auditing to improve sustainability & firm competitiveness · auditing to improve sustainability...

© Deloitte & Touche LLP and affiliated entities.

Johanne Gelinas

June 22, 2007

Auditing to improve sustainability & firm competitiveness.

2 Workshop on Sustainable Manufacturing Production & Competitiveness © Deloitte & Touche LLP and affiliated entities.

Contents

• Context for reporting and auditing sustainability information

• Trends in assurance

• External assurance


Context for reporting & auditing sustainability information (1/6)• Increased director liability and board accountability for risk

management

• Adoption of formal control and certification frameworks (e.g. “FSC”, “Fair Trade”,

• Transparency and full disclosure:– Sarbanes-Oxley Act 2002, Bill 198 requiring CEO/CFO Certification– Accounting provisions: Asset Retirement Obligations (ARO), FIN47

UK: TurnbullCanada: DeyUSA: Blue Ribbon CSA: Notice 52-313


Context (2/6)Interest by investment and financial communitiesCarbon Disclosure Project

• In 2003, institutional investors issued GHG emissions disclosure requests to FT500 largest companies

• Aim is to facilitate integration of this information into investment analysis

• Fourth CDP request released in September 2006; request included responses from 91% of FT500 companies

• Fifth CDP request on behalf of 280 institutional investors sent to 2400 global companies in February

Financial Institutions*

• “In 2004, RBC modeled the impact of the monetization of carbon on selected corporations in a number of different sectors using publicly available information.”

• JPMorgan Chase will add “carbon disclosure and mitigation to our client review process beginning by year end 2005.”

*source - company websites


Context (3/6)Boards and top management see the importance of non-financial information

Financial indicators alone do not adequately capture our company’s

underlying strengths or vulnerabilities

It is the responsibility of the board to monitor both non-financial and

financial measures of the performance

78.29%

68.47%


Context (4/6)….however key barriers are present

Key Barriers

Skepticism that these measures are directly related to the bottom line

Underdeveloped tools for analyzing such measures

48%

55.43%


Context (5/6)Trust is low…but can be increased

The crisis of trust in business cannot be ignored and forward-thinking businesses recognize the need to be accountable to shareholders and others for the impact of their operations on society and are working to re-establish lost ground on the “trust-front”.

• It is what you do that counts.

• But, that’s not enough.

• You need to be transparentabout it.

Source: Gallup International survey 2002: Trust in institutions


Context (6/6)Corporate Responsibility as trust builder

Trust is achieved through behaviour, transparency and non-biased verification. It is a key success factor for the business to operate, innovate and grow.

StakeholderNeeds and

Expectations

Standards andGuidelines Benchmark

to Others

Own Needs– What’s goodfor Business

Clear values & principles,objectives, governance

structure and“walk the talk”

Transparentcommunication

on values, managementpractices andperformance

Independent Assuranceto demonstrate credibility inpractices and performance

Licence to operate, innovate and grow


Trends in Assurance


Trends in assurance

• Climate Change – Carbon emissions

– Off-sets

• Certifications – Forestry

– Fair Trade

• Product labeling– Energy labels

• Non-Financial information


Trends in Assurance CR Reporting

5232

16Assure

Don'tAssureDon'tReport

”Our approach to CR management and reporting is to focus on the most important issues. It is aligned with the principles of the AA1000 Assurance Standard: completeness, materiality and responsiveness.”

Vodafone CR Report 2006

FTSE 100

Source: FTSE

“Formal assurance needs to be grounded in the expectations of the wide number of stakeholders that companies have”

Labour NGO

“It is an interesting question how to bridge the gap between companies and NGOs. The assuror is one way of bridging this gap”

Media OrganisationSource: AccountAbility survey: What Assures? 2006

CR Reporting and Assurance trends

6228

10 Assure


Europe top 100

Source: Context. View page

7

3162

Assure


TSX Composite Index

Source: Stratos: Gaining Momentum 2005

5232

16Assure



Trends in Assurance Stakeholder views on CR assurance

Effective assurance is driven by the demands of stakeholders for reliable information on which to make decisions - AccountAbility

• “Do you think that CR reports should be verified by a professional assurance or verification body?”

16.1%13.1%19.7%32.4%No

71.0%59.0%57.6%45.6%Yes

Financial Community

NGOsAcademicsEmployees

Accounting for Good – The Global Stakeholder Report 2005)


Trends in Assurance Organizations’ experiences

External value of CR assuranceDemonstrating commitment and seriousness in managing CR agendaImproving overall trustworthiness to stakeholdersGaining higher credibility to assured processes and informationThird party confirmation of compliance to stated standards/ guidelines

Internal value of CR assuranceIncreasing confidence in the reliability and quality of assessed management systems, data collection, report preparation process and ultimately disclosed information

Gaining professional third party recommendations for improvement of reporting systems

Supporting discipline and professionalism in internal CR management and reporting

Assisting decision-making in the implementation of future strategy


External Assurance


External AssuranceWhat Is It?

• An evaluation method that uses a specified set of principles andstandards to assess the quality of an organizations subject matter and the underlying systems, processes and competencies that define its performance.

• Best summed up as: steps taken to increase confidence in a report.

• Assurance on the non-financial data has been conducted by a variety of organizations such as NGOs, engineering firms, accounting firms, etc.

• All have a different interpretation of assurance. This is evident in the variety of opinions being provided.


• Transparency: building trust & credibility

• Decision making: ensuring credible information to facilitate decision making by stakeholders

• Learning: improving management systems through use of processes of continuous improvement

• Meeting legal compliance requirements: e.g. for financial and environmental reporting.

What are the key drivers?

• External stakeholders: investors, regulators interested in assurance and risk, customers, NGO’s, media

• Internal stakeholders: management & board, employees

• Company……

“At a time when trust in business is still low, many reporting companies look to assurance service providers to help restore stakeholder confidence.”

The Global Reporters 2004 Survey

Who benefits?

External Assurance


Assurance JourneyConsiderations As You Move Forward

• Be clear on your purpose for obtaining assurance

• Set and communicate realistic expectations (internally and externally)

• Engage and leverage your internal/external resources (people, knowledge, processes, peers, etc.)

• Recognize that this is a journey – develop a road map

Value ‘beyond’ Assurance


Economic Value Drivers(How value is created for shareholders)

1

RevenueGrowth ExpectationsOperating

MarginAssetEfficiency

Sustainable Value Drivers

Economic Value Drivers(How value is created for shareholders)

1

RevenueGrowth ExpectationsOperating

MarginAssetEfficiency

Sustainable Value Drivers

Social Value Drivers(How value is created for social stakeholders)

Environmental Value Drivers(How value is created for environmental stakeholders)

Minimize Water Impact

(…)

Improve Products & Services Responsibility Toward Customer

Improve Natural Asset Management

Improve Environmental Resources Utilization

(…)

Improve Workforce Practices

Improve Corporate Governance

2

3

Creating sustainable value through the convergence of environmental performance, social accountability and traditional shareholder value

Improvement Actions(What you can do to simultaneously improve the 3 value drivers)

Protect Value

Create Value

Assurance related to carbon, certifications, non-financial information:

Revenue Growth: grow new and retain existing customers

Operating Margin: process and supply chain efficiency

Expectations: governance and operational excellence

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auditing to improve sustainability & firm competitiveness · auditing to improve sustainability...

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