Concerns: Going… Going… Gone?
In today’s complex business environment, Petty pointed out, shareholder value is determined by a range of performances, including the organisation’s corporate social responsibilities
The next time you order a succulent cheeseburger at McDonald’s, pay close attention to the biodegradable packaging in which it is served. Recognizing the risks to the environment from its polystyrene cups and packaging, these have been phased out and replaced by materials that are eco-friendly. McDonald’s is one of innumerable firms that have literally started cleaning up their act.
Corporate Social Responsibility (CSR) and the related aspect of Sustainability are the subjects uppermost in the minds of accountants today. This represents both a challenge and an opportunity for accountants under whose purview corporate reporting has traditionally been.
Triple Bottom Line (‘3BL’) Reporting
3BL Reporting is a concept whereby the traditional reporting on financial and economic performance of organisations has been expanded to encompass two more parameters. The new parameters are social performance and environmental performance. John Petty (National Vice President, CPA Australia) explained the concept at a workshop conducted by him earlier this week. The workshop was presented by the Technical Directorate of The Institute of Chartered Accountants of Sri Lanka.
The impetus and need for 3BL emerged out of the state of affairs that prevailed at the fag end of the 20th century. It was a time when certain large corporates were behaving irresponsibly and doing unacceptable things to the ecology.
In today’s complex business environment, Petty pointed out, shareholder value is determined by a range of performances, including the organisation’s corporate social responsibilities. The 3BL commitment harmonises the traditional financial bottom line with environmental quality and social integrity issues.
• Economic viability builds on the traditional measures of success.
• Environmental quality focuses attention on aspects like pollution reduction programmes, greenhouse gas emissions, energy utilisation and air quality.
• Social integrity and community focus refer to aspects like human rights, philanthropy, providing employment opportunities to the disabled, skills training for disadvantaged persons in the community and business ethics.
Petty provided several examples of organisations that have moved beyond generating annual financial reports. Philips International, for instance, has a ‘Sustainability Report’ that has adopted a 4 Ps approach: Profit, People, Planet and Propriety. The last named, Propriety – or governance - is an extension of the 3BL approach.
Petty challenged accountants to move beyond the traditional ‘bean counters’ role. “This myopic focus on profit and loss statements and balance sheets should stop,” he urged. Pointing out that no value is added by having management pore over these statements every month, he suggested that they be generated quarterly instead.
Research shows a distinct correlation between good social and environmental performance on the one hand and financial success on the other. Benefits of 3BL implementation include reduced risk, more efficient use of resources and enhanced reputation, leading to loyalty of customers.
Eco-efficient firms are able to create greater shareholder value than their industry competitors while minimizing environmental risk and impact. Petty pointed out that, on the Dow Jones, the Sustainability Index consistently outperforms the overall index. Quoting from the book by Freeman et al, ‘Environmentalism and the New Logic of Business’, he said that there is no aspect of our world that can escape the scrutiny of environmental analysis.
Petty insists that environment and society must be an integral part of the strategic planning process. A 3BL report should typically commence with a CEO statement. This should be followed by a profile of the reporting organisation, an executive summary ad key indicators, vision and strategy, policies, organisation, and management systems.
At a panel discussion on the issue, Ravi de Silva, Consultant – Social & Environmental Management, Aitken Spence Hotels exhorted corporates to adopt a proactive and responsible approach towards the environment. “You should have a Sustainability Policy,” he said. “Review where you are and where you want to go.”
In the Sri Lankan context, De Silva recommends that organisations be a part of the community through stakeholder consultation. “Do assessments on the impact that your organisation is having on the environment,” he added. Talking of the Kandalama Eco Park that he has been involved with, he said that they do not generate any garbage, only waste that is recycled. The 1.5 million visitors to the Eco Park have helped build awareness.
Deshini Abeyewardene, Manager – Public Relations, SriLankan Airlines, said that implementation is the key to success, for which managements need to invest the initial time and money. Talking of the financial spin-offs of adopting 3BL Reporting, Ms Abeyewardene gave the example of MORI, a company that has been able to command a price premium of 40% on its products because it is perceived to be an ethical company.