AICPA EDGE Young CPA Conference Sustainability session
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AICPA EDGE Young CPA Conference Sustainability session
- 1. Evolution of Corporate Sustainability Practices: Emerging Opportunities for CPAs AICPA E.D.G.E Conference Ritz-Carlton, New Orleans August 10-12, 2011 Kenneth W. Witt, CPA Technical Manager, AICPA kwitt@aicpa.org
- 2. Speaker Bio
- 3. Agenda
- 5. Philanthropy Community Involvement Health Education Employee Relations Ethics/Governance Human Rights Social Responsibility
- 6. Environmental Responsibility – What are the Impacts? Environmental Lenses
- 7. Where are Impacts Found?
- 8. Levi Strauss – Life Cycle of a Jean Recycling 6 1 7 Cotton Production End of Life Consumer Use Fabric Production 2 5 Transport & Distribution Garment Manufacture 4 3
- 9. Sustainability for Business Value $160 Million Total Cumulative Results 2008-2009
- 10. Sustainability for Competitive Advantage MacBook Air and the environment “Apple greener than its competitors, at least where it counts.” Sincerely Sustainable
- 11. Green Exchange Nike Best Buy Creative Commons IDEO Mountain Equipment Coop Outdoor Industry Association Salesforce.com 2Degrees Yahoo Innovation and Open Collaboration
- 13. Prince of Wales Accounting for Sustainability Project - A4S Primary Objectives Connected Reporting Embedding Sustainability AICPA a founding member of Accounting Bodies Network
- 14. The CPA Role in Sustainability
- 15. Sustainability Competency Domains BIG Public Practice
- 16. Finance Function Involvement in Sustainability – Survey Results AICPA Results Analysis – 44% KPI Tracking – 21% External Reporting -12 % Sample 22,943 – C-Suite Response 651 SME 184 Large (>1000 employees)
- 19. If sustainability reporting is to be credible – as it necessarily must be when reports contain information that qualifies as material to financial performance – the process must be disciplined, comprehensive and, above all, accurate. Steve Leffin, UPS
- 23. De-facto standard for sustainability reporting 79 ES&G indicators, plus content and quality principles Stakeholder engagement and education tool Key content source for integrated reporting
- 24. International Integrated Reporting Committee Mission Statement To create a globally accepted integrated reporting framework which brings together financial, environmental, social and governance informationin a clear, concise, consistent and comparable format.
- 25. Why do we need Integrated Reporting?
- 26. Focusing on the top slice Top- level structure for reporting pyramid Greater linkage between existing reporting silos Sustainability / ESG MD&A Financial Reporting Management Commentary Adapted from IIRC
- 27. Principles of Integrated Reporting
- 28. What’s Missing? Making the connection
- 29. Connected Reporting Example - Greenhouse Gases Non-Financial Indicators Financial Performance KPI
- 30. 2011 2012 2013 Corporate Pilot Program Investor Pilot Program Ongoing Stakeholder Engagement Standard Setters, Regulators, Others
- 32. AICPA - SOP 03-02 Attest Engagements on GHG Emissions Information Guidance for practitioners on: GHG emissions inventory or baseline GHG emissions reduction Exam level engagements – Reasonable Assurance Review engagements – Limited Assurancenot covered by SOP 03-2
- 33. GHG Assurance – Issues/Risks Specialized skills, knowledge, expertise Scope, materiality, consistency Boundary issues – ownership, control Baseline measurement / Reduction “additionality” Uncertainty in measurement Inherent uncertainty Control risk
- 34. ISAE 3410 ED – Assurance Engagements on Greenhouse Gas Statements – Key Issues Use of ISAEs by other than professional accountants Compliance with IESBA Ethics Standards, or other equivalent AICPA Comments – Specific cite + affirmative statement Limited assurance engagements and report Varying levels of limited assurance, based on procedures performed AICPA Comments – Summary of procedures may infer greater level of assurance than reasonable assurance opinion Inclusion of recommendations in practitioner’s assurance report Accepted practice in international community – AA 1000 AICPA Comments – confuses substance of practitioner conclusion
- 35. To the best of our knowledge, we have found that Southwest has satisfactorily applied the GRI sustainability reporting framework…
- 36. “Third-party assurance and the value it brings to one’s credibility is not a ‘nice to have’ – it is necessary.” – Steve Leffin
- 38. Thank You Additional Resources www.aicpa.org/sustainability
Editor's Notes
- As I mentioned, the IIRC was formed by the A4S and GRI – which has developed what has become the de facto standard for sustainability reporting. In parallel with the development of the integrated reporting framework, the GRI is also developing an updated G4 version of their sustainability reporting framework. The GRI update process began with a primer survey conducted in June 2011. A public comment draft is expected to be circulated in 2012, with a launch of the final version anticipated May 2013.
