The Institute of Chartered Accountants in Australia is pleased to release the supplementary
paper to its 2008 thought leadership paper, Broad Based Business Reporting – The complete reporting tool.
This original paper provided an overview of Broad Based Business Reporting (BBBR), including the
importance of financial and non-financial key performance indicators (KPIs) and ways to incorporatenon-financial KPIs into existing reporting. The original paper should be read in conjunction with thissupplementary paper.
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Business reporting in practice
1. Broad Based Business Reporting
Supplementary paper
Business
reporting
in practice
2. The Institute of Chartered Accountants in Australia
The Institute of Chartered Accountants in Australia
The Institute of Chartered Accountants in Australia (the Institute) is the professional body
representing Chartered Accountants in Australia. Our reach extends to more than 60,000
of today’s and tomorrow’s business leaders, representing more than 51,000 Chartered
Accountants and 12,000 of Australia’s best accounting graduates currently enrolled in our
world-class Chartered Accountants postgraduate program.
Our members work in diverse roles across commerce and industry, academia, government and
public practice throughout Australia and in 114 countries around the world.
We aim to lead the profession by delivering visionary leadership projects, setting the benchmark
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Established in 1928, the Institute is constituted by Royal Charter. For further information about
the Institute, visit charteredaccountants.com.au
Disclaimer
This discussion paper presents the opinions and comments of the author
and not necessarily those of the Institute of Chartered Accountants in
Australia (the Institute) or its members. The contents are for general
information only. They are not intended as professional advice – for that
you should consult a Chartered Accountant or other suitably qualified
professional. The Institute expressly disclaims all liability for any loss or
damage arising from reliance upon any information contained in this paper.
All information is current as at August 2009
First published September 2009
Published by: The Institute of Chartered Accountants in Australia
Address: 33 Erskine Street, Sydney, New South Wales, 2000
Broad Based Business Reporting – Supplementary paper
First edition
Broad Based Business Reporting – Supplementary paper
ISBN 978-1-921245-57-2
ABN 50 084 642 571 The Institute of Chartered Accountants in Australia Incorporated in Australia Members’ Liability Limited. 0709-12
3. Foreword
The Institute of Chartered Accountants in Australia (the Institute) is pleased to release the supplementary
paper to its 2008 thought leadership paper, Broad Based Business Reporting – The complete reporting tool.
This original paper provided an overview of Broad Based Business Reporting (BBBR), including the
importance of financial and non-financial key performance indicators (KPIs) and ways to incorporate
non-financial KPIs into existing reporting. The original paper should be read in conjunction with this
supplementary paper.
Broad Based Business Reporting — Supplementary paper expands on the original paper by placing BBBR
firmly in the context of the global economic downturn and the ongoing tightening of capital.
The current global economic downturn has shown the folly of business and investment decisions based on
short-term gain rather than meaningful long-term value creation. In developing this paper the Institute wanted
to stimulate further debate and encourage more industries to adopt new directions in business reporting
based on reporting strategies designed to allow businesses to build business reports which effectively
communicate with their capital markets, including clear articulation of their business strategies, KPIs and
risks, and prospects based on economic, social and governance (ESG) principles.
The Institute recognises the need for the accounting profession to lead in thinking and advocating evolving
forms of reporting. Through developing this supplementary paper the Institute also recognises the important
role the business community plays in facilitating industry-wide adoption and putting into practice the BBBR
principles discussed in this paper.
Finally, I would like to thank the Institute’s BBBR Advisory Panel for their contribution in preparing this paper.
Richard Deutsch
President
The Institute of Chartered Accountants in Australia
3
7. to encourage and promote Australian research that takes into While from the data it is clear that ESG analysis is not a
account the impact of ESG issues on investment returns. Put ‘magic bullet’ for investors, the overwhelming consensus
simply, these (and subsequent super funds) have placed an is that BBBR factors can influence valuation and there is no
attractive portion of their brokerage spend in favour of quality evidence that their consideration detracts from performance.
