Presentation to the Michigan Association of CPAs in August, 2012 - Reporting for Corporate Responsibility

1. August 22-23, 2012
Mt. Pleasant, Michigan
Michigan Association of CPA’s
Small Practitioner
Conference
Reporting for Social Responsibility?
Exploring the Sustainability Reporting Process
William Newman, MBA, CMC – Managing Principal, Newport Consulting Group

2. Speaker Introduction
William D. Newman, CMC, MBA
• Managing Principal, Newport Consulting Group
• Member, SAP Sustainability Executive Advisory Council
• Certified Management Consultant (since 1995)
• Over 25 years in industry, professional services
• Adjunct faculty, Northwood University (International
Management)
• Adjunct faculty, University of Oregon (Sustainability Leadership)
• Management Consulting Taskforce (Michigan Assn. of CPAs)
• Professional Speaker (American SAP User Group, SAP Insider,
TEDx, Sustainable Business Forum, Michigan Assn. of CPAs)
TEDx talk at http://www.youtube.com/watch?v=8BmLVpdWvFk
• Numerous articles on program oversight, stakeholder
engagement, strategy, sustainable supply chain, social media
• Twitter (@william_newman)
• Google+ (+William Newman)
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3. Discussion Points
• The Changing Global Environment
• Today’s Sustainability Mandate
• Types of Common Sustainability Documents
• Reporting and Auditing
• Links and References
• Key Take-away Points
• Summary and Discussion
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4. The Changing Global Environment
(cc) Library of Congress
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5. The Changing Global Environment
(cc) Elizabeth Swider
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6. The Changing Global Environment
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7. The Changing Global Environment
Tier 1 Suppliers Product Materials Tier n Suppliers
What do they make?
Social Performance
How do they make it?
Quality and Price
Product Materials
What do they make?
Social Performance
How do they make it?
Quality and Price
What do I make?
How do I make it? Product Materials
What do they make? Social Performance
How do they make it?
Quality and Price
Brand / OEM
Manufacturer
Product Materials
What do they make?
Social Performance
How do they make it?
Quality and Price
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8. The Changing Global Environment
The DJSI comprises publicly
traded organizations that
follow the Global
Reporting
Initiative (GRI) for
Sustainability reporting
The investment
community is giving
increased weight to
Corporate Responsibility
and Sustainability
measures to guide rating
and investment
Source: SAM Sustainability Annual Review, September, 2011
decisions.
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9. Discussion Points
• The Changing Global Environment
• Today’s Sustainability Mandate
• Types of Common Sustainability Documents
• Reporting and Auditing
• Links and References
• Key Take-away Points
• Summary and Discussion
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10. Today’s Sustainability Mandate
The Challenge: A Real World Story
Photo: Sulekha.com
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11. Today’s Sustainability Mandate
The Challenge: A Real World Story
Photo: Sulekha.com
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12. Today’s Sustainability Mandate
According to a survey
of global CEOs conducted by the
UN Global compact over 90% of
those surveyed considered
sustainability issues either
important or very important to
the future success of their
business.
But what does
sustainability really mean? It
depends on your framework.
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13. Today’s Sustainability Mandate
The University of
Oregon Sustainability
Leadership Program
is tracking over 50
emerging standards,
guidelines and
frameworks in the
area of sustainability.
Source: University of Oregon, Sustainability Leadership Program
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14. Today’s Sustainability Mandate
So, how are we doing? I thought you might ask…
Well, if you were to ask me the global 1,000
corporations, you know, how many of them are
sincere and seriously about sustainability and
long-term value creation, our own implementation
survey and other leading think tanks would
probably suggest we are probably at 15 percent.
- George Kell, Director
United Nations Global Compact
Source: American Public Media, Marketplace Morning Report (April 18, 2012)
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15. Discussion Points
• The Changing Global Environment
• Today’s Sustainability Mandate
• Types of Common Sustainability Documents
• Reporting and Auditing
• Links and References
• Key Take-away Points
• Summary and Discussion
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16. Types of Common Sustainability Documents
Formality of Statement
Company
UN Global DJSI / 10K
Sustainability
Compact Statement
Plan
Complex
Code of Conduct GRI Report
Simple
Statement of Intra-company
Sourcing Audits
Direction Scorecards
Complexity of Disclosure
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17. Types of Common Sustainability Documents
A Statement of Direction – Similar to a 10K President’s Message – is a publicly communicated
intent to address particular goals, mandates, or targets. This is generally non-binding and can be
confused with company “green washing” of marketing efforts.
A Statement of
Direction is a
document intended to
convey to the public,
customers,
shareholders, analysts
and other stakeholders
the position of the
organization and its
intent.
