Evolution of corporate sustainability practices


Download Evolution of corporate sustainability practices


Preview text

Evolution of corporate sustainability practices
Perspectives from the UK, US and Canada
AICPA, CICA and CIMA research study
December 2010

About CIMA
CIMA, the Chartered Institute of Management Accountants, founded in 1919, is the world’s leading and largest professional body of Management Accountants, with 172,000 members and students operating in 168 countries, working at the heart of business. CIMA members and students work in industry, commerce and not-for-profit organisations. CIMA works closely with employers and sponsors leading edge research, constantly updating its qualification, professional experience requirements and continuing professional development to ensure it remains the employers’ choice when recruiting financially trained business leaders. www.cimaglobal.com/sustainability
About the AICPA
The American Institute of Certified Public Accountants is the national, professional association of CPAs, with more than 360,000 CPA members worldwide in business and industry, public practice, government, education, student affiliates and international associates. It sets ethical standards for the profession and U.S. auditing standards for audits of private companies, non-profit organizations, federal, state and local governments. It develops and grades the Uniform CPA Examination. www.aicpa.org
About the CICA
The Canadian Institute of Chartered Accountants represents Canada’s CA profession both nationally and internationally. Chartered Accountants (CAs) are Canada’s most valued, internationally recognized profession of leaders in senior management, advisory, financial, tax and assurance roles. Through their integrity, expertise, and internationally recognized qualification standards, Canada’s 77,000 CAs sustain their influence and leadership position both in Canada and globally. As trusted business advisors to Canadian organizations of all sizes, Canada’s CAs foster confidence in Canadian business and contribute to the health and sustainability of Canada’s capital markets and economy. The CICA is a founding member of the International Federation of Accountants (IFAC) and the Global Accounting Alliance (GAA). www.cica.ca /sustainability

Executive summary
Business sustainability is about ensuring that organizations implement strategies that contribute to long-term success. Organizations that act in a sustainable manner not only help maintain the well-being of the planet and people, they also create businesses that will survive and thrive in the long run. Leading companies recognize that successful sustainability performance translates to successful bottom-line business performance, and that investors are attracted to companies that act in a sustainable manner with a focus on long-term profitability and competitive advantage.
We live in an increasingly global community, where economic, environmental, and social issues transcend national and corporate boundaries. Our 21st Century challenges require 21st Century solutions and will require a co-ordinated response by the public and private sectors. Long-term business success will require that sustainable practices be deeply embedded in the DNA of all organizations. As companies innovate to better secure their long-term viability, the accounting profession will play an important role. Accountants can serve as leading agents for change by applying their skills and competencies to develop sustainability strategies, facilitate effective implementation, accurate measurement, and credible business reporting.
To gain a sense of the state of sustainability in the UK and North America, CIMA, the AICPA and CICA recently surveyed over 2000 organizational leaders from their respective memberships, and interviewed sustainability executives from leading organizations to examine key characteristics of business sustainability, and the level of finance function involvement in corporate sustainability initiatives. The AICPA, CICA and CIMA are all founding members of the Accounting Bodies Network of The Prince of Wales’ Accounting for Sustainability Project.
‘The finance function can add a lot of value in terms of making sure that information related to sustainability – particularly information that enters the public domain – is produced and managed with the necessary level of rigor.’
Jessica Fries Director The Prince’s Accounting for Sustainability Project (A4S)

Key findings1
Although compliance with regulatory requirements still remains the most common driver of business sustainability, profitability and other strategic factors are also significant. The second ranked critical drivers differed between large and small companies:
• 34% of large organizations identified compliance as the top ranked critical driver; 32% identified managing reputational risk as the second most critical driver.
• 24% of smaller companies identified compliance as the most critical driver; 19% identified cost cutting and efficiency as the next most critical driver.
Large companies have more robust sustainability capabilities than small companies:
• 79% of larger companies surveyed currently have a formal sustainability strategy.
• 33% of smaller companies surveyed currently have a strategy; however an additional 23% have plans to formulate a strategy within the next two years.
The finance function’s contributions to organizational sustainability programs are highly valued, yet underdeveloped:
• 56% of respondents said that finance play a role in business case/ investment analysis in relation to sustainability programs.
• 33% are tracking sustainability related performance measures.
UK based organizations appear to be ahead of the curve in terms of implementing sustainability practices and finance function involvement compared to North American organizations.

