ACCOUNTING FOR SUSTAINABILITY

f e b r ua r I 2011 18 th vo lum e ed I t I o n 2

ACCOUNTING FOR SUSTAINABILITY

RALPH THURM PETER EIMERS A N S KO L K BRENDAN O’DWYER P I E T E R VA N ’ T H O F F & B A R E N D VA N B E R G E N NOREENA HERTZ

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Inhoudsopgave | Colofon

Index Preface E di tor Fi duc i e

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C a s p er Fr a n sz

Colofon Uitgever Financiële Studievereniging Amsterdam Redactie Casper Fransz (hoofdredacteur) Gabor Ruigrok Druk Grafiplan Nederland B.V. Opmaak Hetgasbedrijf B.V. Advertenties Fiducie verschijnt vier keer per jaar. Voor Advertenties kan contact worden opgenomen met de Financiele Studievereniging Amsterdam

Interviews: Sustainab il it y: verw even m et de kern van bu siness

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Ra l p h T h u r m ( Del oi tte) Sustainabil it y assurance en de accountant

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Peter Ei m er s ( PwC ) Articles: The evolution of sustainability reporting by

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international firms 3

An s Kol k THE INTEGRAT I ON OF DECI SI ON MAK I NG AND RE PORTING 20 Br en d a n O ’Dw yer Sustai nabl e Insi g h t – Account i ng for Wat er

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Pi eter va n ’t Hof f & Ba r en d va n Ber g en ( KPM G ) Dui senberg sch ool of f i nance – Ask an ex pert

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Nor een a Her t z

© 2010 FSA Hoewel deze uitgave de uiterste zorg is nagestreefd kan voor de aanwezigheid van eventuele (druk)fouten en andersoortige onvolledigheden niet worden ingestaan en aanvaarden de auteur(s), redacteur(en) en uitgever in deze geen aansprakelijkheid. Alle rechten voorbehouden. Niets uit deze uitgave mag worden verveelvoudigd, opgeslagen in een geautomatiseerd gegevensbestand, of openbaar worden gemaakt, in enige vorm of op enige wijze, hetzij elektronisch, mechanisch, door fotokopieën, opnamen, of enig andere manier, zonder vooraf gaande schriftelijke toestemming van de uitgever.

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VOOR VRIJ ONDERNEMEN

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Preface Editor Fiducie

Accounting for Sustainability In the aftermath of the Deepwater Horizon oil spill

Professor Eimers of PwC and Thurm of Deloitte,

and as a result of the financial crisis the relevance

both specialists within sustainability assurance.

of social and environmental reporting has increased.

Both provide us with their view and experience

The public backlash after these catastrophes has

on developments within sustainability assurance.

been enormous and both the public and politicians

KPMG has contributed an article on water

demand more social and environmental awareness

accountancy. Professor O’Dwyer (UvA) contributes

from companies. It is not enough for firms to say

an article on the processes underlying sustainability

they are conscious of sustainability issues. They have

reporting at British Telecom and Professor Kolk

to proof it as well.

(UvA) provides an analysis on the evolution of sustainable reporting by the largest international

Each year Fiducie has an issue dedicated to

firms. Finally, Professor Hertz of the Duisenberg

accountancy. This year’s topic is Accounting for

school of finance elaborates on the general scope of

Sustainability. While the financial crisis and the BP

sustainability.

oil spill certainly have piqued interest for social and environmental reporting, the past decade has seen a

Fiducie, the academic journal of the Financial Study

steady increase in public awareness for sustainability

Association Amsterdam is published each quarter

and its relevance to firms. With the increased

presenting relevant developments related to business

relevance sustainability has to the public and firms,

and economics. I would like to thank you as reader

accountancy standards have been developed as well.

for your interest and hope you enjoy reading the

The field has developed tremendously the past years

Fiducie.

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and the Global Reporting Initiative has created the paradigm upon which most sustainability reports are build. However, sustainability is inherently qualitative in nature and context(or firm)-specific. Thus, the rules and regulations for sustainability assurance are not as fixed or rigid as those for financial reports. As sustainability reporting has such a large scope and is still very much in development,

Casper Fransz Head Editor Fiducie

both academics and specialists still have a lot of learning to do before there will be consensus on one generally accepted framework. This edition will cover aspects such as the way sustainability affects the role of the accountant, developments within sustainability accounting and case studies. We start with interviews with

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Sustainability: verweven met de kern van business

Ralph Thurm

Ralph Thurm is a leading professional in sustainability strategies, operational sustainability, sustainability change management and sustainability reporting. With more than 20 years experience working for major corporates, industry federations, governments and NGOs all over the world, Ralph adds value as a consultant, trainer, moderator or writer on a huge variety of sustainability topics. He is Interview by Casper Fransz

currently working as Director Sustainability Strategies at Deloitte in Amsterdam, The Netherlands.

Voordat u bij Deloitte werkte, werkte u bij het Global

als gevolg van deze transparantie. Reputatie

transparantie en de communitybuilding op internet.

Reporting Initiative (GRI). Zag u in die tijd een

aspecten naar de buitenwereld waren nu ook een

Ze maken daardoor op nieuwe manieren met diverse

tendens van bedrijven naar betere sustainability

stuk tastbaarder. Deze gevolgen leidde bij bedrijven

en andere stakeholders contact. Deze bedrijven zien

reporting?

tot meer eminentie op het gebied van sustainability.

dat de huidige vorm van bedrijfsuitvoering een

Zeker. Voordat ik bij GRI werkte, werkte ik bij

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gevaar is voor de toekomst van hun organisatie.

Siemens (rond 1998-1999) en was ik daar bezig

Momenteel zijn we qua kwaliteit van het

Bij sommige grote bedrijven wordt er ook gezegd:

met de sustainability strategie. Ik heb geholpen

sustainability management een stap verder dan

“shareholder value is leuk, maar wij willen over 20

met het opstellen van een vocabulaire op het

tien jaar geleden. Eerst was je een niche binnen

jaar nog wel bestaan”. Zij moeten daardoor veel meer

gebied van sustainability omdat het voor een

een bedrijf en moest je vechten tegen het stigma

weten dan wat er in het huidig jaarverslag staat en

bedrijf dat gevestigd is in 190 landen erg belangrijk

van windmolens. Nu is er een brede interesse bij

deze internalisatie van het probleem heeft ook

en noodzakelijk is om een gemeenschappelijke

bedrijven over het thema. Wat we nu zien is een

weerslag op het succes van het bedrijf. Accounting

taal te hebben. Daardoor was ik betrokken bij de

vorm van integratie over het thema binnen bedrijven

methoden zullen mee moeten ontwikkelen. Er

ontwikkeling van het GRI netwerk vanaf het

waarbij verschillende afdelingen betrokken zijn en

moet ingespeeld worden op alle succesfactoren

begin, al voordat ik ook daadwerkelijk een functie

andere vaardigheden nodig zijn. Dat verhoogt de

die er binnen een bedrijf zijn en hoe de huidige

bij het GRI vervulde. Ik heb de ontwikkelingen

samenwerking met betrekking tot sustainability.

ontwikkelingen de succeskansen van het bedrijf in

meegemaakt vanuit een grote onderneming die deze

Dat zie je met name in de trend naar integrated

de toekomst beïnvloeden. Dat is nu niet het geval.

guidelines zou kunnen gaan toepassen.

reporting. Dat zie ik dan ook als de ontwikkeling voor de komende vijf tot tien jaar. Ontwikkelingen

In een door u geschreven artikel (Two Worlds

In die tijd heb ik ook gezien hoe bedrijven het thema

beginnen daar al vorm te krijgen zonder dat er

Collide – One World to Emerge!) heeft u het erover

van sustainability reporting hebben omarmd. In de

extern normen zijn gesteld. Proactieve bedrijven

dat bedrijven in verslagen meer blijk moeten geven

begintijd was de environmental manager van een

gaan daarin voorop uit strategische behoefte om hun

van de positie die zij hebben, ook in verhouding

bedrijf vaak op zoek naar een uitbreiding van het

commitment te laten zien binnen een framework

tot concurrenten, ten op zichten van de belangrijke

thema binnen het bedrijf waarbij hij werkte. GRI

waar eigenlijk nog geen echte richtlijnen bestaan.

vraagstukken binnen hun industrie. Wat bedoelt u hier

speelde daar destijds op in. Ik zie sustainability ook,

De standaardzetters (waaronder GRI) kunnen op

precies mee?

en dat bedoel ik helemaal niet negatief, als een soort

heel goed profiteren van het werk dat trendzetters

In de toekomst zal de succesmeeting zoals we die nu

van Paard van Troje. In de zin dat extern van het

hebben verzet.

kennen, de financiële, slechts één onderdeel zijn van

bedrijf een bewustwording werd gecreëerd die intern

de totale succesmeting van een bedrijf. Daarnaast

zal moeten worden toegepast. De GRI gaf bedrijven

Wat is de belangrijkste oorzaak van de verschuiving

zal een bedrijf in de toekomst bovendien worden

de mogelijkheid om zich te vergelijken met elkaar en

in het belang voor bedrijven van sustainability

beoordeeld op basis van de profilering van andere

dat verhoogt de transparantie onderling. Ook zagen

accounting?

aspecten die het succes van een bedrijf beïnvloeden.

bedrijven dat het mogelijk was om op bepaalde

Bedrijven krijgen steeds meer ervaring met grote

Daarbij moet men denken aan carbonaccounting, of

gebieden geld te besparen, efficiëntie te verhogen,

macro-economische trends die er bestaan, verhoogde

beter emissieaccounting, of het Ruggie Framework.

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“Bij sommige grote bedrijven wordt er ook gezegd: Shareholder value is leuk, maar wij willen over 20 jaar nog wel bestaan.” Die laatste houdt zich bezig met human rights due

korte termijn, terwijl de lange termijn vaak des te meer

u olieproducenten. Dit is een industrie waarbij het

diligence. Dit worden modules die een bedrijf in staat

interessant is omdat daar strategische beslissingen en

mogelijk is op een lange termijn voorspellingen te doen.

stellen beoordelingen te maken over de gevolgde

macro-economische zaken een rol spelen. Wie bepaalt

Hoe moeten bedrijven waar veranderingen gebeuren

strategie. Dus in hoeverre de verschillende aspecten

wat de belangrijkste punten zijn waarop bedrijven

op veel kortere termijn zulke lange termijn strategieën

van de bedrijfsstrategie van toegevoegde waarde zijn,

zich moeten richten?

uitzetten?

of ze positief tegenover het vraagstuk staan of dat ze

Uit het proces wat ik ken van de GRI guidelines,

Er zijn volgens mij altijd macro-economische

wellicht een onderdeel van het probleem zijn.

die geen tick-the-box methode hanteren, komt

ontwikkelingen waar je op moet inspelen. Ook een

naar voren dat bedrijven uit een conversatie met

industrie waar veranderingen korte termijn zijn zoals

In de olie-industrie is duidelijk te zien dat de

alle stakeholders een zoektocht moeten voeren

de kledingbranche heeft op lange termijn een visie

opportuniteitskosten van het produceren van olie

naar relevante industriespecifieke problemen waar

nodig. Zo is er een schaarste aan mogelijkheden om

steeds hoger worden doordat olie niet onuitputtelijk

rekening mee moet worden gehouden. Samen

grondstoffen van kleding te krijgen. Daarnaast kan

is. Dit is onderdeel van een groter macro-

moeten zij bepalen wat de meest belangrijke

men zich afvragen hoe de productie van kleding in de

economisch probleem en zal de technologie erg gaan

punten zijn waarop gefocust moet worden. Dit

toekomst plaatsvindt, hoe het zit met merkenrecht,

beïnvloeden waarin oliemaatschappijen investeren

moet leiden tot een lijst met thema’s die bestaan of

transport of hoe het zit met de teruglevering van

om onafhankelijker te worden van olie. De vraag is

thema’s die op dat moment in ontwikkeling zijn.

kleding. Zo is er voor elke industrie een scala aan

nu, hoe gaan oliebedrijven op deze situatie reageren?

