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By James Bonner, independent sustainability consultant

The annual report has, for a long time, been the most important single piece of published communication of an organisation’s activities and financial performance – providing a comprehensive account and assessment of an entity’s operations throughout the preceding year. Traditionally, with a focus on financial performance and the interests of shareholders, other non-financial information and issues relevant to wider stakeholders have been overshadowed in annual reports.

However, CR (Corporate Responsibility) reporting is becoming increasingly common for businesses. The KPMG International Survey of Corporate Responsibility Reporting 2011  finds that ‘ninety-five percent of the 250 largest companies in the world (G250 companies) now report on their corporate responsibility activities’, and furthermore highlights consistently growing trends in CR reporting from the top 100 companies in the 34 countries surveyed. This is reflective of the increasing importance being placed on reporting of non-financial and sustainability issues relevant to wider stakeholders.

While the notion of producing a corporate responsibility report has become common practice for many organisations, there has, more recently, been increasing debate on how such reporting might/should be considered as part of the wider disclosure of organisational activity. A growing understanding and appreciation of the material importance and relevance of wider sustainability issues presents a semi-rhetorical question: if sustainability issues are so significant, and recognised as integral to the core business activities of organisations, shouldn’t they, therefore, be included within the ‘main’ annual reports – rather than as stand-alone/autonomous commentaries?

In as much, the evolution of the concept and practice of ‘integrated reporting’, which, according to the KPMG report ‘at its simplest… reflects the growing practice of including key CR information in a separate section in the corporate financial reporting process’, is aiming to address this fundamental question. In fact, the KPMG survey highlights that certain businesses are, to some extent, already incorporating CR information into their annual reports:

‘27% of G250 and 20% of N100 [the top 100 firms in each of the 34 countries surveyed in the study] companies include some form of CR reporting in their annual report; 18% of G250 and 11% of N100 companies include a chapter addressing CR issues, but without the quality and measurable data of a report’.

However, the report does draw attention to the fact that the majority of such examples only include CR content in separate chapters of their annual reporting and that true ‘integration’ within, and throughout, annual reporting frameworks remains limited. Nonetheless, there are indications and trends suggesting that greater assimilation of CR and traditional financial information within annual reporting procedures is forthcoming. The G250 group surveyed by KPMG cited that the key driver for integrated reporting is a motivation to link CR to core business, and the overarching perception that ‘if CR is to truly be integrated into the business strategy it must therefore be an integral component of annual reporting as well.’

It could be that as the concept of, and interest in, integrated reporting gathers pace and attention, supported by the recent formation of the International Integrated Reporting Committee (IIRC), it will become a major driver in a fundamental evolution of the annual report- and, in the words of the KPMG report, ‘should now be a Board-level consideration for companies around the world.’


By James Bonner, independent sustainability consultant

The growing focus on organisations to report on wider ESG (environmental, social and corporate governance) impacts and dependencies – fuelled by stakeholder interest, a greater understanding of their significance to core business activities and wider society, and consequently justification via materiality definitions – leads to an important question: what is the best way of ensuring such disclosure is undertaken? Considering the significant impact businesses have on such sustainability matters, and the critical nature of many such issues for society, seems to support mandatory reporting. However, with an understanding of such ESG impacts and dependencies becoming increasingly clear as fundamental to core business activities and organisational value, allowing business to undertake reporting voluntarily might be more successful in creating lasting organisational change.

There have been different perspectives on the relative value and merits of either approach to corporate reporting, often shaped by a variety of factors from vested interests and perceptions to organisational culture (with a quite generalist view that corporations have historically supported voluntary reporting, while external groups such as NGOs and trade unions have pushed for objective and enforced regulation).

The appropriately titled ‘Carrots and Sticks- Promoting Transparency and Sustainability’ a 2010 report involving partners KPMG, GRI (Global Reporting Initiative), Unit for Corporate Governance in Africa and UNEP (United Nations Environment Programme) – presents a comprehensive overview of methods, trends, and perspectives on voluntary and mandatory approaches to sustainability reporting and assurance. The following table from the paper highlights some of the reasons that have (traditionally) been used to support, and oppose, mandatory and voluntary reporting frameworks:


While a number of these perceptions are still labelled at either form of disclosure, the report goes onto explain that over the past few years there has been a ‘maturing’ of the debate around the usefulness of each approach, which has seen some private sector bodies promoting the benefits of regulation, and groups such as trade unions and governments referring to voluntary frameworks because of their particular advantages. As such, the report states that ‘an emerging emphasis on a combination of (complementary) voluntary and mandatory approaches’ is becoming increasingly perceived as the most appropriate way forward- with certain minimal reporting requirements on specific sustainability issues, coupled with voluntary approaches that allow organisations to work within, as depicted in the following figure:


While the theoretical benefits of a reporting process which combines the qualities of comparability, objectivity, and standardisation more typical mandatory regulation, with the flexibility, compliance and scope for innovation of voluntary frameworks is quite obvious – it does pose some further pertinent questions and challenges:

  • For governments, regulators and society: what are the minimum levels of reporting criteria/metrics businesses should be expected to report on?
  • For businesses: to what extent should reporting go beyond minimal levels for compliance – taking into account the relative competitive advantages of doing so?

