BC 20 Issues Sustainability Paper[1]

8/2/2019 BC 20 Issues Sustainability Paper[1]

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20 issues on building a sustainable business

Business brieng series


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The Institute of Chartered Accountants in Australia

(the Institute) is the professional body representing

Chartered Accountants in Australia. Our reach extends

to around 70,000 of todays and tomorrows business

leaders, representing approximately 57,000 Chartered

Accountants and 13,000 of Australias best accounting

graduates currently enrolled in our world-class

Chartered Accountants postgraduate program.

Our members work in diverse roles across commerce

and industry, academia, government and public practice

throughout Australia and in 108 countries around the

world.

We aim to lead the profession by delivering visionary

leadership projects, setting the benchmark for

the highest ethical, professional and educational

standards, and enhancing and promoting the Chartered

Accountants brand. We also represent the interests of

members to government, industry, academia and the

general public by engaging our membership and local

and international bodies on public policy, government

legislation and regulatory issues.

The Institute can leverage advantages for its members

as a founding member of the Global Accounting Alliance

(GAA), an international accounting coalition formed

by the worlds premier accounting bodies. With a

membership of over 800,000, the GAA promotes qualityprofessional services, shares information,

and collaborates on international accounting issues.

Established in 1928, the Institute is constituted by Royal

Charter. For further information about the Institute visit

charteredaccountants.com.au

Disclaimer

The information in this brieng paper is of a general nature and is not intended

to address the circumstances of any particular individual or entity. Although

we endeavour to provide accurate and timely information, there can be no

guarantee that such information is accurate as of the date it is received or

that it will continue to be accurate in the future. No one should act upon

such information without appropriate professional advice after a thoroughexamination of the part icular situation.

The Institute of Chartered Accountants in Australia and KPMG expressly

disclaim all liability for any loss or damage arising from reliance upon any

information contained in this brieng paper.

Copyright

The Institute of Chartered Accountants in Australia. All rights reserved. This

publication is copyright. Apart from any use as permitted under the Copyright

Act 1968, it may only be reproduced for internal business purposes, and may

not otherwise be copied, adapted, amended, published, communicated or

otherwise made available to third parties, in whole or in part, in any form or

by any means, without the prior writ ten consent of The Institute of Chartered

Accountants in Australia and KPMG.

2011 KPMG, an Australian partnership and a member rm of the KPMG

network of independent member rms afliated with KPMG International

Cooperative (KPMG International), a Swiss entity. All rights reserved.KPMG and the KPMG logo are registered trademarks of KPMG International.

Liability limited by a scheme approved under Professional Standards Legislation.

ABN 50 084 642 571 The Institute of Chartered Accountants in Australia Incorporated in Australia Members Liabilit y Limited. 1011-01

ABN: 51 194 660 183 KPMG

KPMG is one of the worlds leading professional services

networks. KPMGs Climate Change & Sustainability Services

group works with clients to respond to sustainability andclimate change issues in order to manage risk, create value

and achieve a competitive advantage.

Part of KPMGs Global Climate Change and Sustainability

Services network, our practice provides services to leading

businesses and public sector organisations across the globe.

Our multi-disciplinary teams with backgrounds in business

risk, environment, social studies, compliance, nance, tax andaudit mean we bring a holistic and integrated approach to help

our clients respond to the complex business challenges and

opportunities arising from climate change and sustainability.

Services include:

Sustainability Advisory. Assisting organisations to createvalue and manage risk through appropriate sustainability

strategies, programs and reporting.

Climate Change Advisory. Helping organisations preparefor, and perform successfully in, a low-carbon economy.

Water Advisory. Working with governments, water

corporations and businesses to respond to the challenges ofwater scarcity. We assist governments execute their water

reform agendas and identify and manage public and privateinvestment in water projects.

Assurance services sustainability reporting and

greenhouse gas emissions. Providing assuranceservices to enhance the credibility of reported information

associated with sustainability practices and greenhouse

gas emissions. We combine the rigour of the nancial auditapproach with a deep understanding of sustainability and

greenhouse gas data management and reporting issues.

For more information visit kpmg.com.auAll rights reserved.

All information is current as at October 2011

First published November 2011

This communication provides general information which is currentas at the time of product ion.

Published by:

The Institute of Chartered Accountants in AustraliaAddress: 33 Erskine Street, Sydney, NSW 2000

KPMG

Address: 10 Shelley Street, Sydney NSW 2000

20 issues on building a sustainable businessFirst edition

National Library of Australia Cataloguing-in-Publication entry

20 issues on building a sustainable business /Institute of CharteredAccountants in Australia, KPMG.

ISBN: 978-1-921245-89-3 (pbk.)

Business enterprises.Success in business.

Institute of Chartered Accountants in Australia.Klynveld Peat Marwick Goerdeler.

Business brieng series.

338.7


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Business briefing series: 20 issues on building a sustainable business 3

Business brieng series20 issues on building asustainable business

While many businesses are committed to the principles of building a sustainable

business, many nd it difcult to implement practical strategies that will enable this.

At the Institute, accounting for environmental, social and governance (ESG) factors

impacting an organisation has been on our agenda for some time, with the advent

of Broad-Based Business Reporting (BBBR). A recent leadership paper, integrating

sustainability into business practices: a case study approach, highlighted ve

case studies of Australian and New Zealand organisations that have implemented

sustainable business practices.

In this leadership paper, Business briefng: 20 issues on building a sustainable

business, we have partnered with KPMG to take a strategic, big-picture look at

how businesses can address ESG risks and practically incorporate sustainabilityinto their business plan.

The paper offers guidance in a number of business areas, including strategy,

internal and external buy-in, risk management and reporting principles.

This is the fth publication in our successful Business Brieng Series, which

provide guidance for business leaders and nancial professionals on a range of

issues relevant to contemporary businesses.

As the prole of sustainability evolves, I hope this publication sheds some light

for you on how to make a sustainable business your reality.

Rachel Grimes FCA

President

Institute of Chartered Accountants in Australia


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4 Business briefing series:20 issues on building a sustainable business4


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Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Build sustainability into your strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

1. Understanding industry externalities and stakeholders expectations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2. Mapping business risks and opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

3. Assessing competition and dening positioning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

4. Integrating sustainability into strategy and strategic objectives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

5. Developing the business case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Implement the strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

6. Leading from the top. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

7. Building internal awareness and knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

8. Developing a cultural change process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

9. Involving external stakeholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

10. Developing relevant sustainability metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Embed sustainability into core business processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

11. Incorporating sustainability within the risk management framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

12. Understanding product development and customer attitudes and behaviours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

13. Promoting sustainable procurement and supply chain management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

14. Understanding the investment decision-making process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

15. Measuring performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

16. Ongoing monitoring of externalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Create value through reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

17. Determining your audience and objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

18. Developing reporting principles and guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

19. Moving to integrated reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

20. Identifying assurance needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Resources and further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Checklist . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Contact details . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Back cover

Contents


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Business briefing series: 20 issues on building a sustainable business6

Sustainability is a business case

Sustainability has transitioned from an environmental

issue to a serious business consideration. Industry

leaders have already anticipated the management

implications of this shift and are embedding sustainability

throughout the operations of their business and strategic

goals. However, running a sustainable business appears

challenging to corporations across Australia, many of

which require a new approach to remain competitive

in a fast-changing world.

The World Commission on Environment andDevelopment has dened sustainability as economic

development that meets the needs of the present

generation without compromising the ability of future

generations to meet their own needs.1 Sustainability

issues can potentially affect most elements of

business strategy, including the price and availability

of capital, competitive relativities, operating costs,

risk management, process improvement, innovation,

consumer preferences, supply chain management and

regulatory compliance.