Een thema dat nu naar voren komt is bijvoorbeeld

thema’s die relevant kunnen zijn, ook al zie je die in

Wat wordt de balans tussen de traditionele cashcows

human rights. Tien jaar geleden sprak niemand

eerste instantie niet per se.

en de nieuwe manieren waarop zij energie kunnen

daarover in bedrijfsverslagen. Het werd gezien als

opwekken? Er zijn bedrijven die zich hebben willen

een politiek spel en mensen wilden het daar graag

Wat helpt bij deze industrieën is om te kijken naar

profileren als een duurzaam bedrijf, terwijl er maar

houden. Echter, nu komen er steeds meer bedrijven

de volledige value chain of value cycle. Eigenlijk

een paar procent van de winst werd geïnvesteerd in

naar voren die duidelijk willen maken dat dit een

moet je dan vaststellen of er verliezers zijn in deze

onderzoek naar duurzaam produceren. Dat is een

belangrijke kwestie is voor hun.

keten en hoe je dit dan kan oplossen. De spelers in

enorme disbalans. Ze komen er nu achter dat deze

de industrieën moeten dan op hoger bestuurlijk

investeringen op grotere schaal hadden moeten

Je ziet momenteel ook een trend van Global Action

niveau bepalen welke maatregelen er moeten

plaatsvinden. Bedrijven moeten zichzelf de vraag

Networks, waarbij bedrijven opzoek gaan naar

worden genomen. Dit zal dan leiden tot een heel

stellen hoe zij over 20 jaar kunnen opereren, en of

antwoorden op problemen waar politici om een of

hoog niveau van transparantie.

zij überhaupt wel over 20 jaar kunnen bestaan. Als

andere reden geen oplossing op kunnen verzinnen.

bedrijf moet je op dat soort vragen een antwoord

De GRI valt ook onder deze noemer.

hebben want anders heb je geen echte visie.

Lange termijn statements zijn vaak kwalitatief van aard. In hoeverre is het dan mogelijk voor investeerders

U geeft als voorbeeld voor bedrijven die zich,

om grote groepen bedrijven met elkaar te vergelijken?

In uw artikel geeft u tevens aan dat de huidige

vrijwillig dan wel noodgedwongen, bezighouden

Als eerste is het belangrijk om type investeerders

verslaggeving van bedrijven zich teveel focust op de

met sustainability strategieën. Als voorbeeld gebruikte

te onderscheiden van elkaar. Een pensioenfonds

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“Als belegger kun je wel een risico aangaan dat je inmiddels niet of zelden terug kunt vinden in “Bedrijven moeten zichzelf de vraag stellen hoe zij Westerse markten“ over 20 jaar kunnen opereren, en of zij überhaupt wel over 20 jaar kunnen bestaan. Als bedrijf moet je op dat soort vragen een antwoord hebben want anders heb je geen echte visie.“ investeert met een andere doelstelling dan een

investeerders aan bedrijven om informatie vragen

obligatie-investeerder of assetmanager. Deze

en deze onderzoeken. In deze onderzoeken gaan

investeerders hebben allen verschillende behoeften.

miljarden dollars om. Er is dus wel degelijk interesse

Een interessante ontwikkeling is dat een groot

naar sustainability binnen de financiële wereld, ondanks

deel van de behoefte naar sustainability reporting

dat het wellicht niet wordt geuit door alle markt spelers.

of integrated reporting vanuit de financiële wereld komt. Er zullen altijd mensen zijn die niet naar deze

U heeft het over de relatie tussen de financiële

rapporten zullen kijken en handelen op basis van

wereld en sustainability experts. Deze relatie zou

de waan van de dag maar de grotere market players

kunnen worden versterkt door het hebben van één

hebben wel degelijk behoefte aan deze informatie.

gemeenschappelijke taal tussen alle experts. Denkt u

Ik geloof argumenten als “de markt wil maar een

dat er in dit opzicht nog veel vertaal problematiek is?

of twee indicatoren om daarop hun beslissing te

Het is erg wenselijk dat het vocabulaire wordt

nemen” niet, ik denk dat de markt juist heel veel meer

aangepast. Ik merk in de discussie tussen financiële

informatie wil hebben mits het de juiste informatie

markt spelers en niet-financiële markt spelers dat

is. Ik denk dat de nieuwe ontwikkeling naar de G4

er wel een soort van vergelijkbare opvatting is over

Guidelines van de GRI en de ontwikkeling naar

sustainability maar niet een gelijke mening en dat

integrated reporting eraan moeten bijdragen om

heeft nog heel vaak te maken met taalgebruik.

nuttige informatie te verschaffen aan de markt.

Terwijl wij nu op pad zijn naar integratie, denk ik

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dat er nog voldoende huiswerk moet worden gedaan Naar mijn mening investeren investeerders niet per

op het gebied van taal. Bij de constructie van de

se in een bedrijf. Vaak zijn ze erg geïnteresseerd in

derde generatie GRI Guidelines zijn bijvoorbeeld

een bepaalde productlijn of onderdeel van een bedrijf.

financiële markt spelers uitgenodigd om deel te

Als een oliemaatschappij nu veel zou investeren

nemen. Het heeft echter wel lang geduurd, twee à

in duurzame energie, dan trekt dat investeerders

drie jaar, voordat de financiële sector ook echt wat

aan die anders wellicht niet in dit bedrijf zouden

heeft gedaan met deze guidelines en de taal die de

investeren. Door de informatie over deze aspecten

GRI ook gebruikt. Dit is echter een doorgaand

vrij te geven, kunnen andere types investeerders ook

proces waar ook in de toekomst aandacht aan zal

geïnteresseerd raken in het bedrijf.

moeten worden besteed. Het is daarom noodzaak om goed te kijken naar alle soorten taalgebruik om

Er zijn al heel veel netwerken binnen de financiële

achteraf frictie te vermijden.

wereld, waaronder de UN PRI en het Carbon Disclosure Project, die op grote schaal voor

1027-1071 FSA-Fiducie-1102-02.indd 9

For reactions, please mail to [email protected]

31-01-11 12:36

Sustainability assurance en de accountant

Peter Eimers

Peter Eimers is partner bij PricewaterhouseCoopers Accountants N.V. Zijn deskundigheid ligt op het terrein van audit methodologie, audit innovatie en nieuwe assurance services. Peter is als directeur van PricewaterhouseCoopers Certification B.V. betrokken bij de verificatie van emissierechten. Hij is tevens hoogleraar Auditing aan de Vrije Universiteit te Amsterdam en vice-voorzitter van de Commissie Controlevraagstukken van het Koninklijk NIVRA en lid van de Commissie Eindtermen Interview by Casper Fransz

Accountantsopleiding (CEA).

Bent u het eens met de stelling dat sustainability

verandert nog steeds, maar de afhankelijkheid

Daarnaast

assurance de belangrijkste ontwikkeling binnen

neemt enkel maar toe. Als die leverancier zijn

bijvoorbeeld de werkwijze van creditrating

accountancy wordt in de komende tien jaar?

afspraken niet nakomt, wat doe je dan om het op

agencies. De kritiek die je hoort is dat ze bijna

Ja, maar dat wordt tegelijkertijd ook al tien

te vangen? Je bent veel afhankelijker van elkaar.

onschendbaar zijn. Ze geven aan onafhankelijk

jaar geroepen. Accountants kunnen wel zeggen

Dan wil je zekerheid dat wat je aangeleverd krijgt

te zijn maar er is niemand die toezicht op hen

dat het relevant is en dat accountants de

betrouwbaar is, zeker als je aan elkaars systemen

heeft. Voor accountants staat onafhankelijk altijd

aangewezen personen zijn om dit te toetsen.

raakt. Iemand moet de zekerheid kunnen geven.

centraal. De regels van onafhankelijkheid van

Echter, accountants moeten die positie wel eerst

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onafhankelijkheid.

Neem

nu

accountants zijn streng en als accountant ben je

veroveren; er moet wel vraag naar zijn. Destijds

In hoeverre ligt dat dan nog steeds binnen het

ook gewend om je daar constant van bewust te

met de internetbubble toen was er een product

gebied van accountancy?

zijn. Accountants hebben een robuust raamwerk

vanuit Amerika genaamd Webtrust. Accountants

Dat kan verschillende vormen hebben. De

op basis waarvan zij toetsen.

gaven dan een spreekwoordelijke stempel op een

accountant is van nature gewend om iets vast te

website dat de site betrouwbaar was. De redenering

stellen. Accountants hebben de reputatie opgebouwd

Ik merk dat klanten een afweging in maken rond

was dat accountants goed waren in IT en dat de

dat ze onafhankelijk en betrouwbaar zijn. Historisch

prijs en kwaliteit. De accountant is namelijk soms

maatschappij behoefte had aan zo’n waarmerk. .

gezien ging dat over jaarrekeningen. Maar die

duurder. Dat kan in prijs zijn, maar ook in het

Er gebeurde helemaal niks in die markt, want er

methodologie, dat denkkader van toetsen aan een

aantal dagen dat je bezig bent. Dat komt dan

bleek geen vraag om de betrouwbaarheid van

norm en vaststelling of die norm wel geschikt is, dat

doordat wij vinden dat wij een kwaliteitswaarborg

websites te laten testen door accountants.

is iets van accountants. Er zijn daarnaast bijvoorbeeld

moeten neerzetten om terecht die handtekening

ook ISO certificerings bedrijven. Echter, het is geen

te zetten. De waardering daarvoor is vaak

Daarnaast zijn bedrijven en instellingen de

gegeven dat zij met dezelfde diepgang toetsen als

wel aanwezig. Maar niet iedereen vindt die

afgelopen jaren enorm veranderd door de

accountants. Het is namelijk niet alleen toetsen of de

robuustheid even belangrijk. .

globalisering en digitalisering van de maatschappij.

norm wordt doorgevoerd zoals voorgeschreven. Een

Als je bijvoorbeeld tien jaar geleden aan een

accountant vraagt ook de vraag of het functioneel

Het is dus geen gegeven dat sustainability en de

koekjesfabrikant zou zeggen dat zijn zaak zou

is. Als Coca-Cola bijvoorbeeld een sustainability

toetsing daarvan bij accountants terecht komt?

veranderen door internet dan had die je raar

verslag uitgeeft over maar het woord water komt er

Als ik de CO2 markt waar ik zelf actief in ben

aangekeken. Maar elke markt is veranderd. Bakt

niet in voor, dan mist het relevantie. Een accountant

als voorbeeld neem, zie ik een gereguleerde markt

hij nog steeds wel koek? Is hij overgenomen? Welke

zou dan de vraag moeten stellen waarom er niets over

door de Europese wetgeving. Maar de generieke

klanten bedient hij – Nederland, wereldwijd? Hoe

water in het verslag staat. Het is de mindset waarbij

sustainability markt is op dit moment nog vrijwillig.

is zijn concurrentie veranderd? Hoe doet hij zaken –

de accountant zich afvraagt of de achterliggende

Er zijn daar wel aanvaarde verslaggevingregels door

waar komen zijn leveranciers vandaan? Die wereld

doelstelling wel bereikt wordt.

GRI, maar de normen die GRI heeft opgesteld zijn

1027-1071 FSA-Fiducie-1102-02.indd 10

31-01-11 12:36

nogal high-level; de onderneming moet die verder

duurzaam bankieren dan heeft dat waarde. Het

gaan invullen. Vergeleken met bijvoorbeeld IFRS is

beïnvloedt de beslissing van consumenten positief.

het minder uitgekauwd en is er veel meer ruimte

Hoewel dat natuurlijk wel meer geldt voor het ene

voor eigen invulling. Elke ondernemer kan er dus

bedrijf dan voor het andere. Ook voor personeel kan

een andere kant ermee op. En dan wordt het lastig

het een reden zijn om voor jouw bedrijf te kiezen.

om bedrijven met elkaar te vergelijken. Bovendien

Omgekeerd zijn er ook bewegingen. Echter, de

is het minder makkelijk voor een accountant om het

drijvende factor voor zekerheid bij niet-financiële

afdwingbaar te maken.

informatie

is de enorme groei in onderlinge

afhankelijkheid tussen partijen waar ik het in mijn Het is dus belangrijk dat bedrijven meewerken.

eerste antwoord over had. Daardoor ontstaat er een

Maar waar zit de waarde dan in voor bedrijven

behoefte naar betrouwbare informatie. Dat kan op

om een sustainability rapport op te stellen?

individuele basis zijn waarbij een ondernemer zijn

Vertrouwen komt te voet en gaat te paard. Je kunt

uitbestede activiteiten en processen getoetst wil

niet enkel zeggen dat je goed voor je omgeving

hebben. Dat is dus tussen partijen en iets anders

bent, dat zal uit je daden moeten blijken. Als

dan een sustainability verslag voor het brede publiek

ondernemer zal je consistente signalen moeten

waar wij het zonet over hadden. Die algemene

opbouwen. En dan helpt het als je zowel intern

sustainability verslagen zijn wel een markt, maar er

als extern die consistentie een body geeft. Je

is veel meer. Denk bijvoorbeeld een telecombedrijf

geloofwaardigheid naar buiten toe wordt ook

dat moet rapporteren aan de OPTA waarbij de

bepaald door hoe je intern acteert. Een rapport

accountant een assurance rapport bij verstrekt.

helpt het bewustzijn in de onderneming en

Dat soort zaken zijn minder zichtbaar maar wel

als je dat ook laat toetsen is de kans dat het

relevant als je het hebt over ontwikkelingen binnen

daadwerkelijkheid zo wordt uitgevoerd als hoe

sustainability.

