Corporate Sustainability Reporting

2009 Corporate Sustainability Reporting

Submitted to: Prof. K.M. Kavadia

Group 2 205 - Ankur Agrawal 206 – Swapnil Agrawal 225 – Gourav Garg 234 – Karan Madan 239 – Anuj Pachauri 264 – Tanya Goel

Corporate Sustainability Reporting

Acknowledgement Corporate Social Responsibility has come a long way from being just a philanthropic activity a decade ago to one that is essential for sustainable development of the firm. Corporate Sustainability Reporting is an important check and balance tool, both, for the company and its stakeholders as it depicts company‟s performance on environmental, social and economic parameters.

We would like to thank Prof. K. M. Kavadia for providing us with this opportunity to do a project on Corporate Sustainability Reporting. The project was helpful in learning about the frameworks and trends in reporting. Also business case presentation of an Indian bank and an MNC bank taught us about the competitive advantages that an organization can derive from reporting. This assignment was really helpful in understanding that reporting is no more an exception but has become a norm now. The learning from the assignment would act as useful guidelines in determining the environmental, social and economic impacts of decisions that we would make in our corporate careers.

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Table of Contents Corporate Sustainability Reporting ................................................. ..................................................................................................... .................................................... 1 Introduction .............................................................................................................................................. 4 Need for Reporting ................................................................................................................................... 6 Dilemmas related to Reporting ................................................................................................................. 7 Reporting Standards ................................................................................................................................. 7 Global Trends in Reporting ....................................................................................................................... 8 Business Case of MNC Bank: Standard Chartered .............................................. .............................................................................. ................................ 11 About the bank ....................................................................................................................................... 11 Sustainability Initiatives .......................................................................................................................... 11 Sustainability Reporting .......................................................................................................................... 13 Benefits of Sustainability Reporting ........................................................................................................ 14 Business Case of Indian Bank: HSBC India ............ ...................................................... ....................... 15 Sustainability Reporting .......................................................................................................................... 15 Benefits of Sustainability Reporting ........................................................................................................ 15 Conclusion ................................................. ....................................................................................................... ...................................................... ................................ 19 References................................................. ....................................................................................................... ...................................................... ................................ 20

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Corporate Sustainability Reporting Introduction

Sustainability reporting is a broad term used to describe company‟s reporting on its economic, environmental and social performance. Sustainability reporting has gained significance as a tool to monitor and ensure that companies are looking towards long term sustainable development rather than short term growths. Sustainable development is defined as “meeting the needs of the prese present nt generation without compromising the ability of future generations to meet their own needs”. Sustainability reporting can be synonymous with: triple bottom line reporting, corporate sustainability reporting, ESG (Environmental, Social and Governance) reporting and sustainable development reporting but increasingly these terms are becoming more specific in meaning and therefore subsets of sustainable reporting. An important distinction is made between sustainability reporting and corporate philanthropy, the latter being defined as the act of donating money, goods time or effort to support a charitable cause. There is no single universally accepted definition of Sustainable Reporting. Some useful definitions are as below: Sustainability reporting is … the pr actice actice of measuring, disclosing, and being accountable to internal and external stakeholders for organizational performance towards the goal of sustainable development.” GRI Sustainability Reporting Guidelines

“Corporate Sustainability Sustainability is a business approach that creates long term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments. Corporate sustainability leaders achieve long term shareholder value by gearing their strategies and management management to harness the market‟s potential for sustainability products and services while at the same time successfully reducing and avoiding sustainability costs and risks. Dow Jones Sustainability Index

Two principal factors driving the sustainability reporting trend are:

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1) An increasing recognition of the potential for sustainability related issues to materially affect a company‟s long term economic performance. 2) The need for business community (and individual companies) to appropriately respond to issues of sustainable development. Other drivers for reporting as identified in KPMG‟s 2008 survey of Global Fortune 250 companies are shown below in Figure 1.

