Sustainabilityand integrated reporting – the

opportunity, developing the conceptual framework, the impact of

accounting on business

So what do I want to get out of today’s presentation?

• Share knowledge and learn from you• Get some informed discussion happening• Provide some reference resources and case studies• Discuss sustainability• Provide you with a view on integrated reporting• Give you my view and some insight into what is happening to

the “business model” – a view that I encourage you to challenge

What do you want to get out of this morning’s presentation?

Just take 15 seconds –

Make sure you ask about what I don’t coverthat is of interest to you

Sustainability

• Financial meaning – the ability to continue in business

• Environmental meaning – doing no damage – leaving an opportunity for future generations

• Confusion in the narrative• OH & S, staff development has also crept into

Sustainability reports

Sustainability from an environmental perspective

• Carbon emissions• Water usage and management• Waste management• Health issues• Biodiversity• Population

Peter Senge – The Necessary Revolution

Sustainability reportshttp://www.toyota.com.au/toyota/sustainability

http://www.toyota.com.au/toyota/sustainability/corporate/past-sustainability-reports?WT.ac=Sustainability_HP_PastSustainabilityReports

Sustainability reportsCPA Australia Sustainability Report 2010http://www.cpaaustralia.com.au/cps/rde/xbcr/cpa-site/

CPA_Australia_Sustainability_Report_2010.pdf

CPA Australia Annual Report 2011http://www.cpaaustralia.com.au/cps/rde/xchg/cpa-site/hs.xsl/

annual-report-2011.html

Now the Annual Reporthttp://cpaaustraliaannualreport.realviewdigital.com/

Now the Integrated Reporthttp://cpaaustraliaannualreport.realviewdigital.com/#folio=1

GRI Framework

Sustainable Development and the Transparency ImperativeThe goal of sustainable development is to “meet the needs of the present without compromising the ability of future generations to meet their own needs.”

https://www.globalreporting.org/reporting/latest-guidelines/g3-1-guidelines/Pages/default.aspx

GRI Moving to G4 - developments

The next generation of the GRI Guidelines – G4 – should address requirements for sustainability data, and enable reporters to provide relevant information to various stakeholder groups. It should also improve on content in the current Guidelines – G3 and G3.1 – with strengthened technical definitions and improved clarity, helping reporters, information users and assurance providers.

Diversion – a price on Carbon

• Opportunities and issues that will impact on reporting

Implications

• National Greenhouse and Energy Reporting

• NGER’s

» First round of reports – audit comments» http://www.cleanenergyregulator.gov.au/National-Greenhouse-

and-Energy-Reporting/Auditors/Documents/20656%20NGER%20-%20Reporting%20Audit%20Program%20-%20Findings.pdf

Issues to consider• Assess liability• Identify abatement/emission reduction possibilities (power, vehicle,

etc.)• Review supply chain exposure – and your contracts• Understand ability to pass through costs (be aware of ACCC

requirements to substantiate any claims)• Opportunities – can you help your clients develop energy efficient

products/renewable energy opportunities• Eligibility for government grants• Understand balance sheet and P & L impacts – update cash flows• Are there any carbon market opportunities

Specific risks• Carbon emissions

• Water usage and management

• Waste management

• Contracts

• Balance sheet and P & L exposure

• Pricing

Issues and opportunities for CPA’s

• Measurement and reporting

• Assurance

• Meaningful analysis

• Supply chain

• Product life cycle

• Cost analysis

Areas to consider

• Production process – inputs and outputs• Resources usage – wastage• Transport• IT – technology systems – power usage• Supply chain• Recycling – garbage • Lighting

Business impacts of climate change• Business risks – what are the implications of

not being ahead of the curve?• Supply chain risks – How will you affect your

suppliers, and what will their impact be on you – e.g. Toyota model

• Product life cycle issues – Service - Advisory• Consumer activism

MELTING PERMAFROSTMELTING PERMAFROST

COAL MININGCOAL MINING

COAL PLANTSCOAL PLANTS

CROP BURNINGCROP BURNING

OIL PRODUCTIONOIL PRODUCTION

FOREST BURNINGFOREST BURNING

LAND TRANSPORTATIONLAND TRANSPORTATION

LANDFILLSLANDFILLS

FERTILIZATIONFERTILIZATION

INDUSTRIAL AGRICULTUREINDUSTRIAL AGRICULTURE

INDUSTRIAL PROCESSESINDUSTRIAL PROCESSES

Where Do Greenhouse Gases Come From?

Where Do Greenhouse Gases Come From?

AVIATIONAVIATION

SHIPPINGSHIPPING

ResourcesSensis SME success stories athttp://about.sensis.com.au/small-business/free-sustainable-

growth-bookCarbon Compass at:http://www.carboncompass.com.au/ClimateWorks

http://www.climateworksaustralia.com/

low_carbon_growth_plan.html

What is the purpose of Reporting?• Regulatory purpose

– Compliance?– Meaningful information?

