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sustainability
Can’t Get There From Here
CAPA study points to need for global standards for sustainability
Members of the Confederation of Asian and Pacific Accountants (CAPA) consider sustainability to be a high priority issue and are undertaking a number of related activities. But a recent survey by the organization highlights the biggest challenge to this issue – the glaring absence of a regulatory framework.
Without globally accepted standards and regulations, businesses choose the framework and standards most appropriate to their needs and to the demands of stakeholders. But the end result is a lack of consistency, transparency and comparability between the financial and environmental reports of different entities and different jurisdictions.
The CAPA survey, published in October 2009, covered a wide range of questions related to environmental accounting and corporate social responsibility (CSR).
The CAPA survey provides additional weight to a recommendation the International Federation of Accountants (IFAC) made to the G20 leaders in advance of their summit meeting in Pittsburgh in September 2009: “The G20 should support the development of new tools and metrics to achieve global sustainability.” In pledging the accounting profession’s assistance in building global sustainability solutions, IFAC proposed several specific measures related to financial reporting and the reporting of
Regulations will Require more Reporting and Assurance
CGA-Canada President and CEO Anthony Ariganello notes that sustainability, as a concept, is of increasing importance to business, investors and consumers. Essentially, sustainability reporting entails reporting on the entity’s environmental and social performance as well as its financial performance. However, sustainability encompasses an enormous range of environmental and related social issues – everything from water usage to human rights abuses, toxic waste to consumer safety, preserving cultural practices and heritage to investing in local communities.
Standards for measuring and accounting for these diverse issues have been evolving over the years, but some sustainability issues – particularly those related to climate change such as greenhouse gas emissions – are more urgent than others. What sets greenhouse gas emissions apart, says Ariganello, is their global impact, their direct impact on financial reporting, and the growing need for emissions audits and assurance to meet regulatory requirements.
“The factors that initially drove sustainability reporting were things such as corporate values, stakeholder pressure, marketing opportunities and potential business efficiencies,” says Ariganello. “But in the area of greenhouse gas emissions in particular, regulation will inevitably require more thorough disclosure and assurance in the future.”
Under the United Nations Framework Convention on Climate Change (UNFCCC), an outcome of the 1992 Rio Earth Summit, signatory countries were required to establish a national greenhouse gas inventory and report on national greenhouse gas emissions annually. Since then, various national or regional GHG reduction schemes have been proposed. The most significant agreement currently in place is the European Union Greenhouse Gas Emission Trading Scheme (EU ETS), a cap-and-trade system that covers EU-member countries. The Obama administration has indicated its intention to implement a similar system in the United States, with Canada intimating that it would follow the U.S. lead. Certainly the trend is toward greater regulatory reporting requirements as well as policy instruments based on economic incentives.
The problem for both business entities and investors is the confusing array of standards and guidance produced by various institutions for both emissions reporting and for auditing those reports. Among the more common initiatives are: the Sustainability Reporting Guidelines (G3 Guidelines) developed by the Global Reporting Initiative (GRI); the Greenhouse Gas Protocol, developed jointly by the World Business Council for Sustainable Development and the World Resources Institute; sustainability standards from the International Organization for Standardization (ISO); a reporting system devised by the Carbon Disclosure Project (CDP) and a proposed reporting framework developed by the Climate Disclosure Standards Board (CDSB); a standard known as the AA 1000 Assurance Standard issued by a not-for-profit organization called AccountAbility; and a standard for non-financial assurance, ISAE3000, developed by the International Auditing and Assurance Standards Board (IAASB), a standard-setting board of IFAC. In Canada, the Canadian Institute of Chartered Accountants has also published guidance on climate change disclosure.
Surveys Illustrate Need for Consistency, Comparability
Two recent surveys of corporate sustainability reporting illustrate not only the diverse approaches being applied, but also the growing importance companies are placing on the subject. The KPMG International Survey of Corporate Responsibility Reporting 2008 and a survey jointly conducted by the GRI and Association of Chartered Certified Accountants (ACCA),
As ACCA’s Roger Adams noted in his introduction to the GRI/ACCA report: “The research contained in this report suggests that the standard of voluntary corporate climate change disclosure can still be improved – but the wider message is that performance may improve still further if the climate change policy framework governing and signalling to the multinational marketplace is firmed up considerably.”
Perhaps not surprisingly, both reports suggest that sectors facing environmental regulations or coming under intense public or media scrutiny tend to do a better job of reporting their environmental performance. The
A 2005 report by CGA-Canada into corporate sustainability reporting in Canada implied that the separate matters of government regulation and accepted standards present somewhat of a chicken-and-egg scenario. The report pointed out that: “CSR and corporate sustainability reporting are still in their infancy. Until standard management and reporting practices develop, governments have no basis from which to establish mandatory requirements for corporate social responsibility and sustainability reporting.” Yet, the opposite is equally valid as standard setters are best able to respond to a clearly established regulatory framework. All the more reason, says Ariganello, for the two sides to move forward together.
Many observers were disappointed in the outcome of the UNFCCC in Copenhagen in December. But as The Economist noted in a recent special report on climate change, perhaps UNFCCC conferences are too big and cumbersome – with 192 participants – to make significant progress on such an issue. The magazine proposed that a smaller group, the Major Economies Forum, take the lead.
However, the G20 presents another such opportunity for three reasons: its size is small enough to facilitate consensus; its membership includes most significant emitters as well as major advanced and emerging economies; and perhaps most significantly, its focus is economics rather than the environment. While that economic focus could be argued to be either an advantage or a drawback, sustainability is as much an economic challenge as an environmental one. Most of the opposition to sustainability regulations comes from an economic perspective, so any successful policy options will have to satisfy both.
“The fact that climate change is a global problem underlines the need for global standards for reporting and auditing greenhouse gas emissions, in particular,” says Ariganello. “There is an opportunity here for the G20 countries to provide the momentum for global consensus on this issue. And as IFAC pledged in its letter to the G20 leaders, the accounting profession stands ready to assist in developing global standards.”
