Tag Archives: Sustainability Reporting

SDG Goal 1 End Poverty – Businesses can get involved!

 

no-poverty

Sustainability Within Reach LLC supports the Sustainable Development Goals.

As promised in my last post, this post discusses how businesses can apply Goal 1 of the Sustainable Development Goals (SDG).

Goal 1. End poverty in all its forms everywhere

Here are the targets to achieve the goal.

Targets

1.1 By 2030, eradicate extreme poverty for all people everywhere, currently measured as people living on less than $1.25 a day

1.2 By 2030, reduce at least by half the proportion of men, women and children of all ages living in poverty in all its dimensions according to national definitions

1.3 Implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and the
vulnerable

1.4 By 2030, ensure that all men and women, in particular the poor and the vulnerable, have equal rights to economic resources, as well as access to basic services, ownership and control over land and other forms of property, inheritance, natural resources, appropriate new technology and financial services, including microfinance

1.5 By 2030, build the resilience of the poor and those in vulnerable situations and reduce their exposure and vulnerability to climate-related extreme events and other economic, social and environmental shocks and disasters

1.a Ensure significant mobilization of resources from a variety of sources, including through enhanced development cooperation, in order to provide adequate and predictable means for developing countries, in particular least developed countries, to implement programmes and policies to end poverty in all its dimensions

1.b Create sound policy frameworks at the national, regional and international levels, based on pro-poor and gender-sensitive development strategies, to support
accelerated investment in poverty eradication actions

These targets are ambitious, and businesses have an important role to play in achieving them! Many businesses are already doing so, and there are many examples.

So your next questions are why and how would my business get involved?

A quote from Ban Ki-Moon, United Nations Secretary General (2008-2016), provides a big picture perspective.

…we must invest in people – in education, skills development, health care. This will help equip people for decent jobs and incomes. It will boost purchasing power. The virtuous cycle between human capital, jobs and income is central to building healthy local markets and a healthy world economy. It is good for people and good for business.

Evaluating your entire value chain (i.e., the full lifecycle of your products and services) can help identify areas that can reduce your negative impacts and improve your business simultaneously. Your business decisions about things such as employee wages, working conditions, product pricing, or raw material sources have impacts on people in poverty.

You can measure your direct impacts on the local economy. What proportion of your spending is on local suppliers at significant locations of operations? To illustrate how UPS affects the local economy, here is an excerpt from its 2015 sustainability report.

In 2015, UPS spent approximately US$943 million in procurement with small and diverse businesses in the United States.

A third-party study on the economic impact of our spending with small businesses, as well as minority-, women-, veteran-owned, and other diverse suppliers in 2015, found that UPS contributed more than US$2.3 billion to the U.S. economy (U.S. GDP) and sustained more than 14,200 jobs in the supply chain and local communities. A breakdown of that US$2.3 billion includes US$941 million in direct economic benefit from suppliers’ operations and activities; US$639 million in indirect impact from the economic benefit and employment supported in the suppliers’ respective supply chains from procuring goods and services; and US$743 million in community impact from the wider economic benefits that arise when the suppliers’ employees and those in their supply chains spend their earnings. Overall, for every million dollars that UPS spends with small and diverse suppliers, 15 jobs are created with those companies in their local communities.

If supply chains are a significant part of your business, evaluating them not only on economic criteria but also on social criteria can be an effective risk management tool. Do you have policies to screen for suppliers that adhere to international and your company-specific human rights and labor standards? You can have a positive influence by demanding adherence to these standards. This is a proactive approach that is much less costly than a reactive one.

How you are investing in the economic well being of your employees has a direct economic impact on poverty alleviation. Lower incomes reduce access to adequate housing, quality education, social networks, and social status among others. Evaluating the wages paid along with how they compare to the minimum wages in the local area puts a focus on a company’s economic impact on workers. For example, Abengoa, a Spanish company that applies technological solutions in the energy and environment sectors, disclosed in its 2015 sustainability report the percentage paid to its workers above the local minimum wage.

abengoa-ec5-2015

 

Another example where companies can assess their impacts on poverty is examining their significant positive and negative indirect economic impacts. In the Global Reporting Initiative (GRI) Sustainability Reporting Standards, there are several examples of indirect economic impacts that illustrate this idea.

  • How does your company change the productivity of organizations, sectors, or the whole economy?
  • Is your company involved in economic development in areas of high poverty?
  • Does your company’s economic impact in a particular location improve or deteriorate social or environmental conditions?
  • What is the availability of your products and services for those on low incomes?

What should you do with your answers to these questions and your evaluation of your business? You can incorporate these issues into your business strategy. You can set targets for improvement. You can publish a sustainability report to measure your progress.

Baxter International is an example of a company that has set targets and reported them its sustainability reports. In its 2015 report, Baxter pledged to increase it spending with diverse suppliers by 50%, from 4% of relevant spending in 2015 to 6% in 2020. These published targets are public commitments that reveal the company’s sustainability strategy and implementation plans.

To be a part of the solution to end poverty, your business can be involved; it can measure its impacts, set targets, and report its progress in a sustainability report.

The next blog will examine how your business can help achieve SDG Goal 2 Zero Hunger.

New Book Available Now!

Sustainability Reporting: Getting Started, 2015 (2nd edition). Gwendolen B. White

Sustainability Reporting: Getting Started, 2015 (2nd edition). Gwendolen B. White

My new book is now available at Business Expert Press! This latest edition presents the rationale for reporting along with a discussion of the major sustainability reporting frameworks such as the Global Reporting Initiative (GRI) G4 Sustainability Reporting Guidelines, the Integrated Reporting Framework, and the Sustainability Accounting Standards Board Standards. You will find detailed examples of the GRI G4 Guidelines from actual company reports such as UPS, Nestle, and Weyerhaeuser, to name a few. These examples show how major companies have applied the GRI guidelines. This book can help get your organization started on its reporting journey.