There is growing ofcial and public expectation that

organisations will conduct their business in a sustainablemanner in order to retain public trust and their licence

to operate. Beyond that, however, there is a realisation

across all industry sectors that an organisations

sustainability poses signicant risks and opportunities

to its future protability.

This position is reected in the views of business leaders,

according to a 2010 UN Global Compact, Accenture CEO

Study.2 It reported that 96% of the business and civic

leaders polled thought that sustainability issues should

be fully integrated into strategies and operations, up from

72% in 2007. Over 90% of CEOs surveyed believed that

sustainability matters would be critical to the success oftheir businesses.

Sustainability has entered the mainstream of corporate

life, according to a 2010 study by KPMG and the

Economist Intelligence Unit.3 Nearly two-thirds of the

companies surveyed had already adopted a strategy

for corporate sustainability, up from just over half in

February 2008. A further 11% were currently developing

a sustainability strategy.

Sustainability issues are reshaping the rules of business

competition, driving new business models, transforming

industry structures, redening markets, and creating

new risks and opportunities. How businesses choose

to respond to and integrate sustainability with core

business strategy will underpin their success in achieving

a long-term competitive advantage.

This paper identies 20 key issues that are relevant to

implementing a new strategic approach to sustainability

in a corporate context. These are discussed under four

headings:

Build sustainability into your strategy

Implement the strategy

Embed sustainability into core business processes

Create value through reporting.

Executive summary

1. Oxford: Oxford University Press, Our Common Future: World Commission on Environment and Development, 1987.

2. United Nations Global Compact, Accenture CEO Study,A New Era o Sustainability, 2010.

3. KPMG in cooperation with the Economist Intelligence Unit, Corporate Sustainability: A Progress Report, November 2010.

Building a

sustainable

business

To build asustainable

business, startwith thestrategy

Implementthe

strategy

Create valuethrough

reporting

Embed

sustainabilityinto corebusiness

processes


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Example: Sustainability challenges

facing the airline industry

Theairlineindustryishighlycompetitiveand

characterisedbythinmargins,volatileyields,

price-sensitivecustomersandtechnological

limitations(e.g.relianceonoil-baseduels).These

andotheractorsimpactbusinesssustainability

andsustainabilityperormance.Othersustainability

challengesmayinclude:

Managingandreducinggreenhousegasemissionswithintheconstraintsolimited

abatementopportunities

Managingtheeconomicimpactoemissionconstraintsindierentglobalmarkets

Monopolisticbehavioursinpartsothevaluechain(e.g.airportmanagers)

Growthconstraintsashubairportsreachcapacity

Poorlabourexibilityandproductivityincertainmarkets

Airlinesaetyandsecurityissues.

Stakeholder engagement involves obtaining input into

key strategies and objectives, which will ensure

that organisations understand and respond to external

input when developing strategy.

In this context, stakeholders can include shareholders,

investors, nanciers, employees, customers, suppliers,

governments, regulators, NGOs, academics, and

communities with strong links to a particular enterprise.

The table below summarises issues facing the nancial

services industry and relevant stakeholder groups.

Seeking input from relevant employees, as criticalstakeholders, during strategy development allows

their unique understanding of risks and opportunities

to be captured. In addition, early engagement will

strengthen internal ownership of the strategy during

implementation.

Build sustainability into your strategy (continued)

Issues facing the nancial services industry and relevant stakeholder groups

Material issues Relevant stakeholder groups

Bank fees and charges, and interest rate decisions Customers, governments

Sustainable and responsible investment,

lending, products and screening

Environmental social governance (ESG) and mainstreaminvestment analysts, employees, NGOs, customers, academics

Customer service Customers, ESG and investment analysts, employees

Equal opportunity Employees, ESG and investment analysts

Job security, talent retention Employees, ESG and investment analysts

Financial inclusion and global nancial crisis Customers, ESG and investment analysts

Climate change Community, ESG and investment analysts, customers,employees, NGOs, academics

Governance and compliance ESG and investment analysts, employees, customers

Economic contribution ESG and investment analysts, employees, community

Safety and security Customers, employees, unions


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2. Mapping business risks and

opportunities

Whatindustrychallengesandgrowthconstraints

aremostmaterialtoyourorganisation?

Isaprocessinplacetoreviewchangesand

assesstheimpactotheseissuesonstrategy?

Howcanthesechangesbeleveragedtocreate

acompetitiveadvantage?

Mapping business risks and opportunities will help

relevant linkages and relationships become evident.

Doing this allows you to pull together and summarise

the knowledge and ideas developed in earlier phases

of strategy formation. At this stage, it is important

to make sure that the relevant industry challenges,

growth constraints and stakeholder expectations have

been properly assessed and included in the process.

The mapping process captures relevant knowledge

at a point in time. This process needs to be regularly

reviewed because many of the inputs can change as

a result of technological, economic and regulatory

developments. For example, the risks presented by

the introduction of a carbon price in Australia will

be intensied during the rst year as businesses adaptto the changes and opportunities will increase over

time with regard to abatement activities developed

through technological innovation.

Materiality is another issue to consider. Certain

sustainability issues will have a larger effect on the

performance of the organisation than others, just as

certain activities produce more signicant sustainability

consequences than others. Concentrate on identifying

issues that are likely to have the greatest negative or

positive impact.

While sustainability challenges vary considerably

between organisations and industries, they invariably

relate to physical, regulatory or market-driven factors

that can limit growth and impact on competitiveness.

Limitations can be physically imposed (e.g. water

scarcity), regulatory driven (e.g. carbon pricing,

emission standards) or a consequence of consumer

preference (e.g. demand for greener products).

Identifying and understanding constraints to growth are

key challenges and require strategic responses. Crucial

for business longevity and competitive advantage is an

understanding of tipping points and your organisations

preparedness to respond to these factors.

Ultimately, with good planning, constraints and limits canbe turned into opportunities and competitive advantage.

Example:Mapping the key issues in New Zealand Agribusiness

Highest ranked priority issues for New Zealand agribusiness(on a scale of 1 to 10)

Source: KPMG Agribusiness Agenda 2011

0 2 4 6 8 10

Maintain a robust biosecurity system

Understand global productsand eating trends

Ensure practices support clean/green image

Effective mechanisms for extension

Build high value solutions with customers

Recognition of importanceof governance

Aligned industries with a common goal

Recognise consumer trendsaround sustainability

Develop brands for global fast movingconsumer goods markets

Realise benets of free trade agreements

KPMGrecentlyconductedasurvey

oover80agribusinessindustry

leadersinordertounderstandthe

keyopportunities,policysettings

andindustryactionsacing

agribusinessinNewZealand.

Recognisingthattheagribusiness

sectorshouldbecloselyinvolved

asthekeydriveroNewZealands

exportearningsintheuture,the

surveyresultscouldhelpindustry

stakeholdersdevelopastrategy

thatwillcapturethepotential

thatexistsorthesectoringlobal

markets.Keyissueswererankedby

levelopriority,andmanyothose

inthetop10relatetosustainability

issuessuchasbiodiversityand

changingconsumertrends.


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Limits tosustainable

growth

Licence

tooperate

Ecoefciency

Supplychain

pressure

Workorce

considerations

Customer

needs

Regulatorychange

Regulatory change.Sustainabilitystrategyshould

includeacapacitytotrackandrespondquicklyand

eectivelytorelevantregulatorychanges(e.g.aprice

oncarbonemissions,changestoenergyefciency

standardsorwaterallocations).Whiletherehasbeen

considerableocusonchangestoenvironmental

regulations,governmentsarealsoincreasinglyusing

regulationtoaddresssocialissues.Anexampleo

thisistheederalgovernmentsplantointroduce

plainpackagingortobaccoproductsby1July2012inaneorttoreducesmokingratesandimprove

publichealth.