11

het management het aangeeft groter. Voor de buitenwereld help het in de geloofwaardigheid.

Doordat er zoveel behoefte is aan meer informatie zie je de jaarrekeningen nogal uitdijen. Er is

Waar zit dan het winstoogmerk?

daarom behoefte aan gecomprimeerde informatie

Dat heeft alles te maken met reputatie. Als

waarbij het niet alleen maar gaat over financiële

je bijvoorbeeld kijkt hoe Triodos bank enorm

cijfers, maar ook over het doen en laten op andere

gegroeid is de laatste jaren door de boodschap van

gebieden.

1027-1071 FSA-Fiducie-1102-02.indd 11

31-01-11 12:36

Eigen klanten is voor mij een uitdaging

We zijn de grootste zelfstandige accountants- en adviesorganisatie in Nederland en groeien nog steeds. Met ongeveer 1.600 medewerkers bedienen we vanuit 47 kantoren 44.000 cliënten. Wil jij een actieve bijdrage leveren aan die stijgende lijn? We bieden je graag alle kansen om je eigen koers te bepalen. En dat zeggen we niet zomaar. We streven naar innovatie, creativiteit en kennisontwikkeling. Eigenschappen als lef, gedrevenheid en puurheid kunnen we daarbij goed gebruiken. Overigens zorgen we niet alleen voor volop mogelijkheden om je ambities waar te maken, maar ook voor een gezonde balans tussen werken en vrije tijd.

www.werkenbijacconavm.nl Ruimte voor onder nemen ! 1027-1071 FSA-Fiducie-1102-02.indd 12 104028 AcconAvm 210x297f Forfaitair Df.indd 1

31-01-11 12:36 24-02-2010 16:53:40

6:53:40

“Als belegger kun je wel een risico aangaan dat je inmiddels niet of zelden terug kunt vinden in Westerse markten“ “De groei van sustainability zit niet in de algemene sustainability, maar in het inspelen op de focusgebieden.“ Dat is dus wat bedoeld wordt met integrated

de vraag is of de maatschappij daar wel op zit te

reporting?

wachten. Niet alles is wellicht in de toekomst

Ja. Neem bijvoorbeeld het jaarverslag van Van

relevant. Dus ik denk dat de aandacht zich meer

Gansewinkel Groep. Die heeft een verslag

zal richten op deelgebieden waar je anderen raakt.

gemaakt wat eigenlijk een directieverslag is met

Dat kan bijvoorbeeld een outsourcing partner zijn.

samengevatte financiële jaarcijfers. Daarbij vragen

Maar het kan ook komen doordat de politiek

zij zich af: wat is nu relevant voor de maatschappij?

een bepaald raakvlak belangrijk vindt. Denk

Ons doen en laten, dus een directieverslag inclusief

bijvoorbeeld aan een luchtvaartmaatschappij en

sustainability. Wat je dan in dit geval ziet is dat

CO2 emissies. Dat zijn elementen van schaarste,

sustainability heel centraal staat voor dit bedrijf,

van publieke belangen. Sustainability is wellicht

een afvalbedrijf. Afval bestaat niet is dan ook hun

te breed. De groei van sustainability zit niet in de

slogan. Qua mindset is dat een hele goede en dan

algemene sustainability, maar in het inspelen op

helpt het als je dit consistent uitdraagt.

de focusgebieden.

Ook in IFRS zie je steeds meer niet-financiële informatie

binnen

druppelen.

Zoals

13

For reactions, please mail to [email protected]

het

risicoprofiel van je debiteuren. Dan kijk je naar de toekomst, terwijl de jaarrekening eigenlijk historisch is. In het jaarverslag staat een stuk over internal controls en governance. Dat zit niet in de jaarrekening en de vraag is dan of de accountant daar ook iets over moet zeggen. Dat hoeft dus niet, maar dat is wel gek. Wat je daarom ziet bij integrated reporting is dat al deze zaken in elkaar schuiven. Waar denkt u dat de komende jaren de belangrijkste ontwikkelingen zullen zijn binnen sustainability? Zoals sustainability tot nu toe werd neergezet is het hele doen en laten van de onderneming. Maar

1027-1071 FSA-Fiducie-1102-02.indd 13

31-01-11 12:36

the evolution of sustainability reporting by international firms Prof. dr. Ans Kolk

Ans Kolk is Full Professor at the University of Amsterdam Business School, the Netherlands. Her areas of research, teaching and publications are in corporate social responsibility and environmental management, especially in relation to the strategy and management of international business firms, and international policy. Professor Kolk has published in a range of international journals, including Journal of International Business Studies, Journal of World Business and Harvard Business Review. She has also been involved in many international projects on strategy, organisation and disclosure

Ans Kolk

14

related to social and environmental issues, in cooperation with different private, public and civil society organisations (including the KPMG international surveys of environmental/sustainability reporting

Full Professor, University of Amsterdam Business

in 1998/1999, 2001/2002 and 2004/2005). She is also active in various roles for (non-)governmental

School

organisations, companies and academic networks in the Netherlands.

Attention to the social and environmental

firms: consistent reporters, late adopters, laggards,

frequently in stand-alone reports, but otherwise as

dimensions of business activities has increased

inconsistent reporters, and consistent non-reporters

part of financial reports (Kolk, 2005a). The labels

considerably, and is frequently linked to firms’

(for more details, see Kolk, 2010). Implications for

used for such reporting have varied considerably,

economic impact in the notion of sustainability or

research and practice are discussed.

ranging

triple bottom line (triple P) (Elkington, 1997), to

from

sustainability

or

sustainable

development to corporate (social) responsibility and

point to the need for managers to focus concurrently

Background on developments and drivers

on People (social), Planet (environmental) and

Attention to sustainability and the role of

Profit (economic). Current interest in the role that

multinationals is not an entirely new phenomenon.

Research on reporting has sometimes included both

firms (can) play to further sustainability has been

Already from the 1970s onwards at least, there have

environmental and social aspects as well, following

preceded by a period in which non-governmental

been considerable societal, policy and academic

the original approach from the field of environmental

organisations campaigned against the negative

concerns related to role of multinationals, at the

and social accounting (e.g. Gray et al., 1985). In many

implications of globalisation in general and the

time specifically in developing countries, and their

cases, however, studies have focused on one of the two,

power of multinational firms in particular. In this

environmental and social impact. The 1970s also

most often the environment, as also reflected in two

setting, multinationals started to increase their

witnessed a first wave of corporate accountability

review articles published in recent years (Berthelot et

accountability to stakeholders on environmental

in the form of so-called social reports published

al., 2003; Lee & Hutchison, 2005). Originating from

and social issues, most notably by publishing

by firms in the US and Western Europe, many

the accounting discipline, these two articles have

reports in which they expressed their commitment

of them multinationals. In the 1980s, however,

yielded an overview of aspects related to voluntary

and outlined activities undertaken to prevent

this social reporting lost momentum as it was not

disclosure by firms, including the factors that have

environmental pollution, human rights violations

institutionalised, and interest faded away (Dierkes

played a role in furthering the trend (see also Kolk,

and other ‘externalities’ of international trade and

& Antal, 1986; Kolk, 2005a).

2005a). It should be noted, however, that several

production. Nowadays, reporting by international

corporate citizenship.

interrelated aspects play a role, or as Deegan (2002,

firms about the social and environmental dimensions

In the late 1980s, non-financial reporting re-

p. 291) put it, ‘expecting that one motivation might

of their activities – alongside their economic impacts

emerged, but this time with a particular focus

dominate all others would be unrealistic’.

– has become rather common. In this article I give

on environmental issues (Berthelot et al., 2003),

a brief overview of the evolution and peculiarities

and disclosure has grown substantially since. In

Hence, publications have likewise distinguished

of sustainability reporting, and present five patterns

the past decades, it has broadened to cover social

a range of possible drivers at the firm, sector and

of reporting by the largest 250 international

(and increasingly some economic) aspects as well,

societal levels (Lee & Hutchison, 2005; cf. Berthelot

1027-1071 FSA-Fiducie-1102-02.indd 14

31-01-11 12:36

et al., 2003). A basic consideration has been that

In addition to cost-benefit frameworks, the objective

countries have, more generally, helped to further

firms balance internal and external pressures from

to keep and/or enhance legitimacy within society

disclosure (Kolk, 2005b; Lee & Hutchison, 2005).

a variety of stakeholders, some more powerful than

has motivated voluntary reporting (Deegan, 2002;

This greater likelihood also applies to firms in

others, to whom corporate information can be useful

cf. Berthelot et al., 2003). This can also be related to

more environmentally-sensitive (polluting) sectors,

in their decision-making and behaviour vis-à-vis the

impression management, according to which firms

with sector as a more important determinant for

firm. Firms and their managers thus seem to weigh

provide information to manage their reputation

explaining reporting than country, although the

perceived advantages and disadvantages (costs and

and the perceptions of key stakeholders, including

latter has increased in importance (Kolk, 2005b).

benefits) of voluntary reporting (cf. Martin & Hadley,

government (for example, to pre-empt disclosure

2008), although insight into firm-level specifics has

regulation). These externally-oriented theories

Sector-related, competitive factors have also come to

been lacking (cf. Berthelot et al., 2003). Various aspects

imply that the socio-political context, including for

the fore in a study on non-reporting, which explored

involved already emerged from a practitioner study

example the occurrence of environmental incidents

the relative importance of the aspects as also included

that requested firms to list reasons for publishing an

and targeted campaigns against particular firms,

in the bottom half of Table 1. To this end, Martin

environmental report – or not – a decade ago (see the

influences the extent of disclosure. The overviews of

and Hadley (2008) first conceptually grouped

overview compiled in Table 1, and also further below

relevant factors in this regard show that size matters,

several aspects into ‘competition’, ‘implementation’,

for the non-reporting aspects).

with large firms more likely to report, presumably

‘reputation/commitment’ and ‘repercussions’, and

due to greater visibility and exposure to media and

sent a survey to UK FTSE 350 firms. While

Table 1

non-governmental organisations’ attention – public

they only asked them to weigh the individual

Firms’ motivations for reporting or non-reporting

pressure and government stimuli in firms’ home

drawbacks to (environmental) reporting, if we,

Reasons for reporting

Reasons for not reporting

• Enhanced ability to track progress against specific targets

• Doubts about the advantages it would bring to the organisation

• Facilitating the implementation of the environmental strategy

• Competitors are neither publishing reports

• Greater awareness of broad environmental issues throughout the

• Customers (and the general public) are not interested in it, it will not

organisation • Ability to clearly convey the corporate message internally and externally • Improved all-round credibility from greater transparency

increase sales • The company already has a good reputation for its environmental performance

• Ability to communicate efforts and standards

• There are many other ways of communicating about environmental issues

• License to operate and campaign

• It is too expensive

• Reputational benefits, cost savings identification, increased efficiency,

• It is difficult to gather consistent data from all operations and to select

enhanced business development opportunities and enhanced staff morale

15

correct indicators • It could damage the reputation of the company, have legal implications or wake up ‘sleeping dogs’ (such as environmental organisations)

Source Compiled from Sustainability/UNEP (1998) and Kolk (2005a, p. 396)

1027-1071 FSA-Fiducie-1102-02.indd 15

31-01-11 12:36

taking their findings, add the factors mentioned by

it must be noted that significant increases can be

check their reports, while this is exceptional in the

non-reporting firms into groups again, competition

observed here as well. This means that differences

case of US firms, and Japanese firms are somewhere

(which included the fact that competitors do not

with (traditionally high reporting) sectors such

in between. In the early years most verification was

publish reports) and implementation (including data

as chemicals & pharmaceuticals, computers &

carried out by accounting firms, but this has been

collection problems) scored highest. Interestingly

electronics, automobiles, utilities, and oil & gas, are

declining since.

enough, reputational aspects were considered least

decreasing.

important, which seems to nuance the relevance of

16

Moving from general trends to those at the firm-

legitimacy and impression management frameworks.

