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April 14, 2008

It pays to be sustainable

Corporate Social Responsibility is no longer good karma – it is good business. Once perceived as a means to display an organisation’s ethical side, CSR initiatives such as sustainability reporting are now being employed en masse as vital tools for companies to grow and prosper. Arvind Hickman reports.

The growth in sustainability reporting over the past couple of years highlights a gradual shift in public attitude towards issues such as the social effects of business and climate change.

This year’s Global Reporting Initiative (GRI) conference aims to highlight, among other things, that sustainability reporting is profitable, necessary and in high demand. Another key focus of the conference will be to gather the views of report users and debate whether the current reporting model is meeting the needs of the people it is targeted at.

An extensive survey of report users that will be revealed on May 8 provides clues to the value of these reports.

GRI chairman Mervyn King predicts the Corporate Social Responsibility (CSR) wave will continue to gather momentum and spread. “You know the reality is that there is a new general awareness of sustainability” he says. “I mean let’s just take one sustainability issue – climate change. If I had said to you two years ago that over 80 percent of companies today have on their risk management agenda climate change, you would have laughed at me. There has been growing public attention and there is no doubt about it – the world is concerned.

“Of the hundred largest economies in the world by way of gross revenue, 51 are companies and 49 are governments. Therefore the greater agents for change to improve the quality of the world we live in are companies and not governments. They have a greater influence today on people then the governments. If they can change and operate on a renewable energy source, for example, they can make a huge contribution to improving the quality of life here on earth.

King continues: “They are realising that strategically you have to plan short and long term, and you cannot plan long term without taking sustainability issues into account.”

Rabobank head of Corporate Social Responsibility Bart Jan Krouwel is a speaker at the GRI conference and has been at the forefront of the corporate sustainability movement for over three decades. He was a co-founder and inaugural managing director of the Dutch independent and green Triodos Bank before being headhunted by Rabobank.

The three Ps Krouwel describes sustainability as a concept of three Ps – people, planet and profit. In the past, Krouwel explains, most people linked sustainability to issues surrounding the planet alone, but this mindset is slowly changing.

“CSR is not idealism anymore but is daily business,” he says. “We implement all kinds of different aspects of CSR in our company and in the daily business of the entities within the Rabobank Group. We can prove from a commercial point of view CSR is profitable.”

Rabobank has introduced three green initiatives which, Krouwel claims, have led to significant cost savings.

The first was to enforce double-sided photocopying and reduce the amount of paper that is printed.

“The second thing was to change from grey energy to green energy but not in the traditional way of buying it from an energy company,” Krouwel says. “In the Netherlands, we still actually have a market share of 85 percent of the food and agricultural sectors. We are financing nearly every primary working farmer. Nearly all of these farmers have one or two windmills on their land and they are producing much more energy than they use for themselves.

“So what we did was to set up a new cooperative, as we are a co-operative ourselves, and asked the farmers to supply and deliver their surplus energy to that co-operative. We buy the energy directly from that co-operative and not the energy company anymore. This is better for the farmers because they get a better price from their own co-operative than an energy company, and we paid less than when we primarily bought it off energy companies.”

The third main CSR initiative was to lease cars that are environmentally friendly, which saves Rabobank fuel costs.

GRI Reporting Country breakdowns of self-declared reporting using the GRI guidelines 2007
The latest figures on the number of companies that now perform sustainability reports underline the growing importance of CSR to the corporate world. Sustainability reporting watchdog, Corporate Register, notes that over 2,500 corporate responsibility reports of some form were published in 2007.

The GRI’s G3 guidelines are widely regarded as an international benchmark of sustainability reporting. Launched at the last GRI conference in October 2006, G3 is the third generation of reporting guidelines produced by the not-for-profit group. It provides guidance on reporting across 79 indicators, in areas such as environment, human rights, labour practices, product responsibility, governance and strategy.

