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By Carol A Adams, Monash University

Tony Abbott’s criticisms of the ANU’s divestment decision will come back to bite him. The tide of change is such that Vice-Chancellor Ian Young and the ANU Council will be seen as leaders. Others will follow.

Abbott has added his voice to a growing chorus condemning the decision by ANU to divest from seven resource companies, including treasurer Joe Hockey, education minister Christopher Pyne, and blacklisted companies Santos, Iluka Resources and Sandfire Resources.

But if these companies are unhappy with the analysis of their environmental and social performance, they should take responsibility for better valuing and reporting their environmental and social impacts.

The risk of fossil fuels

Abbott’s claim that divesting deprives fund members of a good investment could ultimately be proven incorrect. Even the generally conservative accounting profession is making an increasing amount of noise about the impact of climate change on asset valuations (or stranded carbon assets).

This is a particular issue in the fossil fuel sector.

“Fossil fuel companies should start accounting for the risk that their vast reserves may ultimately end up as stranded assets.” That’s the title of an article published by the Association of Chartered Certified Accountants (ACCA) earlier this year.

A report published last year by the ACCA and the Carbon Tracker (with a foreword by the president of the International Federation of Accountants) found that companies typically do not disclose information that is material to investors on carbon risk.

Why isn’t the Prime Minister of Australia outraged about that rather than a university taking action?

The ACCA/Carbon Tracker report argues that to integrate climate risk into their business, companies need to consider potential CO2 emissions of reserves, and risks to valuations of reserves if demand for fossil fuel energy falls.

Moves towards more disclosure

The Australian Government position is in stark contrast to the mood of recent events in Europe looking at the role of corporate reporting in sustainable development and incorporating the sustainable development goals.

The events, attended by a wide range of stakeholders, concluded that reporting by companies and mandatory reporting requirements were not providing sustainability information needed by investors to assess risk and long term performance.

This is where the focus of policy makers should be — not on a report prepared for ANU highlighting gaps in management and governance by companies of social and environmental sustainability issues.

Assessing environmental value

I know of companies which are starting to develop what they refer to as a “social and environmental profit and loss account” or “net impact statement”. Essentially they are evaluating what they are contributing to society and the environment, and setting against that their negative impacts.

This sort of information attracts ethical investors looking for long term returns. Some are starting to calculate how this impacts on financial profit.

KPMG released a report last month outlining what they refer to as a “true value” approach assessing how social and environmental risks and opportunities will impact on future financial profit. The report uses hypothetical case studies to measure the impact of this value created (or lost) by companies on profit.

A report in Australian Mining complaining about “sloppy criteria” for the divestment by ANU misses the point. It is up to companies to provide adequate information on their risks, policies and activities for investors.

And, at the end of the day, if the fundamental nature of a company’s business is unsustainable, other criteria for divestment, however “sloppy” are somewhat irrelevant.

Universities led charge against Nike…

Universities have a history of being a force for good. The complete turnaround by Nike on corporate social responsibility was due to widespread boycott of its sports products by US universities in the 1990s.

Nike had contracted with factories throughout Asia (which became known as Nike sweatshops) that were found out for using child labour, poor working conditions, excessive overtime, sexually harassing female workers and paying below the minimum wage.

This was widely publicised by CorpWatch (a US based research group), Naomi Klein in her book “No Logo”, Michael Moore and the BBC in documentaries and various anti-globalisation and anti-sweatshop groups.

Nike originally denied the claims and expressed a view that what happened in supplier factories weren’t its concern. This only served to increase the campaign against it. Nike now takes transparency, accountability and corporate responsibility seriously and has restored its reputation.

And social and environmental sustainability practises in the supply chain are of increasing interest to large corporate customers concerned about reputation risk.

… and tobacco

The British Universities Superannuation Scheme (USS), at the time the third largest fund in the UK, made a significant response, through a campaign for responsible investment led by academics through “Ethics for USS” and students through “People and Planet” in the 1990s.

They questioned the morality of investing in tobacco which was dropped by the Australian Sovereign Wealth Fund last year. As a result of the academic and student led campaigns, the USS became the first large UK pension fund to adopt a socially responsible investment policy.

