CMA Management Magazine

Managing and reporting sustainability

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Courtesy of CMA Management Magazine

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As companies around the world continue to adapt their organizations to be more responsive to all stakeholders, management accountants could prove to play a very valuable role.

Organizations of all stripes are gradually seeing the value of looking beyond economic performance for indicators of success. Consumers, investors, governments and business leaders now consider how an organization’s social and environmental policies affect its sustainability and that of society at large a potentially critical issue. With the introduction of triple bottom line (TBL) reporting in the late ’90s, all stakeholders were introduced to a new method with which to review the economic, environmental and social impacts of an organization. Management accountants could play an important role in taking this change into the business mainstream.

When TBL was in its infancy, many believed it would simply be a fad. However, major Canadian businesses such as Telus Corporation, Suncor Energy Inc. and VanCity Credit Union have adopted it as a critical part of their management toolkit, and TBL reporting is getting closer to becoming mainstream. As Telus president and chief executive officer Darren Entwistle has noted, “Being a good corporate citizen also encompasses behaving in a socially responsible manner, effectively serving our customers’ needs, treating the environment with care and reaching out and supporting the communities where we earn our living. We approach community investment as an opportunity to positively enhance the social, economic and physical life in communities we serve.”

At a global level, marketing professionals have identified a new class of consumers, called lifestyles of health and sustainability (LOHAS) consumers. This group is estimated to make up approximately 30% of adults in the U.S. and is defined as “people who value health, the environment, social justice, personal development, and sustainable living.” LOHAS consumers make purchasing and charitable decisions based on their own morals — morals they expect the corporations they buy from to respect. For example, LOHAS consumers are behind the international expansion of organic food sales in mainstream supermarkets. The Canadian economy has benefited from this trend towards health-conscious food. The Canadian organic food and beverage industry currently enjoys annual growth in sales of 20%, much of which is exported.

LOHAS consumer trends are also evident in the flow of funds in global capital markets. Andrew Savitz, a partner in the governance risk and compliance group at PricewaterhouseCoopers calculated that “the amount of socially responsible capital has increased from approximately $100 billion U.S. in the 1980s to $2.2 trillion U.S. and that 50% of all investment houses now offer socially responsible investments.” It is important to note that TBL reporting is one of the primary tools organizations use to communicate with LOHAS consumers.

The evolution of reporting guidelines
The Global Reporting Initiative (GRI) was formed in 1997 as a partnership between the United Nations Environment Program (UNEP) and the Coalition for Environmentally Responsible Economies (CERES). The GRI was formed to bring consistency to the TBL reporting process by “enhancing the quality, rigour and utility of sustainability reporting.” Representatives from business, accounting societies, organized labour, investors and other stakeholders all participated in the development of what is now known as the GRI Sustainability Guidelines. Published in 2002, these guidelines are the internationally accepted standard for sustainability reporting.

The guidelines were not designed, nor intended, to replace GAAP or other mandatory financial reporting requirements. Rather, the GRI Sustainability Guidelines are intended to provide the basis for credibility and precision in non-financial reporting that complements GAAP.

Dianne Humphries of Suncor Energy Inc, one of the GRI’s top 50 reporters, notes “We believe supporting a strong, credible international standard, such as the GRI, enables us to better meet the expectations of our stakeholders. Ensuring that we are applying the highest standard available was the basis for our decision to be an In Accordance GRI reporter. It makes you ask the tough questions and requires real internal commitment.” The principles used to develop the guidelines should be very familiar to accountants — they include transparency, inclusiveness, auditability, completeness, relevance, sustainability context, accuracy, neutrality, clarity and timeliness.

Without a doubt, management accountants have existing skills that are easily transferable to the realm of sustainability management and reporting. Nevertheless, introducing these processes to an organization can be a challenge.

Adapting to the new reality
The change from one dimensional financial reporting to three dimensional TBL reporting has created new challenges, however it has also created new opportunities. CMAs in particular already possess many skills required to take advantage of these opportunities. Nevertheless, some challenges will require management accountants and other financial professionals to adapt and learn some new skills.

Some of these new skills were identified by the Institute of Chartered Accountants in England and Wales (ICAEW) in a recently published report entitled Sustainability: the role of accountants. The following information includes a sum-mary of the major conclusions in this report, adapted to reflect a North American perspective. Each specific conclusion is matched with specific examples of relevant GRI performance indicators to help provide some perspective for those who have limited exposure to managing and reporting sustainability.