Eco-efciency.Thevalueoconstrainedresources

andtheabilitytomaximiseaccesstothemwillbecome

amajordriverocompetitiveadvantage.Inmany

cases,activitiessuchasimprovingenergyefciency

orreducingpackagingcanalsoleadtoareductionin

operatingcosts,increasedinnovation,andenhanced

brandimageandregulatorycompliance.

Customer preferences and brand loyalty.While

thereisonlyanecdotalevidenceosustainability

issuesimpactingacustomersdecisiontobuya

product,thereissignifcantevidencethatcustomersmaychoosenot to buyaproductonthebasisoan

organisationssustainabilityperormance.Anexample

othisisthebacklashacedbyNikeduringthe

1990sateraccusationsousingsweatshopsdrew

theattentionohumanrightsgroupsandthemedia,

promptingcampaignstoboycottproducts.Customer

expectationsneedtoberesearchedandmonitoredas

theyevolve.

Licence to operate.Mostorganisationsunction

underanimplicitlicencetooperate.Adverse

developmentsinpublicopinionandgovernment

attitudescancausethelicencetoberemovedorhave

conditionsimposeduponit.Eventsinvolvingone

industryparticipantcanhaveadverseconsequences

orotherplayers.Forexample,theBPoilspillinthe

GuloMexicoin2010resultedintighterregulation

otheglobaloilandgasindustries.

Workforce considerations.Sustainabilityneedstobeconsideredinthecontextoanorganisations

abilitytoattract,manageandretainqualityemployees.

Thiselementmaybeacriticalissueinregardsto

employmentchoices.

Supply chain pressures.Sustainabilityactorsare

becomingincreasinglyimportantinsupplychain

securityandperormance,andareinuencing

consumerchoices.Issuessuchassustainablesourcing

orawmaterials,carbonandwaterperormanceand

employeehumanrightsareincreasinglybecoming

brandandreputationissuesororganisationsand

arethereoreattractinggreaterscrutiny.Anexample

othiswasseenin2010whenGreenpeacetargetedNestlsKitKatproductoverconcernsabouttheuse

opalmoilandtheresultingimpactonthehabitats

oorangutans.Aviraladvertisingcampaignledto

signifcantpressureonNestlsbrandandtheproduct

itsel,promptingNestltoannounceitwouldstop

usingingredientsthatmaybesourcedasaresulto

rainorestdestruction.

Common risks and opportunities for consideration in a sustainable growth strategy


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3. Assessing competition and

dening positioning

Howdoyourcompetitorsdefneand

implementsustainability?

Doyoursustainabilityinitiativesplaceyou

asanindustryleader?

Howcanyourorganisationbedierentiated

togaincompetitiveadvantage?

Analysing your organisations peers and competitors

is critical in order to dene an appropriate strategicpositioning for market differentiation. For example, are

you seeking to be an industry leader and innovator, a

fast follower or a niche player? This analysis provides an

understanding of your positioning within your industry

and helps to identify how and where your organisation

wishes to move in the future.

Integrating sustainability risks and opportunities within

business strategies is an opportunity for individual

organisations to positively differentiate themselves from

their competitors. Organisations can gain positional

advantages (both in terms of cost and brand reputation)

by establishing themselves as industry leaders insustainability matters. Consumers respond positively

to perceptions that organisations conduct themselves

in a sustainable and ethical manner.

As noted in Issue 2, how an organisation tackles

the risks and challenges posed by management of

sustainability issues will provide the greatest opportunity

for differentiation from competitors and for the broader

positioning of the organisation.

Sustainability issues can directly impact competitive

positions within industries. For example, in one

high-emission manufacturing industry, the leadingorganisation sources and manufactures most of its

products within Australia, while its major competitor

sources material offshore. Consequently, the imposition

of a carbon price in Australia is likely to impact their

relative competitive positions.

4. Integrating sustainability into

strategy and strategic objectives

Isyoursustainabilitystrategylinkedtocore

businessobjectives?

Whatpotentialintangiblebeneftscould

investmentinsustainabilitydeliver?

Doesyourorganisationhaveresilience

tosustainabilityshocks?

An effective sustainability strategy should focus on

delivering core business objectives and creating businessvalue in terms of cost reduction, revenue growth and

enhanced brand value, or any combination of these.

One of the challenges is balancing short- and long-

term business needs. A popular lens for sustainability

investment is the J curve (see below). This involves

initial investment to deliver longer-term benets for the

organisation. At times, this investment may need to be

not only ahead of the market but ahead of regulation

in order to maximise the competitive benet. Indeed,

a common challenge in investment approval is the lack

of recognition of intangible benets, such as reputation

and improved customer loyalty, within cost-benet andpayback analyses.

The development of an effective sustainability strategy

will involve certain business performance trade-offs, and

numerous considerations must be taken into account to

determine how to best optimise the situation. A saving

in energy efciency that in turn increases waste may

not necessarily be considered sustainable. Decisions

also need to make commercial sense. Overall, strategy

formation is about optimising the balance.

Sustainability investment returns over time

Returns

0Time


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Trade-offs: The Qantas experience

Managingenvironmentalimpacts(andother

sustainabilitytargetareas)isabalancingact.

Actionstomitigateoneconsequentlymayadversely

aectanother.Forexample,theGroupiswashing

moreaircrattoreducedragtoimproveuel

efciency.Whileuelconsumptionisreduced,

waterconsumptionisincreased.Anotherexample

isthatthemostuelefcientightpathmayreduce

greenhousegasemissionsbutmayincreasethe

numberopeopleexposedtoaircratnoise.Insome

cases,theGrouphasbeenrequiredtooperateaullynoisecompliantbutlessuel-efcientightpathin

responsetolocalcommunityconcerns.Thesetypes

otrade-osbetweendierentimpactareascreate

additionalcomplexityinbothsettingenvironmental

improvementtargetsandinidentiyingimprovement

initiatives.

Source: Qantas Data Book 2010

Decisions tend to become more difcult as

sustainabilitys lowest-hanging fruit is picked and

consumed. Technological innovation, regulatory

change and shifts in the economic climate can offeropportunities for sustainability and performance

breakthroughs. The ability to identify such opportunities

ahead of competitors is becoming a highly desirable

competency.

One of the outcomes of integrating sustainability into

strategy is that it enables an organisation to develop

resilience to sustainability shocks. Sustainable business

policies and practices should provide a measure of

protection against adverse, unexpected external events

by making your organisation capable of responding to

shocks and setbacks.4

Once it has been determined to what level sustainability

will be integrated into an organisation, it is important

to clarify these decisions within the strategy with clear

goals and objectives.

Setting sustainability goals and

objectives

Aterassessingtheactualandpotentialimplications

osustainabilityissuesoryourorganisation,itis

importanttoestablishclearbusinessobjectives.

Thiswillincludedefningwhatsustainabilitymeans

toyourorganisation,giventhattherearemany

dierentdefnitions.

Insettinggoalsandobjectives,yourorganisation

needstoconsiderthescaleothreatsand

opportunities,thepotentialimpactsoncurrentbusinessandgrowthgoals,andpositioningin

relationtocompetitorsaroundtheseissues.

Assuggestedearlier,isolatingsustainabilitywithin

onlyonepartoyourorganisationissettoalmost

guaranteeailure,asthecostsosustainability

programswillbeincurredbutmanyothebenefts

willnotbecaptured.

