Sustainability, Organizations, and Accountants


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Presentation by Stathis Gould, Senior Technical Manager at IFAC, at the Institute of Cost Accountants of India's National Cost Convention, New Delhi, India, March 2012.

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Sustainability, Organizations, and Accountants

  1. 1. Sustainability, Organizations,and AccountantsInstitute of Cost Accountants of India53rd National Cost Convention, March16 2012Stathis Gould, IFAC Page 1 | Confidential and Proprietary Information
  2. 2. Research FindingsCFO Role in Sustainability on the Rise Page 2 | Confidential and Proprietary Information
  3. 3. Sustainability FrameworkEmbedding Sustainability & the Role of Accountants Page 3 | Confidential and Proprietary Information
  4. 4. Business caseThe Sustainability Business Case In General • Customers demand it • Pre-empt regulatory threats • Sustainability is good business: – Enhanced reputation – Higher profit – Lower cost – Closer ties with customers and suppliers – Managing risk and opportunity • Sustainability doesn’t have to be about the grand gestures that change the world – it can be about smaller initiatives that have a local impact. Page 4 | Confidential and Proprietary Information
  5. 5. Business case 2What is the Business Case in your Organization? • Engage stakeholders • Scope of the business case • Articulating costs and benefits and financial impact • Accountants can: – Identify sustainability related expectations and the key issues – Link business case to strategy – Assess financial impact Page 5 | Confidential and Proprietary Information
  6. 6. Material FactorsTwo Sector Examples of Material SustainabilityFactors • For an extractive company: – Climate change impacts – High risk operations – Health and safety – Community impact and relations • For a bank: – Customer satisfaction – Key staff competencies and talent management – Executive remuneration – Exposure to sovereign debt – Emissions relating their investments – Financing sustainable projects – Providing banking services to underserved groups Page 6 | Confidential and Proprietary Information
  7. 7. Sustainability FrameworkVision and Leadership • A sustainable long term vision and sustainable leadership • Example: Unilever Our vision is to create a better future in which people can improve their quality of life without increasing their environmental footprint. • Reinforcing governance structures • Example: ITC A sustainability management structure that helps to mainstream sustainability into business strategy. • Example: Tata Consultancy Remuneration linked with the organization’s performance in sustainability. Page 7 | Confidential and Proprietary Information
  8. 8. Sustainability FrameworkEffective Stakeholder Engagement • To develop an understanding of what sustainability means for organizations, and how it can contribute to value creation and the viability of their operations • Example: MTR, responsible for Hong Kong’s mass transit railway Identifies and prioritizes its stakeholders in relation to how they affect MTR’s business sustainability over time. • Example: Nexen, upstream oil and gas company Page 8 | Confidential and Proprietary Information
  9. 9. Sustainability FrameworkEffective Stakeholder Engagement Page 9 | Confidential and Proprietary Information
  10. 10. Sustainability FrameworkEstablish Goals and Targets • To demonstrate commitment and to show progress • Strategic targets and break them down so that they are meaningful for individual subsidiaries, divisions, and departments • Example: L&T Engineering and Construction Set targets for energy, water, health & safety and human rights and established a monitoring review mechanism Page 10 | Confidential and Proprietary Information
  11. 11. Sustainability FrameworkIntegration with Risk Management • Understanding sustainable drivers and issues from risk management processes • Dealing with sustainability factors to “de-risk” business in eyes of investors • Risk to opportunity • Example: Walmart, Retailer Sustainability program arose out of risk management process Page 11 | Confidential and Proprietary Information
  12. 12. Sustainability FrameworkEngagement of Suppliers & Procurement • Working closely with suppliers to improve sustainability performance • Sustainable procurement • Example: Westpac Bank Supplier assessment and screening process, and supplier code of conduct Page 12 | Confidential and Proprietary Information
  13. 13. Sustainability FrameworkEnergy Efficiency and Waste Minimization • Initiatives that reduce environmental impacts also generally reduce operating costs: – Identifying large environmental costs that could be reduced – Monetizing procedures for costs, savings, and revenues – Small (and no cost) changes can lower energy costs and reduce carbon emissions – Carbon footprinting and accounting • Example: IBM Saved 15% to 40% of their annual data center energy consumption with less than a two-year payback. For a typical 25,000-square-foot data center paying $0.12 per kilowatt hour for electricity, this can translate into as much as $1 million in annual energy savings Page 13 | Confidential and Proprietary Information
  14. 14. Sustainability FrameworkImproving Information to Support Decisions • To make improvements, good quality information is required • Conventional accounting does not capture all relevant costs and benefits. Consider tools such as: – Environmental management accounting – Full cost accounting – Material Flow Cost Accounting – ABC/M – Integration into investment appraisal – Life-cycle analysis Page 14 | Confidential and Proprietary Information
  15. 15. Sustainability FrameworkIntegrated Management Control • Embedding into management control cycle: – Planning – Performance management/measurement – Internal control and audit – Integrated systems • Example: Proctor & Gamble Planning and Control System of Objectives-Goals-Strategies-Measures Incorporates sustainability factors into the day-to-day management and running of an organization using plan-do-check-act (PDCA) cycles Page 15 | Confidential and Proprietary Information
  16. 16. Sustainability FrameworkReporting • IFRS and management commentary • Sustainability (Global Reporting Initiative India Focal Point) • Integrated Reporting (IIRC) Specific issues to think about: • Who are users and what are their needs? • Materiality and value to whom? • Reporting is more than the hard copy annual report • Integrated reporting requires integrated thinking and management in the organization Page 16 | Confidential and Proprietary Information
  17. 17. SustainabilityMervyn King Interview with IFAC The greatest shareholder today is no longer the wealthy family, but it is the individual via his or her financial institution and pension fund. The same individual is also the employee of the company; the customer who chooses between the products of company A or company B; the voter for the government of the day and for the trustee of the pension fund. In addition, the individual is also a citizen of a country who expects his or her neighbor to act as a decent citizen, and as a consequence today, the individual citizen expects the corporate citizen to act as a decent citizen. Page 17 | Confidential and Proprietary Information
  18. 18. IFAC Professional Accountants in BusinessQuestions? • IFAC Sustainability Framework available at Page 18 | Confidential and Proprietary Information