This blogpost intends to primarily support ACCA’s Accounting for the Future session ‘Voluntary vs. Mandatory’ on Tuesday the 10th of October by introducing some perspectives on voluntary and mandatory reporting approaches- issues that, along with implementation methods/strategies of such reporting procedures, will be discussed further in the session.

The multiple capitals model

aksaroya —  3 October 2012 — 1 Comment

by James Bonner, independent sustainability contact

As initially introduced in a previous blog post in this series (Natural capital as a material issue) the concept of multiple ‘capitals’ is an approach to sustainable development theory that extends the notion of capital, in a traditional economics sense, to broader sustainability issues. While the conventional economic definition of capital – essentially the manufactured goods which produce, or facilitate the production of, other goods and services – serves to account for the durable goods which are a means of production for businesses,  it ignores the vital inputs garnered  from the natural environment and society. The fundamental essence of the concept of capital is that it is a stock or asset that provides a flow of goods and services for the benefit of human wellbeing. However, it is quite clear that the narrow traditional economic definition does not adequately cover all of the sources that businesses gain benefits from and that there are sources of capital beyond simply the manufactured assets of an organisation which facilitate production and economic output.

It is increasingly recognised that capitals such as natural resources, human knowledge and social cohesion are vital stocks/assets which business and the economy in general draw upon for their products and services. As such, a number of models considering multiple capitals have been developed and supported by various bodies in the past few years – the World Bank, the OECD, and DEFRA – aiming to recognise and distinguish these wider stocks and assets. The IIRC are one such significant body who are incorporating the concept of a multiple capital model into their work, and have, through their Discussion Paper Towards Integrated Reporting: Communicating Value in the 21st century’ and subsequent consultation with stakeholders, begun investigating both how the capital model might be applied to corporate reporting, and the boundaries/types of capital it might include.

Indeed, at this stage, the IIRC have proposed 6 categories of capital, each of which interact and interconnect with one another- and consequently are the fundamental resources that organisations rely upon to function and deliver their products and services. The following extract from the IIRC’s discussion paper highlights these different capitals- financial, manufactured, human, intellectual, natural and social- offers a definition of each, and descibes how they might manifest themselves in the context of a business or organisation:


This blog post intends to primarily support ACCA’s Accounting for the future session ‘Practical Workshop: 6 Capitals of integrated reporting- practical skills for accountants’ on Tuesday the 9th of October by introducing the concept of multiple capital models, and the IIRC’s work in the area. The session will look at the IIRC’s work in greater detail, and furthermore the role of accountancy in such a model.

By James Bonner, independent sustainability consultant

It is not surprising that the majority of initiatives devised to incorporate environmental and social issues into business processes, and indeed pressure to adopt such programmes, are predominately aimed at large corporations and multinationals. Such sizeable organisations clearly have significant impacts on the environment and wider society, and furthermore are motivated to protect their brand and reputation, which can be at risk if such issues are neglected.

However, it is important to consider that social and environmental impacts are interconnected, complex and cumulative, and the effects they have, whether positive or negative, are a result of how society and the natural environment are treated as a whole/and by everyone (consider the feedback loop of natural capital in the blogpost ‘Natural capital as a material issue’). As such, the impacts of all of society, and furthermore all types of commerce – from individual traders to the largest multinationals – impact and affect social and environmental issues, to some extent, through their activities.

The European Commission state that ‘SMEs [Small and Medium Enterprises] are the backbone of the European economy and their contribution is essential for pursuing the EU goals towards sustainable growth’. However, the Commission goes onto discuss that while SMEs have a significant environmental impact (responsible for 64% of pollution in Europe) they find it more difficult to comply with environmental legislation than large companies. Such a viewpoint is echoed in a number of other studies (including from an Australian paper which agrees that ‘SMEs lag behind their larger counterparts in terms of environmental activeness and performance, and therefore require assistance to improve this area of their business operations’).

Additionally, while not implying that large organisations have become ‘sustainable’, or cannot do much to reduce their impacts, it is fair to say that a number of large companies have progressively undertaken steps and measures to improve their social and environmental performance (from CSR reporting to stakeholder engagement, partnerships to environmental management systems). It could be argued that there are ‘diminishing returns’ from focusing on such bodies – that while continued pressure and improvements to their business operations will reduce their sustainability impacts, more effective and sweeping benefits could be achieved by targeting smaller business entities that do much less to tackle such issues.

