Transcript

Sustainability Reporting with Carol Adams

1 May 2008

carol-adamsProfessor Carol Adams
Email: c.adams@latrobe.edu.au

You can also listen to the interview [MP3 20.8 MB].

Matt:

I'd like to welcome you all to the La Trobe University podcast, I'm your host Matt, and in the sidecar with me today is Professor Carol Adams, she's the deputy dean for the faculty of Law and Management, and she's also a professor of accounting and sustainable development strategy. Let's give her a big round of applause! Thankyou for joining us today.

(APPLAUSE FROM FAKE STUDIO AUDIENCE)

Prof. Adams:

Thankyou

Matt:

So you're here to talk to us about corporate responsibility as far as it goes as the adaptations they need to make for climate change. We've got a public at the moment who are very aware as to how climate change is affecting the world, it's the only one we've got, there's been songs about it, we all know what it's about, and we all need to think about the polar bears. So companies need to step in line. Do you think they're ready the way they are?

Prof Adams:

I think companies have a lot more work to do. They've started over the last few years but I think Australian business generally is well behind it's competitors internationally. Stakeholders should also be involved in deciding what are the key issues in which organisations ought to be accountable, what they should include in their sustainability report. The banking sector for example, a key issue for banks is their indirect impacts so when banks are determining which projects to finance they may choose to work with organisations which they are considering funding, to look at the environmental and social impacts of the programs and try and help organisations to reduce negative impacts. That would really make a significant difference, if all the key banks were doing that with the different projects they were funding.

Matt:

So that's working at it completely from a publicity point of view moreso than anything else, because a bank wouldn't have a carbon footprint for example, at least not to the extent as that of a car manufacturing company would have with carbon emissions to meet.

Prof Adams:

No, the direct impacts would be less significant than organisations like manufacturing environmental impacts, but a bank has a lot of indirect impacts through it's lending and financing decisions and that's where they can make a difference working with organisations to work out ways of minimising those. There's various ways in which companies might work with their own stakeholders to reduce their environmental impacts. So for example, ANZ has a literacy project with the Brotherhood of St. Laurens, so companies can form partnerships in that way which are linked with their own work.

Matt:

So what are the incentives for companies, why should they want to report on their social and environmental impacts?

Prof. Adams:

This is a way they can demonstrate accountability to their stakeholders for those impacts, so it helps build trust with stakeholders. One of the key audiences for sustainability reports are also their own internal staff employees and managers. So it's a way of telling employees what they're doing, particularly in regard to employment issues, diversity issues, ways of communicating with staff, training opportunities, health and safety issues, so it's a way of communicating all of those things, plus all the other range of social and environmental issues to employees. It's also a fairly important tool to managers. Very often the decision to be accountable to stakeholders, that is to produce a sustainability report, it's that decision that then leads to the development of data collection systems. Often the decision to report and be accountable comes first and then organisations realise that they don't have all the data collection systems in place. So they develop their data collection systems and then once they start collecting the data and reporting it, the data becomes visable. So for example I've been doing some work on diversity reporting recently and a number of the organisations that I've spoken to have told me that when the data they reported was broken down into individual business units as it is before it's amalgamated for the sustainability report, that makes the data that each manager across the organisation is responsible for, it makes that visible. And then they have an incentive to improve their performance because they can see their performance against that of all the other managers in the organisation. It's not just about doing right by stakeholders and doing right by society, it is seen as an important business issue to do this, it's about risk management, it's about reducing risks further on down the track by considering the possible social and environmental impacts of particular projects. If they weren't considered there may well be a legal case or some liability further down the track, so by looking at it up front companies may well be avoiding a real cost down the track. Being concerned with sustainability and corporate responsibility used to sometimes be seen as perhaps sacrificing profits, taking money away from shareholders. I think that's a very old fashioned and conservative view. In fact very often making a start on environmental initiatives can lead to cost savings. Once you start measuring performance on emissions and water use you start reducing your energy use, reducing water use, perhaps increasing recycling initiatives, and companies have made major savings by collecting that data and starting to manage it.