Figure 1 – Drivers for Corporate Responsibility Reporting (G250)

Corporate community has realized that for their businesses to excel in the long term, they need support of all their stakeholders. Sustainability reporting is the means of communication and engagement between a company and its stakeholders. Financial Stakeholders

Supply chain stakeholders

Regulatory stakeholders

Political stakeholders

Social stakeholders

Shareholders

Customers

SEBI

Local communities

Bondholders

Alliance Partners

Revenue Department

Banking Institutions Employees

Direct Suppliers

Central Government State Government International Governments United Nations

Upstream Suppliers Contractors

General public Academia Charitable organizations Environmental & Social organizations

Table 1 - Typical Stakeholders for a publicly owned Indian company

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Need for reporting

A company‟s company‟s value is influenced by the quality of relationship it maintains with its internal and external shareholders such as the ones shown in Table 1. The ability of a company to communicate its activities and performance effectively with its key stakeholders can be critical to its long term success, viability and growth. The World Business Council for Sustainable Development (WBSCD) and the United Nations‟ Environment Program (UNEP) have produced publications specifically focused on the „business case‟ for sustainability sustainability reporting. The potential internal and external benefits associated with sustainability reporting are as follows: Demonstrating Transparency

Reporting exhibits company’s commitment at looking beyond just financial benefits and establishes a sound base for stakeholder dialogue by demonstrating transparency in its operations.

Creating financial value

Sustainability reporting often involves assessment of processes and collection, collation and analysis of data on resources and materials usage. This process can help a company in further improving its processes by making them more efficient.

Enhancing reputation

Sustainability reporting can help a company in protecting and enhancing its reputation among its diverse stakeholders.

Achieving continuous improvement

Internal and external reporting of sustainability information focuses management attention on sustainability approach, thereby helping in identification of key improvement areas of reported performance.

Improving regulatory compliance

Sustainability reporting may assist the company prepare itself to manage emerging areas of compliance (e.g. greenhouse gas emission data) through the establishment of appropriate reporting systems and processes, Reporting may help a company to influence future regulatory responses.

Strengthening risk awareness and management

Sustainability reporting assists a company to demonstrate its commitment to effectively managing risk associated with its sustainability performance factors and to communicate its risk performance.

Encouraging innovation

Reporting may stimulate leading edge thinking and performance, thereby enabling a company to enhance its competitiveness.

Enhancing management systems and decision making

A company would be pushed to put in place a more rigorous and robust management systems and decision-making processes to better manage environmental, economic and social risks, opportunities and impacts.

Raising awareness, motivating and aligning staff, and attracting talent

Publication of sustainability information can play a role in positioning a company as an „employer of choice‟. This status can enhance employee loyalty, reduce staff turnover and increase a company‟s ability to attract and retain high quality employees.

Attracting long term capital and favorable

There are important potential flows on implications for how the company is assessed and rated by investment analysts and other members of the

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financing conditions

investment community. Sustainability reporting would keep the growing group of investors that include ESG considerations within their decision making process, happy.

Maintaining Maintaining licence to operate

Communities and stakeholders are likely to be more supportive of companies that communicate openly and honestly about their management management and performance in relation to environmental, social and economic factors. Reporting would ensure smooth business f or the companies.

Establishing Establishing competitive positioning and market differentiation

A company may use sustainability related performance attributes to differentiate its brand, products and/or services.

Table 2 – Benefits associated with Sustainability Reporting

Dilemmas related to Reporting

1) Disclosure of sensitive information – Disclosing information could give away the company‟s competitive competitive advantage or trade secrets that are key drivers to the success of the company 2) Additional corporate infrastructure is required to properly monitor sustainability – A company would have to put in place extra processes to monitor and manage the sustainability reporting. 3) It is not a legal requirement to do business – Outside most EU countries, there are not many laws enforcing companies to report. – Reporting is a process and takes time to 4) There is a massive learning curve to reporting – Reporting understand, while the industry is still in its infancy.

Reporting Standards

Figure 2 - Reporting Standards and guidelines used by companies

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More than three quarters (77%) of the G250 and 69 percent of the N100 reporting companies follow the Global Reporting Initiative‟s (GR I) I) Sustainability Reporting Guidelines. About 20 percent of both cohorts use internally-developed company frameworks as the basis for reporting (see figure 2). Even fewer use national standards, though the figure is slightly higher among G250. GRI hence is a generally accepted framework developed through a multi-stakeholder, consensusseeking approach. First generation of the guidelines was presented in 1999 and the Third Generation (G3) came in October 2006. It is designed to be used by organizations of any size, sector, or location. Sector supplements and National Annexes respond to the needs of specific sectors or national reporting requirements. In India, though there is no specific sustainability/CSR reporting legislation or guidelines, sustainability reporting is increasingly becoming a necessity because of globalization. It would become mandatory for companies to report on social, environmental and economic initiatives once the ICAI CSR ruling comes into force. Also there is a committee being formed for standardizing the disclosures related to sustainability reporting. Sustainability reporting has become mandatory for Indian companies going to be listed abroad.

