Integrated Sustainability Reporting and Assurance

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Integrated Sustainability Reporting and Assurance

• CIS Conference Corporate Governance
• September 2009

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Overview see the wood for the trees

• Sustainability reporting and assurance The
  trees some highlights lowlights
• Integrated sustainability reporting and
  assurance The wood
• Key challenges
• Innovative ideas
• Where to from here?

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Current Sustainability Reporting - highlights
(1)

• Excellence in Sustainability Reporting (2008)
• 47 ranked as excellent or good
• 16 marked as perfunctory (2007 25)
• Best reports compete well globally
• Increased commitment to sustainability
• Increased effectiveness of communication
• Increased quality of reporting
• Increased levels of trust and reliability

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Current Sustainability Reporting - highlights
(2)

• Corporate Register Reporting State of Play (2008)
• Reporting across all sizes of company has grown
• No slowdown in 2008 just over 500 first time
  reports
• Tracked and registered 3100 reports
• Just over 1000 produced a GRI report
• Trend towards combining non-financial information
  with annual financial reporting
• The best are integrating them fully

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Current Sustainability Reporting- lowlights
(1)

• Excellence in Sustainability Reporting (2008)
• Poor link between sustainability and business
• Reduction of volume/length of reports is a result
  of omission rather than materiality principle or
  stakeholder focus
• Difficult to gain understanding of full impact,
  performance against benchmarks or management of
  indirect (value chain) impacts
• Lack of transparency on processes to ensure
  completeness, validity and accuracy of information

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Current Sustainability Reporting - lowlights
(2)

• GRI (G3) JSE reporting criteria are critical,
  but issues must be still become part of
  organisations DNA
• Majority of reports do not deal with the issues
  identified by stakeholders, and do not contain
  information on processes to determine materiality
• Study of 30 large global companies in 3
  industries, shows much of the information is
• not material
• not assured
• not comparable
• providing favourable, rather than balanced
  reporting.

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Current Sustainability Reporting - assurance
(international) (1)

• Around 30 (900 reports) included an assurance
  statement in 2008 (CR Reporting Awards)
• Three major provider types Accountants Big 4
  (40), Certification Bodies (25) and Specialist
  Consultancies (24)
• Quality of the assurance statements based on key
  elements
• Reference to standardised approaches and levels
  of assurance
• Specific declarations (e.g. stated audience)
• Methodology
• Provider recommendations and opinions
• Assurance conclusion
• The choice of assurance provider affects which
  key elements are included in resulting assurance
  statements

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Current Sustainability Reporting - assurance
(international) (2)
(CR Reporting Awards 08 p31)
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Current Sustainability Reporting- assurance
(local)

• 82 of the 399 South African reports involved used
  GRI (G3) (SustainabilityServices.com, 2009)
• Of these, 29 (35) companies sought external
  assurance, 21 (72) of these reports assured by
  the Big 4
• 14 (48) are from the Mining Minerals sector,
  while 3 (10) are from the Banking Finance
  Services
• Majority sought Type 2 assurance
• Assurance used to increase the level of
  credibility over the report, and is valued for
  the internal benefit of testing the accuracy
  reliability of systems processes in place

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• A key challenge for leadership is to make
  sustainability issues mainstream the leadership
  must integrate strategy, sustainability and
  control (integrated governance), and establish
  the values and ethics that underpin sustainable
  practices.
• Governance, strategy and sustainability have
  become inseparable
• KING III (200913)

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Integrated sustainability reporting and
assurance? (1)

• King III Chapter 6
• Principle 6.1 effective communication with
  stakeholders
• Principle 6.2 focussed on substance over form
• Principle 6.3 formalised as part of the
  companys reporting process
• Principle 6.4 take place at least once a year
• Principle 6.5 should have independent
  assurance

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Integrated sustainability reporting and
assurance? (2)

• More about the management than the reporting
• of business strategy/systems w.r.t.
  sustainability issues
• of company values and culture
• of information
• of gaps and shortcomings in performance
• Requires long-term processes of monitoring (data
  collection, analysis) and stakeholder engagement
  (internal, external)
• Does not mean combined to financial information
  in annual report the report is one outcome of
  the longer-term process
• Targets need to be set for all aspects, and
  trade-offs between aspects should be considered

