Chicago - River Walk and State Street bridge
Cities, Cities and sustainability reporting, ISO 37120, Sustainability Reporting

ISO 37120 – Cities’ Sustainability Reporting Option

Chicago - River Walk and State Street bridge
Photo by Michael J. White

There are numerous ways that cities can monitor their sustainability progress. One example is ISO 37120-2014 Sustainable development of communities — Indicators for city services and quality of life. As the first ISO standard for city indicators, it covers the three pillars of sustainability – economic, environmental, and social. The standard provides 100 indicators that include 17 areas, which are economy, education, energy, environment, finance, fire and emergency, governance, health, recreation, safety, shelter, solid waste, telecommunications, transportation, urban planning, wastewater, and water and sanitation. Cities of any size or location can choose which indicators to report.

What is in it for cities?

By using this set of standardized metrics, cities will see numerous benefits. Benchmarking performance and setting targets are a fundamental place to start. If you want to lower greenhouse gas emissions, you need to know what your emissions are. In addition, better management of city resources can be achieved with sustainability metrics. For example, keeping track of wastewater management initiatives can enable cities to manage more efficiently and effectively both financial and environmental resources. Urban planning can be facilitated by use of these indicators. These metrics can provide information about transportation, recreation, safety, and health to inform a city’s decisions about housing policies. In addition, comparisons with other reporting cities are possible on the World Council on City Data (WCCD) website.

An added benefit is the ability to obtain WCCD Certification. Certification levels depend on the number of indicators reported.

If you are involved with a city, this is worth looking into.

As a member of the Bloomington Commission on Sustainability, I will be working on applying this standard to the City of Bloomington, Indiana in the next several months. Stay tuned as I report about the process.

Accountants, Accounting Education, AICPA, Global Reporting Initiative (GRI), GRI Certified Training, Integrated Reporting, ISOS Group, Sustainability, Sustainability education, Sustainability Reporting

Will Accountants Save the World?

 

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NASA/Goddard/Arizona State University

As an accountant, I was thrilled to read that Peter Bakker, President of World Business Council for Sustainable Development , said, “Accountants would save the world.” This should make any accountant smile. The realist in me knows that it will take a big “village” to save the world, but accountants can play an important role.

At an experts panel discussion in Amsterdam, Marjolein Baghuis stated, “… the conclusion was that accountants can certainly play a role in making companies more sustainable, but the profession is not quite ready to deliver on this promise without further education.” I agree!

Accountants have a long history of providing information to decision makers. They have been in the business of providing information since the 15th century. Really! If you want to read a great book, I recommend The Reckoning: Financial Accountability and the Rise and Fall of Nations by Jacob Soll.  Accountants are big players in the fortunes of companies and nations. With their experience in providing information for decision-making, accountants can provide important sustainability information to companies, governments, and the public.

Sustainability reporting is unfortunately not currently recognized as an important topic in accounting education in the United States. In a curriculum crowded with courses in tax, auditing, financial accounting, and management accounting, training in sustainability reporting is viewed as nice but not necessary.

Why is this?

There are several reasons.

  1. It is not covered on the major certification exams such as the Certified Public Accountants (CPA) exam and the Certified Management Accountant exam.
  2. There is no demand for sustainability reporting skills in accounting public practice because there is no legal requirement to do it in the United States.
  3. Inside companies, accountants are not usually tasked with sustainability accounting and reporting.
  4. Accountants in small to medium sized public practices do not traditionally offer sustainability services.
  5. Most small to medium sized accounting firms do not know how to make the business case for sustainability reporting for their own firm or for their clients.

Over the years there have been attempts to include sustainability reporting as part of accountants’ education but with little progress. Other traditional accounting topics take precedence. Without the demand, change will be slow.