Assurance and auditing processes
Accountants clearly have a critical role in assurance and auditing processes. At a minimum, they will be required to have a basic understanding of the terminology and criteria under review. In the future, accountants will need to be capable of verifying environmental and social criteria, or have the ability to work with other experts such as environmental auditors and community-based organizations to verify non-financial performance. Ultimately, accountants will be required to report and verify non-financial information to the same standards that financial information must meet.

Relevant GRI performance indicators:
- Description of commitment to economic, environmental and social goals.
- Performance against benchmarks, targets and industry norms.
- Major challenges for the organization in integrating financial performance with environmental and social performance.
- Percentage of board of directors that are independent, non-executive directors.

Corporate social responsibility policies
The corporate social responsibility movement and resulting TBL reporting processes are now being standardized and formally recognized by accounting and regulatory bodies around the world. The International Federation of Accountants (IFAC), for instance, is currently reviewing various narrative and environmental practices. Accountants and their member bodies will be involved in integrating these processes into existing structures or will be assigned responsibility to create new processes.

Relevant GRI performance indicators:
- Externally developed voluntary charters or principles to which the organization subscribes.
- Policies and/or systems for managing upstream or downstream impacts.
- Approaches to stakeholder consultation and frequency.
- Awards received relevant to social, ethical and environmental performance.

Director liability and future expectations
Boards of directors are ultimately responsible for both the financial and non-financial performance of their organizations. Accountants will need to ensure that credible and coherent information is communicated to directors. Accountants who sit on boards will be relied upon to establish and interpret corporate social responsibility policies, TBL processes and their implications.

Relevant GRI performance indicators:
Explanation of whether and how the precautionary approach or principle is addressed by the organization.
- Status of certification pertaining to economic, environmental and social management systems.
- Explanation of the nature and effect of restatements of information provided in earlier reports and the reasons for such restatements.
- Description of policy for preserving customer health and safety during use of products and services.

Key performance indicators for Balanced Scorecards
Many CMAs play a lead role in developing key performance indicators (KPIs) for balanced scorecards. Common environmental KPIs include emissions to air, land and water and natural resource use. Environmental KPIs are often calculated per unit of production so that stakeholders can easily understand an organization’s direct environmental impacts. Common social KPIs include worker injury and illness rates. In the future, accountants will have to know what indicators are appropriate to measure TBL performance.

Relevant GRI performance indicators:
- Percentage of materials used that are wastes.
- Direct energy use segmented by primary source.
- Standard injury lost days, absentee rates and fatalities.

Preferred supplier standards
To preserve their reputation, image and quality, organizations have long established environmental standards for their suppliers, such as ISO 14001 or recycled content requirements. Organizations are now establishing social criteria that their suppliers are required to meet to comply with corporate social responsibility commitments. In the garment industry, compliance with international labour standards that guard against child labour and so-called “sweat-shop” working conditions are two examples. Accountants will be required to monitor and measure compliance with these standards to encourage suppliers to meet sustainability goals.

Relevant GRI performance indicators:
Percentage of contracts that were paid in accordance with agreed terms.
- Descriptions of policies, guidelines, corporate structure and procedures to deal with all aspects of human rights.
- Performance of suppliers relative to environmental requirements.

Management of environmental and social issues can generate increased profits. DuPont has introduced the use of renewable energy, which generates annual savings of between $10 to $15 million U.S. dollars. Accountants will be expected to help research and identify where these opportunities exist and to maximize the financial savings.

Relevant GRI performance indicators:
Increase/decrease in retained earnings at end of period, used to calculate return on average capital employed.
- Total recycling and reuse of water.
- Organization’s indirect economic impacts.

Restrictions and bans
Socially responsible investment funds often exclude whole business sectors from their investment portfolios. Common sectors that are excluded include tobacco, alcohol, pornography and manufacturers of military equipment. Some restrictions and bans are politically driven. The embargo against South African goods during the apartheid era is one example. Activist groups have also organized successful boycotts against companies as a result of the use of child labour, disregard for indigenous peoples or conducting business with certain governments. As trusted members of society, accountants will be called upon to share information with enforcement bodies and other stakeholders.

