Chapter 22

Sustainability and
corporate social
responsibility reporting

©2018 John Wiley & Sons Australia Ltd

 Learning objectives

After studying this presentation you should be able to:

22.1 explain why an entity might adopt sustainable
development and corporate social responsibility
practices
22.2 discuss stakeholder influence on sustainable
business practice
22.3 describe a range of methods used to report on
social and environmental performance
22.4 describe the commonly used guidelines for
sustainability reporting
 Learning objectives

22.5 evaluate the implications of climate change for

accounting.
 Sustainability and corporate social
responsibility

• The term sustainability reporting refers to reporting

on social and environmental aspects of an
organisation’s operations.
• The concept of corporate social responsibility (CSR)
traditionally focuses on organisations’ impacts on
society.
• It highlights that while companies may primarily be
focused on making profits, they also have an effect
on, and responsibility to, society.
 Sustainability and corporate social
responsibility

• Specifically, the notion of an organisation’s ‘social

contract’ refers to an expectation (rather than a
formal agreement) that organisations act in ways
acceptable to society.
 Sustainability and corporate social
responsibility

• Origins of sustainability and corporate social

responsibility:
– The report defined sustainable development as
‘development that meets the needs of the present
without compromising the ability of future generations
to meet their own needs’ (United Nations World
Commission on Environment and Development 1987).
– Intergenerational equity has a long-term focus and
recognises that consumption of resources should not
affect the quality of life of future generations.
 Sustainability and corporate social
responsibility

• Origins of sustainability and corporate social

responsibility:
– Intragenerational equity relates to the ability to
meet the needs of current generations.
– Together, intragenerational and intergenerational
equity have been termed eco-justice.
– The concept of sustainability also considers what is
known as eco-efficiency — a focus on the efficient
use of resources to minimise the impact on the
environment.
 Sustainability and corporate social
responsibility

• Reasons for adopting sustainable and corporate

social responsibility practices:
– Embracing sustainability could make good
business sense for an organisation.
– Various reasons for companies adopting
sustainable practices include:
• Compliance with mandatory obligations.
• Voluntary activity, guided by an organisation’s
ethical or moral position.
 Sustainability and corporate social
responsibility

• Reasons for adopting sustainable and corporate

social responsibility practices:
– Various reasons for companies adopting
sustainable practices include:
• Strategic activity, which benefits the
environment, society and the organisation.
• Reasons for adopting sustainable and corporate
social responsibility practices.
 Sustainability and corporate social
responsibility

• Reasons for adopting sustainable and corporate social

responsibility practices:
– Sustainability or CSR activity may also be
undertaken voluntarily by organisations that choose
to engage in activities beyond those required by law.
– Such activities may be guided by the organisation’s
ethical or moral stance (i.e. because they feel it is
the ‘right’ thing to do).
– This is often referred to as an altruistic approach to
CSR.
 Sustainability and corporate social
responsibility

• Material sustainability issues, BHP Billiton:

 Sustainability and corporate social
responsibility

• Corporate sustainability framework, ANZ:

 Stakeholder influences

• Contemporary organisations must now consider a

range of stakeholders — individuals and
organisations affected by a company’s operations —
in their decision making.
• These might include employees, customers,
suppliers, the media, government, superannuation
funds and other institutional investors, lenders and
community groups.
• Stakeholders are increasingly concerned with issues
of sustainability.
 Stakeholder influences

• Stakeholder engagement, Forest Products

Commission:
 Stakeholder influences

• Ethical investment:
– Ethical investment and ethical investment funds
represent a growing influence on corporate
sustainability performance and reporting.
– Entities are challenged by the social,
environmental and regulatory pressures as
institutional investors increasingly voice their
concerns about the economic, financial and
regulatory risks of business.
 Sustainability reporting

• The term ‘sustainability reporting’ is now commonly

adopted and a number of other terms are also often
used (e.g. corporate social reporting; corporate social
responsibility reporting; triple bottom line reporting;
environmental reporting; social audit; environmental,
social and governance reports; and stakeholder reports).
• The term ‘triple bottom line reporting’ was introduced in
the late 1990s and refers to reporting on three aspects
of performance — financial, environmental and social.
 Sustainability reporting

• The Australian Government identified the following

benefits of sustainability reporting:
– Embedding sound corporate governance and
ethics systems throughout all levels of an
organisation.
– Improved management of risk through enhanced
management systems and performance
monitoring.
 Sustainability reporting

• The Australian Government identified the following

benefits of sustainability reporting:
– Formalising and enhancing communication with
key stakeholders such as the finance sector,
suppliers, community and customers.
– Attracting and retaining competent staff by
demonstrating an organisation is focused on values
and its long-term existence.
– Ability to benchmark performance both within
industries and across industries.
 Sustainability reporting

• Integrated reporting:
– Integrated reporting is an initiative designed to
improve sustainability reporting and integrate it more
closely with financial reporting and governance
reporting.
– The development of integrated reporting followed
the global financial crisis and resulted from a
perceived need for a new economic model to protect
a range of stakeholders (e.g. businesses, investors,
employees and society) from subsequent crises.
 Sustainability reporting