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18. Types of Common Sustainability Documents
A Code of Conduct is a statement of policy which governs how the company will behave inside its
business ecosystem, as well as the individual behavior expectations of its employees and
stakeholders. Codes may be binding from a performance management perspective.
A Code of Conduct is
interpreted by
organizations abiding
by them in the form of
policies, procedures
and guidelines.
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19. Discussion Points
• The Changing Global Environment
• Today’s Sustainability Mandate
• Types of Common Sustainability Documents
• Reporting and Auditing
• Links and References
• Key Take-away Points
• Summary and Discussion
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20. Reporting and Auditing
Organizations may have several reasons for implementing a sustainability program. While the initial
focus may be on fixing “hygiene” problems, organizations may exploit the opportunity to achieve
more strategic objectives in corporate sustainability and social performance reporting areas.
Problems Opportunities
 Manual (spreadsheet-based) systems are  Adopt a more proactive approach to supplier
“siloed,” error-prone, and do not reuse data in management
enterprise systems
 Anticipate and mitigate risk events; develop
 Roll-up processes to support audits and other response plans should these events occur
reporting needs are cumbersome
 Elevate profile of global corporate citizenship and
 Organizational accountabilities for sustainability enhance competitive brand position
are unclear
 Permeate sustainability initiatives and
 Risk of being out of compliance with changing a culture of social responsibility throughout the
global regulations organization
 No systematic way to respond to crisis or other  Improve efficiency of adjacent core processes
unforeseen event (design, manufacturing, QA)
 No alignment with overall corporate  Incorporate sustainability in strategic planning and
sustainability goals enterprise performance management
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21. Reporting and Auditing
Sustainability has Three Pillars — we find that while there may be an immediate focus on one key area
of Corporate Sustainability, attention must be given to how reporting and decision-making occurs. This
increases value drivers, reduces redundancy, improves operations, and manages costs.
Target Focus of Sample Fortune 500 CSR Programs
Survey of Selected Cross-section of Industries 2007-2009
Company Economic and Financial Environmental Social Accountability
Improve the Human
UPS Strengthen the Enterprise Protect the Environment
Condition
Minimize Environmental Local Community
Starbucks Sustainable Coffee Prices
Impacts Engagement
Commitment to Ethical
Kimberly-Clark Business Practices
Environmental Stewardship Safety and Health
Eliminate Adverse Impacts
Lockheed Martin Perform with Excellence
from Operations
Safety of Every Employee
Generally organizations focus on one particular domain of sustainability which needs
immediate attention, however understanding the strategic interaction of the other Corporate
Sustainability areas is essential and often required by reporting guidelines.
Source: CSR documents from each organization, selected from 2007-9 supplier manuals and other internal corporate documents.
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22. Reporting and Auditing
Three aspects of corporate sustainability programs have emerged: (1) development of corporate
sustainability as a profit-driven strategy, (2) assurance of the actions of the corporate sustainability
program, and (3) technology enablement of corporate sustainability for reporting and monitoring.
• Development of Sustainability Programs
Corporate Sustainability Programs
The three “aspects” of program activities
• Align to “pillars” and determine materiality
• Determine strategic orientation
• Define areas, actions, ownership, roles,
viability Program
Development
• Assurance of Sustainability Programs
• Confirm roles, metrics, outcomes, ownership
• Assure program is “as advertised”
Monitoring Governance
• Second-party corporate reporting Corporate
• Third-party accreditations / certifications Sustainability
• Enablement of Sustainability Programs
Program Program
• Identification of source information
Assurance Enablement
• Definition of reporting cycles, metrics Reporting
• Monitoring processes and governance
• Technology platforms, solutions, practices
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23. Reporting and Auditing
In 2006, the Global Reporting Initiative (GRI) was created to provide guidelines and audit
recommendations for organizations participating in sustainability reporting activities. These
guidelines ensure a level of consistency and governance in the practice of corporate sustainability.
How does GRI consider Sustainability?
 CSR “involves reporting financial and
nonfinancial information to key
stakeholders on the company’s
operational, social, and environmental
activities and its ability to deal with
related risks.”
 Considers the “triple bottom-line” of
reporting
– Economic Performance
– Social Responsibility
– Environmental Compliance
 Considers broader set of stakeholders
beyond shareholders
– Financial
– Regulatory
CSR as a practice in accounting areas is still emerging, with – Political
general guidelines based on the objectives of the Corporate – Others based on company program
Sustainability program.
Sources: The Future of Corporate Sustainability Reporting, The Journal of Accountancy. The American Institute of Certified Public Accountants, 2006.