 

Idea for Assurance on CSR Reports

An idea for improved sustainability report assurance.

An idea for improved sustainability report assurance.
Photo: Gwen White

In my last blog, I wrote about VWs limited assurance report on its latest sustainability report. I think limited assurance makes sense for sustainability reports after a high level of assurance has occurred. In VW’s case, this high level of assurance never had occurred.

How do we get companies to have their sustainability reports assured at a higher level? I suggest that high level assurance be done every other year with limited assurance to be performed in the years in between. This idea has some parallels to financial statement audits.

Every year public companies publish full financial statements, which are audited once a year. In an audit, considerable testing is performed on the systems that provide the data and the data itself. This testing includes gathering corroborative evidence such as checking calculations, obtaining third party confirmations, inspecting assets, and comparing valuations to external markets.

In the accounting profession, a “review” engagement of financial information is limited assurance and is often done in the interim period between the publication of full financial statements. In the interim period, companies issue financial information but not complete statements. During a review engagement, testing or other corroborative procedures are not done; instead, the auditors make inquiries and flag and research inconsistencies. After these limited procedures, the auditors state that they are not aware of any “material” modifications that should be made to the  interim financial information for it to be in accordance with the relevant accounting principles. “Material” means it is big enough that it would affect your decisions about the company.

To illustrate, this is an example schedule for audits and reviews.

  • Audit, big deal done every year
    • Review, first quarter
    • Review, second quarter
    • Review, third quarter
  • And back to the audit

When these review engagements are done between audits, there is in essence an audit benchmark. During the audit, the data systems and controls have been evaluated; extensive testing has been done. The audit provides reasonable assurance that the information is not misstated in a major way due to errors or fraud. Limited assurance can be done in between audits because the audited financial statements serve as a benchmark upon which to assess subsequent financial information.

This could work for sustainability reports where limited assurance (review engagement) occurs between high level assurance. The costs would be less than doing a high level of assurance every year. As demand for assurance on sustainability reports increases, this would be an important step in achieving higher level assurance.

VW and Assurance

Better Assurance = Fewer Injuries Photo: Michael J White

Better Assurance = Fewer Injuries
Photo: Michael J White

VW cheated and harmed us all. Some of us are more harmed than others. If you own stock, you have seen your net worth decline. If you own one of the affected cars, your troubles are just beginning. If you work for VW, your job may be jeopardy. If you live on the planet, your air is  more polluted.

VW’s story is one of fraud, but why is it so troubling? All frauds are troubling, but VW’s lies seem particularly egregious. VW cast itself as a sustainable company. In their 2014 sustainability report, the company declared the following:

“For the Volkswagen Group, sustainability means that we conduct our business activities on a responsible and long-term basis and do not seek short-term success at the expense of others.”

In the report, they also listed the environmental performance of their specific car models. Many people believed them. In 2014, CDP put VW in its Climate Performance Leadership Index  and in 2015, the Dow Jones Sustainability Index (DJSI) listed VW as the most sustainable automaker. (It has since been delisted by the DJSI.)

Could the fraud have been prevented or detected earlier? Perhaps. I contend that assurance of sustainability reports could make a difference. In audits of financial statements, the auditor’s opinion states whether reasonable assurance has been obtained that the financial statements as a whole are free from material misstatement, whether due to fraud or error. Following professional auditing standards, auditors obtain this reasonable assurance from substantial testing of data systems and underlying information.

Audits do not provide absolute assurance; nothing can. Frauds will occur and have always occurred. Detecting fraud is difficult when multiple people collude to hide it. We can make it harder for them to do.

Was VW’s sustainability report assured? Yes, but it was a “review” or  “limited” assurance. What does limited assurance mean? The procedures were limited to inquiring of key personnel, understanding the company structure, documenting systems, visiting sites, performing data comparisons, and examining internal and external documents. Limited assurance is just that, limited.

If we are going to depend on the information in sustainability reports, we need more than limited assurance. We need “reasonable assurance.” This can be done using procedures similar to that of an audit of financial statements. Will this cost money? Sure, but the fallout from fraud is much more costly for all of us: company, employees, customers, suppliers, and the environment.

More on Assurance

Assurance: Buckle up for safety!

Assurance: Buckle up for safety! Photo: Michael White

More on assurance!

Assurance on Sustainability Reports

Two weeks ago,  I attended a GRI sponsored event Enhancing credibility and trust of sustainability reporting hosted by Bloomberg in NYC. The purpose was to gather opinions on how to enhance the credibility of sustainability reports.

We had some interesting discussions! One topic in particular stood out for me.  Why would companies have their sustainability reports assured when in many countries the reporting is still voluntary? This a great question! Presumably, they would have their reports assured because they get something out of doing so. There is value added when reports are assured but what will it take to increase the assurance rate?

I read a recent article in Forbes by Cindy Lubbers of CERES about how to get more companies to provide environmental, social, and governance (ESG) disclosures.  The suggested solution was for stock exchanges to require more ESG disclosures. I think this is a great idea. The same would be true for assurance.

If stock exchanges can require more disclosures, they can surely require assurance of the information. This would definitely improve the information being provided to investors. If investors are relying on this information to make decisions, they should be able to have confidence that the information is reasonably accurate. Security exchanges are in a unique position such that they can set the standards for the companies that list with them. It is in their best interest to promote transparent and efficient capital markets. Adding a layer of assurance is a way to build trust and create long-term value.

In my next blog, I will talk about the qualities I think are needed by assurance providers.