• Inform stakeholders– Investors – employees – clients – competitors ?– Potential investors?

• Wider community– What is of “general” interest?

Integrated Reporting

• Integrated Reporting is a new approach to corporate reporting that demonstrates the linkages between an organization’s strategy, governance and financial performance and the social, environmental and economic context within which it operates. By reinforcing these connections, Integrated Reporting can help business to take more sustainable decisions and enable investors and other stakeholders to understand how an organization is really performing.

Integrated Reporting• Conceptual framework• What can it mean?• Competitive pressures• Relevance of reporting – how does it add value to

our understanding of the performance of a business• http://www.theiirc.org/the-integrated-reporting-

discussion-paper/

The percentage of market value represented by physical and financial assets versus intangible factors, some of which are

explained within financial statements, but many of which are not.

The world has changed – reporting must too

Source – WBCSD Vision 205026

The world population is increasingly urbanGlobal population by type of area and by region:

1950-2050

Global economic power is shiftingTop 10 economies by GDP in 2050

The global middle class is rapidly expandingPopulation in low- and middle-income countries earning $4,000-$17,000 per capita (purchasing power parity)

Greenhouse gas emissions keep risingGHG emissions by regions

Environmental degradation jeopardises people’s quality of lifePeople living in areas of water stress by level of stress

The world could be running out of some resourcesGlobal supply forecasts according to the implied ultimate recoverable resources of conventional oil, date of peak production and the post-peak aggregate decline rate

Gro

wth

Deg

rad

ati

on

Source: UN Population Division, World Population Prospects: The 2008 Revision, 2008

Source: Goldman Sachs, BRICs and Beyond, 2007 Source: World Bank, Global Economic Prospects, 2007

Source: UN Population Division, World Population Prospects: The 2008 Revision, 2008 Source: Goldman Sachs, BRICs and Beyond, 2007 Source: World Bank, Global Economic Prospects, 2007

Reports: Increasing length and complexity

Source: Investis research - PwC

Prudential annual report pages 1850-2008

The evolution of Reporting…

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…Integrated Reporting – the Future

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Coordinated, International Action Needed Now

• Reporting has a fundamental impact on decision-making

• Critical interdependencies need to be made clear

• A clear, concise picture of performance, impacts and interdependencies, to:

– drive innovation

– be focused on communication and not just on compliance

– support resource allocation decisions consistent with sustained value creation and with long term economic stability

• Build on the many positive developments to date

• Bring together divergent strands of reporting

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How is Integrated Reporting Different?

Thinking: Disconnected Integrated

Stewardship: Financial capital All forms of capital

Focus: Past, financial Past and future, connected, strategic

Timeframe: Short term Short, medium and long term

Trust: Narrow disclosures Greater transparency

Adaptive: Rule bound Responsive to individual circumstances

Concise: Long and complex Concise and material

Technology enabled:

Paper based Technology enabled

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Central themesBusiness model & value creation

32

Business Model

• Distinction between outputs and outcomes• The linking of the 6 capitals – and their transformation

within the business model• Assessing desired outcomes against desired objectives to

refine and modify the business model

Framework

What’s the Business Model about?

Examples of Business Model Reporting

Alternate model

Conclusions in relation to IR framework

Resources and relationships or “capitals”

• Financial capital: The pool of funds available to the organization.

• Manufactured capital: Manufactured physical objects, as distinct from natural physical objects.

• Human capital: People’s skills and experience, and their motivations to innovate.

• Intellectual capital: Intangibles that provide competitive advantage.

• Natural capital: Includes water, land, minerals, and forests; and biodiversity and eco-system health.

• Social capital: The institutions and relationships established within and between each community, group of stakeholders and other networks to enhance individual and collective well-being. Includes an organization’s social license to operate.

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Content Elements

• Organizational overview and business model: What does the organization do and how does it create and sustain value in the short, medium and long term?

• Operating context, including risks and opportunities: What are the circumstances under which the organization operates, including the key resources and relationships on which it depends and the key risks and opportunities that it faces?

• Strategic objectives and strategies to achieve those objectives: Where does the organization want to go and how is it going to get there?

• Governance and remuneration: What is the organization’s governance structure, and how does governance support the strategic objectives of the organization and relate to the organization’s approach to remuneration?

• Performance: How has the organization performed against its strategic objectives and related strategies?

• Future outlook: What opportunities, challenges and uncertainties is the organization likely to encounter in achieving its strategic objectives and what are the resulting implications for its strategies and future performance?

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Content elements – earlier version

• Operating context, including risks and opportunities

• Strategic objectives• Governance and remuneration• Performance• Organizational overview and business

model• Future outlook

Content elements – current draft

• Organizational overview and external environment

• Strategy and resource allocation

• Governance

• Performance

• Business model

• Future outlook

• Opportunities and risks