Social Accounting Basics

1. Assignment – Social Accounting
What is Social Accounting?
“Social accounting and auditing is about understanding the impact of organisations on our
society and the overarching context is sustainability: both sustainability of the organisation
itself (the interrelation of the social, the environmental, the cultural and the financial) and
sustainability of behaviour which contributes to a future for the people and the planet.
Social accounting is distinct from evaluation in that it is an internally generated process
whereby the organisation itself shapes the social accounting process according to its stated
objectives. In particular it aims to involve all stakeholders in the process. It measures social
and environmental performance in order to achieve improvement as well as to report
accurately on what has been done.
Purpose:
Each sector and each particular organisation will have its own reasons for looking to account
for their social performance. Some reasons reported by organisations include the following;
acting sustainably, ‘walking their talk’, improving social and environmental performance,
being more accountable, attracting additional funds, becoming more economically viable,
being a leader in the field, attracting a wider market, a public relations tool, meeting
objectives, working within a framework and improving reporting ability.
An additional factor that applies to the ‘for profit’ sector is that of mandatory social
reporting. In some countries social reporting is a legal requirement. For instance, in France
companies with over 300 employees are required to produce a social report. In the UK a
regulation on Pension Funds “requires trustees to state the extent to which they have taken
environmental and ethical considerations into account in fund management” (New
Economics Foundation 2000). There are initial signs in Australia that mandatory
requirements may also drive greater social accounting and reporting here. The Financial
Services Reform Act 2001 requires a Product Disclosure Statement (PDS) for financial
products that have an investment component. This includes superannuation products,
managed investment products and life insurance products. The PDS has to include a
statement on “…the extent to which labour standards or environmental, social or ethical
considerations are taken into account in the selection, retention or realisation of the
investment” (Birch 2001).
Scope of Social Accounting:
Social Accounting and Audit allows a co-operative or social enterprise to build on its existing
monitoring, documentation and reporting systems to develop a process whereby it can
account fully for its social, environmental and economic impacts, report on its performance
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2. Assignment – Social Accounting
and draw up an action plan to improve on that performance. Through the social accounting
and audit process an organisation can understand its impact on the surrounding community
and on its beneficiaries and build accountability by engaging with its key stakeholders. In
this way it can prove its value and improve its performance. Basically, social accounting
involves clarifying what a co-operative or social enterprise does, what it is trying to achieve
and who it is working with. Then, on the basis of this, it collects quantitative and qualitative
information and data which relates to its overall objectives and underlying values. This
usually lasts one year and runs concurrent with the financial year. At the end of the social
accounting year the organisation brings all the information together in the form of social
accounts that are independently audited and after revisions the social accounts form a
Social Report.
The Principles
Social accounting models need to share fundamental principles (Pearce 2001).i The
overarching principle is to achieve continual improvement in performance relative to the
organisation’s social impacts, chosen social objectives and stated values. Other principles
include:
• Multi-perspective — Aim to reflect the views of all those involved with or affected by the
organisation
• Comprehensive — Aim to (eventually) report on all aspects of the organisation’s issues,
impacts and social performance
• Regular — Aim to produce social accounts on a regular basis such that the concept and the
practice becomes embedded in the culture of the organisation
• Comparative — Provide a means whereby the organisation can compare its own
performance year on year against appropriate external norms and benchmarks; and
provide for comparisons to be made between organisations doing similar work and
reporting in a similar fashion
• Verified and assured — Ensure that the social accounts are audited by a suitably
experienced person or persons with no vested interests in the organisation
• Disclosed — Ensure that the audited accounts are disclosed to stakeholders and the wider
community in the interests of accountability and transparency.
Models
Whilst there is a variety of models, tools and information sources we will focus
on one particular model, The Scottish Model, used mainly in the not-for-profit
sector. Following steps are followed
• A comprehensive framework
• Based on key principles
• Values-driven
• Most organisations that use the model report very favourably on how it has benefited
their organisation
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3. Assignment – Social Accounting
• It comes with a ‘how to’ manual that is about to be published as a second edition
following extensive consultation with users of the first edition.
This model, has up to now, followed a Five Stage approach to Social Accounting. The Five
Stages of Accounting are:
• Introducing Social Accounting
• The Foundations
• The Nuts and Bolts — Social Book-keeping
• Preparing and Using the Social Accounts
• The Social Audit and Reporting.
The benefits and dis-nenefits are lited below:
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4. Assignment – Social Accounting
Analysis of Social accounts of “ Traidcraft “:
Traidcraft is a Christian response to poverty, dedicated to fighting poverty through trade,
and best known for its activities in promoting fair trade.