Sustainabilityshouldbecomeapartocorebusiness

activities,suchasprocurement,riskmanagement,

marketingandproductdevelopment.Thisintegration

needstobeimplementedacrosstheorganisation

bothhierarchicallyandgeographically.

Implementingasustainabilitystrategyandbuildingresilienceintoyourorganisationrequiresprocess

changesandbehaviourchangeatalllevels.

Sustainabilityconsiderationscanalsobeintegrated

morebroadly,inareassuchasrecruitment,cultural

changeprograms,partnershipsandalliances.

4. Examples of this can be found in Early warning systems: can more be done to avert economic and fnancial crises, a leadership paper released

by the Institute in February 2011.


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5. Developing the business case

Isthereanopportunitytoreducelong-term

operatingcoststhroughimplementing

sustainabilitymeasures?

Isthereathreattobrandequitybeyondthe

operationalcontroloyourorganisationwhich

couldbeminimisedthroughsustainability

investment?

Demonstrating the business value of a sustainability

strategy is an essential element of building a sustainable

business. When building a business case, there are three

key areas of value to consider:

Reduced operating costsWith increasing energy, water and waste costs,

reductions in use will not only reduce dependence on

scarce resources and greenhouse gas emissions but

also impact future operating costs. To give an accurate

picture of operating cost reductions, modelling future

price increases is essential. For example, DuPont

(once named the most polluting company in the

world) found it cost less to implement energy-saving

measures than it did to buy and burn fuel. As a

result, the company estimated that every tonneof carbon it displaced saved it $6 5.

New product and market opportunitiesFor many organisations, there is a potential upside

in integrating sustainability into business strategy

via new products and markets. A striking example of

this is General Electrics Ecomagination, a business

initiative focused on developing green technology.

This helped turn the companys image around

following its controversial dumping of toxic chemicals

in the Hudson River.

Brand equity

Sustainability draws focus onto both the protectionand promotion of an organisations brand. You need

to be aware of the risks to brand and reputation,

particularly around areas where you have reduced

control, such as joint ventures, contractors and

supply chain if they are not meeting your standards.

Appropriate inuence should be applied

to third parties so that their performance supports

your organisations reputation.

The introduction of a carbon price in Australia creates

further incentive to address these key areas of value as

they will be fundamental in mitigating any additional

carbon costs faced by businesses directly and

throughout their supply chain.

5. Lovins, L. Hunter, The economic case or climate action (March 2010) p 12, www.climateactionproject.com/docs/HL_Economics.pd


14/32


Implement the strategy

To ensure a sustainability strategy is successful, an organisations leadership will play a critical role

in supporting and driving its implementation.

6. Leading from the top

AretheBoardoDirectorsandseniormanagement

activelyinvolvedincommunicatingthevalueo

sustainabilitytotheorganisation?

Arethedriversandoutcomesoyoursustainability

approachrelevantandcleartoemployeesand

stakeholders?

As with most organisational changes, lasting progress

on sustainability is unlikely without strong and focused

leadership, preferably starting at the Board level. Many

employees welcome sustainability initiatives and are

ready to apply them once they see strong leadership

on these initiatives.

Strong leaders create both passion and momentum

around sustainability issues. To do this, leaders should

consider a number of questions:

What does sustainability mean for our organisation?

A clear denition sets the boundaries within whichto consider these issues. Sustainability could take on

different meanings for different people6

What are the drivers for sustainability issues tobe among the top issues facing the organisation?

In other words, why are we doing this? These drivers

are likely to include alignment with organisational

values, regulatory compliance, meeting of stakeholder

expectations, improved operating efciencies, cost

reductions, enhanced competitiveness and increased

innovation. It is important to outline opportunities as

well as risk mitigation as a key driver for change

How will sustainability initiatives t withinthe existing business strategy?

It is critical that the sustainability strategy is integrated

into the current and future business strategy from the

beginning of the process. Articulating how the strategy

will protect and promote current business objectives

will help the rest of the organisation, as well as

external stakeholders, put the work into context.

How and when will the change processtake place?

While the detail of the strategy development and

implementation is likely to be articulated by specialist

leaders, senior management should outline the overall

approach, accountabilities and timeline

Are support structures in place throughout

the organisation?While leading from the top is essential, it is also

important to show support for middle management,

who can be caught between the demands of the

Board and the resistance of employees.

Key leadership success factors

Takeeveryopportunitytodiscuss

Behaveinawaythatisclearandconsistent

Livethevaluesandembedsustainabilityintoyourdailylie

Showsupporttomiddlemanagementand

operationalemployees

Communicatethestrategyandhighlightresults

Encourageemployeestochallengethestatusquo,andrewardinnovativethinking.

Board directors and senior management should

think about why they are supporting and promoting

sustainability and ensure the organisation clearly

understands this. Demonstrating value and obtaining

buy-in is crucial for securing internal support.

Enabling cultural and business change is an essential

part of success and needs to start at the top. This will

help ensure the effective integration of sustainability

into the business strategy.

6. Examples of different sustainability case studies can be found in Integrating sustainability into business practices: a case study approach, a leadership

paper released by the Institute, May 2011.


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Demonstrating value and securing

internal support for sustainability

Managementsometimesviewssustainabilityasa

complianceexercise,andadistractionrommore

importantactivities.Thisviewcanbechangedby

clearlyaligningsustainabilitystrategywithcore

businessobjectives.TheSloanManagement

Review/BCGstudy7oundastronglinkbetween

anorganisationsabilitytointegratesustainability

intooverallbusinessstrategyandboththe

eectivenessotherelevantsustainabilityinitiatives

andtheoverallperormanceotheenterprise.

Toplacesustainabilityinitspropercontextor

employees,anorganisationshoulddiscussthe

businesschallengesacingit,andtheroleo

sustainabilityinmeetingthesechallenges.

BoardsandCEOsshouldclearlydemonstrate

thevalueosustainabilitytotheorganisation

andthestakeholders,makingitclearthat

decisionsandchoicesthatleadtobetter

sustainabilityoutcomeswillberewarded.

Assustainabilitybeneftscansometimesbe

difculttomonetiseandreducetoacalculation

oreturnoninvestment,gainingbusinessbuy-in

andsupportorsustainabilityinitiativescanbechallenging.Earlyconsiderationoalternate

waystomeasurethebeneftsisotenrequired.

7. Building internal awareness

and knowledge

Arethebigpicturesustainabilityobjectives

cleartoemployees?

Iseveryoneintheorganisationawareotheirrole

intheimplementationandongoingsuccesso

sustainabilityasacorebusinessunction?

Whattoolscanyouusetoenhancecommunication

andsupportemployeeawareness?

Successfully integrating sustainability into your

organisation requires employees to be aware of the

big picture of what is trying to be achieved, as well as

what they need to do as individuals for implementation

to be successful. The key question for business is

how to build this awareness in a cost and time

efcient manner, using existing programs for

employee engagement where they exist.

Arguably, the most critical factor for successfully

incorporating sustainability into a business is that

each employee clearly understands what they are

responsible for and that they acquire the right knowledge

to be successful. How this is achieved will vary and

is inuenced by existing structures for employee

engagement and knowledge sharing. Here are some

suggested strategies:

Conduct group-level workshops to explain howthe sustainability strategy will affect each business

group, and encourage group members to develop

their own implementation strategies

Identify key individuals from each business groupto take on the role of sustainability champion, to

identify and communicate what the group is required

to do, generate ideas, drive implementation of thestrategy within the group, and identify and seek

assistance to remedy blockages in the implementation

process should they arise

Create a live library of sustainability informationrelevant to the business which individuals can access

and add to

Start with achievable quick wins in the sustainabilitystrategy and ensure they are communicated to

employees

Provide access to knowledge sources such asindustry and interest groups, newsletters, magazines

and journals.

