Corporate Governance: Triple Bottom Line Reporting – Being Seen To “Give A Damn”

The answers to questions posed in the introduction to this story were once deemed altogether too philosophical or downright irrelevant to pop into the annual report.
Traditionally the focus for reporting has been financial and its target audience current or potential shareholders.

Once year, corporate calculators are put on overdrive, figures stacked in neat piles and screeds of financial statements printed along with bulletins of wise utterance on why and how money was spent, saved and made. Now, bigger picture is intruding. Interest in how company goes about its business is not confined to shareholders but extends to wide group of “stakeholders” capable of influencing future profitability. There is also growing recognition that the “value” of corporate activity is being too narrowly defined.
What real worth company whose current figures stack up sweetly but whose long-term viability is being compromised by bad environmental practice?

Purely financial reporting is not able to give shareholders full picture of corporate governance accountability. Nor does continued corporate well-being rest solely on the financial bottom line – social and environmental factors must be accounted for as well. Hence the increasing popularity of so-called triple bottom line (TBL) or sustainable development (SDR) reporting.
What was once the preserve of green corporate fringe has become solid business trend, according to KPMG’s partner in charge of financial reporting, Joanna Perry.

“Once it was enough to present the financial facts of the year past. Today so much exists beyond the numbers that captures stakeholder interest and affects their decision making. Stakeholders now demand that you responsibly present and interpret performance not just in terms of the bottom-line returns, but within broader context.”

Which is why KPMG has taken ‘triple bottom line’ as the theme for its 2002 guide to producing an annual report. (And, following its own advice on themed cover design, illustrated it with rear view of three naked bods splashing into sunlit sea.)

It’s all to do with being “seen to give damn” about more than just making money, the guide explains. The “greed is good” notion is yesterday’s dog meat, and “ethics are back” on the corporate governance menu. These days both institutions and private citizens want the organisations in which they invest to take responsibility for the environmental impacts and social implications of their work. This is less an outbreak of rampant woolly woofterism as pragmatic realisation that companies don’t operate in vacuum.

If they contaminate their local creek with chemicals, spill oil onto pristine shores, or use Third World child labour to make their products, then the fallout – in terms of financial viability, market share and loss of community goodwill – is likely to be debilitating, if not terminal. There is, says KPMG, powerful caring side involved here. “But it is very much risk management in action.”

Certainly the risk of unethical corporate behaviour has had high public exposure recently thanks to US energy giant Enron and its auditors, Arthur Andersen. Once public notice lands on the head of this particular snake, the slide in shareholder regard is so dramatic as to be irreversible.

Authors such as Naomi Klein have tapped into deep vein of concern about the corporate abuse of more globalised market place – how the multinationals can exploit cheap offshore labour or export pollution problems rather than shoulder accountability for them.
Global pressure is definitely driving increased local interest in TBL reporting. But there are also some key local leaders. The NZ Business Council for Sustainable Development (NZBCSD) is an active promoter, requiring all its members to produce such reports within three years of joining. Sixteen of its 35 member companies have now achieved that goal.

It has compiled comprehensive guide to SDR reporting for New Zealand business that looks at the business case for reporting, provides guidelines for going about it and includes several local case studies – including Sanford, BP NZ, Hubbard Foods and The Warehouse Group.

NZ Businesses for Social Responsibility also believes in broadening traditional business goals and is currently developing TBL reporting guidelines for SMEs with help from Ministry for the Environment grant and last year, interested members of the Institute of Chartered Accountants set up Sustainability Working Group and the ICANZ executive now has taskforce exploring the pros and cons of establishing guidelines for SDR. Its aims are to define and scope what “thought leadership” in SDR would entail for the Institute and how, or if, it could or should achieve this. report and recommendations are due to go back to the executive in September.

Industry moves to take lead on sustainability reporting are acknowledgment that this particular wave of change in the scope of corporate governance already has plenty of momentum. If business doesn’t fashion its own surfboard, then it may get stuck with the Government-issued version.

That is very real possibility. Environmental reporting is already mandatory in countries such as France and Denmark. Closer to home, 1998 amendment to the Australian Companies Action Section 299 (1)(f) requires some element of mandatory environment reporting and there are two private members bills on the subject waiting in New Zealand’s parliamentary wings.

As Joanna Perry puts it: “This is not some completely new-fangled idea.” Nor, is it just for larger companies or those working in more risk-intensive environments.

She concedes that there are probably extra costs involved in capturing some of the necessary information for TBL reporting. But there are also some great examples of companies that have made their businesses more profitable by delving more deeply into the environmental or social-relationship aspects of their operations. Cleaner operations tend to be more efficiently run and there’s certainly money to be saved on decreased energy consumption or reduced waste production.

A number of companies already include environmental goals or performance targets in their annual reports and KPMG believes the process can be incremental. The idea is that each annual report represents here-and-now snapshot along the track toward the vision of fully sustainable organisation. “Getting the right measures in place for full TBL reporting takes long time which is why we pitched the guide to those who are taking their first steps in that direction,” says Perry.

Her company’s model annual report for the fictional Diverse Group Ltd is based on best practice and principles contained within international frameworks.

It paints the vision, expresses commitment to “transparent and honest reporting to all our stakeholders” and outlines perceived benefits. These include both the more obvious – reduced environmental impact, decreased depletion of natural resources et cetera, plus the less tangible, such as added brand value or more preferential treatment from buyers and suppliers.

The steps to achieving excellence on economic, social and environmental sustainability are outlined and progress toward them charted annually. Measures might include energy or water consumption, numbers of environmental breaches, clean-up, recycling and waste reduction targets. Those after more detail as to why corporate governance needs to incorporate wider social and environmental goals and how they might go about it will find it on NZBCSD’s website www.nzbcsd.org.nz

Vicki Jayne is freelance journalist. Email: [email protected]

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