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Sustainabilityand integrated reporting – the
opportunity, developing the conceptual framework, the impact of
accounting on business
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So what do I want to get out of today’s presentation?
• Share knowledge and learn from you• Get some informed discussion happening• Provide some reference resources and case studies• Discuss sustainability• Provide you with a view on integrated reporting• Give you my view and some insight into what is happening to
the “business model” – a view that I encourage you to challenge
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What do you want to get out of this morning’s presentation?
Just take 15 seconds –
Make sure you ask about what I don’t coverthat is of interest to you
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Sustainability
• Financial meaning – the ability to continue in business
• Environmental meaning – doing no damage – leaving an opportunity for future generations
• Confusion in the narrative• OH & S, staff development has also crept into
Sustainability reports
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Sustainability from an environmental perspective
• Carbon emissions• Water usage and management• Waste management• Health issues• Biodiversity• Population
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Peter Senge – The Necessary Revolution
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Sustainability reportshttp://www.toyota.com.au/toyota/sustainability
http://www.toyota.com.au/toyota/sustainability/corporate/past-sustainability-reports?WT.ac=Sustainability_HP_PastSustainabilityReports
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Sustainability reportsCPA Australia Sustainability Report 2010http://www.cpaaustralia.com.au/cps/rde/xbcr/cpa-site/
CPA_Australia_Sustainability_Report_2010.pdf
CPA Australia Annual Report 2011http://www.cpaaustralia.com.au/cps/rde/xchg/cpa-site/hs.xsl/
annual-report-2011.html
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Now the Annual Reporthttp://cpaaustraliaannualreport.realviewdigital.com/
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Now the Integrated Reporthttp://cpaaustraliaannualreport.realviewdigital.com/#folio=1
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GRI Framework
Sustainable Development and the Transparency ImperativeThe goal of sustainable development is to “meet the needs of the present without compromising the ability of future generations to meet their own needs.”
https://www.globalreporting.org/reporting/latest-guidelines/g3-1-guidelines/Pages/default.aspx
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GRI Moving to G4 - developments
The next generation of the GRI Guidelines – G4 – should address requirements for sustainability data, and enable reporters to provide relevant information to various stakeholder groups. It should also improve on content in the current Guidelines – G3 and G3.1 – with strengthened technical definitions and improved clarity, helping reporters, information users and assurance providers.
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Diversion – a price on Carbon
• Opportunities and issues that will impact on reporting
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Implications
• National Greenhouse and Energy Reporting
• NGER’s
» First round of reports – audit comments» http://www.cleanenergyregulator.gov.au/National-Greenhouse-
and-Energy-Reporting/Auditors/Documents/20656%20NGER%20-%20Reporting%20Audit%20Program%20-%20Findings.pdf
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Issues to consider• Assess liability• Identify abatement/emission reduction possibilities (power, vehicle,
etc.)• Review supply chain exposure – and your contracts• Understand ability to pass through costs (be aware of ACCC
requirements to substantiate any claims)• Opportunities – can you help your clients develop energy efficient
products/renewable energy opportunities• Eligibility for government grants• Understand balance sheet and P & L impacts – update cash flows• Are there any carbon market opportunities
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Specific risks• Carbon emissions
• Water usage and management
• Waste management
• Contracts
• Balance sheet and P & L exposure
• Pricing
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Issues and opportunities for CPA’s
• Measurement and reporting
• Assurance
• Meaningful analysis
• Supply chain
• Product life cycle
• Cost analysis
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Areas to consider
• Production process – inputs and outputs• Resources usage – wastage• Transport• IT – technology systems – power usage• Supply chain• Recycling – garbage • Lighting
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Business impacts of climate change• Business risks – what are the implications of
not being ahead of the curve?• Supply chain risks – How will you affect your
suppliers, and what will their impact be on you – e.g. Toyota model
• Product life cycle issues – Service - Advisory• Consumer activism
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MELTING PERMAFROSTMELTING PERMAFROST
COAL MININGCOAL MINING
COAL PLANTSCOAL PLANTS
CROP BURNINGCROP BURNING
OIL PRODUCTIONOIL PRODUCTION
FOREST BURNINGFOREST BURNING
LAND TRANSPORTATIONLAND TRANSPORTATION
LANDFILLSLANDFILLS
FERTILIZATIONFERTILIZATION
INDUSTRIAL AGRICULTUREINDUSTRIAL AGRICULTURE
INDUSTRIAL PROCESSESINDUSTRIAL PROCESSES
Where Do Greenhouse Gases Come From?
Where Do Greenhouse Gases Come From?
AVIATIONAVIATION
SHIPPINGSHIPPING
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ResourcesSensis SME success stories athttp://about.sensis.com.au/small-business/free-sustainable-
growth-bookCarbon Compass at:http://www.carboncompass.com.au/ClimateWorks
http://www.climateworksaustralia.com/
low_carbon_growth_plan.html
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What is the purpose of Reporting?• Regulatory purpose
– Compliance?– Meaningful information?