7. MIT Sloan Management Review and the Boston Consulting Group, Sustainability: The embracers seize advantage, 2011


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8. Developing a cultural change process

Arethedierencesbetweenthecurrentculture

andthedesiredcultureclearandunderstood

byemployees?

Whichareasotheorganisationarelikelytobe

mostheavilyimpacted?Whatsupportisinplace?

For many organisations, embedding sustainability into

the core function of a business requires a signicant

shift in the culture. For implementation to be successful,

the organisation needs to know where support isrequired to sustain this change, and to put it in place

before the transition.

It is often useful to identify what the current culture

of the organisation is and how this compares to the

desired culture. This will indicate the degree of support

required to facilitate the transition.

A cultural change process is most successful when

individuals are well informed and supported. The

following are some steps organisations can take to

identify what is required:

Ensure everyone in the organisation understandswhat is trying to be achieved and what this means for

them in their individual roles (as discussed in Issue 7)

Identify which individuals and groups across theorganisation will be more impacted than others.

Ensure they and their managers understand what

they require to successfully full their roles

Ensure appropriate mechanisms and supports arein place before people transition to their new roles

Be prepared to change goals and key performanceindicators, retrain individuals, provide access to

further education and/or reassign roles

Link sustainability criteria to incentive schemes

Bring together groups or individuals who havepreviously worked independently and will now

be required to interact and share information.

9. Involving external stakeholders

Whichkeyexternalstakeholderscanprovideinput

toyourorganisationssustainabilityposition?

Haveexternalstakeholdersbeenengagedearly

sotheycanunderstandyourorganisations

sustainabilityperspectives?

Arethereopportunitiesorpartnershipswith

keystakeholderstodrivesustainabilityresults?

Effective stakeholder engagement is essential as your

organisation progresses its sustainability agenda.Many organisations focus stakeholder relationships on

governments, shareholders and industry bodies, with

consumer research also providing input. However,

engaging with other groups such as non-government

organisations (NGOs), academics, customers and

community groups can also provide signicant input

into an organisations sustainability position.

Effective engagement requires clearly dening who your

organisations stakeholders are and their perspectives

on sustainability issues and concerns. Engaging with

stakeholders early in the strategy development process

brings important external input into this process. Earlyengagement also helps organisations stress test their

strategy externally, signal to key stakeholders that

the organisation is seriously addressing sustainability

concerns, and identify partnership opportunities which

will support the achievement of outcomes.

Your organisation should also continue to engage

with stakeholders during the implementation process.

Done effectively, this will create trust and enable the

organisation to positively inuence outcomes to

support sustainability and business objectives.

Ongoing engagement and communication with

stakeholders can be achieved via a variety of methods.

Some organisations create a stakeholder council, which

meets several times a year and is consulted on key

organisational initiatives. Other organisations take a more

targeted approach by creating close relationships with a

select group of stakeholders. For broader engagement,

a major channel of communicating with stakeholders is

public reporting and disclosure. The quality of reporting

is a critical factor in effective stakeholder engagement

(see Issue 18).

Implement the strategy (continued)


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10. Developing relevant sustainability

metrics

Whatarethesustainabilityindicatorsmaterialto

yourorganisationsstrategicobjectives?

Dotheyaddressmeaningulkeyperormance

indicators(KPIs),targets,andshortandlong-term

outcomes?

Increasingly, companies understand the value of

transparent, accurate and timely reporting of matters

material to their business, as both the core of corporategovernance and a requirement of the market. But the

success and sustainability of an organisation will be

inuenced by how well it can measure, manage and

report its performance against a range of new reporting

metrics. Sustainability metrics will become increasingly

important in dening the value of an organisation and

providing indicators of long-term growth potential.

Further, your organisations strategy should reect

issues material to the organisation and its stakeholders.

Measuring sustainability performance against strategic

objectives and benchmarks is essential to ensure

sustainability-related initiatives retain their credibility.

The challenge is to translate strategic goals into

meaningful KPIs and targets, and achieve the right

balance between long-term performance (required

to deliver sustainability outcomes) and short-term

performance pressures.

Organisations should avoid wholesale adoption of

indicators specied in sustainability reporting guidelines

without rst mapping those indicators against identied

material issues and strategic priorities.

Information systems need to be in place to capture

the required information and to measure, monitor andreport against KPIs. Key to developing an appropriate

and lasting system is the support of your nance team.

The teams involvement in developing and measuring

metrics and achievable sustainability targets will help

ensure consistency of data management and reporting,

and in the long term help with the transition to integrated

reporting (see Issue 19).

Example: Stockland liveability index

Liveabilityisundamentaltothelong-term

sustainabilityoresidentialcommunitiesdeveloper,

Stocklands,business.Stocklandisdesigning

itsownliveabilityindextobetterunderstand,

benchmarkandmeasureliveabilityintheplanning

anddevelopmentoitsresidentialcommunities.

Thesustainabilityandliveabilityoitscommunities

hasalwaysbeenatoppriorityandakeystrategic

objectiveoStockland;however,priortodeveloping

liveabilitymetricsitwasdifculttoquantiyand

objectivelymanageliveabilitywithinacommunity.

Stocklandrecognisedthatenhancingtheliveability

oitscommunitieswasbothakeysustainability

initiativeandakeybusinesspriority.Stockland

ManagingDirectorMatthewQuinntoldarecent

Sustainability challenge: business creativity in

practiceorumthatinnovativeapproachesto

sustainabilityandcustomerengagementcan

deliverstrongfnancialrewardsorbusinesses.

TheliveabilityindicatorsthatStocklanddeveloped

helptomeasuretheuniquethemesthatcreate

liveabilityincommunities.Thisindexwillrevolve

aroundsixkeythemes:

Aordablelivingandworking

Economicprosperity

Accessandconnectivity

Senseobelongingandidentity

Wellbeingandhealthyliving

Governanceandengagement.

Asaresultodevelopingtheliveabilityindicators,

Stocklandwillbebetterplacedtointernally

measuretheliveabilityoprojects,enhance

theliveabilityocommunities,andexternally

communicatetheliveabilityoprojectstoplanning

authorities,customers,andotherkeystakeholders.

InadditiontoimprovingtheliveabilityoStockland

communities,Stocklandbelievestheindicators

willprovideacompetitiveadvantageinthemarket.


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Embed sustainability into core business

processesSustainability considerations touch on many management functions and processes. Organisations

should assess the extent to which sustainability risks, opportunities, goals and performance targets need

to be reected within these processes. Failure to adequately review and update processes may result in

dysfunctional or sub-optimal decision-making, or a lack of alignment with strategy and commitments.

11. Incorporating sustainability within

the risk management framework

Havetheoutputsostakeholderengagementbeenconsideredintheriskmanagementprocess?

Aretheimpactsosustainability-relatedrisks

understoodandquantifed?

An organisations risk management framework is

central to its business. Ensuring that sustainability issues

are adequately covered in your organisations risk

management framework will minimise the potential for

sustainability-related risk to impede the achievement

of business objectives. It will also provide a formal

framework for managing these risks through establishing

clear mitigation actions and accountabilities. Common

challenges organisations face include:

Reconciling the enterprise risk map to theidentied material sustainability issues

In some cases, the risk mapping process may have

been carried out without sufcient consideration

of sustainability risks. In others, there may be

insufcient linkage between the outputs of

stakeholder engagement, which is a core mechanism

for capturing current and emerging sustainability

risks, and the risk management process

Quantifying the impact of risks associated

with brand and reputational damageSome sustainability-related risks fail to become

recognised and prioritised because their impacts

are not appropriately quantied.

