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Bottoming out
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These days investors and other stakeholders want to know about more than just the financial health of an organisation. But getting everybody to disclose on issues like the environment isnt always easy and then there is the spin. Michelle Rice looks at the slow growth of triple bottom line reporting. |
Corporate collapses are not new. But with more people investing in shares and the media spotlight firmly on the corporations they are finding it harder to hide their effects on the environment and community. To satisfy stakeholders and keep the media hawks at bay, corporations are fast finding a place for the triple bottom line, or sustainability report. Once the preserve of radicals, TBL is now being swiftly embraced by academics, researchers, companies and governments across Australia.
Getting a grip on the trend in Australia was a motivation for CPA Australias latest research into TBL reporting and current practices of sustainability. The first of five phases involved in the project has been carried out the by University of Sydney, commissioned for the job because of their extensive experience in the area.
During this initial research the university identified who TBL reports, what they report and how they present such information. To gather this information, a survey was carried out on top 500 listed companies, eight federal and 10 state government business enterprises, and 35 local governments.
Fortunately, it is a growing trend for organisations in Australia to show some transparency and accountability beyond the domains of financial performance.
CPA Australia CEO Greg Larsen explains: 'Decision-making along TBL lines is fast becoming an accepted approach to operationalising the intangible concept of sustainability.
TBL-influenced frameworks extend decision-making and disclosure so that they take into consideration impacts on natural and human capital, as well as financial capital.
'Its appropriate for us to take a leadership role investigating, implementing and promoting reporting standards that are rigorous and measurable.'
This leadership role that Larsen is talking about is, at this stage, the commissioned research, looking at TBL across the public and private sectors, plus industry and commerce.
Proportionately, state GBEs such as Integral Energy and SA Water have the biggest take-up rate of TBL reporting in Australia, with regulation and monitoring the likely reasons.
Of the eight federal GBEs surveyed, only Telstra employs a stand-alone reporting strategy.
When it came to the corporates, only 24 of the top 500 produced reports. However, the University of Sydney research showed a likely increase in the future with four first-time reporters identified.
Accounting lecturer Sandy Van Der Laan of the university, who led the first phase of the project, says size and political visibility are strong motivating factors for companies to report.
'Large companies and those in the materials, capital goods and energy sector accounted for nearly the entire survey sample,' she says. 'This is not surprising since they already produce this information to comply with regulatory requirements.'
When compared internationally, Australian organisations failed to make the top 50 list rated by AccountAbility a London-based consultancy that ranks companies on their sustainability reporting.
Commissioned by the World Business Council for Sustainable Development (WBCSD), AccountAbility ranked BP number one in the world.
A similar index by UK firm SustainAbility put the UKs Cooperative Bank at the top of the TBL reporting ladder. Westpac was the only Australian company mentioned, and while their report was considered an example of good reporting, it failed to make the top 50.
Van Der Laan, who has specialised in research on TBL reporting for the past five years, says the survey showed that companies operating in more environmental and OHS-sensitive industries are more likely to report.
She adds that research also showed that although local governments provide social and environmental services, their reporting was sketchy.
Public scrutiny is by far the biggest driver of TBL reporting. 'Everyone is investing in corporations these days so when something goes wrong the media are all over the story,' says Van Der Laan.
But as Royal Melbourne Institute of Technologys Professor Craig Deegan points out, its not just about reporting. The lecturer at RMITs school of accounting and law says it is also about making sure that the right information is disclosed to those who have a right to know.
According to Professor Deegan a lot of research suggests TBL reporting is motivated by desire to legitimise activities rather than accountability and transparency.
So are TBL reports really just green washing the public?
In some cases the answers still seem to be yes. Ironically, British American Tobacco issued a sustainability report in 2002 and 2003. Although they only applied 50 per cent of the indicators of the global reporting initiative, intriguingly they scooped the UKs Association of Chartered Certified Accountants award for best first-time report.
CPA Australias own survey confirmed that in many cases information in the TBL reports is overwhelmingly positive, with negative information dressed up positively.
For example, the research quotes the report of mining outfit WMC Resources. Talk about wrapping things up in cotton wool: 'Our injury rate continues to be around one-third of the total Australian metalliferous mining industry average,' state the communicators from WMC.
Van Der Laan argues that TBL principles should be integrated into decision-making processes to truly be of value to the community.
Currently, TBL reporting practices, particularly by corporates, are being criticised as no more than a device for reputation management. If these disclosures are truly to be of benefit, then issues of materiality, completeness and credibility need to be addressed.
'Of course, the credibility issue is being addressed to some extent by the increase in external verification (auditing) of TBL reports,' adds Van Der Laan.
But would international sportswear company Nike have bothered doing social audits without public criticism for their unethical labour practices in Asia?
Probably not, but there are signs of change on the horizon. On its website BHP Billiton makes little attempt to cover up the damage it has done at the Ok Tedi copper mine in Papua New Guinea. Instead, the largely spin-free site details the disastrous effects the mine has had on people and the surrounding environment.
Does this type of honesty and disclosure lead to a return on investment?
On the one hand reporting keeps non-government organisations, trade unions and other stakeholders off a companys back. It can even boost their reputation, which Westpac discovered when it received AAA rating from Macquarie Graduate School of Managements reputation index Reputex.
And certainly if an organisations competitors start reporting it is only a question of time before they follow suit. On this point look no further than the fact that ANZ and National Australia Bank are for the first time preparing TBL reports this year.
'Reporting makes an organisation appear accountable and transparent because it is revealing information about activities that are not observable,' says Van Der Laan.
'It is also a way of attracting mum and dad investors who dont just look at the dollars but consider social, environmental and ethical risks inherent in the business.'
Certainly, the investment dollars of these mums and dads is partly the reason that reputation risk management is becoming more pressing for organisations.