Relevant GRI performance indicators:
- Description of policy excluding child labour.
- Description of policies, guidelines and procedures to address the needs of indigenous peoples.
- Amount of monies paid to political parties and institutions whose prime function is to fund political parties and candidates.

Taxes and subsidies
Governments around the world will continue to introduce levies, taxes and subsidies that discourage unsustainable products and services. Accountants will be directly involved in financial calculations that demonstrate how organizations can reduce their taxes or take advantage of new market conditions as a result of changes in government policies. Examples include tax exemptions for the production of sustainable energy and job creation incentives for disadvantaged social groups.

Relevant GRI performance indicators:
Subsidies received broken down by country or region.
- Total sum of all taxes of all types paid broken down by country or region.

Tradable permits
Russia’s recent acclamation of the United Nations Framework Convention on Climate Change, more commonly know as The Kyoto Protocol, will result in the implementation of an international and legally binding agreement to reduce greenhouse gases by 5% by 2012 compared to 1990 generation levels. The Kyoto Protocol is scheduled to come into force early in 2005. Several countries, including Canada and the UK, have introduced frameworks to allow emissions trading. Accountants who work for organizations that are involved in emissions trading will be required to be knowledgeable about market conditions and other important factors, such as exchange rates, to facilitate willing-buyer and willing-seller transactions.

Relevant GRI performance indicators:
- Greenhouse gas emissions.
- Use and emissions of ozone-depleting substances.
- Significant environmental impacts of transportation used for logistical purposes.

Voluntary regulations and standards
Companies frequently agree to meet voluntary regulations. From an environmental perspective, companies have agreed to meet voluntary environmental regulations such as not harvesting endangered species or conducting business activities in ecologically sensitive areas — often due to pressure from environmental groups and governments. From a social perspective, companies have agreed to meet voluntary standards that restrict the time of day commercials for beer and spirits are on television. The United Nations’ International Labour Standards is a convention that is commonly used as the minimum standard for the production of consumer goods in developing countries. Accountants will be expected to monitor compliance with voluntary regulations and standards and, where appropriate, take corrective actions.

Relevant GRI performance indicators:
- Location and size of land owned, leased or managed in biodiversity-rich habitats.
- Changes to natural habitats resulting from activities and operations and percentage of habitat protected or restored.
- Voluntary code compliance, product labels or awards with respect to social and/or environmental responsibility that an organization is qualified to use
or has received.

Anticipating workplace changes
Using just financial information to make workplace decisions is no different than a person only using one or two of the five senses to make individual decisions. Accountants must be prepared to use all of their senses to measure their organization’s performance. Here are a few questions you can ask that will enable you to foresee if better management of economic, environmental and social issues can make your organization more sustainable.

How does information flow?
The effective collection and distribution of timely and relevant information enables organizations to respond to both positive and negative emerging trends. You should find out how and if your organization is actually responding to important trends. Have you recently missed any opportunities or failed to prevent negative events? If there are deficiencies, prepare a basic plan for discussion with management that addresses how non-financial reporting can be introduced and combined with existing systems to improve the flow of information and quality of decision making.

How risky is our position?
Improved risk management is something that most organizations feel is valuable. Better administration of non-financial information is a critical part of improvements to any risk management plan. This is a simple test for you to conduct to quickly determine if your organization can improve its risk management practices. Prepare two simple SWOT analyses for your organization, one with only financial information and one with both financial and non-financial information. Which one is better? If the SWOT analysis with both types of information generates a more accurate picture of risk in your opinion, you should seek out additional non-financial information and determine if it changes or confirms your assessment of your organization’s risk management capabilities and current situation.

What is our source of competitive advantage?
Most businesses compete on either price or level of quality or service to generate their competitive advantage. Non-profit organizations often use efficiency, values of service or societal benefit to generate their competitive advantage. Can your organization or direct competitors produce additional economic, environmental or social advantages that can be used for competitive purposes, such as community support, better brand identity, reduced waste disposal costs or better employee working conditions? As mentioned earlier in this article, LOHAS consumers already ask themselves these questions when they make purchasing decisions or charitable donations.

One example of an organization that asks these types of questions about the environmental and social impacts of their business is VanCity Credit Union, and they are not shy about sharing the information, as their Web site clearly indicates. “Key findings from our social audit are used to inform our business planning process resulting in the setting of targets and action plans to ensure continuous improvement of our performance” it notes. “Progress made on these targets and action plans is published in our Accountability Report.” Reporting triple bottom line information enables VanCity to be a vanguard in the management of corporate social responsibility and ultimately sustainability. This is a source of competitive advantage according to VanCity’s chief executive officer Dave Mowat, because the process and results present “an opportunity for VanCity to differentiate itself from the big banks.”