Looking at the types of reports published by the

level, various patterns are possible. The most obvious

It should be noted, however, that the non-reporters

firms analysed, this clearly underlines the trend

ones are those in which a firm consistently publishes

were mostly firms outside the FTSE100, so this

towards sustainability reporting. While none of the

a report, or refrains from doing this, which can be

smaller size may have played a role, also regarding

1999 reports could be labelled as sustainability (triple

labelled as ‘consistent reporters’ and ‘consistent

implementation issues.

P), this has increased rapidly over the years and the

non-reporters’ respectively. Both accounted for a

share of environmental (sometimes combined with

considerable percentage of the sample (Kolk, 2010),

Trends in sustainability reporting

health and safety) reports had decreased accordingly.

respectively one third and one quarter. Another

Overall, based on an empirical study in which a

The emergence of sustainability reports mirrors the

category consists of those firms that started later,

panel of international firms was followed from

development in the field of voluntary standard-

that is they did not publish a report over 1998, but

1998 onwards (Kolk, 2010), reporting has grown

setting where the multi-stakeholder Global

adopted the practice afterwards. These ‘late adopters’

significantly over the years, and has increased in all

Reporting Initiative launched its first sustainability

encompassed 16% of the panel set. What could be

countries. Growth was particularly significant in

reporting guidelines in 1999; the second and third

called ‘laggards’ did not publish a sustainability

France, Germany, Japan and the UK. Concerning

versions were published in respectively 2002 and

report on the first two data points, but had one

the countries with larger numbers of firms, European

2006, and work on the fourth version is currently

subsequently – this applies to almost 20%. The final

and Japanese firms reported more than (the high)

under way for finalisation by the end of 2012.

group brings together ‘inconsistent reporters’, which

average for the largest 250 international firms, and

is the remainder (8%), and comprises firms that did

their US and South Korean counterparts consistently

An element that has received considerable attention

less. Growth obviously also prevails when the sample

in these guidelines has been external voluntary

is considered from a sector perspective. Industrial,

verification of report contents, as part of efforts to

The consistent reporters are leaders in sustainability

more ‘polluting’ sectors have traditionally been most

move towards assurance as provided for financial

reporting. US firms are relatively underrepresented

active in this regard, although the number of banks

reports – even though auditing of social and

in this group, and Japanese and European firms –

and insurance firms that publishes a sustainability

environmental information is still more complex.

except for France – overrepresented. Particularly

report has increasing and caught up most recently.

In the panel of firms studied, a clear increase in

Dutch firms, even though a small number in total,

Besides financial firms, other sectors which have

verification could be noted. This is particularly a

are notable, as a clear majority falls in this category.

traditionally reported less than average are trade &

European phenomenon, however, with almost half

As to sectors, particularly the underrepresentation

retail, services, and communications & media, but

of the European firms engaging external parties to

of banks and insurance firms stands out, as

1027-1071 FSA-Fiducie-1102-02.indd 16

not follow a clear pattern, publishing intermittently.

31-01-11 12:36

“In addition cost-benefit frameworks, the objective to keep and/or enhance legitimacy within society has motivated voluntary reporting” well as the overrepresentation of electronics &

category; Japanese firms are very underrepresented

would be worthwhile to trace further determinants

computers, chemicals & pharmaceuticals, and

here. The reporting hikes for Japanese and French

in a sector-specific setting in follow-up research.

automotive. Looking at the other extreme – the

firms in respectively 2002 and 2005 can be related

category consistent non-reporters – there hardly

to the institutional context (Kolk, 2005b; KPMG/

Discussion and conclusions

any European firm can be found, and US firms are

UNEP, 2006). In Japan, the government published

While the data has limitations, and more research can

overrepresented. There is a strong overrepresentation

rules and guidelines on environmental reporting

be done to obtain further insight, the findings might

of banks & insurance, and trade & retail, while

and accounting that have led many firms to start

already be helpful for practitioners, especially because

automotive, chemicals & pharmaceuticals, and

reporting; in France, legislation was adopted

the largest international firms have been much more

electronics & computers are fully absent here.

that obliges publicly-quoted firms to report on

active in sustainability reporting than other firms.

environmental and social issues. The influence of

This means that patterns noticeable amongst this set

Focusing on the category of consistent reporters,

country-of-origin factors also seems to have played

can help shed light on developments on the part of

they were – as could be expected in view of their

a role in the inconsistent reporters category, as it

early movers, as well as aspects and/or dilemmas that

leading role – early in adopting verification as a

noteworthy that they are characterised (like the

play a role more generally in sustainability reporting.

practice. Also noteworthy is that some firms stopped

non-reporters) by a large percentage of US firms.

The fact that, for example, one quarter consistently

external verification in 2005 after having pursued it

The litigious tradition, characterised by a formal

did not report suggests that there are disadvantages

in previous years; this included two US firms, leaving

legal approach and contestation (Kagan & Axelrad,

(or no perceived benefits) to sustainability reporting

none US firm in the set that had their report verified

2000), appears to have stimulated a compliance

as well, even for large well-known firms of which

for the full period. Amongst those that adhered to

orientation, in which voluntary reporting has

most peers have already engaged in it. However,

verification, we find especially UK and Dutch firms.

consequently made much less headway than in

as already indicated in this article, a recent study

Looking at the late adopters in terms of verification,

other countries, especially in comparison to Europe

on motivations for non-reporting showed that,

they are slightly more active here than average.

(Kolk, 2005b).

in addition to ‘competition’, ‘implementation’ also

Inconsistent reporters stand out for the fact that they never adopted verification.

scored high amongst the ‘smaller’ firm in the UK It is interesting to see that there are different

FTSE 350 (Martin & Hadley, 2008). This includes

dynamics in the various sectors. There are sectors

factors related to the difficulty of data collection and

As to further peculiarities of late adopters and

where reporting has become more or less established,

the choice of performance indicators as well as the

laggards, banks and insurance firms, while

in a few cases already before 1998, or in the period

cost and effort involved.

underrepresented in the late adopters category (like

covered in my research, and those (sub)sectors where

in the consistent reporters), are overrepresented

it is more emergent still. There are also differences

Obviously, implementation can be a clear barrier

amongst laggards. In addition, late adopters are

in terms of verification, with some sectors in which

to start reporting. However, given that a growing

characterised by an overrepresentation of Japanese

one UK or Dutch firm led the way, and others where

number of firms, frequently competitors in the

firms in particular, and by their French counterparts

only some European firms adopted the practice, or

same sector or corporate customers (for example,

to a lesser extent. French firms are even more

where it has not made headway so far. While sector

if firms supply to large multinationals), publishes

notable for their large presence in the laggards

and country differences seem to be important, it

reports, there is more knowledge available and more

1027-1071 FSA-Fiducie-1102-02.indd 17

17

31-01-11 12:36

opportunities to learn from others. Thus, while it

firms may be due to degree of stringency (and thus

with. As data show that a relatively small percentage

continues to be difficult to gather consistent data,

complexity) that the Big-4 applies post-Enron and

of firms publishes every now and then (inconsistent

particularly in the first year of publication, selection

since Sarbanes Oxley, as well as the costs involved.

reporters), seems to provide some support, but this

of indicators has been facilitated to some extent by

It may also be that the first verification experience

requires more in-depth, additional study.

the publication of guidelines and formats, such as

induced firms to choose another auditor next time.

those of the Global Reporting Initiative (GRI). On

This might be an interesting area for further research.

the other hand, the long list of possible indicators,

18

Hence, although reporting behaviour of firms is influenced by institutional factors, sector dynamics,

which has definitely increased over the years, for

In deciding about whether to report or not, there is

country and firm-specific factors related to

example via GRI which helped systematise them,

another dimension to be considered which is that

organisational structure as well as type and location

may also put off smaller firms in particular. Assessing

once a firm has started to publish a report, it runs

of markets, there is also considerable managerial

criteria and methods for inclusion of some topics

the risk that discontinuation may arouse negative

choice. This has to do with the aspiration, values and

and not others may be cumbersome, also because

publicity. In fact, rising expectations might result in

perceptions on the part of the managers involved,

guidelines stipulate that this requires a process of

the ‘paradox of information’: the more information

and adds the individual level to the equation. While

stakeholder dialogue. In addition, firms may be

firms supply, the higher the request for new data,

in some countries mandatory standards are in place,

hesitant to provide certain information as it might be

and the greater the likelihood that stakeholders ask

in most cases, particularly when smaller firms are

sensitive for reasons of competitiveness or because of

them to live up to their promises and guarantee the

involved, managers have options in terms of how

potential legal implications – the latter fear appears

accuracy and reliability of the data. Firms might

and what to report (or not), and it is up to them to

to have relevance mainly in the US.

end up supplying more information than originally

balance stakeholder expectations, organisational and

intended and turn to external experts for verification.

individual ambitions, costs, competitive pressures

The number of choices to be made for reporting has

Reporting may become an instrument for some

and overall trends, including those on the part of

also increased over the years in view of considerable

governments as well, aiming to check compliance

global peers.

diversity in types (environmental, social and

or the appropriateness of self-regulation. Although

sustainability reports), formats (stand-alone or

this could be associated with litigation, especially in

References

part of the financial report; targeted at specific

the US context, this development is not necessarily

Berthelot, S., Cormier, D., & Magnan, M. (2003).

stakeholder groups or generally), means (electronic

bad to firms. To the contrary, when ‘forced’ in this

Environmental disclosure research: review and

and/or on paper, one or multiple languages)

way to watch the validity, the whole management

synthesis. Journal of Accounting Literature, 22: 1-44.

and external involvement (from stakeholders,

system might be geared to providing the correct and

verification of data, and if so, by which party/parties).

relevant information, leading to an additional control

Deegan, C. (2002). The legitimising effect of social

Particularly verification also brings considerable

on efficiency and effectiveness. This ‘all or nothing’

and environmental disclosures - a theoretical

costs, which may be the reason why the majority

approach to sustainability reporting, which reflects a

foundation. Accounting, Auditing and Accountability

of even the largest multinationals still refrains from

certain path dependence as past decisions constrain

Journal, 15(3): 282-311.

it, and more so when they publish a report for the

subsequent choices, does not apply in all cases, but it

first time. Declining interest in hiring accounting

is a potential cycle that firms might want to reckon

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19

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California Press. Kolk, A. (2005a). Social and environmental

For reactions, please mail to [email protected]

accounting. In: C. Clubb (ed.), Blackwell Encyclopedia of Management. Accounting.  Malden, Oxford and Victoria: Blackwell Publishing, pp. 393-398. Kolk, A. (2005b). Environmental reporting by multinationals from the Triad: convergence or divergence? Management International Review, 45, 2005/1: 145-166. Kolk, A. (2010). Trajectories of sustainability reporting by MNCs. Journal of World Business, 45(4), 367-374.

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the integration of decision making and reporting Prof. dr. Brendan O’Dwyer

Brendan O’Dwyer joined the Amsterdam Business School at the University of Amsterdam (UvA) in November 2004. He previously worked at the Smurfit Graduate School of Business, University College Dublin (UCD) where he lectured extensively on MSc in Accountancy, MBA and executive education programmes as well as serving as Programme Director of the Master of Accounting. He also spent

Brendan O’Dwyer1

20

eight years working at Dublin City University Business School where he held a number of managerial roles including Programme Director of the Masters of Business Studies in Accounting. He has been

Professor of Accounting

Head of the Accounting Division in the Amsterdam Business School since March 2007 and was

Amsterdam Business School

interim Head for periods totalling six months between December 2004 and March 2007.