ESG analysis. The clear economic lever to promote ESG The fact ESG analysis is not a perfect buy or sell signal
analysis is already having an effect. should come as no surprise. Many high-yielding stocks, or
The fundamental shift in demand is therefore increasing the those on seemingly attractive price to earnings ratios, can
need for the supply of relevant information – hence the role prove to be unsustainable investments.
of BBBR. Together with the phenomenal growth of UNPRI it is clear
From an economic perspective it is logical that investors that BBBR factors have reached a permanent place as part
should demand BBBR, given recent decades have marked of, and no longer apart from, investment thinking.
a shift where intangibles have moved from a minority of
Fit-for-purpose reporting and communication
an entity’s market capitalisation, to today where they are
a majority. ‘If capital markets do not work efficiently as a capital
ESG factors are recasting the way we look at investment allocation tool, the world may not invest enough
risk and opportunity, such as operational risk related to in energy infrastructure in the next 25 years (the
workplace health and safety, the opportunities presented International Energy Agency estimates that US$28
by good corporate governance and, at times of instability trillion in investment is required) with the consequence
and risk aversion, the importance of ethics and culture that two billion people or more will remain without
(E&C). Without BBBR, sophisticated capital market players
access to electricity (a key measure of energy poverty)
(including institutional investors, fund manages and analysts)
in 2030. This estimate has only a limited inclusion for
may lack material information.
climate change management investments. In reality it
The following diagram shows research which indicates
is untenable that a major reduction of energy poverty
that, although stocks rated highly for E&C underperformed
cannot be achieved before 2030. Accordingly, the real
the market in the short term, in the longer term they have
outperformed it. The research included: energy investment requirement is probably a multiple
of US$28 trillion.
> E&C risk identification
> E&C recognition In this situation and with these pressures, all conditions
> E&C policy will need to be right to significantly increase capital
> E&C oversight and remuneration generation and investment in the energy sector to the
> E&C programs and initiatives. levels required. There is presently large capital markets
reporting constraint that impedes the energy sector’s
investment credibility and performance visibility
compared to competing investment propositions,
Strategy: Invested short, bottom-rated enabled by an effective business reporting and
E&C stocks, long top-rated E&C stocks.
Stocks held on an equally weighted basis. communications toolkit.’
Rebalanced when new ratings issued.
Michael Bray, Reporting and Communications Partner, KPMG
The business case for BBBR is best demonstrated at the
industry or corporate level, for example by the energy industry.
Energy is a leading Australian industry, with global leaders
in its ranks, and energy investors are looking for long-term
payback.
There is massive capital demand in the energy industry,
including new areas (uranium, clean coal, Carbon Pollution
Reduction Scheme (CPRS)) and global demands for
Australian energy capital. The capital supply for the energy
industry is severely constrained, and refinancing debt for
7
11. 3. Industry-focused reporting
KPIs are only a first step; a business needs to have a Reporting options
reporting and communication strategy tailored to its
circumstances. For businesses operating in the energy Option 1 Companies already producing a sustainability
and minerals sectors, the industry bodies for these sectors report or annual report containing sustainability
information continue to do so. Responses to the
provide guidance for KPI reporting, as detailed below.
reporting guidelines are incorporated into the
3.1 Energy report and the page numbers referenced in the
questionnaire.
Energy Supply Association Australia (esaa) Sustainable
Practice Framework Option 2 Companies that do not already publicly report
The Sustainable Practice Framework builds on the former information may respond to the reporting
esaa Code of Sustainable Practice. It recognises existing guidelines via the questionnaire. The questionnaire
would require companies to explain how they
minimum standards of performance and sets ‘stretch goals’
have complied with each principle and measure
to help businesses implement sustainability over time.
their performance in each area.
The Framework has been developed to set a standard of
sustainability performance in line with leading national and
international sustainability, practice and reporting, encourage
best practice sustainability programs, improve voluntary
sustainability reporting and share good environmental,
community, governance and workplace practice within
the energy supply industry. Signatories are encouraged to
publicly report their sustainability performance.
The Framework comprises a set of nine sustainability
principles, two reporting options and an awards structure
covering both sustainability reporting and innovation in
sustainability such as demand management, supply chain
and climate change response.
Sustainability principles
1. Maintain good corporate governance practices
2. Deliver value to shareholders, customers and the
community
3. Provide a safe, secure and reliable energy supply
4. Engage key internal and external stakeholders on
significant sustainability matters
5. Maintain and enhance workforce health, safety,
wellbeing and development
6. Develop and implement climate change responses
7. Improve environmental performance and resources
efficiency
8. Foster and support community programs
9. Promote measurement and reporting of sustainability
performance.