Vision: A world freed from the scandal of poverty, where trade is just and people and
communities can flourish
Mission:We fight poverty through trade, practising and promoting approaches to
trade that help poor people in developing countries transform their lives
They have a unique structure, comprising both a trading company (Traidcraft plc) and a
development charity (Traidcraft Exchange), working in complementary ways to further our
overall mission. Their activities can be categorised in three interlocking spheres:
 Trade – facilitating market access for poor producers.
 Support – building the capacity of poor producers to trade effectively, and developing
support infrastructures to help them.
 Influence – challenging injustice, and encouraging changes in government policies,
corporate practices and public attitudes to trade, development and poverty.
Traidcraft is proud to have been the first public limited company in the UK to publish
audited social accounts.
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5. Assignment – Social Accounting
SOCIAL ACCOUNTS GOALS
A snapshot of the goals of social accounts of Traidcraft follows:
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6. Assignment – Social Accounting
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7. Assignment – Social Accounting
The whole impact of Traidcraft can be divided into direct impact and indirect impact.
1. DIRECT IMPACT – THROUGH TRADE AND SUPPORT ACTIVITIES
1.1 Impact on suppliers to Traidcraft plc
a) Volume of purchases from developing world producers
For Traidcraft plc the value of its purchases from suppliers in the developing world has long
been one of our key measures of impact. It is an imperfect measure, because the proportion
of labour value and the added value of fair trade prices and premium payments will differ
for each commodity and producer circumstances. Nevertheless it remains an important
overall measure.The figures in the table below include both the direct purchases we have
made to sell throughour own channels or to sell to manufacturers, and the indirect
purchases made by commercial partners for use in licensed Traidcraft products. Because the
timing of purchases can vary we particularly look at our three year rolling average trend.
direct purchases rose by 4.1% to £3.6 million
indirect purchases rose by 1.6%to £0.6 million
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8. Assignment – Social Accounting
total purchases rose by 3.7%to £4.2 million
 a three year rolling basis, purchases rose by 5.7% to £4.1 million
on
b) Proportion of sales price that was spent in the developing world.
In 2009/10:
 average, 25%of the price went back to producer organisations, an increase from
on
22.4%in 2009.
 three year rolling average, rose from 21.6%to 23.1%
the
c) Regional breakdown of purchases
Our strategic plan includes the aim to increase the value of purchases from Africa, given the
particularly challenging levels of poverty in that continent. Buying from Africa can often be
more costly, and logistically more complex than buying from Asia or Latin America.
1. South Asia encompasses Sri Lanka, India, Pakistan, Bangladesh and Nepal.
2. South East Asia encompasses the Philippines, Indonesia, Thailand and Vietnam.
The growth in purchases from Africa is mainly the result of FSC certified charcoal from
Namibia coming on-stream. Whilst they have increased African purchases from their 2009
level, purchases from Africa are still lower than the level achieved in 2006 to 2008, owing to
a low volume of raisins being available to buy and the sourcing of other raisins from Chile. In
2010/11 they expect to be able to increase the purchases of raisins from South Africa once
more and this should assist us in achieving further growth in this indicator.
d) Advances to producers
Traidcraft is committed to supporting its suppliers by making interest-free and unsecured
advances where these are required, although we also encourage producers to become less
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9. Assignment – Social Accounting
dependent on this over time, so they are more commercially sustainable. By making many
payments through Shared Interest, our producers are also able to borrow further funds
against the security of orders from Traidcraft.
In a year when credit was increasingly difficult to obtain, this growth of 13% in the value of
advances made to 35 of our suppliers (2009: 34) was all the more important as a form of
support. At 31 March 2010 the total value of outstanding advances was £546,000.
e) Partnership with producers
Financial measures are only one dimension of fair trade, and many of the benefits come
from other factors that are embedded in our partnership relationships. The regularity and
predictability of orders, together with continuing support in building design, production,
marketing and management capacity, are of great significance. We particularly set order
targetsfor our work with crafts suppliers, as many of our food purchases are sourced
through other fair trade organisations, and they are rarely dependent on Traidcraft orders
alone.We have sought to estimate how many producers we touch through our direct trading
activity – noting that we have do not have the same level of data available for producers
selling to us via other fair trade organisations or who sell directly to our license partners.
Some of our suppliers are marketing organisations in developing countries who are linked to
a large number of smaller producer groups, others are themselves small producer groups.
By indicating the significance of our purchases within each organisation’s total turnover we
seek to give some indication of the degree to which our trading impacts on their members.
In 2009/10:
 They placed orders worth £1.69 million with 41 craft suppliers, an increase of 32% on
2008/9. Where we had set minimum order targets (for 32 core suppliers), we met
these in 30 cases (94%- an increase from 82%in 2008/9).
 They visited 28 suppliers to carry out fair trade and business evaluations and follow
through on support and development activities.
 Communication of information to suppliers was much improved, following feedback
in previous years, although some suppliers’ comments suggest that information is
not always reaching the right people within organisations.