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Integrated sustainability reporting and
assurance? (3)

• Best practice case study Integration
• Nova Nordisk A/S
• Discusses financial, social and environmental
  performance
• Contains consolidated financial and non-financial
  statements
• Non-financial statements included
• Overview
• Indicators and targets
• Accounting policies for non-financial data
• Notes
• Economic stakeholder model
• Two assurance statements

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ChallengesSome key observations (1)

• ASSURANCE credibility generating mechanism
• Assurance method
• Separate assurance processes and statements for
  financial and sustainability information vs.
• Integrated, Multi-disciplinary audit team
• Assurance model
• Expert panels and/or Expert commentary
• Stakeholder panels
• Internal Audit
• External Audit (AA1000AS ISAE 3000) single or
  multiple organisations

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ChallengesSome key observations (2)

• CONTENT reporting on the thorny issues well
• Ensuring a holistic picture (aggregation growth
  vs. longevity of the business)
• Ensuring materiality
• Achieving balanced reporting
• Allowing comparison within sectors / industries
• Taking responsibility for performance and
  potential/actual impacts throughout the value
  chain

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The development of such future sustainability
reporting will be meaningful, credible,
comparable information about the key drivers of
overall business success, taking into account of
external impacts of the organisation. Each
company is on a journey, changing over time Its
time to properly address the real issues
Hubbard (200917)
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Innovation / Learning- from financial reporting
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Lessons from financial reporting

• Tone at the top
• Letters from the CEO/Chairman
• Accountability for performance
• Summarised, easily accessible results
• Focussed on key (material) indicators and
  information
• Performance tables within the associated text
  sections
• Standardised measures
• Comprehensive assurance
• Ensures overall accuracy and reliability

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Innovation / Learning- from public sector
reporting
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Lessons from public sector reporting

• Undertaken by government departments (e.g.
  Environmental Affairs)
• Reporting frameworks
• Comprehensive structure/s for sustainability
  content
• Allows for assessment of completeness
• System-based report for decision makers
• aim to provide objective, comprehensive and
  science-based information on conditions and
  trends considered important for decision-making
• include issues relating to quality of human life
  and human-environment relationships
• recognise the environment as a system that
  interacts with economic, policy and social
  systems

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Innovation / Learning- from ISO 26000
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Lessons from ISO 26000

• Guidance on social responsibility
• Consensus on what social responsibility means
• Highlights social responsibility issues that
  organisations need to address
• Translating principles into effective actions
• Refining best practices that are evolving
• Understanding of community
• Enhances a companys tangible, long-term positive
  contribution
• Publication in late 2010

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Innovation / Learning- from Sustainability
Science
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Lessons from Sustainability Science

• Complexity
• Understanding a company in relation to the
  social-ecological system it exists within
• Understanding the trade-offs made between social,
  economic and environmental material aspects of a
  company (i.e.
  real statements regarding impact outcomes of
  spending)
• Multi-disciplinary teams
• Guidance on assembling and functioning of such
  teams (e.g. for integrated auditing)
• Adaptive management
• Understanding how to use monitoring, reporting
  and stakeholder engagement processes to
  facilitate social dialogue and mutual learning

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Where to from here?
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The way forward for sustainability reporting and
assurance (1)

• Developing reports focused on specific needs and
  issues in a particular context
• Developing reporting maturity (Hubbard, 2009)
• From What good we do for the community
• To How we address our negative impacts on the
  community, and involve the community directly in
  our processes
• Joint involvement of external and internal
  stakeholders with specific dialogue, for mutual
  learning
• Aggregated reporting and standardised measures

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The way forward for sustainability reporting and
assurance (2)

• Using clear performance tables which include
  trend information, within the body of the report
• Reporting actively used by the Board of Directors
  (including independent directors)
• Clear linkages between performance (outcome)
  indicators and impacts of business policies and
  activities/operations
• Use of appropriate frameworks that highlight what
  information is missing from reports

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The way forward for sustainability reporting and
assurance (3)

• In summary, we are aiming for
• Use of sustainability reporting by stakeholders
  for active decision making
• Integration of material sustainability
  information and impacts into business strategy,
  process and reporting
• Assurance on report content by reputable,
  independent assurance providers

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Jayne Mammattjayne.mammatt_at_za.ey.com 27
(0)11 772 3349