Matt:

So how does sustainability reporting make a difference?

Prof Adams:

To me sustainability reporting, the most important element of sustainability reporting is not the report itself, the report itself is an outcome of the whole process within the organisation which should be integrated right across the organisation. It starts with defining the values of the organisation with respect to sustainability and that can involve a lot of soul searching within the organisation. It involves people thinking about what are the important issues for the organisation and the particular sector that it's in. Once the values are determined it's important to develop the key issues that the organisation should report in, that must necessarily involve engaging with stakeholders because if we're talking about identifying what impacts the materials of stakeholders they really need to be consulted in that process otherwise we could miss some of the important ones. From the issues, organisations should be developing a set of clear objectives and then more specified targets. Ideally targets ought to be quantified, they shouldn't just be for example reducing CO2 emissions. We want to know how much organisations are planning to do this by because in the next years report we want to see how well they've gone against their targets, we want them to report against their targets to say whether they've been achieved and if not why not. What's often missing from sustainability reports is information on the process of reporting. Who are the key stakeholders, who's the audience for the report, how have they been consulted, what are the responsibilities inside the organisation for different aspects of the sustainability reporting and management process, how are the key performance indicators determined. How is performance managed, what happens for example if a company falls short on it's performance against a target, what action is taken. That information on that whole process and how it is integrated across the organisation, how it really becomes imbedded within the organisation, is crucial to me as a reader of a report, in trying to get a feel for how serious an organisation is and it's important in giving credibility to a report. A report that just includes a lot of data doesn't really tell me a great deal. For a start I have no way of knowing if that data is appropriate data for that particular organisation in that particular sector without any idea as to the process they've gone through in determining targets and benchmarking their performance.

Matt:

Well Australia hasn't really had to measure up to anyone, we've been accountable to ourselves. Is that a good way to put it?

Prof Adams:

I actually found when I came to Australia six years ago a bit of an anomaly as there was a lot of concern for the natural environment because it is so different in Australia. There's a lot of concern on an individual level but it certainly wasn't translated into corporate action. There isn't a culture of organisations being involved in social responsibility and sustainability issues. I guess I put that down in part to a lack of leadership from the government. Leadership doesn't have be solely through legislation. You can have environment ministers engaging with organisations, righting to them, meeting with them, encouraging them to do more on social and environmental issues to really lift their game and improve their performance. Writing to them when they hear of things going wrong and asking what they're going to do to put it right. You can have government agencies having a proactive role. There aren't many countries in the world where this type of reporting is mandatory, it tends to be limited to particular issues. In Australia there are some reporting requirements to public agencies for example on equal opportunities issues, but there are very few requirements for reporting to the public to be accountable to the public. I think that pressure on organisations has increased as they have become bigger through the process of globalisation. Many companies now, globally, are more powerful and have more impact on the social and environmental issues within a particular country then some of the national governments in those countries do. So society's expectation of companies with regard to social and environmental issues has increased significantly over the last few decades I think largely because of that.

Matt:

We've got a more self aware public now, we've got a public who's aware of the impact that they're having on the environment so it's beneficial for companies to say yes we support it, yes we're doing these changes, yes we're making progress here.

Prof Adams:

It is the case that many companies are embarking on social responsibility to help them attract and retain the best staff, the many surveys done recently which have shown that the majority of graduates and existing staff within organisations choose an employer because of it's ethical stance. There's a bank in the UK, the co-op bank, which surveyed it's customers and found that about a third of them banked with that particular bank because of it's ethical stance. So it really does become a business issue so the survival of the business is often determined by it's stance on these issues.

Matt:

So why is it important that companies get involved? Because some of them seem reluctant.