Detailed information will enable your organisation to

create a risk prole which can be used to compare

elements such as likelihood and size of impact. This

will determine the level of threat and guide appropriate

actions. Proactive leaders in this space will be able to use

the risk management framework to identify opportunities

to develop new products and services and enhance

market credibility.

12. Understanding product development

and customer attitudes and behaviours

Hasyourorganisationundertakenadequateresearchtounderstandcurrentanduture

trendsandtheirimplications?

Whatactorsarelikelytodrivechangesin

yourindustry?

Aretherefnancialincentivesavailableto

supportnewsustainableproductinnovation?

Individuals responses to sustainability issues affect their

attitudes and behaviours as customers. Anticipating

market transformations and the factors driving them

can help your organisation respond more effectively

to changes in consumer behaviour and societal norms.With this in mind, leading organisations often engage

and collaborate with customers in product development.

It is also important to explore emerging trends and

drivers that may impact on product demand. Customer

preferences, identied today through engagement, may

not provide insight into tomorrows demand. For that,

deeper research and engagement with industry experts

may be benecial. The example overleaf illustrates the

dynamics that impact food demand trends owing

from changing demographics and income levels.

A range of considerations inuence purchasing

decisions. Care must be taken in teasing out the variousfactors involved, and in understanding their relative

importance and how they interact with each other.


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13. Promoting sustainable procurement

and supply chain management

Whatelementsoyoursupplychainmaycreateextrariskorlackefciency?

Haveenvironmental,socialandethicalcriteria

beendeveloped,inadditiontopriceand

availabilitycriteria,inyourpurchasingdecisions?

Canyouleverageyourpositionintheindustry

toinuenceyoursuppliersactions?

Major global corporations, such as large retailers Tesco

and Walmart, have enjoyed considerable success

in getting their suppliers to be greener and more

sustainable. In 2009, Walmart introduced its Supplier

Sustainability Assessment, a brief survey that evaluatesthe sustainability of suppliers (in terms of energy,

climate, material efciency, natural resource use, people

and community), with the intention of developing the

rst index of a products lifecycle impact.8 Walmarts

suppliers are required to develop systems to measure

and report the sustainability issues of each product,

which may not have been a consideration previously.

While examples like this may pressure an organisation

to reduce waste and cut emissions, it may also increase

awareness and potentially improve protability.

ManyAustralianbusinesseshaveundertaken

thejourneytowardssustainablebusinesspractices.

DetailedexamplescanbeoundintheInstitutes

publication,Integrating sustainability into business

practices: a case study approach,availableon

ourwebsite.

Most organisations lack the ability to leverage supplier

contracts that these powerful retailers have, but they

can still incorporate sustainability considerations into

supply chain decision-making. They can also enter intopartnerships with suppliers to drive both sustainability

and efciency. Understanding the sustainability risks

that may impact the supply chain and having effective

mitigation plans in place, is essential to building supply

chain resilience.

8. Walmart Sustainability Indexaccessed on 17 May, 2011 from http://walmartstores.com/sustainability/9292.aspx

Key consumer attributes and corresponding food product trends

Healthy lifestyle desirability

Income levels/income distribution

Household size decreasing

Emerging consumer profle attributes

Different expectations of food product e.g.

portion sizes, prepared vs. making from scratch,

more competition with take-away

Organic food demand, education seeking, natural

food, alternative products to traditional market

Base demographics

(age and ethnicity in particular)New food offerings desired

Trend implications


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Technology is enabling ethical

choices for consumers

Organisationsareunderincreasingpressurerom

consumerstoensuretheirproductsandservices

areproducedinanethicalandsustainableway,

andnewtechnologyandsocialmediaaremaking

iteasiertomakethesechoices.Forexample,

iPhoneapplicationssuchasShop Ethical!show

consumerstheenvironmentalandsocialrecord

ocompaniesbehindcommonbrandsinthe

supermarket,allowingthemtomakeinormed

choicesbasedonconsiderationssuchasoodmiles,palmoiluse,overfshing,childlabour,

geneticengineering,multinationalownershipand

packaging.Therearealsoapplicationsthatsuggest

alternativeproductsavailable,whichisbasically

reemarketingorthemostsustainable.

Integrating sustainability into the

procurement process

How is it done?Organisations should factor sustainability into

purchasing decisions and matching the intention

to be sustainable with the action

What criteria would you use?Organisations can use environmental (e.g. lifecycle)

or social (e.g. working and living conditions) criteria

to decide who to buy goods and services from, in

addition to conventional purchasing criteria such as

price, availability and value for money

Key drivers of action:Globalisation of supply chains and increasing scrutiny

and awareness from stakeholders (e.g. consumers

and specialised NGOs), drive organisations to act in

the sustainabillity space.

Six reasons to implement sustainable

procurement:

1. Corporate reputation

2. Legislation

3. Increased revenue (opening new markets)

4. Stimulant for innovation

5. Reduced risk of conict with stakeholders

6. Shareholder value.

Putting sustainable procurement into practice

To facilitate putting sustainable procurement into

practice, consider the following questions:

Strategic levelHow can sustainable procurement help achieve

business goals? What is our ambition industry

leader or fast follower?

Tactical levelWhat product categories and suppliers should we

focus on? How do we collaborate with suppliers?

Operational levelWhat requirements do we have for product specication,

supplier selection, control and monitoring, follow-up,

evaluation and implementation?

14. Understanding the investment

decision-making process

Aresustainabilityissuesandrisksproperly

evaluatedaspartotheduediligenceprocess?

Wheretheycanbemeasured,aresustainability

actorsincludedinyourvaluationmodels?

There are heightened sustainability risks associated

with some of the most critical business decisions

an organisation might make, such as mergers and

acquisitions, entering a new market overseas, forming

a joint venture and making major capital expenditures.

Sustainability should therefore be seen as part of the due

diligence process. In relation to a potential investment,

your organisation could consider, for example:

How a carbon price could be factored into yourorganisations valuation model

How constraints and variability of the supply ofwater impact operations and supply chain

How human rights and corruption risks apply inan organisations country of operations

How a potential joint venture partners sustainabilityrecord and alignment of policies and practices align

with your organisations standards.

Embed sustainability into core business processes (continued)


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It is important that due diligence and capital expenditure

processes properly incorporate sustainability risks and

considerations. In most organisations, actions required

to achieve this include:

Updating procedures and decision-making criteria,and changing documentation for process approvals

Upskilling the due diligence and capital projectappraisal teams to be able to properly identify and

evaluate sustainability issues and risks

Ensuring related governance processes incorporatean assessment of the appropriateness of the

consideration and mitigation of sustainability-relatedrisks and issues.

By ensuring sustainability considerations form part of

the due diligence process, an organisation will have a

broader understanding of the longer term risks arising

from any potential investment.

Schematic overview of procurement process

Procurement / Ordering

Mission & Vision

Purchasing

Function

Supply Policies

Commodities/Segments

Supplier

SelectionContract

Supplier

Performance

Measurement

Level Denition

Strategic

level

Long-term impact of purchasing and supply decisions

on an organisations business; determine mission and

vision on purchasing responsibility of top-management

Tactical

level

Encompasses the involvement of the purchasing

function in decisions affecting product, process

and supplier selection; draw directive supply policiesfor commodities/segments; medium-term impact

Operational

level

All activities related to Supplier Selection

(product specication, supplier selection),

Contracting of supplier and Supplier

Performance Measurement (monitoring

and evaluation)

Source: KPMG


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15. Measuring performance

Canincentiveschemesbeimplemented

orupdatedtoaligntokeysustainable

businessgoals?

