Sustainability looms as a bigger issue

By Glenn Cheney • Accounting Today • May 18, 2009

Ten years ago, the Dow Jones Sustainability Index began to track the financial performance of leading sustainability-driven companies around the world.

Within a year, the Global Reporting Initiative, the Amsterdam-based concern that establishes the framework that organizations can use to measure and report their economic, environmental and social performance, issued its first sustainability reporting guidelines - the first of which amounts to GAAP for the reporting of crucial corporate issues that add up to non-financial bottom lines. Since then, almost 1,000 companies have been issuing sustainability reports under GRI standards. Last year a survey from Big Four Firm KPMG found that 80 percent of Global Fortune 150 companies were disclosing their sustainability performance, and 75 percent of them used GRI guidelines.

Andrew W. Savitz, author of The Triple Bottom Line and founder of Sustainable Business Strategies, said that, though many still see reporting on sustainability as an irrelevant "green" fad, it's a growing trend that is paying off during economic duress. "I think sustainability reports are increasingly seen as a mainstream business activity," he said. "It is moving from an art to a science as the GRI releases more technical protocols on how to measure, and people see that there's some hard economics and analysis behind it, so that fuzziness factor is down."

The triple bottom line and sustainability reporting are essentially synonymous. The reports go beyond financial results to provide information on economic, environmental and social performance. Employees, community, the environment, corporate governance, supply chains, risk management, branding, and climate change mitigation all figure in as important quantifiable factors in the long-term success of a company.

A GREEN WEB

Online financial reporting is contributing to the increase in sustainability reporting. While financial and sustainability reports used to be issued as separate documents, HTML links are helping mesh the two reports, making each part of the other. The result is a more holistic image of a given company.

This broader image is important in certain industries. Climate change, for example, is a material financial issue in a wide variety of industries, from energy to agriculture. Biodiversity is a material financial issue to mining companies. Endemics are relevant to pharmaceutical companies, while obesity is relevant to the food industry.

But have companies that report sustainability done any better during the economic crisis than other companies? Savitz says that they have, though they, too, have suffered. "Sustainability gives you some competitive advantages and potentially some beneficial marketplace results, but it isn't going to necessarily isolate you from macroeconomic issues," he said. "Companies that embraced sustainability prior to the current cycle were in a better position to deal with certain issues. This isn't called sustainability for no reason. It's about the long-term survival of companies."

That better position, Savitz explained, results from better relationships with stakeholders, being prepared for problems in supply chains, and avoiding environmental problems.

The DJSI shows performance roughly equal to that of Dow Jones' large cap and total market indices.

Though sustainability reporting has become substantially standardized, assurance of the quality of those reports still varies among companies. Some use third-party consultants. Some form independent panels of stakeholders who have varying levels of expertise in assessment and assurance. Some use auditors, though the profession has no standards on procedures or testing. The quality and consistency of assurance therefore remain well below that of assurance and attestation for financial reports.

GRI is currently working on three areas of reporting: human rights, segmentation of data on greenhouse gas emissions, and guidance on applying the principle of materiality that would govern how a reporting entity reports on the indicators that are most material to it. It is also working on supplemental guidance for specific industries.

(c) 2009 Accounting Today and SourceMedia, Inc. All Rights Reserved.

 

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