Roger Adams: Financial reporting and CSR

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  • Good afternoon Ladies and Gentlemen. Thank you Graham and thank you to the ICAEW for asking the Global Reporting Initiative to participate at this important European event.
  • Here is a quick overview of what I’d like to cover in this presentation. First of all I’ll look at the context within which sustainability reporting takes place. I’ll quickly highlight some of the benefits that both preparers and stakeholders see coming from this relatively new filed of activity. Next I will provide some information on the levels of reporting activity and some background on a number of new initiatives that fall loosely under the heading of sustainability reporting - although phrases like corporate social responsibility reporting and triple bottom line reporting are also in common currency. Finally I will present the GRI itself - its vision and its product - and try to identify ways in which the accounting profession can contribute its skills and resources.
  • Here is a quick overview of what I’d like to cover in this presentation. First of all I’ll look at the context within which sustainability reporting takes place. I’ll quickly highlight some of the benefits that both preparers and stakeholders see coming from this relatively new filed of activity. Next I will provide some information on the levels of reporting activity and some background on a number of new initiatives that fall loosely under the heading of sustainability reporting - although phrases like corporate social responsibility reporting and triple bottom line reporting are also in common currency. Finally I will present the GRI itself - its vision and its product - and try to identify ways in which the accounting profession can contribute its skills and resources.
  • Here is a quick overview of what I’d like to cover in this presentation. First of all I’ll look at the context within which sustainability reporting takes place. I’ll quickly highlight some of the benefits that both preparers and stakeholders see coming from this relatively new filed of activity. Next I will provide some information on the levels of reporting activity and some background on a number of new initiatives that fall loosely under the heading of sustainability reporting - although phrases like corporate social responsibility reporting and triple bottom line reporting are also in common currency. Finally I will present the GRI itself - its vision and its product - and try to identify ways in which the accounting profession can contribute its skills and resources.
  • Here is a quick overview of what I’d like to cover in this presentation. First of all I’ll look at the context within which sustainability reporting takes place. I’ll quickly highlight some of the benefits that both preparers and stakeholders see coming from this relatively new filed of activity. Next I will provide some information on the levels of reporting activity and some background on a number of new initiatives that fall loosely under the heading of sustainability reporting - although phrases like corporate social responsibility reporting and triple bottom line reporting are also in common currency. Finally I will present the GRI itself - its vision and its product - and try to identify ways in which the accounting profession can contribute its skills and resources.
  • Here is a quick overview of what I’d like to cover in this presentation. First of all I’ll look at the context within which sustainability reporting takes place. I’ll quickly highlight some of the benefits that both preparers and stakeholders see coming from this relatively new filed of activity. Next I will provide some information on the levels of reporting activity and some background on a number of new initiatives that fall loosely under the heading of sustainability reporting - although phrases like corporate social responsibility reporting and triple bottom line reporting are also in common currency. Finally I will present the GRI itself - its vision and its product - and try to identify ways in which the accounting profession can contribute its skills and resources.
  • Before moving to the GRI, let me mention some other reporting related initiatives: in the UK, various influential sources now imply that environmental and social disclosures add value to published annual reports: the Turnbull recommendations on risk management are now part of the Combined Code of corporate governance. The Association of British Insurers is asking for voluntary disclosure of sustainability related information. An influential group of NGOs is currently lobbying for mandatory reporting. Elsewhere in the EU, France has recently issued mandatory social reporting requirements for annual report and accounts purposes and the Commission has placed great importance on developing a transparent CSR framework. CSR Europe, a Brussels based think tank, has produced some social reporting guidelines and an SME reporting tool-kit
  • Statistics are notoriously unreliable things. This slide and the next give some indication of activity levels. Looking at FTSE 250 in the UK, a recent survey reported that 4 companies do nothing at all. Nothing. 91 do nothing of substance - a paragraph in the annual report and accounts perhaps. 103 produce a stand alone report of some kind: environmental, social, sustainability or some other form of accountability document. The remaining 52 presumably fall somewhere in between - more than a note in the accounts, but less than a fully fledged report. More interestingly - to me at least - was the fact that 50 companies reported for the first time in 2001. 36 of the 103 stand alone reports were independently verified, and 95 of those that do more than “nothing of substance” include social and ethical information. Despite the web revolution of 12 have chosen to publish only on the web.
  • Here is a quick overview of what I’d like to cover in this presentation. First of all I’ll look at the context within which sustainability reporting takes place. I’ll quickly highlight some of the benefits that both preparers and stakeholders see coming from this relatively new filed of activity. Next I will provide some information on the levels of reporting activity and some background on a number of new initiatives that fall loosely under the heading of sustainability reporting - although phrases like corporate social responsibility reporting and triple bottom line reporting are also in common currency. Finally I will present the GRI itself - its vision and its product - and try to identify ways in which the accounting profession can contribute its skills and resources.