Prof Adams:

I think the accounting profession could be doing much more, in the sixteen years that I've been working in the field of corporate social responsibility and sustainability reporting I haven't come across an accountant who's been significantly involved in this process and yet I think there are areas where they could make significant contributions of their background in financial reporting and data collection management systems and performance management systems generally. Within accounting research there is a growing strand of research on sustainability reporting issues which overlap with environmental management systems, corporate social responsibilities, environmental accounting, so it's recognised as an important area by accounting academics. Some accounting professional bodies have made significant progress but there are some others who are lagging behind and perhaps not equipping their members as well as they might be for work in this area.

Matt:

Are you optimistic about this?

Prof Adams:

Well I suppose that one thing does concern me about is about how governments are really resistant to get involved in this area at all, they're uncomfortable about pushing business to do more and I guess that's all to do with where the votes come from. I think that's very unfortunate. What I've experienced is that before a company starts reporting and collecting data they're very reluctant to do so, they're very concerned about it, they're very worried about reporting any bad news, so if there was a negative environmental impact like a pollution incident for example, they're concerned about reporting it. It's once they have done it that actually it builds trust with stakeholders, that they're actually getting a lot of data which is very useful and improving their environmental performance and reducing costs in some areas. They start to realise how useful it is. I've never heard of a company who starts to go down this track, collecting data and reporting it, and then pulls back to a significant extent because they think it was a mistake. So it's getting the message across that it's going to be good for business and encouraging them to take that first step where we really need some intervention. Once they've done it I believe that they will continue to do it. There is always going to be a concern about reporting more information then competitors, reporting performance which they are afraid looks worse than competitors, but I actually feel the public are pretty sensible and pretty fair on these issues, and where a company is willing to say what it has done wrong and what it's going to do to put it right I believe they're quite forgiving. Where companies tend to get a lot of bad press is to my mind when they're trying to hide something or present something to be different from the way it is. For my mind that is a risk for organisations doing that, and it's the organisations which are hiding things that get the worst coverage in the press. I've been told by CEOs that one of the main hindrances to progress on social and environmental issues are the shareholders. The reason is that they're concerned with short term profitability. A lot of these measures help improve profitability of the organisation in the longer term. They ensure that the organisation is still around in ten or twenty years time. The building trust with stakeholders, increasing employer and customer loyalty, are intangible benefits and it takes some time to realise the financial benefits of that investment. The shareholders can often be the source of hindrance in organisations to making progress, as well as the CFO's. I'd like to encourage business to seriously consider reporting widely on social and environmental impacts to their stakeholders. To meet with their stakeholders, to report bad news as well as good news, be willing to say when they've made mistakes and say what they're doing to put them right. Organisations that have been doing this for some time, and there are organisations in Europe that have been working on this for several decades now, have found that it really does build trust within the organisation and it very often also leads to significant improvements in the organisation's reputation and financial bottom line.

Matt:

So how does Australia measure up currently compared to how it's been in the past?

Prof Adams:

It's been six years since I moved to Australia and I've noticed a significant increase in the number of companies preparing sustainability reports, but to my mind the quality of those reports is lacking. They're not demonstrating sufficient accountability to stakeholders, many of them lack credibility because they don't talk about their processes of engaging stakeholders, they don't, for example, perhaps quantify targets or measure performance against targets. There's still a lot of important elements missing from sustainability reports which would help ensure credibility and completeness of those reports. There were two parliamentary enquiries last year concerned with corporate social responsibility and sustainability reporting and they came up with a number of recommendations. One of them is that Australian companies should identify their top five sustainability risks. Well from the work I have done I would not be confident that any more than a handful of companies were in a position to identify their top five sustainability risks, simply because they haven't engaged their stakeholders and they haven't done the work for me to comfortable they could identify all their sustainability risks or certainly their top five anyway. That was really a ridiculous exercise where you knew the outcome, before they concluded you knew they were going to decide there would be no mandatory sustainability reporting, and that is exactly what they concluded, but they came up with a number of recommendations.

Matt:

You've been listening to the La Trobe University podcast, I've been your host Matt Smith. I'd like to thank my guest Carol Adams, I'd also like to thank Simon Knight from OTSU on the pots and pans, and Mark Pearce, my partner in crime.

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