Royal Dutch Shell, 2003 Corporate Sustainability Report (courtesy of AICPA).
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24. Reporting and Auditing
GRI reporting is a function of confirming that program initiatives, principles, and objectives are
tracked, monitored, and reported correctly across specific areas. Some guidelines for GRI reporting
have emerged, leaving management free to “do what you say” as long as it is verifiable.
Areas of CSR program called out,
then detailed against Key
Performance Indicators (KPIs) in
subsequent sections of the
sustainability report.
Overall graphic, such as a Venn
diagram, communicates the areas of
importance to various stakeholders.
Interactive Web sites allow
stakeholders including shareholders
to create personalized reports,
graphics, and tables.
Source: 2008 Corporate Sustainability Report, United Parcel Service (used with permission).
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25. Reporting and Auditing
GRI3 provides a number of criteria whereby the organization pursues a self-assessment, third-
party review, and final grading. This is similar to self-reporting, compliance audit and
certification review followed by audit, assurance and assessment of other management systems.
Inputs and Outputs for Standard Reporting
Inputs
Report Content Guidance Report Content Principles Report Quality Principles Report Boundary Setting
Profile Profile Profile Profile
Management Report Management Report Management Report Management Report
Outputs
Performance Indicators Performance Indicators Performance Indicators Performance Indicators
Source: GRI3 Standard Guidance Documents, 2006-2010.
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26. Reporting and Auditing
AA1000 AS (2008) has emerged as a guidance document in assurance circles with respect to
sustainability and corporate responsibility programs. This approach considers two levels of assurance
reporting: (1) dealing with organization behaviors and (2) behaviors in combination with KPIs, metrics.
• Key conclusions provided by assurance activities on
GRI3 and AA1000 AS (2008)
• Inclusivity: Does organization X engage with
stakeholders and involve them in organizational decision
making?
• Materiality: Does organization X identify the issues
relevant and significant to it and its stakeholders and
include these in its disclosures?
• Responsiveness: Does organization X respond to
stakeholder issues and feedback through decisions,
actions, performance and communication?
• An assurance statement for a Type 2 engagement must
also provide conclusions on the reliability and accuracy
of specified performance information.
• Additional observations, comments, and
recommendations are provided in an assurance report.
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27. Discussion Points
• The Changing Global Environment
• Today’s Sustainability Mandate
• Types of Common Sustainability Documents
• Reporting and Auditing
• Links and References
• Key Take-away Points
• Summary and Discussion
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28. Links and References
• Psycho-sustainability: A Model for Personal Sustainability, TEDxFlint, October 11, 2011
• Increase Supplier Compliance with Sustainable Business Networks,
GRC Expert (July 18, 2011)
• Best practices for managing sustainable supply chains, searchManufacturingERP.com
(July 14, 2011)
• Mastering the IT demands of a sustainable supply chain, searchManufacturingERP.com
(July 7, 2011)
• A Framework for Social Media in Sustainability Programs, Sustainable Business Forum
(February 22, 2012)
• Strategic Intent for Green Marketing and Disclosure using Social Media, Sustainable
Business Forum (March 30, 2012)
• Leverage ERP for a Greener Supply Chain, Sustainable Business Forum
(January 14, 2012)
• Sneak Peek: Sustainable Procurement as an Embedded Process in Supplier Management
Activities , GRC Expert (December 1, 2010)
• Comply with the EPA’s MRR Standard with SAP Carbon Impact OnDemand, GRC Expert
(January 7, 2011)
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29. Discussion Points
• The Changing Global Environment
• Today’s Sustainability Mandate
• Types of Common Sustainability Documents
• Reporting and Auditing
• Links and References
• Key Take-away Points
• Summary and Discussion
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30. Key Take-away Points
1. Sustainability is a growing field of business practice, winners and losers will
be chosen in part by what organizations decide to do in this field
2. There is a compelling economic and financial incentive for pursuing long-
term sustainability strategies (5-7% increase in performance)
3. Each organization is different, therefore stakeholders need to determine
which frameworks, guidelines and approaches are applicable.
4. You can’t do everything – and if you say you will you will be held
accountable for binding statements. Determine your KPIs and goals
realistically.
5. Even if you do “low-effort” GRI3 reporting, make sure the benefits
outweigh the costs. Plenty of companies “ISO’d themselves out of
business” – the same can happen with GRI3 reporting.
6. Use assurance services judiciously and at the appropriate program time.
7. Celebrate your accomplishments, use success to create opportunities
elsewhere inside the organization!
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31. Your turn!
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32. Thank you for participating.
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