The approach included engaging with companies in which they invested to drive change towards more responsible behaviour. The USS sets out its proactive approach and explains its rationale for not divesting in companies on moral and ethical grounds only and legal advice that it is not permitted to make decisions purely on a moral or ethical stance here.

Students taking the lead?

In any case there is a strong and increasing link between some “moral and ethical grounds” and financial returns. In recognition of this Australian superfunds have also called for greater disclosure on Environmental, Social and Governance risk.

This is not to say that universities themselves should not being doing much more to develop future leaders able to respond to climate change and sustainability challenges. But that is another issue.

Of course, we must not forget that in making the decision to divest, Ian Young and the ANU Council were responding to student protests. They are the true leaders in all of this.

The ConversationCarol A Adams is a part time Professor at Monash University and consults through Integrated Horizons. She writes on her website ‘Towards Sustainable Business’ at http://www.drcaroladams.net

This article was originally published on The Conversation.
Read the original article.

TJ photo

By Terence Jeyaretnam, director, Net Balance

The International Standard on Assurance Engagements (ISAE 3000) is a standard used globally for assurance engagements for audits or reviews of historical non-financial information. Here at Net Balance, a specialist sustainability firm, we use the ASAE3000 (along with the more qualitative AA1000AS), its Australian cousin, generally alike in scope and application. While the ASAE3000 has always allowed non-accountants to use the standard, the IAASB has only recently adopted this provision.

From experience we believe there are numerous benefits when utilising the suite of ISAE/ ASAE 3000 in conjunction with the AA1000 Assurance Standards (AA1000 AS), which has traditionally been the domain of specialist sustainability firms. The AA1000 AS is a holistic sustainability-focussed standard designed specifically for assessing and strengthening the credibility and quality of an organisation’s social, economic and environmental reporting.

Here at Net Balance we encourage the revised ISAE 3000 to be used in conjunction with a detailed approach of the AA1000 AS, and be applied together during the phases of planning, obtaining evidence and establishing quality controls.

Having the experience of successfully completing over 250 Assurance engagements, we believe a more complete assurance can be undertaken by using both the AA1000 AS and the ISAE 3000 in combination.

Accordingly, this revision creates new opportunities for Assurance providers housing subject matter experts in sustainability to provide Assurance to all organisations. Numerous advantages include:

  • Increased representation of materiality – Defined by the assurance provider and the client organisation, subject matter experts using their professional and experienced judgements can now delve deeper into complex topics such as supply chain issues, water, waste management, or even inform clients about the global landscape on human rights.
  • Risk identification – Subject matter experts understand the clients’ business and operations and therefore they can leverage past experience to address existing risks and to identify new sustainability-based risks.
  • Value add – Subject matter experts can provide feasible value adding recommendations. This is an increasingly important factor as most reports received by management from assurance providers should provide strategies to help clients understand both the risks and opportunities in a fast changing regulatory environment.

Read Deloitte’s viewpoint on the matter here

HBarton

By Helena Barton, Partner – Sustainability, Deloitte Denmark
Member, ACCA Global Forum for Sustainability
Chair, GRI Stakeholder Council

The revised ISAE 3000 standard brings welcome guidance to assurance practitioners engaged to obtain assurance on sustainability reports.

A key feature is that the ISAE 3000 now ‘stands alone’, i.e. practitioners can use it without reference to other auditing standards. One of the other changes is the ‘opening up’ of the standard to use by non-accountants, who are not subject to the same independence and ethics codes as professional accountants. It was clear that a growing number of non-accountants were (and are) declaring that they “complied with” or performed the assurance engagement “in accordance with” ISAE 3000, without stating which independence requirements and ethical frameworks they had complied with to perform the engagement – or perhaps without even realising that some significant ethics requirements and quality control standards underpinned ISAE 3000.

So to encourage greater transparency and correct misapplication of the standard, the IAASB decided to make it explicit that non-professional accountants can use ISAE 3000 as a standard for performing assurance engagements provided that they comply with professional or legal requirements for independence and ethics which are at least as demanding as those in the IESBA Code of Ethics for professional accountants and that they identify such requirements in the assurance report.

However, this revision might present a hurdle for some assurance practitioners who have not yet put in place the comprehensive ethics frameworks and quality control programmes that enable compliance. We may therefore continue to see unsupported formulations of reports which reference ISAE 3000 – and they may go unchallenged, unless somebody takes it upon themselves to do so.