Widespread adoption of TBL reporting may still be way off but companies are realising the point of no turning back, in regard to TBL, has been reached. The business imperative: In order to stay where you are you must keep moving now almost certainly applies.
'Inevitably you will be compared with those who do report,' notes CPA Australias Larsen. 'The CPA Australia survey findings are just a fraction of what is to come, as external pressure from customers, shareholders and governments has increased to a point where it drives business to address issues.'
These external concerns should ensure TBL becomes more than just smoke and mirrors to legitimise corporate activities.
'Organisations need to tell shareholders in a way that is both understood and trusted, not dismissed as corporate puff,' says Larsen.
'If you are saying you are doing something and disclosing this to the public, eventually they are going to find out if you are lying.'
Once TBL becomes entrenched the next step is shifting the spotlight onto the quality and content of reports. The work to date of organisations such as the Global Reporting Initiative, the Institute for Social and Ethical Accountability, and the World Business Council for Sustainable Development has undoubtedly nursed the development of TBL reporting.
But there is now a growing call for the accounting profession to take the reins.
Larsen says: 'The lack of consistency in reporting and the variation in the standard of reporting emphasises the need for the information on sustainability to be meaningful and communicated effectively.
'CPA Australia addressed the same needs when we proposed changes to the financial reporting framework, and here too we can be leaders in helping business do the right thing.
'The concept of TBL is intended to be integrated into the philosophies, values and business planning of an organisation.
'Half-hearted adoption would affect how businesses publicised their new standards, research findings or how they reported on their TBL actions. The media, academia and competitors would be quick to highlight any shortcomings.'
CPA Australias leadership will encompass action for not-for-profits as well as listed companies and look to the future as well as the present.
The initial phase of the CPA Australia sponsored research will help increase understanding of TBL principles and methodology, and provide insights into the tools for the preparation of TBL reports. Eventually, the research will lead to guidance for practitioners and best practice principles.
If some Australian companies are dipping a toe into the waters of triple bottom line, Westpac might be TBLs deep sea divers. Indeed, Westpac has plans to position itself as a world leader within the financial services sector 'to positively influence social, ethical and environmental performance'.
Its formal TBL reporting began in 2001, instigated by the notion that, within Westpac, the business has impacts not captured within financial reporting.
Of the two TBL issues beyond finance, Westpacs adherence to TBL can seem weighted to social aspects. Westpacs 2003 Social Impact Report was its second such release. The framework is based on the Global Reporting Initiative, the global standard for TBL reporting. The bank has set out a clear statement of its social accountability policies and practices and formed a platform for engagement. Its Social Charter, published in 2001, gathered together all of Westpacs policies across governance and ethics, human rights, environmental management, community involvement, employee policies and marketplace practices.
The strength of Westpacs commitment to TBL has been duly recognised. It has been rated the global banking sector leader in the Dow Jones Sustainability Index for two years running. It was also ranked number one (from Australias top 100 companies) in the 2003 Reputex Social Responsibility Ratings.
'We have adopted a total responsibility management framework to integrate TBL into the day-to-day operations,' says Tim Williams, senior adviser for corporate responsibility and sustainability at Westpac. 'It incorporates stakeholder engagement, transparency and accountability, with corporate responsibility embedded throughout the business.' This, according to Williams is 'encapsulated by the Westpac DNA, which combines vision, mission, values and the management model.
'Corporate responsibility is built into Westpacs value management, performance management and risk management processes,' he explains.
Williams also says: 'TBL reporting has been significant for external reputational assessments which look at both perceptions of the business, as well as underlying business practice, and with responsible business practice a driver of overall reputation.' And, no doubt, just as importantly: 'The adoption of sustainable business practice and TBL reporting has been very positive for shareholder value,' he says.
City of Melbourne adopted triple bottom line reporting in 2000 under then CEO Michael Malouf. He had heard about the ideas of John Elkington, the acknowledged originator of the concept of TBL, and recognised it as a valuable tool for local government. 'Michael thought the City of Melbourne had a natural advantage to do TBL because all programs are about alleviating social and environmental issues in the community,' says Robyn Leeson, the citys manager of environmentally sustainable development.
With a focus on sustainability, TBL can, at first instance, seem an easy fit for the City of Melbourne. Policy to reduce water consumption and greenhouse gas emissions have been implemented. As a capital works tool building a road, for example issues beyond costs are now evaluated. Residents that might be affected are identified and the impact assessed. Emissions from new traffic flow are projected and evaluated. 'One of the great things about TBL is that the language is very easy to understand,' says Leeson. City of Melbourne defines sustainability as 'the simultaneous pursuit of economic prosperity, social equity and environmental quality'.
'Everyone now understands that society is an interaction of social, environment and economic activity,' explains Leeson. 'But we have to go beyond TBLs three individual parts and look at how they interact holistically to achieve the vision of sustainable future and this is where we are at with it now. This is the current challenge.'
Despite their progress, the team are still grappling with the three domains of TBL. To be effective, TBL decision-making tools need to be adapted to keep up with changing needs. Despite inherent difficulties, not the least of which is the constant evolution of the reporting, the councils current CEO, David Pitchford, is building on Maloufs TBL foundations. Indeed, as leaders in local government the City of Melbournes TBL policy is as much about education as reporting.
It is helping other municipalities and shires to respond to sustainable development. It hosts the International Council for Local Environmental Initiatives (ICLEI) and disseminates TBL tools. It is also preparing a conference to bring together national and international TBL practitioners and is helping develop guidelines for TBL reporting in the public sector.
This article was written by Michelle Rice, a freelance writer.
This page is available online at:
http://www.cpaaustralia.com.au/cps/rde/xchg/cpa/hs.xsl/724_10411_ENA_HTML.htm