Each of the nine principles is supported by a position
statement, qualitative measures and quantitative measures.
Refer to Appendix 1 for details of the quantitative measures
for each principle across the four industry sub-sectors:
Generator, Transmission, Distribution and Retail. The
Framework takes into account the GRI G3 Guidelines and its
related electric utilities sector information when determining
the quantitative measures.
11
13. 4. Global initiatives
BBBR draws on international best practice models, taking 4. Collaborate with users and suppliers of capital
on the best features from each of the following initiatives. The EBR Consortium will provide an opportunity for
the users and providers of capital, working together, to
4.1 Global Reporting Initiative (GRI) and eXtensible improve the quality of the information provided to the
Business Reporting Language (XBRL) capital markets. Companies that provide relevant, neutral,
Broad Based Business Reporting – the complete reporting verifiable and complete information get benefits in the
tool included some background information on the GRI. form of lower capital costs and greater market credibility
GRI has been working with the investor community since 5. Enhance the integrity of the capital markets
its inception and is currently working with investors in No regulation, rule, law, standard or principle alone
several areas: can protect investors and maintain the integrity of the
> Establishing an Investor Consultation Group to develop capital markets. A steady flow of timely, comprehensive
guidance on how sustainability reports can be most useful and accurate information requires all of the following
for investors elements:
> Researching trends in how investors use ESG information > A culture that embraces transparency, accountability
> Making communication of ESG information to investors and integrity
and research agencies more efficient through XBRL > Effective controls over business systems and processes
> Working with investor initiatives to further promote the use > A more efficient and effective way to accumulate,
of sustainability information. disseminate and use information
What is XBRL? > A voluntary framework for providing relevant
information
XBRL offers a way to put an electronic ‘tag’ on numbers or
other qualitative information in the report. It provides major > Timely assurance that a broad range of information
benefits in the preparation, analysis and communication is relevant and reliable.
of business information. It also offers cost savings, greater 4.3 World Intellectual Capital Initiative (WICI)
efficiency and improved accuracy and reliability to all those
www.worldici.com
involved in supplying or using financial data.
WICI is a private/public sector collaboration aimed at
4.2 Enhanced Business Reporting (EBR) improving capital allocation through better corporate
www.ebr360.com reporting information. Its goals are to:
We noted the EBR Consortium in our first paper. The core > Develop a voluntary global framework for measuring
principles of EBR are: and reporting corporate performance to shareholders
and other stakeholders
1. Give the capital markets relevant information
> Develop guidelines for measuring and reporting on
To make successful decisions, management and investors
industry-specific KPIs
need information about value drivers. These can be
measured numerically through KPIs or may be qualitative > Facilitate the development of XBRL taxonomies for
factors such as business opportunities, risks, strategies this content.
and plans, all of which permit assessment of the quality, It is hoped that the provision of better information will
sustainability and variability of its cash flows and earnings improve capital allocation decisions both within companies
2. Eliminate stale and redundant disclosures and between investors and companies. The result will be
Some older requirements may no longer be useful and more wealth creation for a better world economy.
actually obscure with needless and irrelevant detail In 2008, WICI published a comprehensive information
the important current information a company may be framework and XBRL taxonomy to help companies improve
attempting to disclose communications with investors and other stakeholders about
3. Make information easier to use business strategy and performance.
The EBR framework makes it possible to create useful The EBR Consortium and Gartner, Inc. are collaborating to
classifications (ie. taxonomies for value drivers, engage capital market participants in a study to test and
non-financial performance measures and qualitative validate research on a set of KPIs, for the high technology,
information) and specifically enables a more robust use insurance and retail and consumer goods sectors, that are
of XBRL taxonomies predictive of financial results.
13
15. 5. In Australia
‘In many instances Australia has shown bold leadership 5.2 Tomorrow’s Company
in innovative business developments. This leadership www.tomorrowscompany.com
has earned Australia a global reputation for effective Tomorrow’s Company is seeking to encourage a change in
and efficient capital markets and business practices. mindset and to promote the decisions and behaviours that
will make for sustainable business success. So doing, it
The Institute strongly believes that the principles can fulfil its founders’ vision of ‘a future for business which
and practices of BBBR will continue to evolve and makes equal sense to staff, shareholders and society’.
improve. It is important that Australian businesses
and Chartered Accountants adopt and practice non- 5.3 Responsible Business Practice project
http://thehub.ethics.org.au
financial business reporting practices, like BBBR, to
The Australian Government, through Treasury, has
attract domestic and international investors.’
commissioned St James Ethics Centre to undertake
Lee White, General Manager Leadership and Quality, a three-year project to expand responsible business
Institute of Chartered Accountants in Australia practice nationally.