Furthermore, as they are increasingly required/expected to disclose their wider sustainability impacts, the significant environmental and social impacts of large multinationals are not necessarily a result of their own operations or activities, but hidden in their supply chains. Whether unsustainable environmental activities of suppliers of raw materials (e.g. in electronics manufacturing) or the unethical labour practices of production which is outsourced (e.g. in retail and clothing) – the really damaging environmental and social impacts can be from the small and medium companies which perform these activities for them as part of their wider supply chain, but do not garner the same attention/scrutiny as the large multinationals themselves.

With a changing global economic landscape, and a focus on stimulating new growth and economic development in many national economies, there is potentially an opportunity to engage with SMEs and entrepreneurs who are attempting to start out to set in place business models and processes which incorporate and integrate social and environmental considerations from the outset.  By informing/providing guidance on the benefits of considering such sustainability issues (reduced costs, enhanced reputation, new markets), and the potential costs of ignoring them (legislation, taxes, loss of customers), SMEs can be, like their larger counterparts, encouraged to manage their environmental and social impacts.

This blog post intends to primarily support ACCA’s Accounting for the future session ‘Practical Workshop: methods for SMEs to consider- environmental and social issues’ on Tuesday the 9th of October by discussing the social and environmental impact of SMEs- issues that, along with initiatives available that are focused on SMEs, will be discussed in greater detail in the session.

by James Bonner, independent sustainability consultant

Other posts in this series of blogs have introduced the concept of materiality, and furthermore discussed the notion that natural capital, the stock of resources and subsequent benefits we derive from the natural environment, can be considered in material economic and business issues.

However, as the TEEB (The Economics of Ecosystems and Biodiversity) study states: ‘the values of its [natural capital] myriad benefits are often overlooked or poorly understood. They are rarely taken into account through markets or in day-to-day decisions by business and citizens, nor reflected adequately in the accounts of society.’ As such, the onus on organisations to report on significant material issues, coupled with an increasing interest and pressure on businesses to disclose their impact and dependencies with regards to environmental concerns, are strong arguments to support the inclusion of natural capital issues in the corporate reporting of businesses in order to accurately reflect their corporate performance.

The following diagram depicts the interconnections between the constituent aspects of natural capital and business (as explained in more detail in a previous blogpost in this series), and infers that there are several areas where impacts and dependencies on natural capital could feasibly impact corporate value. As the highlighted area in the dashed box associates – a business entity’s consumption of raw materials (e.g. timber or pharmaceutical resources), or reliance on an operating environment which is stable and consistent (e.g. protected from flooding or benefits from natural pollination) are dependencies which stem from natural capital- and are necessary, to varying extents, for the financial revenues and on-going existence of many, if not all, businesses.  As stated in the TEEB quote above, many of these benefits are not fully understood, or reflected in accounting practices – and begs the question: if such impacts and dependencies are so fundamental to society/organisations, shouldn’t their material relevance be reflected in aspects of corporate valuation such as tangible and intangible asset values, share price, and judgments of going concern?

Furthermore, there are a number of reasoned arguments why it is actually within the interests of businesses to integrate natural capital into their valuation procedures. Companies that incorporate the externalities associated with their impacts and dependence on natural capital into their financial reporting may gain a truer and more accurate assessment of their assets and liabilities, be able to make better business decisions based on a clearer understanding of what their revenues and costs they are dependent on, and be more prepared to comply and inform external requirements (e.g. regulation, reporting requirements, taxes, etc.) in the area of natural capital (developments in this area will be discussed specifically in future blogposts).

The challenge for society, business, and the accounting sector is to utilise current, or develop new, valuation methods and techniques to reflect these natural capital issues – and to foster a clearer understanding and appreciation of the value and dependence business, the economy, and society has on the natural environment.

This blogpost intends to primarily support ACCA’s Accounting for the future session ‘Assets/Liability Valuation of Natural Capital’ on Tuesday 9 October by connecting the concept of natural capital with the corporate value of companies – an issue which will be discussed in greater detail, along with specific accounting standards which are most closely aligned with natural capital, and the implications of valuing companies from a natural capital perspective – in the session. Additionally, a number of other presentations during the conference relate to the themes covered in this blogpost:

8 October
11:30 – 12: 30 Is natural capital a material issue?

9 October
09:30 – 11:00 Assets/liability valuation of natural capital
16:00 – 17:00 Practical workshop: 6 capitals of integrated reporting – practical skills for accountants

10 October
12:30 – 13:30 Evolution of the annual report
16:00 – 17:00 Reporting developments around Rio +20

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WBCSD (World Business Council for Sustainable Development)
WBSCD is a group which brings together a range of forward thinking companies with a focus on a sustainable future for business, the economy and the environment. Its ‘Guide to Corporate Ecosystem Assessment’ tool is particularly relevant to issues around the valuation of natural capital for businesses.