The revised ISAE 3000 clarifies the scope and work effort for limited assurance engagements through the inclusion of tables which allow practitioners to more clearly see how a limited assurance engagement differs from a reasonable assurance engagement in practice.

It also provides more guidance for limited assurance engagements, which includes a better understanding of risk and response. And it requires practitioners to provide more detail in the assurance report on the actual work performed. Particularly for a Limited Assurance engagement, a description of the “nature, timing and extent of procedures performed” helps the users to really understand the conclusion made in the assurance report.

All in all, these are good developments, which we welcome. Users are entitled to expect objectivity, quality and professional scepticism to underpin any independent assurance engagement, and increased transparency around the work effort and controls to ensure this.

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By Carol A Adams, Monash University, ACCA member of Global Forum for Sustainability

This year’s World Cup was supposed to be the “greenest ever”, with FIFA taking measures to account for the event’s greenhouse gas emissions, including an estimated 2.7 million tonnes of carbon dioxide.

As the biggest sporting event on the planet, FIFA is under pressure to take its sustainability measures seriously. It provides a unique opportunity to raise awareness among hundreds of millions of people around the world and the potential to leave a lasting low carbon legacy in the cities that host it.

Accounting for greenhouse gas emissions helps identify where carbon emissions can be reduced. But like any form of accounting it is not an exact science and it is important to be mindful of what matters, what’s the purpose and what can and should be changed.

What’s in…

The key to calculating the size of the carbon footprint of the World Cup is deciding what’s in and what’s not. FIFA applies the Greenhouse Gas Protocol Corporate Standard, which aims to guide organisations in preparing a greenhouse gas emissions inventory that represents a true and fair account of emissions in a standardised way. This allows comparisons, for example, with other sporting events.

FIFA states that its carbon accounting includes the preparation phase and staging both the Confederation Cup and World Cup. That is, FIFA does not just include the World Cup event itself, but all the events leading up to it such as the draws and associated banquets.

FIFA has committed to reporting more than the minimum expected in a greenhouse gas inventory by including what are known as “Scope 3” emissions – indirect emissions that are beyond FIFA’s control. Reporting of Scope 3 emissions is optional. FIFA’s strategy and work on this can be found here.

Scope 3 emissions, of which spectator travel makes up by far the most, were estimated to make up of 98% of the World Cup Staging phase, so when included they make emissions actually under FIFA’s control look relatively small.

…and what’s out

Despite “going beyond the minimum” with its Scope 3 measures, FIFA does not account for emissions associated with infrastructure (known as embodied carbon) arguing that they are not under FIFA’s or the Local Organising Committee’s control or direct influence.

Yet major events could have significant influence through their assessment of bidders for infrastructure projects, including on social and environmental responsibility criteria.

For example, two strategies were used to reduce embodied emissions in London’s Olympic Park. Firstly, the use of low carbon concrete mixes. And second, designing structures that used less materials.

Although not considering these matters within its purview, FIFA has included the construction and demobilisation of temporary facilities.

Without greater effort to reduce and avoid emissions, FIFA’s commitment to buying carbon offsets could be seen as a smoke screen. But FIFA is demanding that bidders now have to provide information against a number of criteria including the management and governance processes in place to ensure the integration of environmental issues in planning.

There are other options for reducing event emissions that are not revealed by FIFA’s accounting: using existing infrastructure wherever possible, minimising embodied carbon in new infrastructure (and making sure it’s used afterwards), as well as filling venues and using good public transport.

Abandoned Olympic venues from around the world.

The power of sport to change the world

With increasing pressure to account for greenhouse emissions, cities like Melbourne whose economies rely on hosting events will need to invest increasingly in public transport, renewable energy sources, energy efficient accommodation and reducing emissions from waste.

As non-government organisations and others step up calls for transparency of the environmental impacts of events, cities that invest in measures to reduce those impacts are increasingly likely to be favourably viewed as venues. ClimateWorks Australia worked with the City of Melbourne on research to inform its approach to developing a road map towards a zero net emissions goal.

This identified a range of energy efficiency and other mitigation opportunities, including for large sporting facilities, which could reduce the city’s emissions by 30% by 2020. In the future such measures may make the difference between a successful and unsuccessful bid for a major event.