Global Trends in Reporting

Population G250 (250 total) N100 (2170 total)

Strategy with objectives identified 73% 43%

Management and measurement system 64% 41%

Corporate responsibility report 79% 45%

Source: KPMG Global Sustainability Services, October 2008

Table 3 – Elements of Corporate Responsibility Management Systems (G250 and N100)

The best strategies are ineffective unless robust and accountable management systems are in place to ensure they are implemented cohesively and consistently. Table 3 reveals an interesting gap in the G250 group: 64 percent disclosed that they have established systems for managing, and reporting on corporate responsibility, but 79% percent actually issue sustainability reports. This leaves about 35 companies reporting without a publicly discloses system for managing, measuring, and reporting. Without a systematic approach to Page |8


manage and monitor corporate responsibility initiatives, these companies are in danger of issuing reports that do not reflect their true performance. The gap is narrower in N100 group, where 45 percent issue a sustainability report and 41 percent disclose that they have a management, measurement and reporting system in place.

Figure 3 – Global report output by year (Source: corporateregister.com)

Figure 3 shows a per year count of reports issued across all sectors and countries. It is clear from the figure that sustainability reporting has now become the norm rather than exception as more and more companies are adopting it. Occasionally a company may produce two reports in one year so these figures are not directly related to the number of reporting companies.

Figure 4 – Top 20 Countries by Report Output (Source: ( Source: corporateregister.com) corporateregister.com)

Figure 4 shows per country count of reports issued across all industry sectors, for the top 20 countries worldwide. The data is broken in to two series, the first being a grand total of reports

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for 1992-2007 and the second showing the total for just 2008 to indicate which countries are becoming more active in the reporting field. -

Australia & New Zealand are driving voluntary reporting

-

Globalization as well as SRI funds and research groups have increased demands for reports from listed companies

-

SRI funds in Europe and NA have created a ripple effect for Japanese companies to report

Figure 5 – Report Content: Percentage wise (Source: corporateregister.com)

Figure 5 shows that there had been a shift towards Sustainable Reporting on Sustainable Practices over the years from the erstwhile environmental reporting.

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Business Case of MNC Bank: Standard Chartered About the bank

Standard Chartered was formed in 1969 through a merger of two banks: The Standard Bank of British South Africa, founded in 1863, and the Chartered Bank of India, Australia and China, founded in 1853.Both companies were keen to capitalize on the huge expansion of trade and to earn the handsome profits to be made from financing the movement of goods between Europe, Asia and Africa. Standard Chartered PLC, Listed on both the London Stock Exchange and the Hong Kong Stock Exchange, ranks among the top 25 companies in the FTSE-100 by market capitalization. The London-headquartered Group has operated for over 150 years in some of the world's most dynamic markets, leading the way in Asia, Africa and the Middle East. Its income and profits have more than doubled over the last few years primarily as a result of organic growth, supplemented by acquisitions. Standard Chartered is active in consumer, wholesale, SME, Islamic and private banking. It has a network of over 1,600 branches and outlets and 5,500 ATMs in more than 70 countries and territories across the globe, making it one of the world's most international banks. On June 4, 2009 Standard Chartered was acknowledged by The Financial Times and the International Finance Corporation as Runner Up in the 2008 FT ‘Sustainable Bank of the Year’ Award. This prestigious award is open to financial institutions involved in the provision of banking services, including commercial and investment banks, private banks, cooperatives and development finance institutions, and recognizes excellence in creating environmental, social and financial value across its operations. Sustainability Initiatives

Sustainability agenda at Standard Chartered, takes into account the fundamental task of reestablishing confidence and trust in banks whilst continuing to maintain an unwavering focus on addressing the longer term challenges that world faces. Approach to sustainability, adopted by Standard Chartered focuses both on continuing to manage their core banking practices responsibly and on the seven specific areas which have been at the

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heart of their sustainability strategy, shown in Figure 6, for some years. They have focused on areas that integrate with their business strategy, based on three criteria: 

Relevance to markets



Best use of capabilities and infrastructure to maximize contribution



Distinctive value for business and the nations

– Sustainability Strategy at Standard Chartered Bank Figure 6 –

Extensive consultation with stakeholders helped them to identify seven priorities which meet these criteria: 

