Corporate Accountability by Duyen-Tho Nguyen (Part D. The Emergence of…
by Duyen-Tho Nguyen
Part A Financial Reporting and its Limitations
1. Scope of reporting
to provide financial information
2. Elements of financial reporting
assets, liabilities, equity, income and expenses; excluding many sustainability factors (e.g. as a result of past events)
3. Discounting future cash flows
IAS 37 Provisions, Contingent Liabilities and Contingent Assets; used in cost-benefit analysis
4. Relevance and faithful representation
measurement of impacts to sustainability issues are complex, difficult and might not relevant & faithful.
5. Focus on short-term results
short-term performance reporting; dividing the life of the asset -> discourage making long-term investments
6. The entity assumption
treated as an entity distinct from its owners; ppl only focus on its financial position and performance.
Part B The changing reporting landscape
7. Global financial crisis
had a long lasting effect on corporations and regulation; weakness in any pillar of sustainability will weaken other pillars
8. Incentive toward sustainability issues
Brand and reputation: attract talented staff, and maintain consumer and public support
Risk management incentives: clean up cost, insurance cost.
External benefits: increase capital inflow, improve analysts' forecast, improve general perception
9. Socially responsible investments
impact of investment to environment, society and governance and stability of the economy
avoid invest in industries having negative impacts in society and environment
best in class investment; selected for both economic returns and better for sustainability compared to peers in industry
aims to identify macro-level trends, to benefit from the materialisation of those trends
placing capital to actively create a social or environmental benefit, required some financial trade-off
set up for social objective
10. Perceived corporate R&A
responsible to whom; what aspect; what, how and to whom to report.
to create benefits to shareholder only
society and environment provide resources to corporation to operate. -> care interest of broader community
11. Corporate social responsibility
corporations have to earn a social licence to operate, have responsibility to society and environment
12. Externalities, potential governmentintervention and accounting roles
Externalities: impacts of a corporation on external stakeholders positive or negative.
Cost of goods and services are understated (no taxes for carbon releases)
With CSR reporting, considers more stakeholders
Part C. Theories Linked to CSR
13. Enlightened self-interest
CSR will be adopted if it increases shareholder values
14. Stakeholder theory
organisations determine to which stakeholders they report;
deontological ethical theory; emphasis what organisation should do and provides prescriptions about behaviour; strive to achieve an optimal balance bwt stakeholders
Managerial Stakeholer theory
focuses on powerful stakeholders
15. Organisational legitimacy
The social contract
between the organisation and the society in which it operates; expectations that society has about how the organisation
an organisation takes actions to manage community perceptions in order to survive
Change and inform
Change perceptions without actual change
Deflect attention and manipulate perceptions
Change criteria for evaluation
16. Institutional theory
process of homogenisation in organisational practices over time; organisations conform and homogenise to protect their legitimacy and survival
Part D. The Emergence of CSR
17. Environmental sustainability
making responsible decisions and taking actions to protect the natural world.
climate change; waste; pollution; Biodiversity.
18. Social sustainability
to function at a reasonable level of social well-being. An organisation activities do not only meet current needs of stakeholders but also support future generation.
Child labour; ethical trading; supply chain management
19. Economic sustainability
impact on the economic conditions of stakeholders and economy.
Economic stability: long term viability, stability of economic sys
20. Linking envmt, eco & social sustainability
CSR includes 3 pillars of sustainable development; important to joinly consider 3 pillars
21. The board of directors’ responsibility
organisations have to report more broadly than financial performance
22. Introduction to the key concepts
the duty to provide a report about those areas of activity that the organisation is responsible
companies integrate social and environmental concerns in their operations on a voluntary basis.
ongoing of the Earth to maintain all life.
the process to produce a sustainability report about social, environmental and economic
the world’s stocks of natural assets, e.g. air, water, soil, land.
Natural capital accounting:
calculating the total stocks and flows of natural capital used by an organisation
founded on integrated thinking; results in a periodic integrated report by an organisation about aspects of its value-creation process
the active consideration of the relationships between its various units & the capitals that organisation uses and affects.
