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FROM: SEP-OCT 2007 ISSUE | BY LAURA PRATT
From the very first page, with its cover adorned by rough-barked trees and a striking green diamond trail marker, to its Marking Our Route title in matching green type, the report is true to its image. Authentic. Iconic. Award-winning.
Mountain Equipment Co-Op’s accountability report for 2005 was the co-winner (along with Green Mountain Coffee Roasters, from Vermont) in the best first-time report category of the Ceres-Association of Chartered Certified Accountants (ACCA) North American Awards for Sustainability Reporting program last year. (CGA-Canada recently signed a Mutual Recognition Agreement with London-based ACCA - the first accountancy partnership of its type in North America for ACCA.)
“It’s about establishing metrics and objectives that you strive to achieve,” says Tim Southam, communications manager for Mountain Equipment Co-Op, the Vancouver-based outdoor retail co-operative with more than 2.5 million members in 192 countries. “By reporting on those indicators in future years, you’re able to measure whether you’re successful. It’s what a lot of companies are doing.”
This past year, eight Canadian companies made the Ceres-ACCA awards program shortlist of 19 from a record 102 entries from Canada, the U.S., and Mexico. What’s more, the Vancouver-based credit union VanCity Group of Companies, won the overall award for Best Sustainability Report.
Ceres, a Boston-based national coalition of 85 investors, environmental organizations, and public interest groups working to address sustainability challenges was founded in the wake of the Exxon Valdez spill with a call from its investors for increased disclosure and commitment to environmental stewardship and performance on the part of companies. Ceres set about encouraging a sea change that would allow investors and concerned citizens alike to objectively evaluate corporate performance in environmental and social issues. The outcome of the awards program each year is the report of the 14-member judging panel, which profiles a number of noteworthy submissions. “The report brings this news to a wider audience,” says Brooke Barton, manager of corporate accountability at Ceres, “and hopefully pushes the bar each year.”
Peer-powered Trend
Sustainability reporting is a nascent trend that has taken firm hold in the last few years. According to Measuring Up: A Study on Corporate Sustainability Reporting in Canada by CGA-Canada, the number of companies reporting on sustainability worldwide has grown to more than 1,500 documented reports produced annually in 2003 from fewer than 100 in 1993. And a recent study by socially responsible investment research firm KLZ showed that today, accounting professionals at 50 per cent of the S&P 500s in the U.S. are participating in the production of these reports on a regular basis. This swell takes shape as company principals acknowledge the usefulness of such documents for building customer and investor confidence, and reporting transparently to shareholders.
A number of factors are powering this movement, says Paul Costello, senior advisor, communications and public affairs, with the ACCA. For one, he says, there’s an increased acceptance of the need for more transparency and reporting in the business community. This new reality was initiated by government and government agencies, and was then increasingly picked up by the private sector as business people acknowledged the value of reporting on additional indicators.
From there, precedent and expectation took hold. “I think there’s a growing amount of peer pressure, as peer organizations start to produce reports,” says Costello. He also points to companies’ growing recognition of the positive financial spinoffs of such attention for shareholders, who are ever-more discriminating about how companies are performing in non-financial ways. And why not, asks Andrew Savitz, author of The Triple Bottom Line and former lead partner in PricewaterhouseCoopers’ sustainability services business. “A lot of companies are beginning to understand that there’s a way of taking these responsibilities and turning them into opportunity.”
On top of that, says Brooke Barton, manager of corporate accountability at Ceres, there’s been an increase in investor demand. The ranks of socially responsible activist investors have been added to in recent years by pension funds asking for companies to disclose, in a more comprehensive way, their performance and strategies around social and environmental issues.