  • Here is a quick overview of what I’d like to cover in this presentation. First of all I’ll look at the context within which sustainability reporting takes place. I’ll quickly highlight some of the benefits that both preparers and stakeholders see coming from this relatively new filed of activity. Next I will provide some information on the levels of reporting activity and some background on a number of new initiatives that fall loosely under the heading of sustainability reporting - although phrases like corporate social responsibility reporting and triple bottom line reporting are also in common currency. Finally I will present the GRI itself - its vision and its product - and try to identify ways in which the accounting profession can contribute its skills and resources.
  • So now to the GRI
  • The GRI guidelines themselves consist of 2 main elements - reporting principles and report content - that is - performance indicators on social, economic and environmental aspects of organisational performance
  • And we are developing a family of GRI documents - the guidelines themselves (hold up and wave) - technical protocols - sectoral supplements - issues supplements So far we are not very far down the path of creating this family but we have great plans for the future!
  • Here are some of the companies that have risen to the GRI reporting challenge since we issued our first set of guidelines in mid-2000.
  • Overview B1: I’d like to approach the subject of ethics and CFO’s from an angle that I can claim to have direct experience of - ethics and the accounting profession. B2: After that I’d like to explore what is meant by the phrase “business ethics” and then (B3) move on to discuss whether or not our conceptualisation of business ethics is fundamentally incompatible with the responsibility of corporations to maximise returns to shareholders. B4 & B5: the next 2 areas of the presentation focus on how we can embed business ethics into codes of conduct and corporate governance mechanisms. B6: I also want to look at some of the broader social issues facing business and see how business ethics can help in addressing these issues B7: finally I’ll look at the desirability of separate code of ethics for finance professionals and make some recommendations for how we should progress this issue in the real world.
  • Overview B1: I’d like to approach the subject of ethics and CFO’s from an angle that I can claim to have direct experience of - ethics and the accounting profession. B2: After that I’d like to explore what is meant by the phrase “business ethics” and then (B3) move on to discuss whether or not our conceptualisation of business ethics is fundamentally incompatible with the responsibility of corporations to maximise returns to shareholders. B4 & B5: the next 2 areas of the presentation focus on how we can embed business ethics into codes of conduct and corporate governance mechanisms. B6: I also want to look at some of the broader social issues facing business and see how business ethics can help in addressing these issues B7: finally I’ll look at the desirability of separate code of ethics for finance professionals and make some recommendations for how we should progress this issue in the real world.
  • Roger Adams: Financial reporting and CSR

    1. 1. Financial reporting and corporate social responsibility Roger Adams, Executive Director—Technical, ACCA and GRI Board Member The Institute of Public Relations 17 June 2003
    2. 2. Overview <ul><li>Conventional financial reporting boundaries </li></ul><ul><li>Long-standing CSR type issues in corporate disclosures </li></ul><ul><li>Environmental disclosure issues </li></ul><ul><li>New reporting initiatives including corporate governance </li></ul><ul><li>CSR reporting activity levels </li></ul><ul><li>The mandatory operating and financial review statement </li></ul><ul><li>The Global Reporting Initiative and integrated reporting </li></ul>
    3. 3. Conventional financial reporting boundaries <ul><li>Investor focussed </li></ul><ul><li>Consolidated at group level based on control concept </li></ul><ul><li>Financial issues only </li></ul><ul><li>Each of these constraints has implications for what is reported </li></ul><ul><li>- needs of other stakeholders largely ignored </li></ul><ul><li>- accounts still susceptible to manipulation </li></ul><ul><li>- accounts ignore non-financial issues of all sorts </li></ul>
    4. 4. Long-standing CSR type issues in UK corporate disclosure <ul><li>disclosure of charitable (and political) donations </li></ul><ul><li>reporting on policies and practices with respect to disabled employees * </li></ul><ul><li>disclosure of significant environmental liabilities - actual or contingent - and provisions </li></ul><ul><li>voluntary non-financial disclosures are infrequent </li></ul><ul><li>* equal opportunities legislation does not require any disclosures other than this (nor will the new OFR) </li></ul>
    5. 5. Environmental issues - 1 <ul><li>recognition and disclosure of environmental liabilities and provisions </li></ul><ul><ul><li>- recognised when standard accounting criteria met </li></ul></ul><ul><ul><li>- separate disclosure where material </li></ul></ul><ul><li>disclosure of revenue related environmental expenses - only when exceptional in size </li></ul><ul><li>recognition and disclosure of environmental assets? </li></ul><ul><ul><li>- recognised when standard accounting criteria met </li></ul></ul><ul><ul><li>- separate disclosure extremely rare </li></ul></ul>