Article summary

BP oil spill off the U.S. coastline in 2010 have served

A potential landmark in the global expansion of

Drawing on a previously published case study

to further heighten this scrutiny. While the issue

accounting for sustainability was the establishment

(Unerman and O’Dwyer, 2010), this article explores

of sustainability may seem quite distant from the

in August 2010 of the International Integrated

some of the key processes underlying current

conventional concerns of the accounting profession,

Reporting Committee (IIRC) to create a globally

sustainability reporting practices at BT (British

professional

professional

agreed framework for accounting for sustainability.

Telecom) Group, the global telecommunications

accounting firms, and accounting and auditing

It has emerged at a time when sustainability

company. It examines how issues of business risk,

standard setters and regulators have been addressing

reporting is increasingly being subject to critical

commercial opportunities, and associated materiality

issues surrounding accounting for sustainability -

scrutiny given widespread claims that it is failing

have driven the evolution of ‘connected thinking’ at

the social, environmental and economic impacts

to increase the visibility of corporate social and

BT which underlies their sustainability reporting

of organisations’ activities -, with varying degrees

environmental impacts and largely represents a

practices. These ‘connected thinking’ processes seek

of intensity, for over two decades (Unerman et al.,

form of sophisticated corporate public relations

to embed sustainability considerations into decision-

2007) . The Netherlands has been at the forefront

exercise3. The IIRC’s proposed framework aims

making processes at all levels within BT by linking

of many of these developments in areas such as:

to bring together financial, environmental, social

economic, social and environmental considerations

corporate sustainability reporting; the development

and governance information in a clear, concise,

through the articulation of a business case for

of sustainability management accounting systems;

consistent and comparable - ‘integrated’ - format.

corporate responsibility. The article also illustrates

and the provision of external assurance on

It seeks to assist with the development of more

how the business case needs to be nuanced to make

sustainability reporting content. For example, the

comprehensive and understandable information

it an effective sustainability embedding mechanism

Global Reporting Initiative (GRI) which developed

about an organization’s total performance, to meet

at different levels within BT; and how materiality

the main international standardised sustainability

the needs of what it sees as an emerging, more

issues central to the business case are used to help

reporting framework is based in Amsterdam, Royal

sustainable, global economic model:

determine the sustainability issues that are reported

Dutch Shell was one of the initial innovators in

within BT’s annual sustainability and financial

sustainability reporting in the 1990s, and Royal

“The goal of the IIRC is not to increase the reporting

reports. The article concludes with a review of key

NIVRA, the Dutch professional accounting body,

burden on companies and other entities. Rather, it is

aspects of BT’s approach to managing one of its key

recently issued one of the most authoritative

to help them and all their stakeholders make better

corporate responsibility risks – supply chain labour

standards on assurance on sustainability reporting

resource allocation decisions. All of us have a stake

practices – through its Sourcing with Human Dignity

content. Within UvA, in response to continuous

in a sustainable society. While integrated reporting

initiative.

calls from international professional accounting

alone cannot ensure sustainability it is a powerful

accounting

bodies,

2

bodies for accounting education to innovate and

mechanism to help us all make better decisions

Introduction

address issues surrounding sustainability, the MSc

about the resources we consume and the lives we

Increasing attention at both the societal and

in Accountancy and Control at the Amsterdam

lead”.

political level is being given to corporate social and

Business School recently developed and delivered

environmental activities and impacts particularly in

the first stand-alone, compulsory academic module

Ian Ball, CEO of the International Federation of

light of the global financial crisis. Events such as the

on sustainability accounting in The Netherlands.

Accountants

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31-01-11 12:36

Members of the IIRC include the president of the

insights into how one global business has attempted

reporting to foster sustainability awareness among

International Federation of Accountants (IFAC), the

to integrate sustainability issues into their decision

managers throughout the organization and thereby

chairmen of the International Accounting Standards

making and has ‘connected’ these processes with

seeking to influence managerial decision-making.

Board (IASB) and the Financial Accounting

their external sustainability reporting.

Standards Board (FASB) and the chairpersons

Over the many years that BT have been engaged

and chief executives of several major professional

Risk, opportunity and the business case in

in sustainability reporting, the role and impact of

accounting firms and national accounting bodies.

embedding sustainability reporting at BT

reporting within BT has evolved considerably.

The IIRC emerged out of a major project established

BT Group plc is a global telecommunications

As there are currently many processes in place

by the Prince of Wales in the United Kingdom -

company, supplying a range of markets, services

within the company that embed sustainability

the Accounting for Sustainability project – which

and equipment in over 170 countries, and is the

considerations into decision-making at all levels,

aimed to develop practical tools and guidance

UK’s largest telecommunications supplier. BT

thinking in a connected way about the social,

to help businesses develop and report full and

published its first Environment Report in 1992.

environmental and economic impact of policies

complete information on their wider economic,

Over the ensuing years, as social and environmental

and practices is the norm and does not need to flow

social and environmental impacts (see Hopwood

reporting practices have evolved at BT, the company

from reporting practices. This means that the social,

et al., 2010). Given the widespread criticisms of

has been at the forefront of innovative developments

environmental and economic impacts, in terms of

the extent to which reporting companies have

in sustainability reporting, many of which have

opportunities and risks associated with strategic

actually integrated sustainability issues into their

subsequently been adopted by numerous other

and operational decisions, are currently identified

corporate decision making processes, a key aspect

organizations.

and linked at the time decisions are made – and

of the project involved the production of a series

21

this will often be some time before the reporting

of case studies of organisations that had integrated

Reporting influences actions and actions influence

stage is reached. Therefore, for BT, the content

issues of sustainability into their decision making

reporting

of sustainability reporting now primarily reflects

and translated this integration into their external

A key issue that needs to be addressed by any

sustainability-related strategies and actions during

sustainability reporting. I jointly conducted one of the

organization when engaging in sustainability

the reporting period, rather than the reporting being

case studies within the global telecommunications

reporting is the degree to which reporting is an

a predominant driver of these strategies and actions.

company BT (British Telecom) Group plc, the

activity largely integrated with, or an activity isolated

One key exception to this prevailing direction of

largest telecommunication’s provider in the United

from, underlying organizational change processes.

causality is target setting (for example, through Key

Kingdom (see Unerman and O’Dwyer, 2010). The

It is common for many organizations that are just

Performance Indicators reported within the annual

remainder of this article reviews some of the key

starting to engage with issues of sustainability to

and sustainability reports), which is an overarching

findings of this case study in order to provide some

initially focus on sustainability reporting, often using

process integral both to the reporting process

1. Email: [email protected]; URL: http://www1.fee.uva.nl/pp/bodwyer/ 2. Sustainability reports refer to stand-alone reports in which companies disclose information on their economic, environmental and social activities and impacts. Reporting formats tend to vary but an increasing number of companies around the world now comply with the Global Reporting Initiative (GRI) G3 reporting guidelines. These include categorisations comprising economic, environmental and social performance (labour practices and decent work, human rights, society, and product responsibility) indicators. 3. For more details on the IIRC and its aims and activities, please refer to: http://www.integratedreporting.org.

1027-1071 FSA-Fiducie-1102-02.indd 21

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Mazars is ontstaan uit een fusie tussen Mazars en Paardekooper&Hoffman

⎥ ⎦W. ⎣e∼ kΨn bij mΕz ars. ⇔←

Ga verder met Mazars.

1027-1071 FSA-Fiducie-1102-02.indd 22

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itself and to driving changes and improvements in

Exhibit 1 – The BT business case for corporate responsibility from the BT Group plc 2009 summary

sustainability practices.

Sustainability Review (p. 12)

Making the business case for consideration of sustainability - evolution of risk and opportunity considerations in sustainability decisions An important element that facilitated the evolution of a connected understanding of environmental, social and economic impacts, and embedding of this understanding within strategic and operational decision-making processes at BT, was the refining of the business case for corporate responsibility. Initially the business case was explicitly developed from about 2003 at the strategic level among senior executives. This involved articulating and partially quantifying the direct and indirect economic

23

impacts (for example related to risk, reputation, customer satisfaction, employee motivation, and so on) potentially flowing from a variety of major social and environmental issues. At present, the elements of the business case for corporate responsibility at this strategic level within BT are explained in BT’s 2009 Sustainability Review

The above factors indicate that both risks and commercial market opportunities

as comprising of: risk management and mitigation;

through sustainability of completely new products,

social and environmental issues, when managed

reputation; cost reduction; employee motivation and

services and markets. While the reputational

more sustainably, could contribute to achieving that

marketplace opportunities (see Exhibit 1).

impact helps distinguish BT from its competitors,

manager’s economic objectives. It also highlighted

identification of new markets contributes directly to

issues where there was a weaker economic case for

revenue generation.

improving environmental or social sustainability,

The above factors indicate that both risks and commercial market opportunities are important

such as situations where it could not be demonstrated

elements of BT’s business case for sustainability

Once the business case had been embedded

that customers or employees were really demanding

at the broad strategic level. From this perspective,

at the strategic level, the broader sustainability

action on the particular issue.

commercial opportunities arise primarily from BT’s

considerations at this level were divided into a series

good record on sustainability (in many areas) being

of component issues that could be embedded and

As an example of the more detailed operational

seen as a key reputational factor in distinguishing BT

enacted at a more operational level. Embedding

level sustainability tensions highlighted by the

from its competitors, thereby giving BT competitive

sustainability via the business case at this operational

business case, BT’s stringent carbon reduction

advantage. They also arise from identification

level helped highlight for individual managers that

targets require a highly energy efficient network,

1027-1071 FSA-Fiducie-1102-02.indd 23

31-01-11 12:36

and meeting these environmental targets with new

operational decisions by appealing to the business

for greater quantification in order to help embed

equipment has a clear financial benefit in reduced

case has shown that different approaches are needed

sustainability considerations into decision-making

energy bills. However, in a complex environment

at different levels of the organisation.

processes at operational levels.

equipment has been added and integrated with

At the senior executive and board levels,

At these middle management operational levels

existing equipment regularly over many years, the

sustainability is seen primarily in the strategic terms

it has been necessary to recognise differences

impact on service delivery of switching off some of

of its potential impact on, and risks to, BT’s social

between the personal, social, and environmental

the very old equipment will not always be known.

licence to operate (its ‘social contract’). Damage to

priorities of different individuals in seeking

Managers need to decide whether to invest finite

the social licence to operate from failing to address

to embed the business case. Where individual

resources into investigating the potentially complex

BT’s corporate sustainability values could negatively

managers have been personally deeply committed

engineering impact on individual customers of

affect BT’s brand and reputation. Conversely,

to principles underlying social and environmental

switching off old, possibly energy hungry, equipment

enhancing the social licence to operate through

sustainability, it has been relatively straightforward

within an exchange, or to focus on commissioning

meeting BT’s social values more effectively can

to embed sustainability considerations connecting

new equipment to meet new customer demands.

increase the economic value of BT’s brand and

social, environmental and economic outcomes.