Protecting the environment : Reducing their environmental impact and helping others to

do the same 

Sustainable finance: Addressing the environmental, social and governance risks and

opportunities involved in doing business with their customers 

Access to financial services: Making finance more accessible to people excluded from

formal banking services 

Tackling financial crime: Detecting and preventing activities such as fraud and money

laundering, corruption and terrorist financing

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

Responsible selling and marketing: Treating customers fairly through the highest levels

of service, transparency and responsible banking practices 

Great place to work : Attracting, developing and retaining the best talent by making

employees feel valued, included and engaged 

Community investment : Using their expertise and resources to help communities develop

and economies grow Sustainability Reporting

2008 Sustainability Review, reports their activity and commitments, targets and progress under each of the seven sustainability priorities. Standard Chartered have sought to cover issues that are most relevant and important to the Bank and to stakeholders, based on their sustainability strategy and engagement with stakeholders. They have been reporting on their environmental performance since 2001 and their social performance since 2004 when they published their first Corporate Responsibility Report. This is their third Sustainability Review, reporting on integrated strategy. They use the Global Reporting Initiative (GRI) to guide their reporting. They include a GRI index and also United Nations Global Compact Index to highlight how activity relates to relevant indicators. Sustainability review is a different report from the annual report or any other financial statements released by the company. The sustainability report covers the following in detail: 1)

Strategy for building a sustainable business.

2)

Sustainability highlights of the year like CO2 reductions/employee. These indicators provide a quantitative measure for sustainability initiatives.

3)

Financial Highlights: Operating Income, Operating Profit and Total Assets.

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4)

Non-Financial Highlights: Number of Employees, Countries and Territories and

Nationalities. 5)

Report on the goals achieved under the seven priorities and goals for the next year.

6)

Standard Chartered initiatives for Millennium Development Goals (MDGs).

Benefits of Sustainability Reporting

The sustainability reporting has helped Standard Chartered Bank in achieving the following: 1) Become proactive than reactive

To appease dissatisfied stakeholders: Human Rights violation, Environment impacts, Developing Nations by reporting its initiatives on a regular basis. 2) Shaping the future of Standard Chartered

Understanding the importance of social and environment factors in the more conscious world and for future positioning in the industry as an environment friendly Bank. 3) Open and maintain dialogs with stakeholders

Two way communication to seek focused response and feedback on the ongoing activities through Corporate Sustainability reporting. 4) Prioritize initiatives with performance indicators targets and goals

Increase efficiency of Standard Chartered bank by prioritizing and by adding new dimensions to evaluate the business performance. 5) Communicate Internally and Externally

Making employees aware of the company‟s activities with respect to sustainability and environment and increasing the employee motivation. Standard Chartered has been ranked as one of the best companies to work with. 6) Innovate and Collaborate to meet the toughest challenges

Align with partners for developing strategic solutions, adoption of the best standards by the industry and becoming the torch bearer for the other banks. 7) New annual report

Removing the burden of economic performance on Standard Chartered Bank by changing the standards of evaluating a bank or a company.

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Business Case of Indian Bank: HSBC India Sustainability Reporting

The Indian bank which we have taken for studying Corporate Sustainability Reporting is the Indian subsidiary of HSBC Bank. At HSBC, sustainability reporting is an integral part of the way they do business. Across India, their initiatives span around 26 cities collaborating with businesses,

employees,

not-for-profit

organizations

&

customers.

HSBC's

corporate

sustainability practice, as shown in Figure 7, consists of education, financial inclusion, environment sustainability and employee engagement, the ultimate goal being to achieve sustainability for business and build prosperous communities.

Figure 7 - HSBC’s Approach

Benefits of Sustainability Reporting

Financial inclusion initiatives at HSBC are targeted at economically and socially marginalized and excluded sections of society in different life stages – HSBC supports underprivileged children to access education, youth to acquire skills for social integration and employment and women to become economically independent. The ultimate aim of all HSBC programmes is to enable these communities to participate in the economy, lead productive lives and become drivers of social change as shown in Figure 8. HSBC tries to achieve this financial inclusion through 3 major initiatives as shown in Figure 9.

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Figure 8 – Objective of HSBC programmes

Figure 9 – Initiatives for Financial Inclusion

Thus, through this financial inclusion, they are trying to build their own market by contributing to the lives of people at the basic level & making them more & more self-sufficient self-suffici ent in economic terms & as once, they become self-sufficient, they will definitely be loyal to HSBC as this bank only helped them in reaching to this level. They are also providing microfinance to various organizations like Rural Urban Development Institute (RUDI) Manager's School which is running in 9 districts in the Western India state of Gujarat & is run by SEWA (Self Employed Women's Association). Thus, by attaching themselves with a national level organization like SEWA actually helps them in increasing their reach to the rural markets which would otherwise have remained untapped. They have also tied up with SHARE (Society to Heal, Aid, Restore and