The goals of the project are:
Along with the Institute’s BBBR reporting tool, a number > To expand the number of Australian companies that
of organisations have developed like-minded reporting are actively engaged in identifying and adopting more
frameworks, designed to challenge the way an responsible business practices
organisation’s financial and non-financial performance
> To consider options to improve, and where necessary
indicators are reported.
refine, the tools that are available to promote responsible
5.1 PwC Corporate Reporting business practices across all levels of corporate
www.corporatereporting.com management.
Globally PricewaterhouseCoopers (PwC) has identified St James Ethics Centre has launched a website called the
forward-thinking companies who has challenged the way HUB of Responsible Business Practice. This website has
they present traditional financial information and whose been designed as a consolidated space for engagement,
reporting provides clear and explicit narrative and contextual interaction and connectivity to help build communities of
information to help investors model the future. It uses its responsible business practice in Australia. The website also
corporate reporting framework as the basis for choosing provides a portal to the key global initiatives, including the
and presenting these examples. The framework covers four Global Reporting Initiative (GRI), Corporate Responsibility
areas: Market Overview, Strategy & Structure, Managing for Index (CRI) and United Nations Global Compact (UNGC),
Value and Performance. seeded through a range of local activities. Complementing
In Australia the following companies have been identified these global initiatives are a suite of resources designed
as having good practice examples of reporting in the to support and guide small to medium enterprises on their
following areas: responsible business practice journey.
> ANZ Banking Group Limited – for disclosures on
Managing Value (Customers)
> IAG Limited – for disclosures on Market Overview
(Competitive Environment), Strategy & Structure
(Goals & Objectives), Managing Value (Customers),
Performance (Economic & Operating)
> Santos Limited – for disclosures on Strategy & Structure
(Goals & Objectives, Governance), Managing Value
(Physical Assets, Supply Chain), Performance (Economic,
Operating, Segmental)
> Westpac Banking Corporation – for disclosures on
Strategy & Structure (Goals & Objectives, Governance),
Managing Value (Customers, People, Supply Chain),
Performance (Operating, Segmental).
15
17. GRI indicators
Principle Generator Transmission Distribution Retail
6. Develop and implement EN3 Direct energy — — —
climate change consumption by
responses primary energy
source.
EN6 Initiatives to provide energy-efficient or renewable energy-based products and services, and
reductions in energy requirements as a result of these initiatives.
EN16 Total direct and indirect greenhouse gas emissions by weight.
EN18 Initiatives to reduce greenhouse gas emissions and reductions achieved.
7. Improve environmental EN8 Total water EU13 Transmission and distribution efficiency. —
performance and withdrawal by EN14 Strategies, current actions and future plans
resources efficiency source. for managing impacts on biodiversity.
EN20 NOx, SOx and
other significant
air emissions by
type and weight.
EU12 Average generation efficiency by energy source and by country or —
regulatory regime.
EN21 Total water discharge by quality and destination.
EN22 Total weight of waste by type and disposal method.
8. Foster and support SO1 Nature, scope and effectiveness of any programs and practices that assess and manage the impacts
community programs of operations on communities, including entering, operating and exiting.
9. Promote measurement Has the organisation reported on the indicators referenced in this table?
and reporting
of sustainability
performance
17
19. Acknowledgments
BBBR thought leadership paper has been prepared by the Institute in consultation with the
Institute’s BBBR Advisory Panel.
The Panel consists of:
Ian Matheson CEO of Australasian Investor Relations Association
Michael Bray Partner, Business Reporting and Communications, KPMG
Erik Mather Managing Director, Regnan Governance & Research
Nick Ridehalgh Lead Partner, Corporate Reporting and Communications, PricewaterhouseCoopers
The Institute would like to thank the Panel for their contributions and continued
involvement in the project.
19
20. Contact details
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