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Sustainability and the UNGC: it’s the real thing

Keeping the planet clean for our children is laudable, but regulation could get in the way, says Martin Jones

October 2016

Sustainability is the buzz word of the moment. The evidence that global warming threatens the planet is terrifying. And it seems sustainability has its roots in a groundswell of desire to leave a survivable environment for our grandchildren. But sustainability means more than this. The United Nations Global Compact (UNGC) identifies five principles for sustainability and it’s worth taking a look because it is an eloquent framework:
1. Principled business: Businesses should operate with integrity – respecting fundamental responsibilities in the areas of human rights, labour, environment and anti-corruption.
2. Strengthening society: Sustainable companies look beyond their own walls and take actions to support the societies around them.
3. Leadership commitment: A public commitment by the chief executive, with support from the board of directors, is required to participate in the Global Compact.
4. Reporting progress: A Communication on Progress (COP), typically included as part of their sustainability or annual report, providing company stakeholders with an account of their efforts to operate responsibly and support society.
5. Local action: Companies should act within their local community to deliver on the above.
The UN are a powerful bunch, with lots of money and clout. So it is perhaps not surprising that 13,000 entities have signed up. Notice that the UNGC has this special report named the ‘COP’.
But the granddaddy of sustainability reporting is the Global Reporting Initiative (GRI). These guys pioneered sustainability reporting in the 1990s when most of us were still coming to terms with global warming. Their moral authority means that 82% of the top 250 entities worldwide use GRI.
Another international consortium, the worthy Climate Disclosure Standards Board (CDSB), is attempting to advance its own sustainability reporting guidance.
In the US, the Sustainability Accounting Standards Board (SASB) has issued standards that enable listed entities to comply with US Securities and Exchange Commission filing regulations.
In 2014, the European Parliament passed regulation that makes qualifying EU entities disclose sustainability information. In Japan, Singapore and Taiwan, draft legislation is planned to make sustainability reporting mandatory.
And so the list goes on.

The problem.
So what is the problem? It is that all this legislation and regulation is clogging up the natural process of communication. A Singaporean business with substantial supplies from Taiwan and debt listed in the US has those three national bodies to think about in the context of sustainability even before the business looks at the alphabet soup of UNGC and GRI and CDSB.
This weight of rules has two effects. Reporting entities tend to report in order to fulfil the various rules instead of communicate and reporting entities report huge volumes of information that users find difficult to manage. These problems each have a name. The first is called ‘boiler plate’, the second is called ‘clutter’, and they are both dreadful for the underlying corporate reporting. The result is huge unmanageable annual reports with impenetrable legal language.
The scary thing is that much of the regulation is recent, but sustainability reporting has been developing for many years. To take a real example, Coca-Cola is a US entity and US reporting has a reputation for useless cluttered boiler plate. But Coca-Cola already had good stuff on sustainability before the regulation proliferated. I remember seeing a lovely colourful page in their annual report a few years back showing where they get there water and how they dispose of waste so as not to poison the environment. It was good public relations, sure. And there might have been a touch of enlightened self interest in the story telling. But the point is Coca-Cola was communicating sustainability information and the regulation may snuff this out.

The solution.
So what is the solution? Integrated reporting. Well, that is one view anyway. Integrated reporting means two slightly different things. The first is an idea. An entity should strive to deliver a single coherent annual report with clear messages that consistently resonate throughout the report by addressing the various divergent regulatory requirements with an eye to the big message throughout. The second meaning is an actual report. In order to deliver a single coherent message to the majority of users the entity should produce a mini report called the ‘integrated report’ that focuses on the key issues and allows the necessary legal clutter to be relegated to the annual report.
That seems a sensible short-term solution for the reporting entities to use and is the spine of Coca-Cola’s solution. The long-term solution is that all the regulators should bang their collective heads together to produce a single body of guidelines – but I cannot see that happening any time soon.
• Martin Jones lectures at LSBF

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