I have explored Triple Bottom Line Sustainability Model previously, but today, I would like to elaborate more in terms of accounting and reporting that may give us a starting point to evaluate your organisational sustainability strategies and performance management. It may drive motivation and inspiration about how these may be improved.
The extended Triple Bottom Line Model involves Economic, Social and Environmental improvements that allow for improvements in these areas.
Economic Progress - this considers innovation, efficiency of capital, accurate risk management, enhances growth and shareholder return.
Social Progress - this part is exploring Diversity, Human Rights, Labour Relations and Community Outreach.
Environmental Progress - considers Clear Air, Water and land, Emissions Reductions, Waste Reductions or Zero Waste,
Among the Three Pillars there are further considerations:
a) Socio-Economic Factors - this considers job creation, skills enhancement, Social Investments, Business ethics and Security
b) Eco-Efficiency - these incorporates the efficiency of resources, product stewardship, product or process life cycle management
c) Socio-Environmental Factors - these considers Health and Safety, Environmental Regulations, Crisis Management and Environmental Justice.
Within the principles of the models the supporters suggest that traditional accounting practices within organisations need to be supplemented by environmental and social measures. This is the way of giving a true economic picture of organisations performance. It also provides an idea of the business long-term contribution to social well-being.
Current accounting practices, however, are set around the "profit" bottom line and backed by legal requirements and reporting of results. The standard set up gives a clear measure of the business financial situation that is published to interested parties.
The model suggests more general idea of the company's economic situation. It suggests that there are more measures that can be implemented than just a short-term profitability.
The Triple Bottom Line accounting and reporting provide some standardised approaches to setting who should be responsible for settings standards considering social and environmental performance within an organisation. It also answer the questions how measures in other spheres can be represented and reported and how profits can be expanded considering broader Social, Economic and Environmental factors.
Measuring Human Wellbeing - challenges for policymakers
Considerable efforts has gone into measuring poverty, inequality and well-being in recent decades. Different metrics used drive policy interventions. Yet, many methodological issues remain and some of the most widely used measures need to be treated with care. Different research and concepts bring different insights into the subject. The methods used are generally using 3 steps approach:
1) Evaluating current situation
2) Exploring and identifying new directions
3) Showing how various approaches can be applied
Well-being refers to a state of person's life. Some conceptions associate it with life satisfaction and happiness, some with fulfilment or living standards. Therefore poverty is understood as basic failure to these concepts. In the past, however, income was a factor determining the poverty level. But recently, different research agreed that well-being is more multifunctional. Human values, needs and capabilities are taken into consideration.
The most influential conception is the capability approach. Well-being is assessed in terms of freedom to achieve our "doings" and "beings".
In the post Second War era well-being, poverty and equality was established based on national income per capita. This has been now extended to Measure of Economic Welfare (MEW). It deducts from national income the defence expenditure, congestion, pollution and crime, than adds the value of leisure and consumer durables.
The measure of poverty have also evolved. It is measured as the headcount, which gives the total number of proportion of the population who's income falls below an arbitrary power line. Among these, there is also a wide recognition that income cannot always capture the complexity of human well-being. Therefore policymakers for over 50 years now rely on indicators covering health, education, employment, environment and basic human rights. These indicators help illuminate important policy issues.
New approaches for measuring well-being focus on sustainability. It views the sustainability in terms of equity and opportunity. It recognises that everyone should have right to be happy, pursue education, progress, develop and achieve fulfilment in life.
Another approaches deduct the environmental costs and loss of natural resources.
New strands of research also also concerned with self-declared well-being. It looks at self-esteem, physical safety and security, working life as well as financial resources. Physical health is also taken into consideration.
The research now, focus on recognising the indicators of well-being, but relying on a single measure is simply not practical and more importantly can generate inadequate policy conclusions. While social and political indicators now capture the essence of well-being better than ever before, it is still difficult to know and interpret the different indicators across countries. Measuring problems and data availability further make the concept complex and potentially not comparable.
A framework is required to view the multifunctional power approach from more precise and responsive indicators to guide the policy initiatives. Challenges also arise in generating gender relating indicators. Therefore in many cases, policy makers like to use people's perception and satisfaction. But there is a lot of dilemmas in using this approach as the problems arise with gathering the quantitive data and participation issues among the society. As a result, there is a strong case for moving beyond income to assess inequality and poverty but also assessing differences in health and education.
There are many different concepts considered to measure of well-being, which often contradict and overlap one another. The availability and quality of data also need to be improved.
Measuring Sustainability in organisations
Not only the economies of scale and national policymakers struggle to measure and develop sound indicators to determine well-being, happiness to drive initiatives for better life of current and future generations. In many organisations the same problem exists. Business leaders scratch their heads on determining what indicators and measures should be developed.
AccountAbility
From the accounting and reporting point of view, a standard was developed (the AA1000 series) to guide the activities. Developed by AccountAbility ((http://www.accountability.org/ (Links to an external site.)) principles based framework guides organisations through the process of identifying, prioritising and responding to sustainability challenges with a goal of improving long-term performance. The standard is available on their website and I will look through it in my next blog.
There are also standards developed focusing on workers rights and conditions. Different non-profit organisations emerge to help businesses develop effective sustainability strategies, including reporting and accounting. Some memberships (i.e. UN Global Compact) require submission of annual reports on progress and recognised improvement plans.
Global Reporting Initiative
Global Reporting Initiative (GRI) is a particularly helpful organisation as it helps businesses take the responsibility for their impact by providing common language framework to drive reporting for organisations worldwide. Developed standards help businesses to take action and make better decisions in creating improvements into the economic, social and environmental business situation. The reporting structures help to be transparent and take responsibility for the organisations impact. All this is to create more sustainable future and achieve long-term profits. Whats great is that the standards are available on the website for free to downland (http://sa-intl.org/ (Links to an external site.)) The standards explore different areas of business activity, from Economic Performance, Management Approach, Market Presence, Procurement Practices, Energy, Emissions, Waste, Environmental Compliance, Socioeconomic Compliance, Training and education and many more. I will be exploring some of them in my future writing.
