Measuring and reporting sustainability performance in the public sector

FMI PD week: Financial Reporting

25 November 2014

Cathy Cobey, CPA.CA

Associate Partner

Climate Change & Sustainability Services

cathy.r.cobey@ca.ey.com

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Sustainability reporting

Sustainability reporting process

Integrated reporting

Questions and group dialogue

Agenda

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2

3

4

Sustainability reporting

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Measuring sustainability performance

Environmental Economic

Social

Sustainable

Social:

► Public policy and

advocacy

► Community investments

► Working conditions

► Health/nutrition

► Diversity

► Human rights

► Socially responsible

investing

► Anticorruption and

bribery

► Safety

Environmental:

► Energy – fuel, oil,

alternative

► Water

► Greenhouse gases

► Waste reduction

► Recycling

► Reprocessing/re-use

► Agriculture/organic foods

► Biodiversity

Economic:

► Accountability / transparency

► Governance

► Stakeholder value

► Economic performance

► Financial objectives

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Existing Canadian Government reporting

Environmental Economic

Social

Sustainable

Annual Financial Report

Departmental Performance Reports Federal Sustainable Development

Strategy (FSDS)

Canadian Environmental Sustainability

Indicators (CESI)

Canadian Index of Wellbeing

HR Reports

6

Drivers for enhanced sustainability reporting

► Demonstrate leadership

► Report on what matters most

► Quantify and demonstrate non-financial improvements to public ‘well-being’

► Benchmark performance against government priorities

► Report to, and engage with public service employees on sustainability initiatives

► Improve transparency and accountability on full impacts on resources used in delivering public services

► Improved risk management

► Measure and report on the ability of public agencies to meet its future obligations for providing services

Sustainability reporting process

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Sustainability reporting process

How is our organization or agency

perceived externally?

What are our peers and affiliates

doing?

Do we know which stakeholders are

relying on our sustainability

information?

What do our stakeholders care

about?

Are we consistent in our reporting to

stakeholders?

Meeting the needs of stakeholders:

Do we have a good understanding

of our risks and opportunities

associated with sustainability?

Have we clearly identified our

material sustainability issues, and

are they being managed?

Do we need a more rigorous

process to ensure that our

reporting is credible?

What level of assurance are we

currently obtaining? Is it sufficient?

Providing relevant, reliable and

credible information:

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G4 Report

Quantity → quality

Direct → indirect

Boiler plate → unique / relevant Integrate business & sustainability

Data → influence / impact

Breadth → depth

Trends for sustainability reporting

G3.1 Report

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Definitions of materiality

► Financial reporting: materiality is a threshold for influencing the economic decisions of those

using an organization’s financial statements (i.e., investors)

► Sustainability reporting: considered with a wider range of impacts and stakeholders.

► Not limited only to those sustainability topics that have a significant financial impact on

the organization.

► Also consider impacts that affect the ability to meet the needs of the present without

compromising the needs of future generations.

Often a source of tension

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Differences between materiality

Financial reporting Sustainability reporting

Concept Threshold for influencing the decisions of stakeholders

Stakeholders Public, politicians, bond-

holders

Public, politicians, employees,

clients, local communities,

governments, NGOs, etc.

Type of impacts /

decisions

Economic Economic, environmental &

social

Orientation Historical Future-looking

Timeframe Short-term Short- and long-term

Boundary Reporting organization Reporting organization,

stakeholders, economy,

environment & society

Measurement

(primary)

Quantitative ($$) Qualitative (impact / influence)

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Barriers to quantifying ESG impacts

1. No monetary value, or price doesn’t accurately

reflect value

2. Conflicting values and need for prioritization

3. Longer term / future horizon

4. Opening up to liability issues

5. Unpredictable e.g., changing scientific landscape,

changing values, regulatory uncertainty

6. Difficult to measure progress

7. Lack of historical information / measure progress

8. Complexities of interactions within the system e.g.

impact throughout value chain – dependencies

9. Uncertainty over outcome and severity of outcome

10. Decision makers may not have sight or appropriate

understanding of all the relevant issues

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The challenges of sustainability reporting

Creating awareness with senior

management and securing their

sponsorship Balancing between disclosing future

strategic objectives (narrative) and the

targets (quantitative) for achieving these

Thinking about sustainability

reporting as a process instead of

“just another report”

Creating a winning

multi-disciplinary team

Increasing requirements on

processes and systems in managing

and reporting non financial

information

Agreeing a practical approach

to how to embed sustainability

reporting and a realistic timeline for

how to achieve this

Demonstrating the linkages

between non-financial impacts,

outputs, outcomes and value

creation, depletion, stasis

Fostering a culture of

‘integrated thinking’ – thinking

outside of the box

Creating a holistic view of

how value is created and

destroyed across the full

value chain

Balance between disclosing

information and maintaining

competitiveness

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Public sector sustainability examples UK Cabinet Office Annual Report and Accounts 2013-2014

Extract from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/325328/41432_HC_Cabinet_Office_annual_report_2013-14_accessible.pdf

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Public sector sustainability examples UK Environment Agency Annual Report and Accounts 2013-2014

Extract from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/326016/41276_HC_357_Env_Agency_ARA_accessible.pdf

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Public sector sustainability examples Sustainable Australian Report 2013

Extract from http://www.environment.gov.au/system/files/resources/e55f5f00-b5ed-4a77-b977-da3764da72e3/files/sustainable-report-full.pdf

Integrated reporting

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From traditional to integrated reporting

► Integrated reporting is more than merging financial and non-financial reporting information – it’s

about disclosing value.

► Public Sector Pioneer Network is just developing a global network to develop an integrated reporting

structure for public sector entities.

1960 1980 2000 2020

Financial Statements

Financial statements

Management commentary

Governance &

remuneration

Environmental reporting

Financial statements

Management commentary

Governance & remuneration

Sustainability reporting

Integrated

report

Governance &

remuneration

Sustainability

report

Financial

statements

Management

commentary

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Impact of capitals on an organization’s value

By the application and transformation of different types of capital, the organization creates, changes or

destroys value for themselves and others. A sustainable business strategy and model may have a direct

or indirect impact on an organization’s financial performance by creating intangible value and

externalities, which in turn have the potential to influence future financial performance.

► Financial

► Manufactured

► Intellectual

► Human

► Social and relationship

► Natural

► Financial

► Manufactured

► Intellectual

► Human

► Social and relationship

► Natural

Operational

model

Society

and

organizations

Questions and group dialogue

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