The human cost of doing business
Sarah-Jayne Dominic CA, Senior Strategic Advisor at the Global Reporting Initiative and Chair of the ICAS Sustainability Panel, says accountancy should acknowledge the human cost of doing business
Sustainability reporting has gone mainstream. It has influenced organisations all around the globe and across the public, private and non-profit sectors. In the UK, in particular, we are seeing an ongoing trend towards stewardship and the greater recognition of firms’ responsibilities to all stakeholders. It’s an idea that was recently championed by Sir Donald Brydon in his review of the audit industry. And last month, New Zealand became the first country to make climate risk reporting mandatory for banks, asset managers and insurers.
Traditionally, annual reports have catered to shareholders and other investors, but there is now an improved understanding of the need to service other stakeholders, even if your sole focus as an executive remains financial impact. If you go back even just 10 years, the idea of measuring and regulating the contribution of an organisation to climate change appeared incredibly difficult. Now, many large listed companies have some form of sustainability reporting.
However, it is often presented as if it were a glossy marketing document. Standalone sustainability reports may contain useful data and metrics, but they regularly miss the mark when it comes to fully educating all forms of stakeholders. Greater thought needs to be given to which information is included in the reports and just how it is collected.
So, what information is needed for stakeholders to make an accurate assessment of the issue? That’s where sustainability reporting standards come in. The Global Reporting Initiative (GRI) has 34 topic-specific standards, including areas that are not traditionally thought of as coming under the sustainability umbrella, such as tax transparency and human rights. When I worked in risk management at PwC, I would be the first person to say “No, you can’t assure that – it’s too difficult”. But now with a lot of initiatives under way, such as the Task Force on Climate-Related Financial Disclosures, and continual revisions to GRI’s standards, we are making significant progress in measuring and monitoring these complex areas.
Putting people first
It all speaks to sustainability being systemic and interconnected. Consider tax transparency as a sustainability issue. If a company is not paying its fair share of taxes in all the countries in which it operates, then it will not be contributing the funding that governments need to address issues around social and economic inequality.
Many companies have lagged behind when it comes to covering social issues as part of their sustainability reports. When reading these documents, you will frequently see a simple statement that a firm “respects” human rights. Let’s turn that on its head and assume that you are not respecting human rights – what qualitative and quantitative evidence can you share to persuade us otherwise? It gets a lot harder to skirt around the issue when we change how the question is phrased.
If you choose just to report on the areas of sustainability which you can most easily measure, you’re not fully representing your business’s impact, particularly negative impacts, on the environment, economy and people. Organisations often stop at measuring environmental issues because these topics are best understood with developed practice. We have become very familiar with putting a price on water usage and carbon dioxide emissions, but they are only part of a much larger puzzle. Organisations must think a lot harder, and more creatively, about what evidence they can provide to support the disclosures they make in their sustainability reports.
The events of 2020 have expanded our understanding of sustainability and what types of disclosure provide value to stakeholders. The growth in the Black Lives Matter movement over the summer led to many organisations openly communicating what they are doing to address racial inequality. Likewise, the pandemic has reinforced the duty of care that firms have towards their employees. Think back to the measures you put in place to safeguard the mental and physical wellbeing of your staff during this time. These areas all create considerable value.
Speaking a shared language
Despite the significant collective progress we have made in recent years, sustainability reporting is sometimes in danger of becoming an “alphabet soup”. Professionals are familiar with acronyms such as the GRI and the SASB (Sustainability Accounting Standards Board) and have an understanding of what our standards represent, but often they do not dig deeper and engage with the sustainability reports being produced.
Consider the framework behind financial reporting as a contrast. We all know who the standard setters are, but what we’re really interested in when we read a financial report is the information that is reported using those standards. That’s where we need to shift our interactions with sustainability reporting. When you see one of those acronyms accompanying a report, you instantly know what information to expect and how the relevant standards have shaped the information presented.
That point may not be too far away. The European Commission has begun reviewing its non-financial reporting directive, completing a consultation during the summer and assembling a taskforce that convened for the first time in September. Even though it won’t directly affect the UK, the adoption of non-financial reporting standards across all 27 member states would have significant impact on the nature of sustainability reporting globally. Now might just be the time to get ahead of the curve.
Watch the ICAS and Adam Smith Business School webinar, “Accounting for COVID-19: Sustainability, Impact & Accounting Professionals” now.