 They made limited progress in securing additional funding for supplier support
activities, and did not meet our goal of raising £75,000. (Raised £36,500)
However, we were able to carry out a range of activities funded from our trading
income and brand license income.
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10. Assignment – Social Accounting
1.2 Impact on producers through the activity of Traidcraft Exchange
a) Scale of activity
Traidcraft Exchange ran development projects through four overseas .At the end ofMarch
2010 the current portfolio can be summarised in the table below:
The value of projects shown above is the lifetime expenditure expected on each project
over its three or four year duration. During 2009/10 Traidcraft’s total charitable expenditure
on projects rose from £2.76 million to £3.13 million (13%), indicating continuing growth in
the overall scale of our programmes
b) Estimated number of beneficiaries
It is difficult to assess the impact of many Traidcraft projects, as they often involve setting
examples of good practices that can be extended to many other workers in the regions and
sectors where we work. However, the following measures provide some sense of scale:
Direct beneficiaries
 Some 370,000 people are directly participating in projects in Kenya, Bangladesh and
India that were ongoing at the end ofMarch 2010.
Indirect beneficiaries
In addition to producers engaged in projects, their work will have indirect impacts on an
estimated 1.4 million family members.
Some points which reflect this follows:
 million people are engaged in the jute sector in Bangladesh and India, and will
35
benefit from our policy interventions through two major projects.
 million smallholder tea growers and almost 15 million people are dependent on
0.6
the tea sector in Kenya, Bangladesh and India.
 million smallholder cotton growers in Kenya, Bangladesh and India
15
 million small producers involved in craft production in Kenya, Bangladesh etc.
277
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11. Assignment – Social Accounting
c) Project outcomes
The projects assessed had all been successful, and the review noted that:
 projects had all satisfied their donors in delivering agreed goals.
The
 Beneficiaries were pleased by the support provided by Traidcraft and its staff in all
the projects assessed.
 Improved technology and agricultural practices had been introduced.
 Monitoring of projects and evaluations were handled well.
There were also areas of learning. Many of these had already been recognised and have
been
built into projects developed and implemented in more recent years:
 Evaluating partner capacity more fully at the outset of a project is necessary,
especially when working with weaker partners (as is often the case as we aim to
build up their skills).
 Improved assessment of beneficiaries’ needs and baseline data surveys by which to
judge success would have been helpful (and is now in place and helped by our
establishment of regional offices that better understand the local context).
 Traidcraft should take care not to over-estimate the capabilities of SMEs (small and
medium enterprises) to engage in export business.
 involvement of more independent and peer group assessments in mid-term
The
reviews would be useful in providing feedback on how implementation could be
improved.
 Changing business practices needs to be driven from the senior management and
Board, not the Corporate Social Responsibility departments of large businesses.
 Traidcraft should be more prepared to seek agreement from major donors to
change targeted outcomes when external circumstances change.
 More attention should be paid in project design to ensuring the long-term
sustainability of project outcomes after Traidcraft’s involvement with a project has
ended.
2. INDIRECT IMPACT – THROUGH INFLUENCING
Their bigger goal is to act as a catalyst for change through influencing activities, as this
has the scope to assist far larger numbers of poor people in the developing world.
2.1 Influencing trade rules
They have continued to focus on two aspects of trade rules:
 Economic Partnership Agreements between the European Union and Africa Caribbean
Pacific (ACP) countries, where we are concerned that an undue speed of market
liberalisation may adversely affect producer groups in developing countries.
 EU-India Free Trade Agreement (FTA) currently under negotiation, where we
The
have concerns that the interests of smaller scale producers may be overlooked.
Our activities have included briefing MEPs and their advisers in conjunction with other
European NGOS, directly lobbying UK government ministers and civil servants, encouraging
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12. Assignment – Social Accounting
Indian civil society and small businesses to engage with the EU-India FTA, and working with
the African, Caribbean and Pacific Group of States (ACP) ambassadors and ministers on EPA
issues.
2.2 Influencing the behaviour of corporates
There have been three major areas of work during the year, each of which has been
successful in having some impact. We recognise that in our influencing work we will rarely
have been the only organisation working on these issues, and it is often hard therefore to
attribute the impact directly to our work:
 Supermarket practices: They are concerned at the negative impact of power imbalances
between large retailers and smaller suppliers (whether based in the UK or in the
developing world) leading to undue levels of risk being passed down to smaller and more
vulnerable organisations.
 Ethical labelling in tea: Their tea campaign to encourage switching of tea brands to
Fairtrade stimulated debate with major tea companies, and may have contributed to the
decision of the Ethical Tea Partnership to enter into a recognition agreement with FLO.
The tea companies are increasingly adopting ethical standards (if not Fairtrade) and this
is likely to provide benefits to tea producers, even if it does not move towards payment of
a living wage that we would like to see.