King says the current G3 guidelines are by no means the definitive article. “The guidelines will never be a finished product – this is something that is not the law. If you take every sector, [such as] the mining sector, car manufacturing sector, whatever it is, they themselves keep developing and changing, so reporting and guidelines are going to keep on changing and improving.”

Official GRI figures show nearly 1,500 companies use the G3 guidelines – an increase of more than 50 percent since G3 was first introduced. This includes several of the world’s largest companies such as Coca-Cola, Microsoft, IBM, General Electric and Nokia.

User focus One of the key aspects of this year’s GRI conference is a focus on the viewpoint of report users. King says it is the users who sustainability reports should be targeted towards, which is a departure from traditional financial reports that are typically aimed at analysts, banks and regulators.

“The reality in the world today is that the majority of the stakeholders are the pension funds and pension funds are conduits for you and me, the people in the street,” King comments. “Consequently, what is happening is that the reports should be prepared more and more with an eye on what is needed by the user rather then the preparer.

“So what preparers are now daring to do is to prepare their financial statements on how the companies did business during the year and review how it has positively and negatively affected the economic life of the community in which they have operated and how it intends to advance or improve those positive aspects and eradicate those negative aspects in the year ahead.”

One of the ways sustainability report preparers can achieve this goal, according to King, is through meaningful narrative reporting on the performance indicators contained within the G3 guidelines. “So you will see a whole new approach; getting information on the economic value of a company. That is forward-looking information, exactly what the G3 standards are about,” he says.

As commissioned by the Global Reporting Initiative, KPMG and SustainAbility (UK) conducted a survey of sustainability report users that will be presented at this year’s GRI conference. The global professional services network recently announced an initiative to reduce its combined carbon emissions by 25 percent by 2010.

KPMG Sustainability chairman Wim Bartels tells The Accountant he has noticed a rise in popularity and acceptance among clients for G3 guidelines. “The general response to G3 guidelines is positive,” he says. “After the launch of G3, our experience is that almost all clients use G3 at a minimum as a reference. With the previous model, G2, you had companies who said they used them and companies who said they had their own guidelines.”

Bartels reveals that nearly 2,300 respondents took part in the users’ survey, which also gathered the thoughts of 500 people who do not currently use sustainability reports. “I think that will be rather interesting, specifically for the reporters to understand there is a way to go to get these non-readers on board and to change their attitude,” he says.

King says the over-riding trend to emerge from the users’ survey is that users feel much better informed about an organisation that presents forward-looking information.  

Sustainability Reporting CSR Corporate social responsibility services on the rise As more and more companies adopt corporate social responsibility (CSR) schemes, the financial sector is expanding related services to the public and private sectors.

All of the Big Four and several mid-tier professional services firms now have dedicated resources to sustainability services, and demand is rising fast. Financial services organisations such as banks are offering new and innovative green products.

When KPMG Global Sustainability Services was formed 15 years ago, it initially dealt with services related to environmental issues. KPMG Sustainability chairman Wim Bartels tells The Accountant the network grew at a steady rate until 2005 when it had 250 professionals across 33 countries. In the past year, he notes, there has been rapid growth of about 20-30 percent and demand is filtering into more developing markets.

“Countries like China, Mexico, Indonesia or South Korea are now suddenly getting into this market and this is based on the demand they get from their clients,” Bartels says, adding the network now has 350 sustainability professionals.

KPMG helps organisations develop sustainability strategies, implement sustainability processes and provides assurance on sustainability reporting. One area that is rapidly growing across the profession is carbon advisory services, which is approached in a multidisciplinary way by KPMG.

Dutch co-operative Rabobank Group has also developed a solid portfolio of sustainability financial products and services, including green bonds, green loans, climate mortgage, climate credit card and various CSR asset funds.

Rabobank head of Corporate Social Responsibility Bart Jan Krouwel says there is over €10 billion ($15.6 billion) invested into Rabobank’s ethical and sustainable investment funds.

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