1 As noted in the methodology section on page 19, the results may reflect a higher degree of interest in sustainability among respondents who opted to participate in the survey, and will not necessarily reflect the entire population.
Evolution of corporate sustainability practices Perspectives from the UK, US and Canada | 1

Introduction
Today’s corporations face increasing expectations for taking an active role in meeting the world’s environmental and social challenges. The accounting profession has a critical role to play in helping to meet these challenges. As businesses and other organizations rise to the occasion by adopting and implementing sustainable business practices, it will be essential for finance and accounting professionals to assume a greater leadership position in sustainability, and bring their skills to bear to ensure the long-term viability of their organizations.
Accountants are well placed to oversee the integration of sustainable business practices into the DNA of their organization. They have the skill sets to provide the information, analysis and options to inform the right decisions and ensure organizations are creating strategies that mitigate environmental and social risks and focus on the long-term. In their role as information providers, accountants can be very influential; they can change mind-sets and influence decision making processes and reporting.
Corporate sustainability programs are evolving. Companies and their executives are increasingly recognizing the importance of sustainability to the future of their businesses. While many corporate sustainability initiatives began because organizations felt they had to (in response to compliance requirements) and/or that they should have them (in support of corporate values statements), more organizations now want to deploy sustainability programs to reap greater shareholder value. Rather than treating sustainability efforts exclusively as a response to legal and regulatory requirements, more organizations are now integrating sustainability activities into how they manage reputation risk, generate cost savings and ensure longterm profitability and competitive advantage. Corporate sustainability programs are also expanding in number across the spectrum of company size and industry sector. No longer solely the domain of the smokestack industry or large multinational conglomerates, organizations of all types and size are increasingly implementing sustainability programs and practices.
However, how these efforts look and operate varies tremendously by country, industry, company size and individual company. As with any rapidly evolving business discipline, organizational sustainability has yet to settle

upon a standardized definition or approach. ‘If you walk into a room and start talking about sustainability you will find very quickly that almost everyone has an opinion and a different level of education related to sustainability’, notes Steve Leffin, Director of Global Sustainability for US based UPS’ corporate plant engineering. ‘This is largely because sustainability comprises a complex array of issues.’
To produce a snapshot of this evolution, the American Institute of Certified Public Accountants (AICPA), Canadian Institute of Chartered Accountants (CICA) and the Chartered Institute of Management Accountants (CIMA) conducted a survey of organizational leaders who are members of these associations. The survey, which defines sustainability as ‘the consideration of environmental and/or social issues in the value creation process along with the financial performance of the enterprise’, asked respondents questions in four areas:
1. Sustainability drivers and strategy.
2. Sustainability program scope and priorities.
3. Measurement, reporting and assurance.
4. The finance function’s involvement.
As noted in the methodology section at the end of the report, the results may reflect a higher degree of interest in sustainability among respondents who opted to participate in the survey, and not necessarily reflect the entire population.
In addition to survey results from a total of more than 2,000 respondents (who are primarily CFOs and other corporate finance executives and managers), this report contains insights from executives who manage current organizational sustainability programs in the United States, Canada and the United Kingdom.
We conducted this survey and accompanying field interviews and research to gain an understanding of the status of sustainability initiatives in the companies of our members in the US, UK, and Canada, and to understand how and where the finance function and accountants are playing meaningful roles in sustainability programs. By supplementing the survey findings with practical examples of current sustainability practices, this report is intended to help organizations close the gap between what they have from a sustainability perspective, and what they need.

2 | Evolution of corporate sustainability practices Perspectives from the UK, US and Canada

Ten elements of organizational sustainability
‘There is a desperate need for the finance function to be involved in ensuring the quality of sustainability-related information,’ asserts Jessica Fries, director of The Prince’s Accounting for Sustainability Project (A4S) based in the United Kingdom (UK), ‘and the effectiveness of the controls around this information.’ Sustainability programs also can benefit from finance and accounting function contributions in several other areas as well, including many of the following elements the A4S defines as integral to embedding sustainability within organizations: Strategy and oversight 1. Board and senior management commitment. 2. Understanding and analyzing the key sustainability drivers for the organization. 3. Integrating the key sustainability drivers into the organization’s strategy. Execution and alignment 4. Ensuring that sustainability is the responsibility of everyone in the organization (and not just of a specific department). 5. Breaking down sustainability targets and objectives for the organization as a whole into targets and objectives which are
meaningful for individual subsidiaries, divisions and departments. 6. Processes that enable sustainability issues to be taken into account clearly and consistently in day-to-day decision-making. 7. Extensive and effective sustainability training. Performance and reporting 8. Including sustainability targets and objectives in performance appraisal. 9. Champions to promote sustainability and celebrate success. 10. Monitoring and reporting sustainability performance.
Evolution of corporate sustainability practices Perspectives from the UK, US and Canada | 3

Section 1: Sustainability drivers and strategy
Sustainability drivers
Among all survey respondents, compliance and regulatory requirements remain the most commonly-cited critical driver for both large companies (34%) and SME companies (24%). SME respondents identify ‘efficiency and cost savings’ (19%) as the second most common driver. The second ranking critical driver for large companies was ‘reputation/brand risk management’ (32%), followed by ‘achieving competitive advantage and long-term profitability’, ‘efficiency and cost savings’, ‘the value set of the company and/or its leaders’, and ‘customer demand for sustainable products’, respectively (see charts 1 and 2).
Respondents across all groups were consistent in the factors that drive their organizations’ sustainability efforts, with some exceptions. For example, CICA respondents identify ‘managing risk to the reputation of your company/brand’ as the most important driver of organizational sustainability.

