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Date Created: 12/21/15
08 / PERSPECTIVE Corporate social reporting traces its early roots to the 1Non-financial reporting grew significantly from the end of SUSTAINABILITY when sporadic initiatives such as the social reports produthe 1990s, concomitant with an increase in interest in CSR in Germany, tried to examine a company’s long-term value- and sustainability. In 2011, nearly 95 percent of Fortune 250 REPORTING creating potential beyond its financial performance. Howevcompanies published a sustainability report ‒more than double the current reporting movement emerged in the United Statethe number a decade ago (45 percent). More than two-thirds in the late 1980s, as the SARA (Superfund Amendments and of the Fortune Global 500 companies now publish some form MIRROR,MICROSCOPE,SPRINGBOARD Reauthorization Act) legislation led to availability of moof sustainability or corporate social responsibility report. emissions data in the public domain. Sustainability as a concept received worldwide recognitionWhy Sustainability Reporting following a report by the World Commission on Environment Sustainability reporting by the corporate sector is today at a and Development, known as the Brundtland Commission, in Sustainability and reporting on it are two sides of the same 1987. The United Nations-appointed commission coined the coin—while sustainability is about recognizing and addressing potential inflection point. While on one hand, it is not as pervasive term “sustainable development”, which over the next few yethe needs of multiple stakeholders, not just the shareholder, spurred corporate non-financial reports that integrated direporting is a medium and channel for engaging with these and widely accepted as financial reporting, on the other hand, it has sustainability issues. In the early 1990s, companies startstakeholders in a transparent, objective manner. Good voluntarily disclosing non-financial information, such as sustainability disclosures require a robust foundation of evolved to occupy a distinct space of its own in the last decade. Done environmental footprint, to supplement their CSR initiativrigorous measurement and objective assessment against goals The 1992 UN Conference on Environment and Development accompanied by balanced reporting. The very process of doing right and for the right reasons, sustainability reporting can act like in Rio de Janeiro, called the Earth Summit, further servedthis creates value for the organization by helping establish focus the world’s attention on sustainability. Non-financibaselines and by clarifying the vision, strategy, and goals that a mirror of self-reflective, continuous improvement; a microscope reports started to include wider issues, such as communitythe company should adopt and pursue. transform themselves into sustainability reports. allowing itself to be held up to external scrutiny; and a springboard While reporting has by and large been a voluntary initiative by This trend was accentuated when John Elkington created companies, a distinct trend of the recent past has been that of for strategic actions and continuous improvements. the triple bottom line (TBL) framework to measure corporatinvestors and investment analysts seeking extensive disclosures performance during the mid-1990s. The TBL framework from companies on what is commonly known as the ESG triad, went beyond the traditional measures of profits, return oni.e., Environmental, Social and Governance parameters. By investment, and shareholder value to include environmentalincorporating ESG information into their investment decision and social dimensions.. models and rating frameworks, financial institutional investors BY P.S. NARAYAN VICE PRESIDENT, ECOEYE 10 / PERSPECTIVE PERSPECTIVE / 11 (FIIs) are signaling that ESG is now an important part of » It must inspire the reader—a sustainability report that is THE GLOBAL REPORTING INITIATIVE deciding on a company’s long-term credentials and outlook. dry and clinical is difficult to read. The report should Two examples will suffice to illustrate this trend: communicate a sense of promise and what is possible by 1. The Dow Jones Sustainability Index (DJSI) comprising 340 going beyond the boundaries of the organization to MATERIALITY STAKEHOLDER INCLUSIVENESS The concept of materiality in suswtainabirporting is A sustainability report should clearly identify the orga’sization global companies who make the cut on ESG performance highlight narratives and stories from around the world that concerned with a wider rawnge ofimpacts and stakeholders, and stakeholders, entities and indwiivduals that caected by the invests more than $6 billion annually in linked financial vehicles. illustrate inspiring work not limited only to those topics wthae a ﬁnancial impacwt on organizations acvities and productws, and vice versa.w the organization. w 2. The Carbon Disclosure Project (CDP) representing 655 FIIs with an aggregate of $78 trillion of invested funds, requires COMPLETENESS SUSTAINABILITY CONTEXT companies to make