
• Winter 2009

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This discussion is on

• how/where/why sustainable reporting is done
• as opposed to..
• determining the sustainable performance of a firm
  through evaluation of sustainable reports

3
Sustainable vs. financial reporting

• What is the driver for various stakeholders?
• Financial reporting-related to investor direct
  financial impact
• Non financial (sustainable reporting)-less direct
  financial impact to investors
• Mandatory or voluntary
• Guidelines for each type of reporting
• Audit/assurance for each type of reporting
• Frequency of each type of reporting
• Sustainability reporting is less regular than
  financial reporting
• Disclosure, income management
• Public relations component
• Distribution system for each reporting system
• Implications of including environmental
  disclosures in required financial reporting
• Both are evolving
• Move to International Financial Reporting
  Standards for US Corporations

4
Global Reporting Initiative (GRI)

• a multi-stakeholder process
• mission is to develop and disseminate globally
  applicable sustainability reporting guidelines.
• voluntary use by organizations for reporting
  on...
• economic, environmental, and social dimensions of
  their activities, products, and services.
• 717 organizations in 2008 from around the world
  report using the GRI
• the world's de facto standard for reporting.
• 60 US companies
• List of companies reporting available on GRI
  website
• http//www.globalreporting.org/GRIReports/2008Repo
  rtsList/

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In October 2006 GRI released its second
comprehensive set of reporting guidelinescalled
the G3 Reporting Framework
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G3 categories

• Defining Report Content
• Defining Report Quality
• Setting the Report Boundary
• Profile Disclosures
• Disclosure on Management Approach
• Performance Indicators
• Sector Supplements
• G3 Link http//www.globalreporting.org/ReportingF
  ramework/G3Online/

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Reporting Boundaries of Sustainability report

• Organizations may have
• complex internal structures, multiple
  subsidiaries,
• joint ventures, and/or foreign operations.
• significant use of outsourcing
• Complicated supply chains
• Distribution channels
• Particular care should be taken to match the
  scope of the report with the economic,
  environmental, and social footprint of the
  organization (i.e., the full extent of its
  economic, environmental, and social impacts).
• Any differences should be explained.
• Is this too much to ask of firms?
• Do the benefits of reporting outweigh the cost of
  the systems?

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Reporting Boundaries
Source GRI boundaries exposure draft
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SourceGRI-G3 online
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Technical protocols

• GRI has developed reporting protocols for some
  reporting categories
• Reporters should use GRI technical protocols if
  they are available
• If an existing GRI protocol is not used,
• The reporting organization should clearly
  describe the measurement rules and methodologies
  used for data compilation.
• If a GRI protocol is not yet available,
• reporting organizations should use their
  professional judgment, drawing on international
  standards and conventions wherever possible.

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Required Sustainable reporting

• Denmark, France, Hong Kong, the Netherlands,
  Norway, South Africa and UK.

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Integrated reports

• Some firms are integrating their sustainability
  report with their annual (financial) report
• Examples
• Novo Nordisk, Danish Pharmaceutical
• Danisco, Danish producer of food ingredients
• Dofasco Inc., Canadian Steel Company
• Most important benefit of integrated reporting is
  the sustainability metrics are part of the
  financial reporting distribution system

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• The trouble with most reports is that they have
  no natural audience other than a handful of SRI
  analysts.
• Judy Kuszewski, SustainAbility Ltd.

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Legitimacy Theory

• The role of environmental disclosures as tools of
  legitimacy A research note (Accounting
  Organizations and Society, 2007)
• In general, the findings provide additional
  support for the argument that companies use
  disclosure as a legitimizing tool
• Our tests document that total environmental
  disclosure is higher for worst environmental
  performers.
• Such disclosure is also higher for firms
  operating in environmentally sensitive
  industries.
• worse environmental performers made higher levels
  of non-monetary environmental disclosures than
  their better performing counterparts

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Are the firms producing sustainable reports
sustainable?

• The companies with the best sustainability
  records produce sustainable reports
• The companies with the worst sustainability
  records produce the best reports
• Discussion

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Earth in the Balance Sheet

• CFO article
• http//www.cfo.com/printable/article.cfm/10234097/
  c_10234153?foptions

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Sustainability Reporting Project

• Goal, obtain a solid understanding of
• scope (what portion of the entity is included in
  the report) and why.
• geographic scope
• impact of outsourced activities (if applicable)
• the sustainable categories addressed
• the technical protocols or other metrics used
• assurance services used,
• effectiveness of the report