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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
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First published November 2011
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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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Business briefing series: 20 issues on building a sustainable business 5
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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Business briefing series: 20 issues on building a sustainable business8
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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Business briefing series: 20 issues on building a sustainable business 9
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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Business briefing series: 20 issues on building a sustainable business10
Build sustainability into your strategy (continued)
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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Business briefing series: 20 issues on building a sustainable business 11
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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Business briefing series: 20 issues on building a sustainable business12
Build sustainability into your strategy (continued)
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
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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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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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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
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