- The International Integrated Reporting Committee was created in August 2011 by the Prince’s Accounting for Sustainability Project and the Global Reporting Initiative. The mission of the IIRC is To create a globally accepted integrated reporting framework which brings together financial, environmental, social and governance informationin a clear, concise, consistent and comparable format.
- Why to we need Integrated Reporting? Our current financial and sustainability or Environmental, Social and Governance reporting models that have evolved over time have some notable shortcomings. One of the big criticisms of our financial reporting system is that it is heavily oriented to reporting on the results of historical financial transactions – the “rear-view mirror” complaint. Another major issue is that financial reporting and financial reports have become cumbersome and too complex for even the most sophisticated of users; and that reporting has become very compliance oriented, full of boiler-plate legalese rather than decision useful information. Perhaps most importantly, research shows that the percentage of an entity’s market value attributed to tangible assets has diminished to only 19% for the S&P in 2009. Given that reality, our historical cost based financial reporting model is no longer connected to strategy and the value creation process. In terms of sustainability reporting, some of the major criticisms are that many large companies use their sustainability reports to present themselves in a favorable light, when investors and other stakeholders want a complete picture – “the good, the bad and the ugly.”There is also sometimes an emphasis on the quantity of disclosures, rather that quality. Another major issue is the quality of data underlying sustainability reports. Few companies have in place the same level of quality control over their sustainability information as they have for their financial reporting information.Another critique of sustainability reporting is that the financial implications or impacts of sustainability information are not always made clear in company sustainability reports.
- The graphic captures the essence of what integrated reporting is attempting to do.The bottom of the pyramid represents the main components of the business reporting model as we know it today – the financial reporting piece, sustainability or ES& G reporting and the MD&A or Management Commentary which is where most of the information about strategy, risks and key business drivers is reported today. Integrated reporting is about focusing on the “top slice” of these elements of reporting, capturing what is truly most important. It is also about creating greater linkage between the different elements of the reporting pyramid.
- While the graphic I just showed you captures the gist of integrated reporting, I think it is important to keep in mind that we are not just talking about pulling together financial reporting and sustainability information. Integrated reporting is about creating a new business reporting model that hopes to address many of the short-comings of the current reporting model. Some of the key principles of integrated reporting are: A strategic focus that is more forward looking that our current reporting model Greater connectivity of information Information that is more responsive to the needs of investors and other stakeholdersQualitative characteristics of integrated reporting include Greater relevance Materiality and Conciseness – something that few company reports could be accused of today.
- Harvard Professor Bob Eccles, a member of the IIRC and Grant Thornton Partner Mike Krzus published the book One Report in 2010 that is an excellent resource for understanding integrated reporting. In their book they profile companies that are starting down the path, or at least moving in the direction of integrated reporting. While these companies are to be commended for their attempts to be pro –active with their reporting this slide illustrates what is meant by greater connectivity in reporting. In the middle is a graphic from the Southwest Airlines “One Report” essentially a joint publication of their sustainability report with their annual report, stating that the reduced there GHG emissions by 82,000 metric tons through their fuel conservation efforts. On the right is a slightly different graphic from the UTC report on their GHG reductions. The question I have for you is What is missing from these disclosures? The financial impact.
- This table is an example of what we mean by connected reporting developed by the Prince’s Accounting for Sustainability Project.On the right is a table of GHG Emissions similar to the one included in the UTC report – the “non-financial indicator”. On the left is the financial information of this key performance indicator – what the expenditures and savings were related to the this Key Performance Indicator of GHG Emissions.
- Here is a timeline of the major milestones for the IIRCA public discussion paper is expected to be released in Q3 2011Feedback will be incorporated into an Exposure Draft targeted for 2012, with a final Framework targeted for 2013In addition to public feedback on the initial discussion paper and the exposure draft, the IIRC is also running pilot programs for both companies and investors to generate “hands-on’ feedback, and will be conducting ongoing stakeholder engagement with standard setters, regulators and other business leaders, including roundtable meetings being held around the world. AICPA – NY & SF.