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Educate) India in a Water-Based Livelihood Model in drought prone villages in Raigad district, Maharashtra. This initiative ensures village based economic livelihood revival through rain water harvesting systems, formation of self-help groups of women and men, and creation of entrepreneurship and agricultural livelihood opportunities at the bottom of the pyramid. There also microfinance initiatives like Students In Free Enterprise (SIFE) & „JA More Than Money‟ which aims to roll out financial literacy and entrepreneurship projects across the country. Thus, through initiatives like these, HSBC is trying to make people involved in this project accountable for the kind of business they bring in which helps the people in developing their entrepreneurial talent & helps the company in making these people more motivated so that they can bring in more business for them. Thus, it is a win-win situation for both of them. HSBC believes in sharing responsibility with governments and citizens for minimizing the damaging effects of human activity - pollution of land, water and air and the depletion of resources. The depletion of the planet's natural resources on which life depends can only lead to human conflict. HSBC‟s environment initiatives are targeted towards nature, habitat and biodiversity conservation, water harvesting and climate change initiatives as shown in Figure 10.

Figure 10 – Environmental initiatives

By investing in the climate conservation initiatives like Earth Sciences Forum, HSBC Climate Partnership, HSBC Young Rangers – for a Cooler World, HSBC Living Business in some of which they have tied up with TERI (The Energy and Resources Institute), they are directly trying to benefit their own balance sheets by increasing their carbon credits which they can sell in the global markets. By investing in the Ecosystem Conservation initiatives which are targeted towards protection of biodiversity (especially endangered species), afforestation and water conservation through

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watershed and rain water harvesting projects, they are trying to build a responsible brand name for themselves which is likely to positively affect their business. HSBC India tries to develop good practices in terms of energy saving habits like using low energy light bulbs, air conditioning controls, smart controls for all the electrical installations etc. among their employees which helps them in saving their costs. The initiatives like Annual Helping Hands Mela, Junior Achievement Mentoring Programme, Kuch Dil Se Payroll Giving Programme, Mumbai Marathon, HSBC Climate Champions, World Environment Day, Breaking Barriers - Celebrating with a difference, Volunteering Action Fortnight in which the employees are directly involved which help the company in team building among the employees & motivating them by making them a part of these social initiatives which give them a sense of satisfaction as they are able to do their bit for the society. Also, these initiatives help the employees in taking much needed rest from their stress filled life & also, give them a feel of importance in the company as the company organizes these initiatives for these employees.

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Conclusion The question is no longer “Who is reporting?” but “Who is not?” not?”.. Corporate responsibility reporting is now a mainstream expectation of companies. Since more than 80 percent of the world‟s 250 largest companies now rep report ort on corporate responsibility and as motivations for reporting have shifted away from reactive and risk management factors and towards aspirational and innovative ones, we can expect this trend to roll out rapidly at the country and sector levels in the coming years.

We are seeing a distinctive maturing of corporate responsibility management systems overall. Reporting is now more likely to occur within the context of an overarching strategy and management system. The use of GRI guidelines by the majority of Global Fortune 250 companies shows that this has become a leading standard for reporting. Now that some of the world‟s world‟s largest companies have been able to quantify the business case for corporate responsibility and reporting, it is likely that the practice will spread through countries and sectors to the smaller players.

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References 1. KPMG International Survey of Corporate Responsibility Reporting 2008 2. Sustainability Reporting: Element and Experiences, GCS Monthly Meeting, 29 December 2008 3. The future of Corporate Sustainability Reporting – A rapidly growing assurance opportunity by Brian Ballou, Dan L. Heitger and Charles E. Landes, Journal of Accountancy, December 2006 4. International trends in corporate „sustainability‟ reporting by Markus Milne and Rob Gray, Chartered Accountants Journal, December 2008 5. Undisclosed Risk: Corporate Environmental and Social Reporting in Emerging Asia by Dana Krechowicz and Hiranya Fernando, International Finance Corporation, April 2009 6. Corporate Sustainability at HSBC in India 7. http://www.corporateregister.com/ 8. http://www.enviroreporting.com/ 9. http://www.sustainabledevelopment.in/services/corporate_substainability_management/a ctivities/sustainability_reporting.htm 10. http://www.globalreporting.org/ReportingFramework/NationalAnnexes/ 11. http://www.sustreport.org/business/report/trends.html 12. www.standardchartered.com 13. www.ftconferences.com/sustainablebanking 14. www.sustainabledevelopment.in

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Corporate Sustainability Reporting

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