As the latter will often generate additional revenue

reputation. As a demonstration of the strength of

However, as in any organization, some individual

with a reasonable degree of certainty, whereas

board-level buy-in to sustainability issues at BT, in

managers will not be so deeply personally aware or

the former will probably contribute no direct

2009/10 15% of board-level bonuses were awarded

committed to social and/or environmental issues.

revenue generation but may lead to disgruntled

for “each individual [director’s] contribution to the

To successfully embed sustainability considerations

customers (and thus a risk of lost revenue) if their

company’s environmental, social and governance

into the decisions taken by these managers, it is even

telecommunications service is disrupted through an

(ESG) objectives” (BT 2009 Annual Report, p.

more important to demonstrate to them effective

unforeseen problem from switching off an old piece

58), with this performance being assessed largely

business case benefits from taking sustainability

of equipment, business case reasoning in the context

qualitatively.

issues seriously, in terms of how this will help them

like an individual telephone exchange, where new

24

of finite resources will almost inevitably lead to some

achieve their targets.

old equipment being left running, and continuing to

This predominantly qualitative assessment of

consume energy. However, through a combination

sustainability performance of board members and

A key problem that needed to be overcome in

of increased costs of energy, the need to address

senior executives is consistent with the partially

achieving embedding through the business case

climate change becoming a higher priority, and

qualitative nature of information used to help

at this middle-management level was linked to

tightened government regulation, the business case

make sustainability decisions at this strategic level.

many managerial targets being set in quantified

for investing resources in turning off old equipment

The semi-quantitative nature of sustainability

terms. To clearly demonstrate how addressing

has become even more compelling thus driving more

information used for decision-making at board level

sustainability issues could contribute to the

effective action.

is necessary to help set forward-looking strategic

achievement of these quantified managerial targets,

direction. By their nature, many innovative future

it was necessary to articulate sustainability business

Nuancing the business case: degrees of uncertainty

sustainability-related opportunities considered

case impacts through metrics. However, in many

and appealing to the interests of managers at different

at board level will not currently be amenable to

areas of sustainability for BT, several issues within

levels

quantification that can ‘prove’ the business case.

sustainability cannot be readily or reliably captured

BT’s experience in seeking to successfully embed

This contrasts with the situation further down

in metrics. For other issues, quantification involves

sustainability considerations into strategic and

the organization, where there is a perceived need

an evolutionary process whereby the issue starts off

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“The IIRC’s proposed framework aims to bring together financial, environmental, social and governance information in a clear, concise, consistent and comparable – ‘integrated’ – format” being evaluated in qualitative terms and then metrics

messages around the negative impacts of issues such

actual internally used version of which would

evolve over a period. Even where metrics can be

as climate change and other social and environmental

show each sustainability issue as a data point). The

derived for an individual sustainability issue, these

matters tends to elicit a positive reaction.

internal perspective is primarily a combination of

metrics are often incompatible with those for other

the views of the managers within BT whose area

sustainability issues, so it is not possible to simply

Therefore there is not a ‘one size fits all’ approach

of responsibility encompasses the issue, along with

add the different sustainability metrics together for

to embedding sustainability, or to the articulation

quantified risk assessments undertaken in respect

an individual manager to derive a single metric to

of the business case, at BT. Rather, a wide variety of

of the issue. The external stakeholder perspective of

put on their scorecard.

different approaches have been found to be necessary

an issue’s significance is determined by reviewing

to change the culture in order to embed sustainability

an array of external information, including sources

Aside from developing the business case, there

considerations connecting social, environmental and

such as the media coverage devoted to the issue (not

can also be more subtle barriers that need to be

economic outcomes into strategic and day-to-day

just in respect of BT, but more broadly), investor

overcome in taking middle-level managers across

decisions and behaviour.

questionnaires, employee focus groups, questions in

large organizations like BT forward on the journey

the United Kingdom parliament about the type of

of embedding sustainability into their decision-

Materiality helping to determine the content of

making processes. For example, people tend to feel

connected sustainability reporting

more committed to solutions they, or their close

Having advanced the embedding of sustainability

colleagues, have developed, whereas embedding

considerations in decision-making at all levels, there

sustainability in the most effective manner will

is a considerable range of sustainability actions and

often involve innovative solutions and thinking

practices that occur within BT. Information about

developed in one department being disseminated

each of these issues could potentially be of interest

to other departments. So it is necessary to take

to a number of stakeholders, and could therefore

account of, and seek to overcome, the ‘not invented

form part of BT’s external connected sustainability

here’ syndrome in most large organizations like

reporting. Although the information exists internally

BT. Similarly, an overall sustainability gain to the

within BT about a wide range of sustainability issues,

organization as a whole can generate revenues or

choices have to be made regarding which of the

reduce costs in one department, while requiring

many issues should be reflected in BT’s sustainability

resources/investments in another department, and

reporting. The materiality, or significance, of

in decentralised organizations this can hinder cross-

individual corporate responsibility risks and

organization connected thinking on sustainability

opportunities is a key factor in deciding which of

matters.

these many sustainability strategies and actions are

issue, and so on. Exhibit 2 – Materiality identification graph from BT Group plc 2009 Introduction to detailed on-

25

line sustainability report (p. 7)

taken forward to BT’s external reports. At non-managerial levels within BT, where individual employees are not making strategic or

The relative materiality of each type of sustainability

tactical decisions, a ‘softer’ approach to embedding

issue is determined systematically on an annual basis

Once the significance of all the identified

sustainability has often found success. For example,

through plotting on a graph the internal BT view

sustainability issues has been plotted, a senior level

seeking to persuade employees to change their

on its significance against an external stakeholder

committee within BT then reviews the positioning

behaviour to a more sustainable basis by providing

perspective on its importance (see Exhibit 2, the

of each issue in terms of its internal significance,

1027-1071 FSA-Fiducie-1102-02.indd 25

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26

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Grant Thornton bij jou in de buurt: Alphen aan den Rijn - Amsterdam Boskoop - Gouda - Leiden - Rijswijk Rotterdam - Woerden

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31-01-11 12:36

and can take a more holistic overview and adjust

processes is then used to determine whether and

the relative internal materiality of individual issues.

where each issue will be reported upon. Many of the

BT’s external Corporate Responsibility Leadership

actions taken by BT that contribute towards greater

Panel examines the relative external significance

social and environmental sustainability may not be

assigned to each issue, and has the ability to adjust

reflected anywhere in BT’s reports if they are not

this for each issue if it believes external stakeholders

judged to be sufficiently significant. Where issues

would consider an issue more or less significant than

are judged material or significant enough to BT to

BT’s initial evaluation suggested.

be reported in BT’s detailed on-line sustainability report, the person responsible for managing the issue

Through this process, in addition to quantification,

will be asked to write some relevant content for the

factors that may be held to reflect BT’s values as a

website.

business can be brought to bear in determining the materiality of an issue. This is partially necessitated

In 2009, BT included in its annual report for the

because the potential impacts of many issues are

first time a summary table of the ‘Non-financial

not of the nature that can be quantified precisely in

corporate responsibility KPIs’ as a high level

monetary terms, so judgements of probability have to

connected reporting summary of the most material

come into the decision-making process. For example,

strategic sustainability issues (this table also appears

in energy saving initiatives, BT’s total energy costs in

in their summary Sustainability Review).

27

2009 amounted to £227 million. While this figure would be above the financial materiality threshold for

Although this KPI table was published in the

BT’s annual report, a percentage saving of this £227

Corporate Responsibility sub-section within the

million direct cost through energy efficiency initiatives

Business Review section of the annual report,

may well be below the threshold. However, in addition

discussion and explanation of the issues covered in

to using the direct cost saving from reduced energy

the KPI table is still located throughout the annual

bills in determining the materiality of energy saving

report. This is because BT believes that placing

as a corporate responsibility issue, BT will also take

all sustainability content in a separate section of

into account an evaluation of other possible (and often

the annual report would not reflect the company’s

more subjective) economic impacts indirectly flowing

embedding of considerations of these matters

from strong energy saving performance – such as the

throughout its business operations.

positive impact on BT’s reputation from leading on environmental initiatives, the extent to which major

The 2009 Non-financial corporate responsibility

business (such as large government contracts) may

KPIs table is reproduced in full in Exhibit 3 to

take account of sustainability performance in their

illustrate the issues it covers, and therefore the

procurement processes, and so on.

sustainability issues BT considered the most material and strategic in 2009, along with the non-financial

As can be seen from Exhibit 2, the materiality

and financial metrics (or indicators) used to evaluate

attributed to each issue as a result of the above

these issues.

1027-1071 FSA-Fiducie-1102-02.indd 27

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Exhibit 3 – BT’s non-financial corporate responsibility KPIs table from the BT Group plc 2009 Annual Report (pp. 24-25)

28

1027-1071 FSA-Fiducie-1102-02.indd 28

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29

1027-1071 FSA-Fiducie-1102-02.indd 29

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In addition to the non-financial corporate

across BT’s suppliers was therefore an ethical

Developments of metrics around the Sourcing with

responsibility KPI table in BT’s 2009 annual

concern that BT should take action to ensure that

Human Dignity initiative

report, the Corporate Responsibility sub-section

its suppliers were treating their workforces with

As in other areas of sustainability within BT, metrics

contained a brief narrative summary of the

dignity, not employing child labour, and so on.

are used where possible to help connect economic

following key issues (p. 23): BT’s community

to social impacts arising from the Sourcing with

support programmes and actions, both in the

The standard was initially applied to suppliers

Human Dignity initiative in making an effective

UK and worldwide; BT’s policies and actions

of clothing for BT employees and to suppliers

business case. The primary metrics used involve

to protect the environment; and a list of the six

of telephones. This was because it was felt that,

evaluation of risks to the value of the BT brand from

“most significant corporate responsibility risks”

given their location of manufacture, these areas

a negative incident leading to a potential loss of trust

as follows: breach of our code of business ethics;

of the supply chain had the highest risk of poor

in the brand, and the commercial opportunities for

climate change; diversity; health and safety;

employment practices, with the use of relatively

enhancing the BT brand value and sales though such

privacy; and supply chain working conditions.

unskilled workers in the manufacturing process.

corporate responsibility initiatives being a positive

Each of these risks has an owner and a mitigation

However, these areas were not highly strategic

differentiator for customers, employees and investors

strategy in place.

supply areas for BT at the time – partially because

in choosing to support BT.

there were many alternative suppliers that could

30

Supply chain initiatives – ‘Sourcing with Human

have been used if a problem had been found in

In evaluating and quantifying the economic risk

Dignity’

one supplier. The initiative was then rolled-out

around supply chain labour as part of evaluating a

The ‘significant’ corporate responsibility risk of

relatively quickly across other parts of the supply

connected business case, in common with other aspects

‘supply chain working conditions’ is managed

chain that, by their nature, were considered to

of BT’s corporate responsibility risks, a regular review

primarily through BT’s Sourcing with Human

be a lower risk in terms of poor employment

is undertaken that graphs the likely financial impact

Dignity initiative. This initiative was launched

practices but of much more strategic importance

to BT from a particular type of incident against the

as an internal BT Standard in 2001, having been

to BT – such as sourcing of network equipment

probability of that incident occurring (see Exhibit 4).

developed over the previous few years drawing on

which requires long-term commitments to a small

For each identified potential supply chain labour risk

insights from International Labour Organization

number of suppliers.

these evaluations take into account, for example, the

Standards and the UN Global Compact. As such,

costs of lost sales to customers who may stop buying

it does not seek to impose UK standards in other

Two important factors combined to facilitate the

from BT if a particular type of incident occurred, the

countries, but to use internationally recognised

embedding of the Sourcing with Human Dignity

fines that may be incurred, breaks in the supply of

standards.

initiative in BT. The first of these was that the

critical products at critical times, delays in supplies of

initiative, by its nature, could largely be owned

critical network equipment, and so on. Combining

A key impetus for development of this standard

and operationalized within BT’s procurement

all the identified potential risks from supply chain

within BT was media coverage in the late 1990s

operations, and there was therefore no need

labour incidents produces a ‘risk frontier’. Given the

of child labour in the clothing industry. Although

initially to take time selling the ideas underlying

size of BT, this risk frontier for supply chain labour

these stories did not involve BT, they led BT’s

the initiative to other areas within BT. The

issues (in common with the risk frontiers for other

senior procurement managers to question whether

second important factor was strong support and

key areas) shows a higher probability of incidents with

there was a risk of such human rights issues arising

leadership from successive Chief Procurement

relatively low potential financial impacts occurring

within BT’s supply chain. The early motivation

Officers helping to signal to all those within

and a much lower probability of an incident that

for this initiative being developed and rolled-out

procurement the importance of the initiative.

carries much greater financial implications occurring.