Once in practice, however, accountants who desire to learn about sustainability reporting can look to several professional organizations. The American Institute of Certified Public Accountants promotes the benefits of sustainability services and provides information to its members. The International Federation of Accountants (IFAC) offers information and resources. IFAC is actively engaged with  the Prince of Wales’ Accounting for Sustainability Project, the International Integrated Reporting Council, the Climate Disclosure Standards Board, and the Global Reporting Initiative (GRI). Accountants can attend GRI certified sustainability reporting training courses offered by GRI Training Partners such as the ISOS Group.

How will demand for sustainability reporting be created? Here are some possibilities.

Mandatory reporting – Nothings creates a demand for services like a legal requirement. Examples abound – auditing, tax, Sarbanes-Oxley Act compliance.

Demand by financial institutions – As part of the evaluation of companies, lending institutions could require a sustainability report. This report would enable banks to do an expanded risk assessment. This would include a company’s environmental and social risks, which are directly tied to their economic risks.

Demand by local governments – Local governments might consider requiring sustainability reports from companies within the city limits. This would be beneficial to cities in assessing a company’s economic, environmental, and social risks. By complying, organizations would be demonstrating their good citizenship and assessing their own risks.

What do you think?

 

 

 

 

 

Assurance Readiness Review, Sustainability Reporting

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.

Global Reporting Initiative (GRI), Sustainability Reporting

Global Reporting Initiative (GRI) Certified Training + Integrated Reporting

Indiana Memorial Union Fountain. Credit: Gwen White
Indiana Memorial Union Fountain. Credit: Gwen White

This is a reminder of an upcoming GRI + Integrated Reporting training offered by the ISOS Center for Social Responsibility in collaboration with the School of Public and Environmental Affairs (SPEA) . Please join us for the CSR Institute at Indiana University in Bloomington, Indiana, September 24-26.

During the three-day training, participants will learn about managing the sustainability reporting process, identifying critical risks and opportunities and communicating sustainability objectives. Participants will be given hands-on instruction on the most up-to-date GRI G4 sustainability reporting framework using sustainability reports from leading organizations as case studies.

Sustainability and integrated reporting practitioners and users of sustainability and integrated reports will find value in the integrated reporting workshop. For reporting practitioners, it should provide information about acquiring competitive advantage through implementing an integrated reporting process. For users of these reports, it should provide knowledge about integrated reporting from the users perspective.

I hope to see you there!

Global Reporting Initiative (GRI), Sustainability Reporting

Research on Assurance

One of SpaceX's "assurance" modes. Credit: SpaceX/Roger Gilbertson
One of SpaceX’s “assurance” modes. Credit: SpaceX/Roger Gilbertson

Assurance on sustainability reports – How is it perceived?

As companies start to invest in assurance for their sustainability reports, they have to wonder “is it worth it?” Academic studies can shed some light on this.

In a 2105 study, researchers at the University of New South Wales in Australia looked at whether assurance of environmental, social, and governance (ESG) indicators affected investors’ willingness to invest in a company.

Researchers presented a sustainability report with ESG indicators to graduate students in a master’s of financial analysis program. These were students who were “sophisticated” users of financial information. They were told that they had inherited some money (lucky for them) and were to indicate their willingness to invest the money in a company. The researchers varied which students were given sustainability reports with assurance vs. no assurance and whether the company’s strategy and ESG indicators were aligned. For example, assume a retail grocery’s strategy is aimed at supporting products that are based on environmental stewardship. A strategically aligned ESG indicator would be the percentage of animal products sold that are sourced from sustainable agricultural practices.

What did they do with their inheritance?  Study participants, aka, investors, were more willing to invest if the company had its ESG indicators assured. Assurance made a statistically significant difference! It also mattered to these investors if the ESG indicators had a high relevance to the companies’ strategy. This is an important result, especially as companies decide on what sustainability metrics to report. Just reporting for the sake of reporting does not mean as much as reporting what matters. This sounds very much like the essence of the GRI G4 Sustainability Reporting Guidelines.

This is just one study, but an interesting one that supports the role of assurance in giving credibility to sustainability reports. There are other assurance studies that I will talk about in future blogs.