CIMA respondents identify the same risk-management driver as well as ‘compliance with legal and regulatory requirements’ (almost equally) as the most important motivations for implementing sustainability programs. AICPA respondents identify ‘compliance with legal and regulatory requirements’ and ‘efficiency and cost savings’ (equally) as the two most important drivers of organizational sustainability.
‘A major part of our sustainability effort is to support our sales and marketing team in gaining access to new market segments, reinforcing our pricing strategies and improving our customer mix so that there is a strong fit between our product offer and what different segments of the market value.’
Lyn Brown Vice President Corporate Relations and Social Responsibility, Catalyst Paper

Bottom line sustainability drivers
Roughly three years ago Marks & Spencer launched Plan A, a five-year road map to spend £200 million to improve sustainability performance by 2012. Within two years, the retailer announced that Plan A was ‘cost positive’; the investment began delivering financial returns in 2009. For its part, GE’s Ecomagination business line’s revenues have not only grown in a bruising economy (to a reported $18 billion in 2009), but news coverage of these results has become so frequent and widespread that the value of the company’s reputation and brand has undoubtedly benefited from its investment in energy efficient products. This benefit helps explain why GE invested U.S. $1.5 billion in Ecomagination research and development last year, reaching its commitment to double its annual investment in this area one year ahead of time. In some cases, what begins as a legal requirement or riskmanagement response morphs into a business opportunity.
While GE, ASDA, Catalyst Paper and other sustainability leaders would currently identify competitive advantage or profitability as the primary driver of their sustainability programs, that was not always the case for some of these companies. For example, Marks & Spencer and Catalyst Paper did not originally start their sustainability programs with profitability in mind. Catalyst Paper’s sustainability effort originated in response to an environmental protest movement (see Catalyst Paper’s example on page 11). Success in its initial response later enabled Catalyst Paper to add a profitable bottom-line perspective to its sustainability capabilities.

4 | Evolution of corporate sustainability practices Perspectives from the UK, US and Canada

Chart 1: Critical sustainability drivers - large companies
To what extent are the following factors driving your company’s sustainability efforts?

Compliance with legal and regulatory requirements Managing risk to the reputation of your company/brand(s) Achieving competitive advantage and long-term profitability
Efficiency and cost savings Value set of company and/or its leaders Customer demand for green/sustainable products Public scrutiny over labor, sourcing, or other business practices
Employee attraction and retention Supply chain vendor requirements Government grants or other incentives

0%

10%

20%

30%

40%

50%

Chart 2: Critical sustainability drivers – small and medium sized companies (SMEs)
To what extent are the following factors driving your company’s sustainability efforts?

Compliance with legal and regulatory requirements Efficiency and cost savings
Achieving competitive advantage and long-term profitability Managing risk to the reputation of your company/brand(s) Value set of company and/or its leaders Customer demand for green/sustainable products Employee attraction and retention Government grants or other incentives
Public scrutiny over labor, sourcing, or other business practices Supply chain vendor requirements

0%

10%

20%

30%

40%

50%

Evolution of corporate sustainability practices Perspectives from the UK, US and Canada | 5

Sustainability strategy
In addition to examining the primary sustainability drivers identified by survey respondents, the survey also queried the level of formality and importance that organizations apply to the discipline. Among larger companies 79% currently have a sustainability strategy compared with only 33% of SMEs (see chart 3).
Just as company size matters in terms of the existence of a formal sustainability strategy, so, too does location (as determined by the country in which each respondent’s association is based). CIMA and CICA respondent companies are more likely than AICPA respondent companies to have formalized sustainability strategies
Additionally, 81% of CIMA respondents from large companies (with formal sustainability strategies) report that their organization’s sustainability strategies address climate change compared to 49% of CICA respondents (from large companies with formal sustainability strategies) and 44% of AICPA respondents from large companies (with formal sustainability strategies).
CIMA respondents from larger companies (47%) also indicate that their organizations treat sustainability programs as a high priority more frequently than CICA (38%) and AICPA (33%) respondents (see chart 4). Larger companies also are more likely to create distinct sustainability offices –

corporate functions responsible for executing sustainability strategy – within their organizational structures. While less than 14% of SMEs in any of the responding companies establish separate sustainability functions, 58% of large CIMA-respondent companies, 45% of large CICA-respondent companies and 36% of large AICPA-respondent companies elect to do so.
These international differences appear to support the perception that UK and other European companies generally are ‘ahead of the curve’ with sustainability capabilities compared to US based companies (while CICA respondent organizations appear more ‘European’ in their sustainability progress). These differences likely relate to several factors, including the existence of a Carbon Reduction Commitment Energy Efficiency Scheme, which is the UK’s mandatory climate change and energy saving scheme for large public and private sector organizations.
The survey findings throughout this report also show notable differences when comparing smaller organizations to larger corporations.
And while sustainability does not formally qualify as a high priority in a majority of respondent companies, a majority do indicate that sustainability considerations are included in their investment analyses (see chart 5). This finding suggests that sustainability represents enough of a priority to be integrated into investment decisions.