1027-1071 FSA-Fiducie-1102-02.indd 30

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“a key issue that needs to be addressed by any organization when engaging in sustainability reporting is the degree to which reporting is an activity largely integrated with, or an activity isolated from, underlying organizational change processes” Having quantified the economic risk arising from

Coupled

with

this,

some

managers

feel

case needs to be clearly articulated at a strategic level

the social risks around supply chain labour issues in

uncomfortable bringing ethical issues to the fore in

and afforded top level support if it is to be embraced

this graphical manner, the economic paybacks from

decision processes. However, when the business case

substantively at an operational level. This articulation

lowering the risk frontier on both the likelihood and

connection was made between the economic and the

does not necessarily wholly require quantitative

financial impacts axes become much more readily

social dimensions, through bringing the real nature

indicators, which in many cases are not available, but

apparent.

of business risks addressed by the initiative to the

a clear link to brand and reputational risk factors is

Exhibit 4 – BT’s Key Corporate Responsibility Risks Frontiers from the BT Group plc 2009 summary Sustainability Review (p. 5)

needed. Second, embedding practices throughout the organisation requires tailoring articulation of the business case to suit the specific needs of different internal constituencies. Third, the development of annual reports should clearly reflect the embeddedness of sustainability practices with sustainability as an issue being addressed throughout annual reports and not in an isolated fashion seemingly separate from core business concerns. Fourth, metrics in many areas of sustainability take time to evolve and their absence should not deter companies from addressing potential

31

risks and opportunities that may need addressing in the context of the companies’ strategic direction, nor from reporting these issues in their annual reports and in stand-alone sustainability reports. There have, however, been several challenges in

fore, there was much less reluctance from managers

References

embedding the Sourcing with Human Dignity

to engage with the issues. In all these aspects, it

Hopwood, A. Unerman, J. and Fries, J. (2010).

initiative. One such difficulty has been that many

has been necessary to appreciate that different

Accounting for Sustainability: Practical Insights.

of the issues are not clear-cut ‘right or wrong’ issues.

individuals will take different lengths of time to

London and Washington: Earthscan.

Rather they involve perhaps ‘softer’ qualitative

appreciate the real economic and social benefits

decisions across a range of possible issues. This has

delivered by the initiative, and each person needs to

Unerman, J. Bebbington, J. and O’Dwyer, B. (2010).

posed challenges to some procurement managers

be given the space and encouragement to develop

Sustainability Accounting and Accountability. London:

for whom problems portrayed in more definitive

their understanding of these benefits.

Routledge.

also demonstrates that for the initiative to work

Concluding comments

Unerman, J. and O’Dwyer, B. (2010). “Evolution

effectively involves a long-term engagement

The BT case study reveals a number of issues that

of Risk, Opportunity and the Business Case in

process with suppliers to systematically embed,

can inform the development of accounting for

Embedding Connected Reporting at BT”. In

within their management, pro-active thinking and

sustainability in other companies especially related

Hopwood, A. Unerman, J. and Fries, J. (Eds.).

action consistent with the ethos of ethical labour

to the integration of sustainability practices and

Accounting for Sustainability: Practical Insights.

standards.

integrated sustainability reporting. First, the business

London and Washington: Earthscan.

terms resonate better than softer issues. This

For reactions, please mail to [email protected]

1027-1071 FSA-Fiducie-1102-02.indd 31

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Sustainable insight – accounting for Water

Pieter van ’t Hoff – Consultant KPMG Advisory

Sustainability professional with an educational background in financial as well as environmental management. Experience with international companies on nonfinancial assurance and sustainability advice on topics such as climate change, social issues and other corporate responsibility related developments.

Barend van Bergen – Partner KPMG Advisory

Barend van Bergen is director at KPMG Sustainability, which is advising (multi) national companies in the area of Sustainable Development (SD), including the management of environmental, health, safety, social issues and corporate

Pieter van ’t Hoff Barend van Bergen (KPMG)

oil and gas, food and beverages, construction and aviation.

Businesses are starting to recognise the

place for measuring water use and impacts, but

70 percent of available freshwater. However, this

connection

and

moving forward they will need to be developed

assumes consumption patterns to remain constant.1

economic prosperity. There are many reasons

further in order to help identify risk, drive

why water usage has risen up the corporate

improvement, and meet the changing expectation

According to UN estimates human water use is

agenda. Megatrends such as population growth,

of stakeholders’ needs.

increasing at twice the rate of population growth –

rapid

32

philanthropy. His experience covers a range of sectors, including automotive, finance,

between

water

industrialization,

security

globalization

and

a trend which is being driven by economic growth

climate change are placing significant demands

This paper incorporates a survey of KPMG on

and global trends towards urbanization and social

on this finite resource, which has prompted

water accounting. This survey gives insight on the

prosperity.

unprecedented interest from a growing array

management and reporting on water of 105 large

of stakeholders, notably from the investment

multinationals.

community.

The combination of these trends will exacerbate water stress in several countries.

Scarcity of Water Water scarcity presents four sets of risks to

Water is extraordinarily abundant on the surface

Climate Change and Water

businesses: financial; operational; reputational and

of the earth. With over 75 percent of the earth’s

Climate change will have a major impact on water

regulatory, and requires them to quantify their

surface covered in water, the world is indeed full

availability – both in terms of quality and quantity.

vulnerability across the extended supply chain.

of water. However, about 97.5 percent of it is salty,

Climate climatic conditions such as temperature and

whereas the economy requires mostly fresh water.

precipitation will alter weather patterns. The melting

The quantification of the total water exposure to

Of the 2.5 percent of water that is fresh, only a

of icecaps and glaciers will have a profound effect on

businesses – which includes not only a company’s

small fraction is economically accessible.

freshwater supplies.

the company’s extended supply chain – has proven

A number of global trends are converging which

Assessing Water Vulnerabilities

difficult. Experience has already shown that the

threaten the fragile supply of freshwater. Trends

The growing vulnerability of businesses to water

water usage, water impacts, and the risks that might

such as population growth, rapid industrialization

scarcity, flooding and polluting poses serious risks –

be implied by water in the supply chain are not

and climate change are impacting freshwater

prompting many investors to ask public companies

readily quantifiable in the way that for example

reserves at a much faster rate than natural

to disclose the material impact water shortages/

carbon exposure can be quantified.

replenishment.

interruptions could have, and to demonstrate their

direct usage of water but also the water usage of

management response. Developing effective business water accounting

Rising demand

methods will be critical for sustainable water

Research from the US Census bureau and the

The momentum building around the concept of

management. Presently there are a number of

German Ministry for Environment (2007) suggests

water accounting and risk is increasingly becoming

methods that exist which provide a good starting

that by 2025 population growth will account for

more mainstream. One of the problems in assessing

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vulnerability is that many companies tend to focus

reputation. Water scarcity will impact the

Accounting for Water

only on their own usage – at the operational level.

price volatility of raw materials/commodities

As understanding of the likelihood of water

Businesses should look up and down their extended

that are used as key inputs. Furthermore,

scarcity grows, a minority of companies have

supply chains in order to create a complete risk

energy costs and supply could become more

begun attempts assess their water risk exposure

profile. The main risk areas include:

volatile as a result of water shortages. (e.g. In

across the supply chain. Leaders in this area such

2003, a short-term ban on water resulted in

as SABMiller, Unilever and Dow Chemicals have

EDF having to shut down a number of power

made considerable progress in developing a total

plants – costing EDF €300 million2).

water accounting approach.

• Operational Risks Water availability is critical to many businesses: a sudden interruption of supply can have an immediate effect on production. Sectors most

Box 1 – Investors making a splash for water

Why has corporate water accounting proved so

at risk include food and beverage companies,

Another concern for businesses is the growing of investors in

difficult to accomplish? There are several possible

technology manufacturers, power generators,

water scarcity, which moving forward could restrict access

reasons for this. One is that water remains cheap.

extractives and metal producers.

to capital, and ultimately impact company evaluation.

Although water prices have risen somewhat in recent

Over the last year there has been significant interest from

years, they have not for example risen anything like

• Regulatory Risks

institutional investors on the subject. Investor backed

as much as energy costs, and thus have generated

As water stress intensifies, governmental

organizations such as CDP and CERES have expanded

the false impression that water will remain a low-

regulators will increasingly impose tighter

their programs and are encouraging mainstream businesses

cost input. The OECD and other multinational

controls on both water abstraction and waste

to actively report and provide disclosure on water risk.

bodies have argued recently that prices should in fact

water discharge. Industries that discharge large

rise much further to generate investment in water

volumes of water used in cooling such as power

Norges Bank Investment Management (NIBM), the

generators are particularly at risk. Longer-term

second largest Pension Fund, has expanded its exercise of

governments could price water to reflect its

ownership rights in relation to environmental issues to

A second challenge is data. The data required to

‘true cost’.

include responsible water management. In similar vein

create full water accounting is complex, extensive

the US Securities and Exchange Commission’s Climate

and typically not readily available. Initiatives like

Change Guidance is expected to spur increased scrutiny and

the CDP Water Disclosure will help improve access

disclosure of water risks in the supply chain.

to data as multinationals can exert their influence

• Reputational Risks As water plays a vital rule in sustaining life, there are significant reputational risks associated with

provision and reduce wastage.3

(purchasing power) across upstream suppliers.

the misuse of water – notably in parts of the world

From a financial perspective, water risks are disruptions,

where there is significant competition for water

costs, revenue losses, or growth constrains due to a lack

Despite the challenges, many companies are becoming

resources from the local community. For example,

of water. Water scarcity, water pollution, and water

increasingly aware of the calls from stakeholders to

Coca-Cola almost lost its social license in India

competition can all limit the growth of a company, and can

water accounting are growing. A recent survey of 100

as a result of its bottling operations in Kerala.

start to hurt asset performance and investments.

companies by CERES, a coalition of investors and

The Indian state shut down the production of a

public interest groups, together with UBS Investment

plant, blaming it for aggravating water scarcity for

To help investors and financial analysts understand these

Research, showed that the number of resolutions

neighboring villages and farmers.

risks and make a better investment decisions in the WRI,

tabled by shareholders on water issues has been on

Goldman Sachs & GE have developed a water risk index

a rising trend.4 KPMG believes that while data on

• Financial Risks

33

that will aggregate 20 weighted factors capturing water

corporate exposure to water-related risks may be

There are a number of potential financial

availability, regulations, water quality and reputational

inadequate, companies do have an understanding

impacts from water scarcity for a number

issues. The index has been designed to help investors and

of the potential risks associated water use and water

of high-risk sectors within three key areas:

financial analysts model the local nature of water-related

discharges in the total supply chain. The scope of this

raw material inputs, operating efficiency, and

risks and externalities.

issue will primarily focus on four main methods/tools,

1. Calvert White Paper: Unparalleled Challenge and Opportunity in Water, Sept 2008 2. Watching Water, JP Morgan, March 2008 3. Managing water for All: An OECD Perspective on Pricing and Financing, OECD 2009

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as well as highlight a number of institutional-investor

Development, a CEO-led association of some 200

exclusively. Their strengths and weaknesses overlap,

backed reporting initiatives.

large companies. Unlike the Life Cycle Analysis

and different approaches can be used together –

or Water Footprinting approaches, the GWT

for example, several companies have combined

Two immediate problems present themselves in

is not an evaluative methodology, but rather an

the WBCSD Water Tool with the GEMI Water

achieving water accounting. One is the lack of

online tool rather like a water use spreadsheet that

Sustainability Tools to create a larger picture that

readily accessible databases on total supply chain

companies can use to develop a broader picture of

accounts for both water use in local context, and for

water exposure. The other is the absence of any single

their water withdrawals and discharges within a

business risks. But, as a survey of KPMG of 105

agreed methodology for water accounting. And

given watershed.

large companies reveals, a full accounting for water

GEMI Water Sustainability Tools

sustainability and business risk is still the exception,

This approach consists of two online tools developed

not the rule.

these two factors are linked: the absence of reliable and detailed data has led to multiple approaches. In practice, most companies attempting water accounting use a combination of methodologies, as no one formal approach offers a total solution. Therefore it is important that companies are aware of the strengths and weaknesses of the main approaches to water accounting.

34

Life Cycle Analysis Water accounting is only one part of most Life Cycle Analysis (LCA) evaluations, which account for the input and output of a wide range of resources that affect the sustainability profile of a business. The LCA approach has numerous advantages. It is flexible in that the scope of analysis is open-ended (it can relate to one single business supply chain). Water Footprinting Water Footprinting (WF) is the leading waterspecific accounting tool, developed by the University of Twente in The Netherlands and managed by the Water Footprint Network. The WF approach focuses on the total volume of water used (known as ‘virtual water’ in the WF vocabulary) in any system or region, whether locally sourced or ‘imported’ in the form of goods that may not contain water but consumed water in their production. WBCSD Global Water Tool The Global Water Tool (GWT) was developed by the World Business Council for Sustainable

1027-1071 FSA-Fiducie-1102-02.indd 34

by the Blobal Environmental Management Initiative (a corporate stewardship network) designed to

Disclosing on Water

evaluate water-related risks.