 Purchasing practices: Their work on responsible purchasing practices aims to help large
company buyers understand the impact on poor producers of their decisions and practices
and indicates win-win opportunities where better practices can help both buyers and poor
producers. In 2009/10 this work led to the publication and launch of a best practice guide
for buyers with the Chartered Institute of Purchasing and Supply. Some retailers and
importers are implementing some of the practices promoted through our work in this
area.
In 2010/11 we would aim to see the establishment of a supermarkets ombudsman in the UK
and progress towards implementation of enhanced company reporting requirements .
2.3 Influencing the Fair Trade movement
Traidcraft continued to be involved in a large range of roles within the Fair Trade
movement, seeking to help it develop greater impact, and assisting in the promotion of fair
trade in the UK and beyond.
2.4 Building public support for fair trade
Consumer and voter support is ultimately one of the most powerful factors in achieving
change in trade rules and practices. By building support for fair trade we can demonstrate to
policy makers in business and government that there is significant public demand for fairer
and more ethical trade, and can incentivise them to take positive steps for change.
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13. Assignment – Social Accounting
3 IMPACT ON THE ENVIRONMENT
One of Traidcraft’s Foundation Principles is “to respect all people and the environment”,
and as we see the impact that climate change is already having on some of our supplier
groups and overseas partners, this underlines the importance both of our minimising our
own environmental impact and increasingly finding ways of helping poor producers to adapt
to the effects of climate change.
a) Reducing our direct carbon footprint
 Total carbon emissions are estimated to have remained approximately static.
Increased carbon emissions on freight were offset by reduced levels of staff air travel.
Freight emissions increased because the mix of our products included more foods from
more distant parts of the globe.
 proportion of goods imported by air (by mass) was 2.7%, a slight increase on last
The
year’s 2.6%, but higher than the proportion achieved in 2007/8. A key factor in this was
a decision to import by air a significant number of craft top-up orders in the autumn of
2009. This provided valuable extra business for our producers, and was good for
customer satisfaction in reducing out-of-stock positions, but had we not done so this
proportion would have been closer to 1.9%. We imported no food by air.
 electricity used at Gateshead sites is from renewable sources, and they reduced
All
usage of gas by installing more efficient heating equipment.
They continue to seek ways of reducing paper usage in our marketing activities, but the
need for paper catalogues remains if we are to be effective in selling, and as our mail
order activity grows we expect this to rise slightly in 2010/11.
b) Working to help producers mitigate their impact and adapt to climate change
 Improving farming practices to reduce vulnerability to crop failure.
 Encouraging the production of goods for local markets as well as international trade.
 Improving water management techniques in cotton production
 Supporting jute workers in developing more environmentally friendly processes
 Assisting small scale textile producers in India to become less polluting.
Observations
Inclusivity concerns the participation of stakeholders in developing and achieving an
accountable and strategic response to sustainability.
For both Traidcraft plc and Traidcraft Exchange it has been a difficult year with significant
staff redundancies and a continuing pay freeze. This has led to less favourable staff feedback
about a number of areas such as internal communications. While staff, customer, speaker
and producer feedback has been obtained, there has been relatively little additional
stakeholder consultation in the past year.
Traidcraft plc has introduced a producer prioritisation framework which provides a far more
systematic approach to evaluating producer needs appropriately and in relation to
Traidcraft’s objectives. This has led to a clearer account of producer relationships, and
indirectly to better performance.They recommend that the prioritisation framework also be
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14. Assignment – Social Accounting
used to clarify the most appropriate measures of impact for different categories of
producer. Developing World Purchases are particularly relevant to indirect purchases and
the measurement of impact on those producers with whomTraidcraft has a more arm’s
length relationship, for example, and other measures may need to be developed for those
with whom Traidcraft will have a closer relationship. There has been little coverage of the
regional offices other than the closure of the Cambodian office.
It is encouraging to see a more direct discussion of the relative priorities of environmental
and development goals at this stage of the strategic review process. At this stage of the
process the positioning of the environment, particularly adaptation to climate change, as a
development issue. In the long term the consideration of environmental impact during the
product development process for Traidcraft plc will no doubt be significant, but it would also be
possible to enhance the consideration given to environmental issues in the interim. The overall
environmental impact of Traidcraft Exchange projects and Traidcraft plc activities needs to be
considered as part of a wider, and more strategic, environmental accounting.
The new report structure, with a focussed main report together with supporting data, provides
a much more accessible format for reporting. This will make it easier for all stakeholders to
understand Traidcraft’s main impacts.
The development of the producer prioritisation framework has also contributed to excellent
performance in relation to maintaining order levels for producers. Traidcraft plc has also
recorded high levels of positive producer feedback from its evaluation processes.
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