THE GOVERNMENT might have finally made a decision on mandatory carbon reporting . But this hasnt stopped some businesses developing innovative sustainability accounts already, as Tom Beagent from PricewaterhouseCoopers sustainability and climate change team explains.
Its hard to say exactly when companies started reporting on their environmental and social impacts. As far back as the 1930s the social responsibilities of executives were being pioneered by the management theorist Chester Barnard in his book The Functions of the Executive.
Today, most leading companies report on their sustainability performance, often in dedicated reports. The rapid pace of change in sustainability reporting over even the last five years suggests that reporting in another five years will look vastly different again.
As the structure and content of sustainability reporting is currently unregulated, businesses must first consider what their reporting is trying to achieve. If you subscribe to the theory that effective corporate reporting aligns with the information you are investing in internally (why would you invest in collecting different information to that you are using to run the business to produce your sustainability report?) then it is logical to assume that the areas business will be focusing on in five years time will be the focus of corporate sustainability reporting.
Resource scarcity will certainly be in the mix. According to PwCs 2012 global CEO survey, natural resource scarcity is second only to political instability in the biggest concerns for CEOs. This is driving leading companies to understand how to create competitive advantage from sustainability. These businesses are beginning to think about the environment and biodiversity as an extension of their traditional asset base and appreciating the value they deliver. Reporting on their dependence on such assets enables these businesses to factor sustainability risks into investment appraisal and capital allocation decision-making.
The foodservice industry faces its own specific challenges, particularly around food security and volatile global prices. For example, how will the growing global population and a rising middle class in developing countries affect the global food markets? Will the future demands of customers be met at a price that is acceptable both commercially and socially?
Environmental destruction is not, in most cases, a result of headline-grabbing manmade disasters but the steady erosion of biodiversity as a cost of economic development. But these costs to the productive capacity of the economy are not valued and not felt by any one company, so its easy to see why, at this stage, the threat is less visible to business leaders. Biodiversity loss and ecosystem degradation, for example, are underlying factors in other trends and risks such as energy and food security and pricing.
Risks such as these are currently not well understood by many businesses and rarely reported on. Last years innovation in sustainability reporting by the sport lifestyle company Puma, with its environmental profit & loss account (EP&L), has shown how a company can understand risks such as water scarcity and natural capital and begin to focus investment to create and sustain competitive advantage.
The EP&L is a means of placing a monetary value on the environmental impacts along the entire value chain of a business. It provides at-a-glance clarity on the type, size and source of environmental impacts and, by putting a monetary value on the impacts, provides a more sophisticated understanding of risk by factoring in aspects such as local water scarcity. By converting environmental impacts such as tonnes of greenhouse gas emissions or cubic metres of water into monetary value it also allows different environmental impacts to be compared on the same basis for the first time and in a format familiar to business decision-makers.
Another example of innovation in corporate reporting which looks beyond environmental impacts is British Lands report on its economic contribution. Looking beyond its traditional financial results, it examined the companys contribution to society through tax payments, jobs supported and the wider impact of this on the economy. As more companies look to take their investments in sustainability to the next level this sort of understanding is going to be sought by managers and we are likely to see more examples of this emerging.
In the context of these developments, the UK governments recent announcement to delay its decision on mandatory carbon reporting was disappointing. Businesses like certainty, and this delayed decision and the changes likely to come on the Carbon Reduction Commitment means they are several steps away from it. However, the reality is that innovative approaches to reporting are currently ahead of regulation and are likely to remain ahead for the foreseeable future. Necessity may be the mother of invention yet again.