• Inform stakeholders– Investors – employees – clients – competitors ?– Potential investors?
• Wider community– What is of “general” interest?
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Integrated Reporting
• Integrated Reporting is a new approach to corporate reporting that demonstrates the linkages between an organization’s strategy, governance and financial performance and the social, environmental and economic context within which it operates. By reinforcing these connections, Integrated Reporting can help business to take more sustainable decisions and enable investors and other stakeholders to understand how an organization is really performing.
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Integrated Reporting• Conceptual framework• What can it mean?• Competitive pressures• Relevance of reporting – how does it add value to
our understanding of the performance of a business• http://www.theiirc.org/the-integrated-reporting-
discussion-paper/
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The percentage of market value represented by physical and financial assets versus intangible factors, some of which are
explained within financial statements, but many of which are not.
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The world has changed – reporting must too
Source – WBCSD Vision 205026
The world population is increasingly urbanGlobal population by type of area and by region:
1950-2050
Global economic power is shiftingTop 10 economies by GDP in 2050
The global middle class is rapidly expandingPopulation in low- and middle-income countries earning $4,000-$17,000 per capita (purchasing power parity)
Greenhouse gas emissions keep risingGHG emissions by regions
Environmental degradation jeopardises people’s quality of lifePeople living in areas of water stress by level of stress
The world could be running out of some resourcesGlobal supply forecasts according to the implied ultimate recoverable resources of conventional oil, date of peak production and the post-peak aggregate decline rate
Gro
wth
Deg
rad
ati
on
Source: UN Population Division, World Population Prospects: The 2008 Revision, 2008
Source: Goldman Sachs, BRICs and Beyond, 2007 Source: World Bank, Global Economic Prospects, 2007
Source: UN Population Division, World Population Prospects: The 2008 Revision, 2008 Source: Goldman Sachs, BRICs and Beyond, 2007 Source: World Bank, Global Economic Prospects, 2007
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Reports: Increasing length and complexity
Source: Investis research - PwC
Prudential annual report pages 1850-2008
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The evolution of Reporting…
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…Integrated Reporting – the Future
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Coordinated, International Action Needed Now
• Reporting has a fundamental impact on decision-making
• Critical interdependencies need to be made clear
• A clear, concise picture of performance, impacts and interdependencies, to:
– drive innovation
– be focused on communication and not just on compliance
– support resource allocation decisions consistent with sustained value creation and with long term economic stability
• Build on the many positive developments to date
• Bring together divergent strands of reporting
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How is Integrated Reporting Different?
Thinking: Disconnected Integrated
Stewardship: Financial capital All forms of capital
Focus: Past, financial Past and future, connected, strategic
Timeframe: Short term Short, medium and long term
Trust: Narrow disclosures Greater transparency
Adaptive: Rule bound Responsive to individual circumstances
Concise: Long and complex Concise and material
Technology enabled:
Paper based Technology enabled
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Central themesBusiness model & value creation
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Business Model
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• Distinction between outputs and outcomes• The linking of the 6 capitals – and their transformation
within the business model• Assessing desired outcomes against desired objectives to
refine and modify the business model
Framework
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What’s the Business Model about?
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Examples of Business Model Reporting
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Alternate model
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Conclusions in relation to IR framework
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Resources and relationships or “capitals”
• Financial capital: The pool of funds available to the organization.
• Manufactured capital: Manufactured physical objects, as distinct from natural physical objects.
• Human capital: People’s skills and experience, and their motivations to innovate.
• Intellectual capital: Intangibles that provide competitive advantage.
• Natural capital: Includes water, land, minerals, and forests; and biodiversity and eco-system health.
• Social capital: The institutions and relationships established within and between each community, group of stakeholders and other networks to enhance individual and collective well-being. Includes an organization’s social license to operate.
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Content Elements
• Organizational overview and business model: What does the organization do and how does it create and sustain value in the short, medium and long term?
• Operating context, including risks and opportunities: What are the circumstances under which the organization operates, including the key resources and relationships on which it depends and the key risks and opportunities that it faces?
• Strategic objectives and strategies to achieve those objectives: Where does the organization want to go and how is it going to get there?
• Governance and remuneration: What is the organization’s governance structure, and how does governance support the strategic objectives of the organization and relate to the organization’s approach to remuneration?
• Performance: How has the organization performed against its strategic objectives and related strategies?
• Future outlook: What opportunities, challenges and uncertainties is the organization likely to encounter in achieving its strategic objectives and what are the resulting implications for its strategies and future performance?
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Content elements – earlier version
• Operating context, including risks and opportunities
• Strategic objectives• Governance and remuneration• Performance• Organizational overview and business
model• Future outlook
Content elements – current draft
• Organizational overview and external environment
• Strategy and resource allocation
• Governance
• Performance
• Business model
• Future outlook
• Opportunities and risks
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