Howcanthequalityandreliabilityo

sustainability-relatedmetricsbecontinually

improved?

Once your organisation has appropriate metrics and

targets in place to manage sustainability-related

commitments and issues, the main considerationsthat follow are:

What are the implications for incentive schemesand systems and how should they be updated

to align outcomes with new commitments and

targets? Which targets need to be revised to

enforce compliance with commitments?

How does management reporting need to changeto incorporate the wider focus on sustainability-

related metrics and targets? Is there clarity on

which metrics are core? What are the implications

for internal assurance over core metrics?

Typically, systems that support the reporting ofsustainability measures are less mature than those

relevant to nancial reporting. Organisations need

to understand the quality of information relating to

sustainability and develop a roadmap for improving

the reliability of information.

The involvement of your organisations nance team

in identifying sustainable value drivers, related KPIs

and measureable targets and outcomes will enhance

the credibility of the systems and processes, and the

effectiveness of the reporting structure. KPIs and

qualitative outcomes must be relevant and material if

they are to be aligned with overall strategy and vision.

16. Ongoing monitoring of externalities

Whattools(suchasindustrygroupsorassociations)canbeusedtokeepyourorganisationinormedo

relevantdevelopments?

Canyourorganisationbeinvolvedintheregulatory

processandalsomaintainindependence?

Whoisresponsibleormonitoringexternalities?

Regulation, societal attitudes and physical conditions

can change rapidly, with signicant consequences.

While relevant externalities can initially be identied andassessed in developing a strategy, it cannot be assumed

that they will remain static and relevant over time. As

such, these factors need to be monitored and considered

on an ongoing basis.

Two major considerations for organisations when it

comes to monitoring are who will be responsible for

monitoring and how trusted and up-to-date information

can be sourced in a cost-effective way.

Which individual or team is responsible for monitoring

will largely depend on the size of your organisation and

their ability to commit resources to the task. In larger

organisations, dedicated sustainability managers are

often assigned this task, with assistance from group-

level individuals. In smaller organisations, it is often an

individual with a personal and passionate interest in

sustainability issues who is best for this role.

When it comes to monitoring factors that have the

potential to impact the organisation, ongoing (day-to-

day/week-to-week) monitoring is more effective than

annual monitoring. Having regular access to information

relating to relevant factors will enable your organisation

to ag changes and respond in a timely manner, thereby

minimising potential impacts.

Embed sustainability into core business processes (continued)


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Meaningful internal and external reporting and disclosure of sustainability performance is essential

for informing decision-making and appraising how an organisation is tracking against strategy

and targets. Reporting must be meaningful and robust to enable effective communication with

stakeholders. The development of policies on external sustainability reporting and related matters

can also enable your organisation to build capacity and capability to deal with sensitive issues.

Public disclosure of non-nancial indicators is becoming an obligation for public companies. In

2008, nearly three-quarters of Americas top 100 companies published corporate responsibility

data.9 Eighty per cent of the Global Fortune 250 group of companies now release this kind of

information.10 All rms listed on the Johannesburg Stock Exchange are now required to produce

an integrated report with details on nance, governance and sustainability. The formation of theInternational Integrated Reporting Committee (IIRC) demonstrates this trend with an international

cross section of leaders from the corporate, investment, accounting, securities, regulatory,

academic and standard setting sectors.

Pressures for greater and more precise disclosure in these areas will only increase, including the

emergence of proposals to make such disclosure mandatory in several jurisdictions. Increasingly,

the credibility of reporting and alignment to strategy is what counts.

Create value through reporting

17. Determining your audience

and objectives

Whatkeymessagesareyoutryingtosendby

reportingsustainabilitydata?

Dotheyinormyourstakeholdersorelevantissues?

With a diverse range of stakeholders, information needs

often differ signicantly. A detailed understanding of

these needs may already have been worked out in the

strategy development phase. The emphasis here is to

ensure that stakeholder engagement informs the content

and channel of communication to your audience.

Management should also be clear about the objectives

of reporting. Agreeing on the objectives upfront sets

the tone and direction of the report. For example:

An organisation wanting to report publicly to address

strong media criticism over contentious aspects of

its sustainability performance or plans may devote

signicant effort to articulating its positions andresponses in those contentious areas. It may use the

report to provide different views on areas of concern.

It may also consider how it might commit itself to

the highest sustainability standards (see Issue 18)

An organisation wanting to use the report to

demonstrate leadership in sustainability and

accountability may devote signicant parts of its

report to innovative solutions to industry challenges.

A sustainability strategy is about addressing short,

medium and long term risks to an organisation.

Reporting enables an organisation to communicate

which risks the organisation faces and how it is

addressing them. To ensure reporting is effective it

is vital that an organisation understands the audience

it is communicating with.

9. U.S. Corporate Sustainability Reporting Doubles since 2005 Environmental Leader Oct 2008 accessed at:www.environmentalleader.com/2008/10/27/us-corporate-sustainability-reporting-doubles-since-2005)

10. KPMG International Survey on Corporate Responsibility Reporting accessed at: www.kpmg.com.au/Portals/0/KPMG%20Survey%202005_3.pd


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18. Developing reporting principles

and guidelines

Whichguidelineswillinormstakeholders

andguidethedevelopmentoyour

sustainabilityreport?

Dotheyaddresskeyissues?

Reporting guidelines, such as those from the Global

Reporting Initiative (GRI), can provide a good reference

point for organisations in terms of principles that can

guide development of a sustainability report. Theintent of such guidelines is to ensure that reporting is

balanced, transparent, complete, accurate and relevant

to stakeholders.

Such guidelines also outline common information in

which multiple stakeholder groups would be interested,

such as:

Explanation of the strategy and how it takes accountof sustainability considerations and stakeholder needs

Description of management approaches to addressingkey issues

Articulation of the main challenges, conicts anddilemmas faced in balancing sustainability concerns

with other business objectives

Generic and sector-related performance measures.

Organisations should not treat guidelines as a

compliance tick-box exercise, but actively consider

the appropriateness of disclosures and KPIs for the

intended audience against the reporting objectives, in

contemplation of relative materiality and for the unique

position of the organisation and its strategic priorities

and goals.

19. Moving to integrated reporting

Wouldanintegratedreportincreasethe

strengthandalignmentoyourorganisations

strategy,orrevealweaknesses?

Doesyourorganisationhavethesystems

andprocessesinplacetosupportmoving

tointegratedreporting?

Just as sustainability issues are increasingly integrated

into strategies, management processes and reporting,

there is a trend towards integrated reporting of nancialand sustainability performance. Major drivers for this

shift include the following:

There is a growing consensus that annual reportingdoes not provide sufcient useful information to

stakeholders, including the capital markets

Analysts and investors nd it difcult to extractmeaningful information from sustainability reports as

they often do not effectively explain sustainability in the

context of value-creation and competitive advantage

The embedding of sustainability within core businessstrategy, risk management and performance appraisal

naturally leads to a need to develop a single platform

for communicating performance and targets.

Integrated Reporting demonstrates the

linkages between an organisations strategy,

governance and nancial performance and

the social, environmental and economic

context within which it operates.

InternationalIntegratedReportingCommittee(IIRC)

The IIRC was formed in 2010. Its purpose is to develop

a globally accepted framework for integrated reporting

which considers nancial, social, environmental and

governance matters in a comprehensive manner, in order

to adequately assess the performance and the short,

medium and long-term sustainability of an organisation.

Create value through reporting (continued)


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The IIRC has released a discussion paper, Towards

Integrated Reporting: Communicating Value in the 21st

Century, which explains the benets of reporting on

an integrated basis. The responses received from this

discussion paper together with the results of a pilot

program will lead to the development of an integrated

reporting framework.