    6. 6. Environmental issues 2 <ul><li>disclosure of environmental impacts, policies, performance, targets etc </li></ul><ul><ul><li>- not required in the UK, some voluntary disclosure in annual report and accounts package </li></ul></ul><ul><li>new French legislation is currently most extensive in EU if not the world </li></ul><ul><li>social / CSR issues mostly voluntary thus rarely disclosed </li></ul><ul><li>growing reporting activity outside annual report and accounts package </li></ul>
    7. 7. Recent reporting initiatives <ul><li>UK Turnbull requirements </li></ul><ul><li>UK ABI SRI annual report disclosure guidelines </li></ul><ul><li>2003/4: mandatory OFR reporting requirements </li></ul><ul><li>UK NGO led CORE group lobbying for mandatory CSR reporting </li></ul><ul><li>French social and environmental disclosure regulations from 2002 for annual report and accounts </li></ul><ul><li>EC CSR strategy: CSR reporting guidelines by 2004 </li></ul><ul><li>GRI sustainability reporting guidelines revised 2002: headlined at World Summit and included in King 2 South Africa as a listing requirement </li></ul>
    8. 8. How many are reporting? (Next Step Consulting May 2003) <ul><li>FTSE 100 (FTSE 350) </li></ul><ul><li>72 issue stand alone reports (110) </li></ul><ul><li>18 provide short AR&A disclosures (37) </li></ul><ul><li>4 do not report (42) </li></ul><ul><li>- report in development (3) </li></ul><ul><li>2 report via parent company (3) </li></ul><ul><li>4 no information (155) </li></ul>
    9. 9. The mandatory operating and financial review - 1 <ul><li>an OFR expands on the information which is contained in the annual financial statements and thereby helps members to make an informed assessment of the company’s operations, its financial position and its future business strategies and prospects. </li></ul><ul><li>the directors must consider whether the inclusion of information about the company’s </li></ul><ul><ul><li>- employment policies </li></ul></ul><ul><ul><li>- environmental policies </li></ul></ul><ul><ul><li>- social and community policies </li></ul></ul><ul><li>is necessary in order to achieve the review objective. </li></ul>
    10. 10. The mandatory operating and financial review - 2 <ul><li>directors will base their disclosure decisions upon the materiality of the issues </li></ul><ul><li>materiality will be dependent on financial and /or strategic relevance to members decision-making needs </li></ul><ul><li>directors may need to assess what is relevant to other stakeholders in arriving at their disclosure determination </li></ul><ul><li>the DTI materiality working group believes that the new requirements will impact beneficially on CSR-related management control systems </li></ul>
    11. 12. What are the GRI guidelines? <ul><li>Non-mandatory guidelines for sustainability reporting </li></ul><ul><li>reporting principles </li></ul><ul><ul><li>transparency, inclusivity, sustainability context, </li></ul></ul><ul><ul><li>completeness, relevance, neutrality, comparability, </li></ul></ul><ul><ul><li>accuracy, clarity, timeliness, auditability </li></ul></ul><ul><li>report content </li></ul><ul><ul><li>economic, environmental and social indicators: core </li></ul></ul><ul><ul><li>and additional </li></ul></ul>
    12. 13. The Guidelines Automotive Financial Tourism Mining The Guidelines foundation document upon which all other GRI documents are based Sector supplements additional guidance for specific sectors, addressing issues pertinent to those industries Technical protocols each protocol addresses a specific set of indicators, providing technical guidance on their measurement Issue supplements issue-specific supplements to provide additional models for organising the information Energy Child labour Diversity Productivity HIV/AIDS The GRI Family of Documents
    13. 14. GRI Reporters - a Sampling American Home Products AT&T Baxter Biffa Waste Services Ltd. Body Shop International Bristol-Myers Squibb British Airways BT Cable & Wireless Carillion Danone Electrolux ESAB Ford Motor Company Fuji Xerox General Motors Henkel Interface ITT/Flygt Johnson & Johnson Kirin Brewing KLM Konica Landcare Research Matsushita Motorola NEC Nissan Nokia Novo Nordisk Procter & Gamble Renfe Ricoh Royal & Sun Alliance Royal Philips Electronics Saint-Gobain SAS SASOL Scandiflex Shell Severn Trent SITA South African Breweries Suncor Energy Sunoco Swedish Meats Thames Water TransAlta TXU Europe VanCity Savings Credit Union Vauxhall Motors Ltd VAW Aluminium Waste Recycling Group
    14. 15. Conclusions - the OFR and the GRI <ul><li>are not equivalent though they may be complementary </li></ul><ul><li>OFR disclosures are likely to be largely narrative and high level </li></ul><ul><li>the environmental / social content of the OFR may initially be management determined rather than stakeholder driven </li></ul><ul><li>issues of comparability of disclosure seem likely to arise as both relevance and materiality will be subjectively / internally determined: this needs to be monitored </li></ul>
    15. 16. Conclusion - the OFR and the GRI - 2 <ul><li>the OFR audience will be the financial community as opposed to GRI’s wider stakeholder circle. The OFR will therefore not be a substitute for GRI </li></ul><ul><li>the responsibilities of the different assurance providers need to be carefully mapped out and agreed </li></ul><ul><li>the level of CSR reporting seems certain to increase - but wider scope mandatory reporting is some time away - at least in the UK - the OFR opens the door to possibility of integration and convergence in the future </li></ul>
    16. 17. For a full list of our research papers and related publications please visit: www.accaglobal.com

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