• Integrated reporting:
– The IIRC members represent a cross-section of
society, including members from the corporate,
accounting, securities, regulatory, non-governmental
organisation (NGO), intergovernmental organisation
(IGO) and standard-setting sectors.
– The mission of the IIRC is ‘to establish integrated
reporting and thinking within mainstream business
practice as the norm in the public and private
sectors’.
 Sustainability reporting

• Environmental reporting:
– Environmental reporting is a subset of
sustainability reporting.
– When preparing sustainability reports,
organisations generally include information about
their environmental performance and impacts.
 Sustainability reporting

• Environmental reporting:
– Research on environmental disclosure has largely
examined this issue in terms of an organisation’s
social contract, arguing that organisations can only
continue to exist in society if they operate within a
value system consistent with that society.
 Sustainability reporting

• Environmental reporting:
– Organisations that have been subject to scrutiny
due to concerns of poor environmental
performance (e.g. high emissions, large oil spills)
have subsequently been found to provide greater
levels of environmental information (Deegan &
Rankin 1996).
– Another factor that could affect environmental
reporting is firm reputation and strategic risk
management.
 Guidelines for sustainability and CSR
reporting

• There is a range of guidelines on sustainability

reporting.
• The United Nations (UN) has been responsible for a
number of these, including the UN Global Compact
with principles in human rights, labour, environment
and anti-corruption.
• Corporate entities joining the Global Compact are
required to communicate annually on their progress
by submitting an annual ‘Communication on
Progress’ report.
 Guidelines for sustainability and CSR
reporting

• Overview of selected corporate sustainability

indicators:
 Guidelines for sustainability and CSR
reporting

• The Organisation for Economic Co-operation and

Development’s (OECD) Guidelines for Multinational
Enterprises includes a section on disclosure, which
encourages multinational enterprises to provide
disclosures on their non-financial performance in
addition to financial performance.
• The International Organization for Standardization
(ISO) has developed standards dealing with a range
of issues.
 Guidelines for sustainability and CSR
reporting

• Global Reporting Initiative:

– GRI was launched in 1997 as an initiative to
develop a globally accepted reporting framework
to enhance the quality of sustainability reporting.
– It is a joint initiative of the Coalition of
Environmentally Responsible Economies (CERES)
and the United Nations Environment Program
(UNEP).
– The aim is to enhance transparency, comparability
and clarity, amongst other principles.
 Guidelines for sustainability and CSR
reporting

• Global Reporting Initiative:

– GRI provides a framework of principles and
performance indicators that organisations can use
to measure and report their economic, social and
environmental performance.
– The cornerstone of the framework is the
Sustainability Reporting Guidelines (the
Guidelines).
– The initial guidelines were produced in 2000.
 Guidelines for sustainability and CSR
reporting

• Global Reporting Initiative:

– The intention of the GRI Framework is to focus on
material information, and specific standard
disclosures are organised into three main
categories — economic, environmental and social
— with a number of aspects within each category.
 Guidelines for sustainability and CSR
reporting

• Mandatory sustainability and CSR reporting

requirements:
– There are increasing instances of mandatory
environmental, social and governance reporting
requirements around the world.
 Guidelines for sustainability and CSR
reporting

• Social and environmental management systems:

– With increased interest in sustainable reporting,
interest in social and environmental management
systems has also intensified.
– These systems (typically software) help
organisations to measure, record and manage
their social and environmental performance.
 Guidelines for sustainability and CSR
reporting

• Social and environmental management systems:

– Implementation of these systems indicates an
organisation’s commitment to better monitor,
manage, measure and report social and
environmental matters.
 Climate change and accounting

• The Kyoto Protocol is an agreement that commits

signatories to achieving greenhouse gas or carbon
emission reductions.
• Under the Kyoto Protocol, countries were allocated
allowed emissions based on agreed targets.
 Climate change and accounting

• Emissions reduction schemes:

– An emissions trading scheme (ETS) is often
referred to as a cap and trade scheme, as it allows
participants to trade excess emissions permits.
– A cap or limit is set on the level of emissions
permitted by organisations.
– Organisations are required to obtain permits that
equal the amount of their emissions.
 Climate change and accounting

• Emissions reduction schemes:

– An ETS results in both benefits and costs.
– While benefits extend to the population in
general, and companies through strategic and/or
financial advantage, costs to organisations include
the costs of future investments to mitigate and
manage emissions, the costs to meet reporting
requirements and costs for compliance and
monitoring.
 Climate change and accounting

• Accounting for carbon emissions:

– There is currently no guidance on how to account
for carbon pollution permits or emissions trading
activities.
– In the short term, organisations are required to
account for both purchased and allocated
emissions allowances.
– The treatment of allowances is likely to be related
to their classification as either an intangible asset
or a financial instrument.
 Climate change and accounting

• Accounting for carbon emissions:

– Organisations also need to consider how to
account for their obligation to the government at
the end of the reporting period to ‘pay’ for their
emissions.
– Climate change can affect the value of physical
assets such as land, and assets used to produce
products no longer in demand due to changes in
consumer preference to ‘green’ products and
technologies.
 Summary

• Why an entity might adopt sustainable development

and corporate social responsibility practices.
• Stakeholder influence on sustainable business
practice.
• A range of methods used to report on social and
environmental performance.
• The commonly used guidelines for sustainability
reporting.
• The implications of climate change for accounting.