An independent United Nations Environment Program (UNEP) report on the 2010 FIFA World Cup in South Africa found that, while the event produced lower carbon emissions than expected, most of this was due to fewer people attending the event. The goal of the 2010 World Cup was “carbon neutral”, but funding constraints meant many planned strategies to reduce or offset emissions weren’t enacted. However, the strategies that were used did appear to work – particularly new, more energy efficient stadiums.

A key innovation of that event was an Environmental Forum comprising of representatives from government departments, host cities and international agencies, such as UNEP, as well as members of the World Cup Local Organising Committee. It’s an approach that will have a lasting influence – a legacy for hosting cities.

Sport is central to our lives and has an incredible power to change how we feel and how we behave. Indeed, under Nelson Mandela’s leadership, rugby went a long way to bringing black and white South Africans together at a critical time and in a way that nothing else could.

By using its influence as the world’s largest sporting event, FIFA could leave a lasting environmental legacy by looking beyond that which it currently measures. In this way it can become a model for sustainable planning of large international events in the future.

More information will perhaps become available in the coming months, but based on available information, it seems that FIFA is hiding behind data and carbon offsets and lacks a strategy to make a real impact.

The Conversation

Carol Adams is a Professor at Monash University. Monash University and The Myer Foundation are founding partners of ClimateWorks Australia.

This article was originally published on The Conversation.
Read the original article.

Katie Schmitz Eulitt, SASB

By Katie Schmitz Eulitt, Director of Stakeholder Engagement, Sustainability Accounting Standards Board (SASB)

A recent ACCA report discussed how differing definitions of materiality affect the boundaries of materiality decisions made by companies. In light of this report, we wanted to offer SASB’s perspective on natural capital and materiality in the context of mandatory disclosure to the Securities & Exchange Commission (SEC).

SASB develops sustainability accounting standards for publicly-listed U.S. companies. The standards are designed for the disclosure of material sustainability issues in SEC filings. By the end of 2014, SASB will have issued standards for 45 industries. By early 2016, SASB standards for more than 80 industries in ten sectors will be available.

While FASB and US GAAP exist for the purpose of disclosing corporate performance through metrics focused on financial capital, SASB’s concern is with accounting for material non-financial issues, including environmental and social capitals that are not accurately priced. SASB is defining parameters that express a true and fair representation of performance on non-financial issues, for investors and analysts to use in evaluating companies. This picture includes attention to the management of critical capitals, vulnerability to depletion, and risks associated with mismanagement. SASB’s approach to sustainability accounting consists of determining standard disclosure and metrics to account for companies’ performance on material sustainability issues.

So, how will SASB standards change corporate performance? By helping companies to account for all forms of capital. Accounting for sustainability impacts means measuring, verifying, and reporting—in other words, being accountable for—the environmental, social, and governance (ESG) performance of an organization. Sustainability accounting standards are intended to complement financial accounting standards. The goal is for investors to be able to evaluate financial fundamentals and sustainability fundamentals side by side. With this information, investors can assess ESG risks and opportunities in an investment portfolio, and companies can improve performance on the ESG issues most relevant to their business success.

The impacts of business on society and the environment, as well as the impact of sustainability issues on business, are often headline news. The perfect storm of global population density, food and water security issues, and extreme weather events is not predicted to subside. Thus, companies need to better understand how these factors inhibit and/or enhance their ability to create value, for shareholders and society alike. SASB’s industry-specific guidelines help companies identify the ESG issues that are likely to be material to their business, and provide investors with the ability to compare company performance on these issues. SASB is using a rigorous method to develop standards that are tailored to each industry. By identifying the minimum set of material issues for every industry, SASB standards surface the information that truly matters. SASB standards are designed to be cost-effective for companies and decision-useful for investors.

Our standards abide by the U.S. Supreme Court’s definition of material information, defined as presenting “a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the “total mix” of information made available.” Regulation S-K requires corporations to disclose material information to investors in the Form 10-K. While FASB provides standards for the disclosure of material financial information, there are no standards for the disclosure of material non-financial information. SASB is emerging to fill this need.

We encourage everyone interested in materiality, natural capital, and the U.S. capital markets to participate in SASB’s standards development process. Sign up for industry working groups, participate in public comment periods, download and use our standards.