Business sustainability is about ensuring that organisations implement strategies that contribute to long-term success. Organisations that act in a sustainable manner not only help maintain the well-being of the planet and people; they also create businesses that will survive and thrive in the long run.
Leading companies recognise that successful sustainability performance translates into successful bottom-line business performance, and that investors are attracted to companies that act in a sustainable manner with a focus on long-term profitability and competitive advantage.
We live in an increasingly global community, where economic, environmental, and social issues transcend national and corporate boundaries. Our 21st-century challenges require 21st-century solutions and will require a co-ordinated response by the public and private sectors.
Long-term business success will require that sustainable practices be deeply embedded in the DNA of all organisations. As companies innovate to better secure their long-term viability, the accounting profession will play an important role.
Accountants can serve as leading agents for change by applying their skills and competencies to develop sustainability strategies, facilitate effective implementation, accurate measurement and credible business reporting.
Catalyst Paper: Sustainability as an ‘and’ business
Catalyst Paper Corporation treats sustainability as a business discipline, one that addresses a broad scope of risks and opportunities, and one that benefits from finance and accounting expertise. The Canada-based company is the only producer of lightweight coated paper in western North America and is one of the largest producers of directory papers in the world.
"Our cost reduction practices are not an either-or proposition," notes Lyn Brown, Catalyst Paper’s Vice President, Corporate Relations and Social Responsibility. "We always have two objectives in mind: one, reduce costs; and two, improve our value proposition in a marketplace that is leaning greener."
"Zero-sum trade-offs are not effective; instead we strive for an ‘and’ business discipline around sustainability. Our finance and accounting experts help us embed sustainability considerations throughout the business rather than isolating them in a department so that we are all mindful of the costs and the opportunities that lie within our reach."
Catalyst Paper’s sustainability capability grew in response to the environmental campaigns of the early 1990s. As a manufacturer, Catalyst Paper sources fiber from third parties and 87% of the supply is waste wood and recovered waste paper.
Still, the company is associated with the forestry sector. The need to respond to environmental protest marked its early sustainability initiatives.
More recently, Catalyst Paper has shifted gears to identify business and market opportunities it could leverage through sustainability discipline, including access to new customer segments and cost-savings.
Today, Catalyst Paper identifies, accounts for, reports, manages and considers sustainability risks and opportunities along the entire business value chain, including:
- Inputs: Catalyst has implemented a chain of custody at all manufacturing facilities to provide customers with transparency on fiber sourcing, with third-party verification to known international standards and certainty of compliance with all relevant national and international logging laws.
- Manufacturing: Catalyst has steadily reduced the waste produced and water consumed in its manufacturing processes. The company’s ‘use less, waste less’ efficiency focus ensures production volumes are driven by customer orders.
- Transportation: Catalyst Paper is a registered partner with the United States Environmental Protection Agency’s SmartWay™ transportation program, which requires the company to meet fuel efficiency and emission reduction targets through the prudent use of intermodal shipping, full load planning, and pick-up and delivery scheduling.
- Paper lifecycle: The company participates in the Paper Life Cycle project, a multi-stakeholder effort that promotes greater understanding of the full range of issues in the paper supply chain, including climate change, forest management practices, recycling, illegal logging, energy use and product performance among other topics.
UPS: Approach to assurance
US-based logistics company UPS began reporting sustainability data in 2003 (when it reported its 2002 information). In 2010, UPS hired its external auditor, Deloitte, to provide assurance on its sustainability report. "As is the case with accounting, third-party assurance and the value it brings to one’s credibility is not a 'nice to have,'; it is necessary," asserts Steve Leffin, director, global sustainability.
The assurance process, which lasted roughly six months, benefits UPS’ sustainability process in three ways, Leffin reports. First, it serves as an ‘internal lever’ by confirming the importance of sustainability reporting throughout the global organisation.
Second, the third-party review fortifies the credibility of UPS’ annual sustainability report by verifying the accuracy of the numbers and the meaning of the efforts they represent. Third, by working closely with Deloitte’s auditors during the process, UPS managers have the opportunity to expand their own sustainability knowledge.
UPS chose Deloitte based on their subject matter competency and the quality of the long-term relationship between the two companies, "not on price," Leffin emphasises. UPS’ sustainability reporting process (and report, which currently appears separately from the company’s annual report) adheres to the Global Reporting Initiative (GRI) reporting framework.