extensive disclosures on their greenhouse THE VERY ACT OF SUSTAINABILITY REPORTING Coverage of the material topicws and indicators awnd deﬁnition of The report should present the organizawtio’ns performance in gas footprint and mitigation plans. In keeping with this trend, CAN BE A CATALYST FOR CHANGES IN MANAGERIAL the report boundary should be suﬃcienwt to enable seholders the wider context of sustainability, or how it impacts economic, to assess the reporting organization’s performance in the environmental, and sociawcnditions, developments, and trends market data providers such as Bloomberg and Thomson PRACTICES ON ESG DIMENSIONS THAT ARE reporting period. at the local, regional, or global level. Reuters now also provide corporate sustainability information. INTEGRAL TO BUSINESS Unlike financial reporting, sustainability reporting is yet to become the norm. There are at least three reasons why this is QUALITY PRINCIPLES OUTLINED BY GRI so: first, many companies are still at the early stages of forming their sustainability program and hence reporting is not seen Reporting Vs. Ratings BALANCE COMPARABILITY ACCURACY as particularly important; second, even in companies which The report should reﬂect powsitvie and Issues and information should be sewlected, The reported information should be negative aspects of the organization’s compiled, and reported consistently, in suﬃciently accurate and detwailedofr have an established sustainability program, reporting is viewed It is important at this point to distinguish between sustainability as difficult, requiring processes, systems and resources of a reporting and ratings—both require a significant quantum performance to enable a rweasoned order to enable stakeholders to analyze stakeholders to assessw the organiza’son assessment of overall performance. changes in the orgwanizat’s performance performance. considerable order; third, the absence of regulatory directives of disclosures from the organization but differ in their over time, and compare to that of other makes sustainability reporting seem secondary in importance end objectives. While reporting is largely a voluntary, self- organizations. in companies where sustainability is not seen as central to their driven exercise, disclosures against ratings are in the nature vision, strategy and reputation. of responses to questions on ESG performance by rating agencies. The origin of sustainability ratings goes back more TIMELINESS CLARITY RELIABILITY Reporting should occur won a Information should be madwevaailable Information and processews used in the It is on the last point that we are likely to see a change; many than a decade to the recognition by FIIs that Environmental, regular schedule awnd inofrmation is in a manner that isw understandable andw preparation of a report should be governments and stock exchanges have already outlined the Social and Governmental risks posed to companies may available in time for stakeholders to accessible to stakeholders using thew gathered, recorded, compiled, analyzed, make informed decisions. report. and disclosed in aw wyathat could be non-financial data that companies must report. For instance, impact business performance, and even business continuity. companies listed on the Johannesburg Stock Exchange in Therefore, it was a logical step for FIIs to include a company’s subject to examinatiwon and that South Africa must comply with the King Report on Corporate outlook, strategy and performance on ESG goals into their establishes the quawlity and materialitwy of the information. Governance for South Africa (King III), which recommends that investment decision framework. Development of frameworks companies should produce an integrated report rather than a like the Equator principles for the banking sector accelerated separate annual financial report and sustainability report. this trend. Another visible illustration of this trend is the growth financial analysts and activist investors and will be penalized in of issues; within these, select a few critical, strategic issues in the number of specialized stock exchange indices that are the capital markets. for in-depth analysis and articulation e.g. energy, climate Recently, a group of five stock exchanges—Nasdaq, based on ESG parameters. change,water, people diversity, etc. BM&FBOVESPA, the JSE, the Istanbul Stock Exchange (ISE), The very act of sustainability reporting can be a catalyst for » Beyond frameworks: A sustainability report can be dry and and The Egyptian Exchange (EGX) -- voluntarily committed Apart from the DJSI and the CDP mentioned earlier, other changes in managerial practices on ESG dimensions that are boring, and unless it is designed to inspire interest, readers to promote improved environmental, social and corporate examples of ratings include FTSE4Good, the oekom corporate integral to business. For example, it can uncover hitherto tend to skim and skip over most sections. At Wipro, we have governance disclosure and performance for the 4,600 rating, the Bloomberg Renewable Energy Index, the Nasdaq hidden