23.What is measurable?
collecting, analysing and assigning quantitative values; to integrate into biz decision making process;
labour practices and workplace; human rights; society; product responsibilities
FS + market share, product ranking; customer satisfaction; turnover rates, etc.
materials usage; resource usage; emissions, effluents and waste; compliance with laws
Part E. Corporate governance and CSR Reporting
24. mandatory reporting
to enable government to comply with international agreements
By Corporation Act & Accounting Standards
obligations relating to environmental performance could be recorded as
cost of PPE must include initial estimate of dismantling, removing items and restoring site
Section 299A of Corporation Act:
listed companies must disclose information on: company's operation; financial position; business strategy and prospects for future financial years. -> disclose both financial and non-financial, but no requirement on financial impacts
Corporation Act s.299(1)f
: the director report must be within annual report, giving details of performance relating to environment if the entity operates under particular and significant environment.
National Greenhouse and Energy Reporting Act 2007
About the greenhouse gas emission, greenhouse gas project and energy use and production of corporations.
Apply for registration with CER (Clean Energy Regulator if they are: constitutional corporation and meet reporting threshold for greenhouse gas or energy use or production
Clean Energy Act 2011:
if operate a facility emitting 25kt of CO2 or buy or sell natural gas -> submit carbon liability report after financial year. Failure to report: civil penalties up to $1.1 million
National Pollutant Inventory
National Environment Protection Council Act 1994
Designed to generate political and economic incentives for industry to move towards cleaner energy.
Estimate emission of 93 substances exceeding a specific threshold amount.
Energy Efficiency Opportunities Act 2006
Encourage large energy using corporates improve energy efficiency. Large biz under EEOA must undertake detail energy assessment to identify opportunities to improve efficiency and
on the assessment
Other regulations in Australia
Independent Pricing and Regulatory Tribunal Act 1992
, suppliers of government monopoly services in NSW must take into account of feasible available to protect environment and social impact when making a price determination.
Electricity Act 1995
incentivise the development and installation of electricity-saving equipment
Renewable Energy Act 200
incentivise renewable energy generators
25. Guidelines and non-mandatory
Global reporting initiative
most widely accepted CSR; for voluntary reporting. Stakeholder inclusiveness; Sustainability context; Materiality; Completeness
a committee est. in 2010.
-> A concise report on how strategy, governance, performance and prospects, in the context of its external environment creates value in the short, medium and long term
Natural Capital Protocol
is a decision making framework to measure direct and indirect impacts on natural capital
binding for signatory governments; promote positive contribution to environment, society and economy.
Carbon Disclosure Project
focuses on the implications of climate change for shareholder value and comercial operations; business risks and opportunities
The United Nations Global Compact
to assist the private sector in the management of risks and opportunities in the environmental, social and governance realms.
for financial institutions invest money on ethical projects
GreenHouse Gas protocol
quantifying greenhouse gas emission, providing accounting framework for GHG standards
Sustainability Accounting Standards Board:
establish industry-specific disclosure standards on society and environment
Dow Jones Sustainability World Index
tracks the share performance of leading companies on economic, environmental and social criteria
26. Other initiatives
undertaken by organizations to investigate whether it is perceived by particular stakeholders to comply with the social contract =>
important part of ongoing dialogue with various stakeholders.
CG Mechanisms to improve social and environment performance:
ASX Corporate Governance: disclose material exposure to environment or social risk and how it manages risks.
ISO 26000 provides guidance on social responsibility for all biz types
Environment Management Accounting
win-win scenarios. CSR information used to increase efficiency of organization (financial and environmental)
27. Surveys of current reporting practice
28. Examples of best practice & innovative reporting
Part F. Climate Change Reporting
29. The international response to climate change risk
United Nations Framework Convention on Climate Change
institutional framework to
:i. reducing emissions; ii. adapting to the effects. Countries to measure, account for and report on emission of greenhous gases.
Kyoto Protocol 1997
industrialised countries to reduce their emissions within timeframes
UNFCCC COP in Warsaw 2013:
binding national emissions
The Paris Agreement
country to determine and report on its contributions to mitigate climate change
30. Climate change accounting techniques
Emission trading market
give carbon a price per tone -> products are more fully costed.
-> Incentive to improve operation, reduce waste
allowance or credit are used to provide incentives for companies to reduce emission by assigning monetary to pollution
31. Accounting for the levels of emissions
emissions directly occurring from sources that are owned or controlled by an institution
all other indirect emissions that are a consequence of the activities of the organisation, but occur from sources not owned or controlled by the organisation
emissions generated in the production of electricity consumed by the organisation
32. Corporate governance & climate change:
ASIC report 2018 highlighted the lack of climate disclosure content in IPO prospectuses and annual reports.
Consider climate risk
strong and effective corporate governance
Comply with the law
Disclose useful information to investors