Building new skills
There are several sources of information that accountants can use to build new skills in support of their expanded role of managing and reporting non-financial issues.

Consult the CMA Canada Strategic Management Series
There are several excellent management accounting guidelines that can assist with the implementation of triple bottom line reporting, including:

  • Developing Comprehensive Performance Indicators
  • Monitoring Customer Value
  • Strategic Partnering
  • Tools and Techniques of Environmental Accounting for Business Decisions
  • Understanding and Implementing ISO 14000
  • Value Chain Analysis for Assessing Competitive Advantage
  • Writing and Evaluating Sustainable Development and Environmental Reports

Become a translator
Accountants who are actively engaged in TBL reporting are often directly responsible for communicating the results to various stakeholders. To communicate effectively, accountants must understand the terminology and concepts used by various stakeholders. A basic understanding of technical environmental terminology and current social trends and conditions is crucial. At the same time, accountants must be able to translate this terminology back into terms that decision makers can understand.

Enter the lion’s den
If you have environmentalists banging on your door or a community group rallying against you, extend an invitation to meet with them. Nothing may be accomplished but at least both parties will have the opportunity to communicate directly. Mutual understanding and respect usually form the basis of healthy relationships. Direct communication is usually the first step in this process.

Become culturally literate
The world is full of different cultural norms and traditions. If you interact with a specific cultural group, it can make a huge difference in the quality of a relationship if you have even a basic understanding of cultural ceremonies, traditions and taboos. For example, in some cultures simple things such as meeting times, speaking order based upon age, shaking hands between people of different sexes and how business cards are exchanged can make the difference between success and failure in a relationship.

Go back to school
If you are suddenly faced with having to understand labour relations, international trade regulations or environmental assessment processes, find a class to take at a university or college that will introduce you to the subject. If you do not have time to attend a class, ask someone who is well versed in the subject to lend you a book or refer you to an appropriate source that will help you get your feet wet.

The first thing taught in many introductory accounting classes is “if you cannot measure something, you cannot manage it.” Societal expectations about sustainability are constantly evolving. Many of these new expectations cannot be assigned a financial qualifier, however, these expectations can be measured effectively.

Consequently, non-financial measurement and reporting skills are quickly becoming skills accountants are expected to possess. The good news is that CMAs are well positioned to adapt their existing skills to manage and measure all of the key components of TBL reporting, which is ultimately used to manage sustainability. In conclusion, do not forget that when it comes to leading your organization on a journey towards sustainability, management and reporting are important, but they are clearly not a substitute for accomplishment. Suncor, Telus and VanCity are excellent examples of organizations that have taken concrete actions to become more sustainable and all are using elements of the GRI Sustainability Guidelines to communicate their challenges, progress and future plans.

David Crawford, CMA, CCEP, ( is the Market and Technical Services Manager at Manitoba Product Stewardship Corporation.

For a list of references for this article, please contact the editor, Robert Colman at


The GRI Sustainability Guidelines

The GRI guidelines include qualitative statements about an organization’s:

  • Sustainability vision, strategy and major themes
  • Reporting scope
  • Overview including key relationships, evaluation criteria, policies and practices
  • Explanation of governance structure and management systems, and
  • Stakeholders and engagement processes

The qualitative requirements include:

1. Economic Performance Indicators, which include direct economic impacts, customers, suppliers, employees, capital sources and the public sector.
2. Environmental Performance Indicators, which include energy, water, biodiversity, emissions, effluents and waste, supplier’s uses, and more.
3. Social Performance Indicators, including: labour practices and decent work; human rights performance (labour/management relations, health and safety, training and education, diversity, etc.); human rights (including strategy and management, non-discrimination, freedom of association and collective bargaining, disciplinary practices; and the use of child labour); societal issues (including community involvement, monitoring for bribery and corruption, and competition and pricing practices); and product responsibility (how they affect customer health and safety, products and services offered, advertising practices, and respect for privacy).

The GRI Guidelines are just that — guidelines. Most companies preparing triple bottom line reports use them as a basis for charting their company’s unique environmental and social concerns.


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