business risks and opportunities e.g. the opportunity tried to make our reports interesting by moving beyond companies listed on them. Global Sustainability 100 and the recently launched Carbonex costs of not investing in resource or energy efficiency or a what frameworks like GRI ask for and by including narratives, from the Bombay Stock Exchange. While the information potential business continuity risk on account of looming water stories and essays that are drawn from all around the world. provided by companies to these firms is extensive—sometimes stress. Further, when a company reports sustainability goals (See box item above) Elements of a Good Sustainability Report more than what is in the sustainability report—it is not in the and data, it’s much more likely to progress toward meeting » Not one but many: By design, we participate in several public domain and therefore unavailable to most stakeholders. those goals. disclosure programs—the GRI based Sustainability Report, A good sustainability report must be balanced, transparent ESG ratings have very rapidly become a proxy for good the DJSI Index, CDP, Oekom Corporate Rating, Greenpeace and inspiring as elaborated below governance and the long-term durability of the company. ratings, the Ethisphere rating, etc. This calls for the »It must provide a balanced picture of the positives and Wipro and Sustainability Disclosures commitment of significant time and management resources. negatives of the company’s performance on its sustainability Reporting, on the other hand is addressed at stakeholders We do all this because of the value that we see in disclosures goals. in addition to the invest enabling them to understand the Wipro’s approach to sustainability disclosures can be as a catalyst and as a mirror, microscope and springboard. » It must provide information in a transparent, comprehensive linkages between sustainability and long-term economic value. summarized in the following operating principles: » The Act-Disclose-Act feedback cycle: Many of the manner without appearing to obfuscate the critical issues For instance, firms that generate profits by creating negative » Extensive breadth and selective depth: Disclose disclosure frameworks have evolved through a rigorous, being discussed. impact on the environment will see unfavorable attention from extensively -more than what is asked for – on a wide range multi-stakeholder process of incorporating good practices 12 / PERSPECTIVE PERSPECTIVE / 13 • Ranked # 1 in the Greenpeace global ranking of Green Since our first sustainability report for 2007-08, Wipro Electronics BREADTH OF COLLABORATION has attempted to bring in a creative approach to the FUNCTION AREAS COVERED design and content of each report as illustrated below. Why is sustainability reporting so difficult? HUMAN » LABOUR AND HUMAN RIGHTS, DIVERSITY, FREEDOM OF ASSOCIATION, EMPLOYEE ENGAGEMENT FIRST REPORT (2007-08) RESOURCES The theme of symbiosis in nature and how we can The three primary challenges around sustainability disclosures draw from it in the context of corporate sustainability. are: FACILITIES » ENERGY AND WATER FOOTPRINT, CLIMATE CHANGE, WASTE MANAGEMENT, BIODIVERSITY Vivid images and photographs of marine biodiversity I. DEPTH OF EFFORT: Major frameworks like the GRI and DJSI OPERATIONS were used to illustrate this. call for significant efforts and time. A good, comprehensively written GRI report will take the better part of six months; FINANCE » INVESTOR RELATIONS, BOARD GOVERNANCE, PAYMENTS TO STAKEHOLDERS, SUSTAINABLE SECOND REPORT (2008-09) DJSI and CDP disclosures require between 2 and 3 months of INVESTMENTS Tapping the passion of Wipro employees, we featured focused attention. narratives of 50 outstanding examples from around CODES OF BUSINESS CONDUCT, POLITICAL LOBBYING, ANTI-CORRUPTION, ANTI-FRAUD AND LEGAL » BRIBERY,RISK MANAGEMENT, OMBUDSPROCESS the world of sustainability in action – ranging from II. BREADTH OF COLLABORATION: Sustainability is inherently the case study of the rapid bus transit system in the multi-disciplinary and multi-functional; therefore, its associated Brazilian city of Curitiba to the efforts of Mohammad disclosures call for the coming together and collaboration of PRODUCT LIFE-CYCLE DESIGN OF PRODUCTS, END OF LIFE WASTE MANAGEMENT, REDUCTION IN DEVELOPMENT » Dilawar in India to save the sparrow, or the long multiple internal functions. E.g. human resources, operations, OPERATIONAL FOOTPRINT, SUPPLIER RESPONSIBILITY tradition of the Bishnoi community in Rajasthan, India, finance, legal, corporate sustainability. The table alongside of revering all life forms and conserving trees. shows the collaborative breadth needed for any ESG disclosure CORPORATE » SUSTAINABILITY STRATEGY,COMMUNITY AND SOCIAL INITIATIVES, REPORT EDITING AND or sustainability report. SUSTAINABILITY COMPILATION THIRD REPORT (2009-10) This report’s distinguishing feature was the creative III. STRONG ANCHORING LEADERSHIP: A corporate- SUPPLY CHAIN » SUPPLY CHAIN RESPONSIBILITY, GREEN PROCUREMENT POLICY, SUPPLIER CODE OF