Where It All Began
The actual concept of sustainability emerged in 1987, the year the World Commission on Environment and Development (WCED) introduced the word “sustainability.” Chaired by Gro Harlem Brundtland, the former prime minister of Norway, the Brundtland Commission, as it came to be known, was created to address growing concern “about the accelerating deterioration of the human environment and natural resources and the consequences of that deterioration for economic and social development.” The Commission unveiled its elegant definition of the concept of sustainable development: development that “meets the needs of the present without compromising the ability of future generations to meet their own needs.” Some 12 years later, the Dow Jones Average came up with a definition of its own, this one more micro- than macro-economic. It was, essentially: how do companies maximize shareholder value by taking account of environment, social, and shareholder issues? But for accounting professionals involved in the development of sustainability reports, another key question is: how to balance escalating reporting requirements and costs while delivering financial results within these new parameters?
Despite the added reporting burden, accountants appear to be embracing this trend. In 2003, Stratos Inc. reported that Canada is ahead of countries such as Australia and Germany when it comes to sustainability reporting. Of the approximately 3,000 companies listed on the Toronto Stock Exchange and TSX Venture Exchange, which CGA-Canada surveyed in 2004, half provide some coverage of their social or environmental performance. The extent of reporting is also significant, as 18.4 per cent of all companies produce a dedicated sustainability report, while approximately five per cent spend more than $100,000 annually to report on sustainability issues. According to the study, as the practice of corporate sustainability reporting has advanced, so has the number of reporters, the quality of reporting, and the form of reporting. Between 1993 and 2003, reporting methods evolved from a strictly hard-copy format to the increased use of Web-based reporting.
While that trend continues, sustainability reporting is still in its infancy. “This is something that’s still very much evolving,” says Savitz. Just as companies today are expected to protect the environment and make sure their products are safe, accountants are expected to integrate sustainability reports into the financial reporting landscape. And accountants have risen to the occasion, familiarizing themselves with reporting guidelines and developing internal management information systems to measure and report on non-financial performance.
They’re also coming to terms with issues of user definition and report content, size, frequency, medium, the cost/benefit considerations of reporting on sustainability issues, as well as questions of credibility, comparability, and consistency. Yet as much as accounting professionals are implementing this new imperative, some have been hampered by the logistics of fulfilling its requirements. Added cost and potential information overload, speculates Savitz, are two of the main reasons why organizations have not adopted a comprehensive sustainability reporting function. There’s still a groundswell of big companies yet to climb on board, and most small companies are still lingering at the edges. Presumably, as guidelines, practices, and stakeholder demands continue to evolve, the number, quality, and usefulness of sustainability reports will, too.
Global Impact
Both Ceres and the ACCA were involved in the establishment of the Global Reporting Initiative (GRI). Based on financial reporting, the GRI, say many, is the future of corporate reporting. Spearheaded by Ceres in partnership with the United Nations Environment Programme, the GRI was established in 1997 with the mission of developing globally applicable guidelines for reporting on the economic, environmental, and social performance of corporations, governments, and non-governmental organizations.
The GRI’s Sustainability Reporting Guidelines, first released in draft form in 1999, encompass the triple bottom line of economic, environmental, and social issues, and represent the first global framework for comprehensive sustainability reporting. Three years later, the GRI was established as a permanent, independent, international body with a multi-stakeholder governance structure. There are now 1,300 member companies - with 30 to 40 new members joining each month - that are providing the public, investors, stakeholders, and employees with these data. Canada’s standards duplicate the GRI’s exactly. “As more and more Canadian companies adopt socially responsible practices and report out to stakeholders, they should consider implementing the standards of the GRI,” says Jackie Poirier, chair of CGA-Canada. “Most importantly because this framework allows for comparable and consistent reporting on sustainability issues.”
For Mountain Equipment Co-Op, producing an accountability report both validated its efforts and strengthened its resolve to be a leader in social and environmental sustainability, and in transparent reporting. According to the team responsible for creating the report, the process also highlighted opportunities to improve the organization’s internal business processes.
One final note: while extensive effort is involved in producing a comprehensive sustainability report, there are more and more excellent examples of best practices to follow, and those with an eye on this surging movement agree that the effort pays off in spades...and perhaps even a highly coveted Ceres-ACCA award.
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