Organisations looking to adopt an integrated reporting

framework need to consider the various reporting

frameworks and sector supplements available and adapt

one to t their strategy and sustainability targets, not the

other way around. It is important to focus on reporting

information and metrics that are material, relevant and

aligned with your organisations vision.

Benets of an integrated report

Increasedcompetitivenessthroughenhancedunderstandingorisksandopportunities

Increasedconfdenceandtrustamongstakeholdersandenhancedbrandreputation

duetotransparencyinreportingalong-term

holisticviewoyourorganisationschallenges

andstrategiestoovercomethemsustainably.

Source: International Integrated Reporting Committee

Integrated Reporting (IR) Framework

Supporting theinformation needsof long terminvestors

Showing broaderand long termconsequences ofdecision-making

Bringing reportingcloser to theinformation usedby management

Rebalancingperformancemetrics away fromshort term practice

An Integrated Report

Purpose

To reect the connections between economic,

social, environmental, governance andnancial factors and their impact on the long

term performance of a company.

Strategy &

decision-makingEconomic valueSustainable value


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Create value through reporting (continued)

20. Identifying assurance needs

Whichelementsneedtobeassuredto

ensurecredibility?

Doesinternalaudithavethecapabilitytoassess

sustainabilityrelatedissues?

Having an independent expert provide assurance over

sustainability information increases the condence

that can be placed on the information for decision-

making purposes.

The key considerations concerning assurance should be:

What should be assured?As for all information used in managing the business,

what is assured should be correlated with what is

important to management and external stakeholders.

The starting point would be strategic priorities over

material issues, including measures of progress in

these areas

What should be the role of internal audit function?If sustainability performance and compliance

of the organisation with relevant sustainability-

related commitments and policies are recognised

as important elements of business enterprise riskmanagement, then it follows that internal audit should

incorporate sustainability into the audit program.

Given that most companies internal audit functions

do not have experience in sustainability auditing, there

would be a need to develop a capability roadmap

What reporting framework should be applied?Issue 18 deals with reporting principles and guidelines.

Those frameworks assist reporters in what and how

to report on sustainability issues. Assurance providers

should adhere to recognised assurance frameworks

that guide the direction and depth of effort, as well as

the assurance conclusion and report to management.

The International Standard on Assurance Engagements

ISAE3000, is a principles-based framework for large

scale audits concerned with non-nancial data

process monitoring.11

11. International Federation o Accountants, www.iac.org


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Resource and further information

Links

The Institute of Chartered Accountants in Austalia www.charteredaccountants.com.au

KPMG www.kpmg.com.au

References

The Institute of Chartered Accountants in Austalia Broad-Based Business Reporting

Early warning systems: can more be done to avert economicand fnancial crises

Integrating sustainability into business practices:a case study approach

KPMG Capital markets in the dark: an unsustainable state o play

Integrated Reporting: Perormance insight through betterBusiness Reporting

KPMG International Corporate Responsibility ReportingSurvey 2011.


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Business briefing series: 20 issues on building a sustainable businessBusiness briefing series: 20 issues on building a sustainable business28


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29Business briefing series: 20 issues on building a sustainable business

Top 20 issues on building a sustainable business checklist

Build sustainability into your strategy Yes No N/a

1. Understanding industry

externalities and

stakeholders expectations

Is your organisation exposed to industry-specic regulatory changes?

What physical, social, environmental, technological and economic factors

may impact your operating environment?

Does your business strategy incorporate changing stakeholder expectations?

2. Mapping business

risks and opportunities

What industry challenges and growth constraints are most material to

your organisation?

Is a process in place to review changes and assess the impact of these

issues on strategy?

How can these changes be leveraged to create a competitive advantage?

3. Assessing competition

and dening positioning

How do your competitors dene and implement sustainability?

Do your sustainability initiatives place you as an industry leader?

How can your organisation be differentiated to gain competitive advantage?

4. Integrating sustainability

into strategy and strategic

objectives

Is your sustainability strategy linked to core business objectives?

What potential intangible benets could investment in sustainability deliver?

Does your organisation have resilience to sustainability shocks?

5. Developing the

business case

Is there an opportunity to reduce long-term operating costs through

implementing sustainability measures?

Is there a threat to brand equity beyond the operational control of your

organisation which could be minimised through sustainability investment?

Implement the strategy Yes No N/a

6. Leading from the top Are the Board of Directors and senior management actively involved in

communicating the value of sustainability to the organisation?

Are the drivers and outcomes of your sustainability approach relevant

and clear to employees and stakeholders?

7. Building internal awareness

and knowledge

Are the big picture sustainability objectives clear to employees?

Is everyone in the organisation aware of their role in the implementation

and ongoing success of sustainability as a core business function?

What tools can you use to enhance communication and support

employee awareness?

8. Developing a cultural

change process

Are the differences between the current culture and the desired culture

clear and understood by employees?

Which areas of the organisation are likely to be most heavily impacted?

What support is in place?

9. Involving external

stakeholders

Which key external stakeholders can provide input to your organisations

sustainability position?

Have external stakeholders been engaged early so they can understand

your organisations sustainability perspectives?

Are there opportunities for partnerships with key stakeholders to drive

sustainability results?

10. Developing relevantsustainability metrics

What are the sustainability indicators material to your organisationsstrategic objectives?

Do they address meaningful key performance indicators (KPIs), targets,

and short and long-term outcomes?


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30 Business briefing series: 20 issues on building a sustainable business

Embed sustainability into core business processes Yes No N/a

11. Incorporating sustainability

within the risk management

framework

Have the outputs of stakeholder engagement been considered in the risk

management process?

Are the impacts of sustainability-related risks understood and quantied?

12. Understanding product

development and customer

attitudes and behaviours

Has your organisation undertaken adequate research to understand current

and future trends and their implications?

What factors are likely to drive changes in your industry?

Are there nancial incentives available to support new sustainable

product innovation?

13. Promoting sustainable

procurement and supply

chain management

What elements of your supply chain may create extra risk or lack efciency?

Have environmental, social and ethical criteria been developed, in addition

to price and availability criteria, in your purchasing decisions?

Can you leverage your position in the industry to inuence your suppliers

actions?

14. Understanding the

investment decision-making

process

Are sustainability issues and risks properly evaluated as part of the due

diligence process?

Where they can be measured, are sustainability factors included in your

valuation models?

15. Measuring performance Can incentive schemes be implemented or updated to align to key

sustainable business goals?

How can the quality and reliability of sustainability-related metrics be

continually improved?

16. Ongoing monitoring of

externalities

What tools (such as industry groups or associations) can be used to

keep your organisation informed of relevant developments?

Can your organisation be involved in the regulatory process and also

maintain independence?

Who is responsible for monitoring externalities?

Create value through reporting Yes No N/a

17. Determining your audience

and objectives

What key messages are you trying to send by repor ting

sustainability data?

Do they inform your stakeholders of relevant issues?

18. Developing reporting

principles and guidelines

Which guidelines will inform stakeholders and guide the development

of your sustainability report?

Do they address key issues?

19. Moving to integrated

reporting

Would an integrated report increase the strength and alignment of your

organisations strategy, or reveal weaknesses?

Does your organisation have the systems and processes in place to suppor t

moving to integrated repor ting?

20. Identifying assurance

needs

Which elements need to be assured to ensure credibility?

Does internal audit have the capability to assess sustainability related issues?

Top 20 issues (continued)


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Contact details

The Institute of Chartered Accoun

BC 20 Issues Sustainability Paper[1]

Documents

Transcript of BC 20 Issues Sustainability Paper[1]