CONDUCT use of cartoon and graphic motifs to communicate the level sustainability group is essential that will provide strong contents in a compelling and interesting manner. leadership and anchor the whole disclosures program. This MARKETING involves and requires adequate advance planning, constant AND CORPORATE » ETHICAL MARKETING AND ADVERTISING, REPORT DESIGN AND COMMUNICATION STRATEGY. COMMUNICATION FOURTH REPORT (2010-11) engagement with the framework owners, the development of This report featured invited articles by experts on a sufficient domain knowledge in sustainability and the ability to multitude of topics. E.g. Solar energy in India, urban influence internal stakeholders to be committed participants in biodiversity, CSR value positioning, etc the whole process. is it just that many organizations that have strong sustainabilitFinally… programs have not bothered to invest time and attention in Having said this, it is important to emphasize that starting off reporting? I would bet on the former, for in companies that If nothing else, the 21st century will be viewed in history as one the whole thing is the most difficult stage . Once a start has have a strong sustainability culture, transparency and reporting where, aided by the Internet and its various manifestations, from multiple sectors and geographies. These can serve as been made, it is relatively easy to build upon each cycle of are a natural part of the DNA of the organization. transparency became the norm and an essential expectation triggers for starting new programs or recalibrating existing effort and to create a strong institutional foundation where the of those who wielded power over others—government and ones. Thus, we view disclosures not as ends in themselves entire cycle from planning to disclosures becomes smoother. An interesting recent development is that of the Securities and business in particular. It is also likely to be seen as an era where but as the means of providing continuous feedback into our Exchange Board of India mandating that the top 100 listed sustainability concerns became mainstream and a matter of action programs. companies by market capitalization must submit business survival for humanity. Organizations and institutions that do Sustainability Reporting in India responsibility reports as a part of their annual reports. The not recognize this are likely to run into the eye of the storm As is clear from these examples, we see a sustainability report proposed amendments to the Companies Bill—likely to be sooner rather than later. as more than the organization’s mirror—we see it as a medium Sustainability disclosures require, above all, a spirit of courage passed in the current winter session of the Indian Parliament for educating and for stimulating fresh thinking and debate and transparency on the part of companies. From this – lists a similar requirement but with a wider catchment of We therefore see multiple forces in play that will result in a among the public on the major issues that face humanity. perspective, India Inc. has a long way to go -- the number of all listed companies with revenues greater than Rs 500 crore. rising groundswell of thinking and actions around sustainability assured sustainability reports from India’s top 100 listed firms is These amendments and the controversial proposal to mandate and its associated disclosures—reputational and competitive Below is a partial list of recognitions that are a reflection of a low 21 and only 57 out of the top 200 companies responded a minimum spend of 2 percent of average net profit on CSR pressures, legislative compulsions, and critical issues around passion for and attention to sustainability disclosures: to the CDP’s annual questionnaire in 2011. Brazil, on the other raise a crucial question: “Can sustainability be enforced business continuity. But what will mark out a few companies • Member of DJSI for three years in succession and Sector hand, has quickly established itself as a leader in sustainability through legislative mandates?” My personal view is that the from the rest is the ability to see beyond the short term and Leader in Computer & Internet services sector reporting. The situation among small and medium enterprises essence and gestalt of sustainability is something that one the narrow, and to inform their actions on sustainability with a • Listed in World’s Most Ethical Companies 2012 by Ethisphere is even more abysmal. has to feel deeply and be convinced about, without which vision that is rooted in the conviction that this is the right thing • Part of Global Carbon Disclosure Leadership Index (CDLI) a company would quickly fall into the compliance trap, i.e., to do and that there are really no choices. • Ranked #2 In the Newsweek’s global ranking of 500 Green Is the poor level of sustainability reporting reflective of the weak ticking checkboxes and gaming the system instead of doing companies traction with sustainability itself on the part of companies? Or real, impactful work.
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