In all, more than 2 million lines of enterprise data are analysed during the creation of the report. At a high level, the key steps in the UPS’ assurance process include the following:
- Setting the scope: UPS’ sustainability team and Deloitte’s auditors held roughly two months of discussions before the audit began to identify priority areas the assurance process should address. Deloitte’s team initiated the discussion by reviewing UPS’ previous sustainability report and identifying questions it would ask regarding how certain figures were produced.
- Answering questions: Once the major questions (ie, priority areas) and scope were finalised, Deloitte auditors ventured into various business and functional areas (for example, human resources to address social issues) to conduct their work. The environmental-related components of the sustainability auditing plan is largely based on the general ledger, Leffin notes.
- Auditors look at the costs associated with energy and then interview UPS managers responsible for managing and tracking those costs and energy outputs. Review of the environmental data included “engineer to engineer” discussions in addition to analysing the cost and energy usage information maintained in financial systems.
- Addressing issues: Deloitte produces a traditional dashboard populated with red, green and yellow ratings that identify which areas and issues require further inquiry and follow-up discussions with UPS. “If our auditors have issues or they want more information,” Leffin says, “they document those issues and then we have periodic reviews… We work together to get them the content they need to have the confidence they require to sign off at the end of the day. That’s the process.”
Judging from the results so far, this process works quite well. UPS intends to make this assurance effort an annual investment largely because of the credibility the assurance adds to the annual sustainability report.
"Our investor relations group no longer lets us release the sustainability report during a quiet period,’ says Leffin. ‘That’s good news because it confirms the material nature of our sustainability report’s content."
Measurement, reporting and assurance
Catalyst Paper and UPS are not the only two companies that are making progress on sustainability reporting. In October 2010, a sample of AICPA, CIMA and CICA industry members in the UK, US and Canada were invited to participate in an online survey.
The study delved into issues such as sustainability drivers and strategy, sustainability program scope and priorities, measurement, reporting and assurance, and the finance function’s involvement.
The survey results show that the majority of measurement and verification processes within sustainability programs currently focus on energy usage, water usage, employee well-being programs and recycling. The measurement and verification of sustainability metrics represent a facet of sustainability programs that may be ripe for greater contributions from finance and accounting managers (see Exhibits 1 and 2).
Exhibit 1: Sustainability elements measured
(Click images to enlarge)
Exhibit 2: Sustainability elements verified
Energy usage is the most frequently measured sustainability element by all respondents, led by CIMA respondents (79%), CICA respondents (70%) and AICPA respondents (54%). Overall, CIMA and CICA respondents are more likely to measure various sustainability elements compared to AICPA respondents. Only 9% of AICPA respondents indicate that their companies measure greenhouse gas emissions reductions compared to 17% of CICA respondents and 21% of CIMA respondents.
There is a similar pattern among survey respondents when it comes to verifying internal sustainability measures. Less than a third of respondents that measure some aspect of sustainability indicate that their companies verify energy usages measures.
Fewer than one-quarter of all survey respondents say that their companies verify internal sustainability measures related to water usage, recycling, waste water discharge, employee well-being and every other measurable sustainability element. Thirty-four percent of CIMA respondents, 38% of AICPA respondents and 47% of CICA respondents indicate that their organisations do not verify the measurement of any sustainability elements.
Executives among companies with leading sustainability practices typically emphasise the important role that rigorous measurements and comprehensive reporting and assurance processes play in the success of their programs.
"Accuracy in measurement is an essential first step in the sustainability process," says Leffin of UPS. "In the short term, this accuracy enables you to understand if you are acting and reporting appropriately. Over the long term, customers, governments and agencies are going to ask you for your sustainability numbers, via an accepted protocol and verified by third parties."
Measuring sustainability elements like energy usage, employee well-being progress and greenhouse gas emissions reductions is important because these measurements serve as the foundation of an effective sustainability report.
"The primary tenet of sustainability is transparency," says Leffin. "Transparency means more than relaying the good news; it means communicating the challenges, what you’re doing, what you are thinking about doing and what you did, all of which should be written in specific terms that people can easily understand."
"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. Reports with accurate numbers convey meaningful information to stakeholders, including shareholders and others who help value the company."
"The important part of transparency is sharing how the company produces its numbers and how and why it stands behind its numbers. This proof gives a sustainability report meaning because it establishes credibility. If you don’t have a third party providing assurance, you really don’t know how credible the report is."
About the Author
CIMA, the Chartered Institute of Management Accountants, founded in 1919, is the world’s leading and largest professional body for management accountants, with 183,000 members and students operating in 168 countries, working at the heart of business.