Chart 3: Formal sustainability strategy
Does your company have a formal strategy related to sustainability?

100% 80% 60% 40% 20% 0%

20%

28%

24%

24%

AICPA

CICA SME companies

25%
46% CIMA

8% 21% 15%

61%

67%

88%

AICPA

CICA

CIMA

Large companies > 1000 employees

Currently have

Plan to develop 1-2 years

6 | Evolution of corporate sustainability practices Perspectives from the UK, US and Canada

Chart 4: Sustainability as a high priority
To what extent is sustainability a priority for your company?

50%

40%

30%

20%

10%

17%

18%

20%

0%

AICPA

CICA

CIMA

SME companies

33%

38%

47%

AICPA

CICA

CIMA

Large companies > 1000 employees

Chart 5: Included in investment analysis

Is sustainability considered by your company in evaluating any new investment decisions including capital or other investments?
70%

60%

50%

40%

30%

20%

10% 45% 58% 57% 58% 59% 64% 0%

AICPA

CICA

CIMA

AICPA

CICA

CIMA

SME companies

Large companies > 1000 employees

Evolution of corporate sustainability practices Perspectives from the UK, US and Canada | 7

Case study: Woodbine Entertainment Group
Implementing sustainability, starting with social responsibility About a decade ago, Woodbine Entertainment Group, a Canada-based horse-racing operator, started developing a sustainability program that primarily consisted of community investment activities. After achieving early success in its charitable efforts, the company expanded its definition of sustainability to include environmental efforts that also generate significant efficiency gains. Jane Holmes, Woodbine Entertainment Group’s vice president, corporate affairs and corporate social responsibility officer, notes that the structure and processes required of community-investment and other corporate social responsibility (CSR) initiatives translate well to environmental efforts. The company’s not-for-profit status, a rarity in the horse-racing industry, made its community efforts stand out because very few not-for-profits in any industry make sizeable charitable donations. Woodbine is the only not-for-profit member of Imagine Canada, a national program that promotes public and corporate giving, volunteerism and support to the community. The benchmark of Imagine Canada membership involves donating 1% of pre-tax profits to charities. Woodbine Entertainment exceeds this requirement by donating a minimum of 3% of net revenues to charities each year. The company formalized its community investment activities eight years ago. More recently, the company’s leadership realized it could apply similar procedural discipline to environmental initiatives – after investing roughly $12 million to replace a dirt horseracing track with a synthetic track. The move to a more forgiving track surface was intended to bolster safety for horses and jockeys; however, the company quickly discovered that the new surface did not require watering or nearly as much grooming by tractors. To measure and report on its reductions in water usage and carbon emissions, Woodbine soon applied similar decision-making and tracking processes it previously used to manage its community investment efforts. The company subsequently built upon these efforts by: • Appointing sustainability officers: Woodbine’s board of directors created the role of corporate sustainability officer
(Holmes) and environmental officer to oversee the company’s activities in these areas. • Establishing a ‘green action team’: A team of middle managers and front-line staff work together to identify potential
savings that can be generated through environmental projects, such as waste reduction, the use of solar-powered external lighting and rebates from electric providers and government agencies from the move to more energy-efficiency systems within its aging facilities. • Involving the CFO: If an environmental initiative proposed by the green action team is approved the Green Steering Committee, comprised of the Company’s CSR Officer, Environmental Officer, Senior VP Operations, Director of Energy Manager, Sr. Manager of CSR and Director of Purchasing, creates a business case that is then presented to the CFO for evaluation. The environmental officer, who also serves as the company’s director of property development, also reports to the CFO. • Measuring employee and customer perceptions: To keep tabs on the effectiveness and value of its sustainability efforts, Woodbine measures employees’ perceptions of the sustainability program in engagement surveys (recent results of which suggest that sustainability marks a ‘very strong driver’ of employee engagement, Holmes notes) and customer exit surveys. More than 80% of customers leaving Woodbine’s race tracks indicate that the company’s sustainability programs positively influence their decision to do business with Woodbine.
8 | Evolution of corporate sustainability practices Perspectives from the UK, US and Canada

Preparing to load PDF file. please wait...

0 of 0
100%
Evolution of corporate sustainability practices