A study by the CEO Water Mandate entitled Water Disclosure 2.0. concluded that there is a growing

Most companies currently attempting to account

trend for companies to choose to publicly report

fully for water do not use any one of these approaches

their water use and impacts in order to strengthen

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“Water scarcity presents four sets of risks to businesses: financial; operational; reputational and regulatory, and requires themaangaan to quantify “Als belegger kun je wel een risico dattheir vulnerability across the extended supply chain” je inmiddels niet of zelden terug kunt vinden in communication with stakeholders and enhance

Westerse markten“

growing expectations a number of initiatives have

Cost Risk and the Potential for Disruption of

accountability to the public.5 Transparent disclosure

been developed.

Water Supply.

Firstly it builds trust between businesses and their

Carbon Disclosure Project Water Disclosure

Global Reporting Initiative (GRI)

stakeholders – helping to maintain their social license

CDP Water Disclosure will provide critical water-

Companies can also employ the GRI’s G3

to operate. Secondly it helps to identify business risks

related data from the world’s largest corporations

Guidelines which provide a set of indicators for

and opportunities to innovate or change behaviors.

to inform the global market place on investment

water measurement.

on water consumption offers two potential benefits.

risk and commercial opportunity. They will The water Disclosure 2.0. study assessed 110

request information on the risks and opportunities

These initiatives demonstrate the shift water

companies in relation to water-related reporting

companies face in relation to water; on water

accounting is undergoing – what was once an inward

and found that 62 percent were active across at least

usage and exposure to water stress in companies’

looking exercise is now viewed as an outward strategy

one element. Companies typically reported on water

own operations and in their supply chains; and

to support transparency – and further underlines

issues relating to their direct business operations. The

on companies’ water management plans and

that disclosure of water related risk is becoming an

diagram, which has been taken from the study, shows

governance. This data will provide valuable insight

expectation of stakeholders.

the degree of reporting across a number of elements.

into the strategies deployed by many of the largest KPMG Water Accounting Survey KPMG recently assessed business responses to the challenge of sustainable water usage. The purpose of the survey was to determine the extent

35

to which companies have the inclination, the data and the tools to determine and manage their total water footprint. The annual reports and corporate websites of 105 large multinationals were surveyed, roughly an equal split between manufacturers and retailers. The companies were assessed in terms of their To meet the growing interest of investors, businesses

companies in the world on water and will be used to

self-stated progress on management of water

need to provide greater levels of transparency and

help drive investment towards sustainable water use.

usage, and their use of targets of better water

disclosure on the risks and opportunities companies

sustainability. Across the three areas data was

face in relation to water usage and exposure to water

World Resources Institute(WRI) Water Risk Index

ranked according to whether companies were

stress across both their operations and extended

The WRI together with Goldman Sachs and GE

accounting solely for their own direct water usage

supply chains, and provide detailed water action plans.

have developed a set of quantified indicators that

in their extended supply chains.

measure “water risk” related to specific industries However, collecting and dissemination meaningful

in specific locations. The index produces map-

The results give a snapshot of how far companies

water-related information is a complicated and

based indicators of water risk categorized in three

progressed in identifying their total water

difficult undertaking. To help companies meet the

main groupings: Access or Growth Constrains,

exposure, and how they are managing the issue.

4. Corporate Reporting On Water Risk, Ceres 2010 5. Water Disclosure 2.0. UN CEO Water Mandate, March 2009

1027-1071 FSA-Fiducie-1102-02.indd 35

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w w w.g A A A n . n u

A n d e r h A l f u u r v o o r d e e i n d b e s p r e k i n g vA n d e j A A r r e k e n i n g vA n e e n g r o o t r e c l A m e b u r e A u

© 2010 KPMG N.V., alle rechten voorbehouden.

1027-1071 FSA-Fiducie-1102-02.indd 36

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u

Although annual reports and web presentations

More than two thirds (69 percent) of all retailers are

measure water related risks, resulting in a relative

do not necessarily reveal in full detail every

not reporting at all.

low preparedness.

they do reveal what companies consider to be

Setting Standards

Water Is Everyone’s Business

their most important undertakings, and therefore

The setting of targets and accounting for the rate

Over the last years an increasing number of

depict what is and what is not at the top of the

of progress towards those targets should be an

companies have undertaken projects to measure,

corporate agenda.

essential component of strategic management of

manage and report on their water usage, to identify

water. However, KMPG’s survey shows that target

and develop mitigation strategies to address risks

setting is conspicuous by its absence in the majority

associated with water scarcity and pollution, as well

of corporate reports.

as to uncover opportunities for increased operational

strategic initiative that large companies undertake,

Managing Water Manufacturers

surveyed

scored

best

on

managing of water usage. Nine out of ten

efficiency and cost reduction.

manufacturing companies recognize that water

Overall, only around a third of companies surveyed

is a management issue. However, only three out

are setting any targets at all. Given the absence of

The KPMG survey showed that while understanding

of every ten respondents included risks across

detailed water usage reporting in around half of

the importance of sustainable water usage is

their extended supply chains. Recognition of

all companies studied, it is not entirely surprising.

improving it is not yet fully reflected in corporate

the issue is lower amongst retailers. Just over

However, where companies are setting targets, a

management,

half of retailers said they are managing water in

significant number have targets that they cannot

according annual reports current in 2010. If annual

some way. Only 17 percent consider that water

or do not actually measure – for example, the

reports and corporate websites accurately reflect the

usage in the extended supply chain is relevant

stating of a broad target to ‘promote systems and

data in corporate hands, only around one percent

(and those that do are most likely to be food or

practices that conserve water’.

of companies have data that would allow them to

clothing retailers).

reporting

or

standard-setting

37

create a full accounting of water in their businesses. Where the targets are measurable, KPMG found

Reporting On Water

that many companies particularly retailers, do not

Companies should therefore concentrate on

Managing and reporting are different. Although a

attach any timeframe to the target. Furthermore,

water risk assessment as a first and essential step

clear majority of companies say they recognize water

the targets that are set are always direct water usage

in understanding their exposure to the changing

in some way, the number of companies that turn

targets – they never include the extended supply

pattern of water available and water regulation, and

management concern into detailed reporting is far

chain, although some companies do mention

in preparing responses tot stakeholders on an issue

smaller.

making efforts to find solutions in dialogue with

that is likely to be of growing concern.

suppliers. Again, the manufacturers surveyed perform best:

Furthermore, to meet the water challenges in

over two thirds of them report in detail on their

Objective Standards

of the future will require collective action from

own water usage. But own water usage does not

Looking for companies using objective standards

governments, businesses, consumers and leading

amount to a full water account. A mere two percent

or guidelines to account for their water use, the

opinion formers – the big society working as one.

of manufacturers are quantifying their water

results show a 100 percent lack of an interpretive

consumption (and thus their risk) in detail across

framework for determining water usage and water

their total supply chain. For retailers, only three out

risk. Within the perspective that none of the

of ten are offering detailed reporting on their own

current approaches available offers a total solution

water usage, and no retailer reports on their water-

to the challenge, this result is not surprising.

related exposure across the extended supply chain.

However, it further underlines the lack of tools to

For reactions, please mail to [email protected]

.

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Duisenberg school of finance - ask an expert accounting for Sustainability Prof. Dr. Noreena Hertz

Noreena Hertz holds the Chair of Globalisation, Sustainability and Finance at Duisenberg school of finance and is a professor at the Rotterdam School of Management at the Erasmus University. She is also based at the University of Cambridge. She Hertz has written several books (The Silent Takeover, The Debt Threat) and her op-ed pieces have been published in The Washington Post, New Statesman, The Observer, The San Francisco Chronicle, The Financial Times, and The Guardian, The Daily Beast and The Times of London.

Is sustainability merely a ‘green’ issue?

banks all felt that they had a safe capital cushion

I think it’s a very reductionist definition of

because they were just looking at this one number.

sustainability to think of it only in terms of green

And then they stopped thinking about what the

issues. The term has been used in a multiplicity of

number actually meant. So when we had multiple

ways. From a company’s point of view, sustainability

defaults, they were ill equipped. That’s a really clear

involves an understanding of what it takes to survive

example of why looking at numbers on their own

today, and in the future. That incorporates issues like

can really be inadequate.

the environment, but also things like labour relations,

38

human rights, employee discrimination, equal

The challenge for analysts, who normally do just

opportunity, and the company’s role in the society.

look at numbers and can extrapolate and create nice

In other words, what does it take for a company to

models, is, “How do I now mine qualitative data?

succeed today and in the future, beyond what one

How do I understand it? What do I ask? How do

would associate with a standard balance sheet or

I find out about it?”

profit and loss statement? If you don’t take these issues into account, you run Are shareholders interested in sustainability

the risk that you’re going to value a company in a

approaches?

particular way and six months down the line there’s

I would argue that, actually, all of these issues are

going to be a lawsuit related to some aspect of their

issues that shareholders should be interested in. If

operations.

we take a case like BP and we look, with hindsight, at the company and how it works, we can see a host

There have been some innovations in this area over

of issues that analysts and institutional investors

the past decade, where we’ve seen things like political

should have been aware of and interested in: for

risk being introduced into assessments. We’re seeing

example, the discrepancy between a very strong

a company like Goldman Sachs now saying that it is

focus on personal accident safety reporting and a

conscientiously going to be looking for sustainable

lack of reporting on the safety of industrial core

factors in its analysis of a company. But it’s not going

processes.

to be as simple as being able to plug some numbers into a model.

Is it easy to quantify the degree of sustainability

1027-1071 FSA-Fiducie-1102-02.indd 38

of a company?

Smart investors realise that there’s a risk attached to

One of the challenges is that not everything can

only looking at an annual report. In fact, in a study by

be quantified. Relying purely on quantitative

Thomson Reuters that came out recently, only 12%

assessments can easily be to our peril. Take value at

of CEOs felt that annual reports actually provided

risk (VAR) measurements that became such a focus;

sufficient information.

31-01-11 12:37

What is the main difference between Corporate

in a period of recession. Governments are going

Social Responsibility (CSR) and sustainability?

to expect companies to be paying for many more

Corporate Social Responsibility (CSR) activities

things that were previously state-subsidised services.

have not traditionally been viewed as having

Responsibility will be pushed onto the private

a real impact on a company’s bottom line. The

sector. So I think banks need to be thinking about

part of CSR and sustainability that is about

sustainability really differently.

sponsoring a local community event, for example, is potentially something that will be rewarding for

Should sustainability be an integrated part of the

one’s employees and will create a sense of internal

curriculum of students?

cohesion. And there are studies that show that these

Yes and that’s a really important issue. At Duisenberg

sorts of projects do have a positive correlation with

school of finance, we, in conjunction with Holland

employee retention, with the positive feelings people

Financial Centre, are developing a finance and

associate with the companies that they work in. But,

sustainability programme which is going to be

I’m talking about something much bigger, which is

compulsory for all our Masters in Finance students

about how we actually value companies.

starting next year, whatever their actual specialisation within finance.

Sustainability is of a different order. In a report

39

D uis enberg s chool of

on corporate sustainability released in June by

In terms of the opportunities, there are all these

fi nance stand s for

Accenture and UN Global Compact, we see that

new markets to prepare students for: carbon

top educat ion and

whereas in 2007 around 70% of CEOs felt that

trading; funding the transition to a clean economy;

sustainability was an integral part of their business,

microfinance. All these new areas have the potential

97% now see that it needs to be woven into their

to be extremely lucrative. There are also issues around

law.  A premier private

company’s operations. They see that there is a gap

valuation and risk where a better understanding of

between what they think is needed and where they

sustainability can have a real impact.

fi nance s chool located

are at.

res earch i n fi nance and

in Amsterdam with

One of the main issues identified as a challenge by

world-class faculty an d

There is a broad array of issues that I’m putting

the huge pool of CEOs that were studied in the UN

under the umbrella of sustainability – How do we

Global Compact report was being able to employ

di rec t li nks to indu stry

treat women? How do we treat minorities? What

students who are educated in these issues.

are we doing on the environmental front? Are we thinking about the big picture? Are we backing up a corrupt regime or not? What are the looming dangers in our markets? All this now matters more than ever for companies, especially as we are still

1027-1071 FSA-Fiducie-1102-02.indd 39

For reactions, please mail to [email protected]

leaders i n the world of f inance. For more information, go to www.d sf.nl.

31-01-11 12:37

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