Stakeholders engagement
When evaluating and considering of any new initiatives stakeholders engagement is imperative. Organisations may only set up successful accounting procedures if the engagement from leadership is in place. In fact, the business leaders are those who should decide what the indicators and factors are. But, we must not forget about other stakeholders, both internal and external to participate in the process. These can involve employees, customers and local communities. The stakeholders would generally have a financial interest in the organisation and be affected by the organisation's decisions.
Accountability's Stakeholder Engagement Manual (http://www.mas-business.com/docs/Vol%201%20Stakeholder%20Engagement%20Practitioners%20Perspectives.pdf) divides the stakeholders into Primary and Secondary.
An example of Primary Stakeholder would be: Investors, Employees and Managers, Customers, Suppliers and Business Partners and Local Communities.
Secondary Stakeholders would include: Government and Regulators, Civil Society Organisations, Labour Unions, Media, Trade Associations and Competitors.
Engagement implies the establishment of relationships between the organisations and the stakeholders groups. This can be achieved through:
1) Communication - information sharing, employee training, company brochures and reports, internal and external newsletters
2) Consultation - Questionnaires survies, focus groups, workplace assessments and audits, Stakeholders meetings,
3) Dialogue - Stakeholder meetings, reporting, meeting minutes, assess to information, leadership meetings and summits, virtual engagement
4) Partnerships - Joined projects, Multi-stakeholder initiatives.
Materiality
The word 'materiality' is used in a similar sense to its use in legal context, where an argument is said to be "material" if it has a bearing on the outcome of the case. When implementing sustainability improvements it is important to evaluate information that relates to the challenges. These are generally issues identified by external stakeholders and internally, by the organisation itself. The stakeholders information are fundamental to determining the strategy. Business need to identify those issues from stakeholders. These can be gathered from business strategies, business reports, risk register, business policies and commitments, best practice norms exercised by stakeholders and associated standards, stakeholders feedback and engagement, as well as public debates and media.
After the issues are determined, these are generally presented in a form of matrix to allocate the relevant importance level to each of the issues and information identified.
Indicators
It is now time to make the idea of what accounting and reporting should include more clear. Indicators are the variables that tell us something important about the entity of which is part, or with which is connected. Economic indicators, for example, reveal the state of an economy. Sustainable development is also measured through a set of indicators. For an organisation, the sustainability indicators must be carefully chosen, clearly defined and measured precisely. Different accounting and reporting standards provide a set of indicators that company can select as appropriate. The reporting than, should be standardised and available in an accessible way.
Many organisations these days, provide Consolidated Sustainability and Accounting Reports available on their websites for any stakeholders to view.
Businesses need to see the reporting as an ongoing and evolving process. Generally appropriate Sustainability board of Directors is created to drive, evaluate, measure and make decisions about the business sustainability direction. Data is often also subject for external verification to ensure its credibility and accuracy. Financial reports are generally audited by accounting firms.
The integrated sustainability and accounting reporting creates more complete picture of the organisational progress and create a more complete picture of the business progress and the value it generates for investors and shareholders and increase the efficiency of the reporting process.
Reports generally provide data incorporating Environmental progress (carbon emission, reduction in water and energy usage,), Human Rights improvements, Diversity, Equality and Inclusion.
Businesses and their leaders want to demonstrate their commitment to environmental progress. Organisations want to contribute to building a better world, where every person is free to move and pursue their dreams. Leaders, at the same time, want to transform their organisations to become stronger, create stronger margins and consistently strong cash flow. They aim to develop new products, deliver leading quality, reduce costs, while keeping the customers happy and working to earn their trust every day.
Suitable indicators and reporting leads often to new revolutionary ideas and thinking about the business the way, no-one explicitly thought about before. This allows for originality and suitable differentiation within the operating market and therefore strengthening it position.
GRI standards
The accounting and reporting standards developed by Global Reporting Initiative (GRI) are the most widely used. The latest standards presented give a great relevance and importance to the "materiality" concept and the expectation from organisations is to have a strong stakeholders engagement, materiality and the disclosures made in the business reports. The process of preparing GRI-compliant report evolve around three dimensions, interpreting the "Triple Bottom Line" concept in terms of 'people, planet and profit" (social, environmental and economic).
The Content and Quality of the reports should be evaluated.
- The organisation should identify its stakeholders and explain how it has responded to their reasonable expectations and interests
- The report should present the organisational performance in the wider context of sustainability including economical, social and environmental conditions at the local, regional and global level
- The report should cover each area's significant impacts and the assessments of the decisions of the stakeholders
- The report should reflect positive and negative aspects of the organisation's performance to allow a reasonable assessment
- The information in reports should be presented consistently , enabling to analyse changes and compare information
- The reported information should be accurate and provided to stakeholders in a timely manner to allow making decisions
- The information in the report should be easy to understand and accessible to interested parties
The principles are fundamental to achieving transparency in sustainability reporting and therefore should be applied to all organisations when preparing a sustainability report.
Bibliography:
AccountAbility, 2006, The Materiality Report, Aligning Strategy, Performance and Reporting, accessed from https://hiyamaya.files.wordpress.com/2009/12/the-materiality-report.pdf (accessed on 07/08/2021)
AccountAbility, 2005, The Stakeholders Engagement Manual, Vol.1, accessed from http://www.mas-business.com/docs/Vol%201%20Stakeholder%20Engagement%20Practitioners%20Perspectives.pdf, accessed on 07/08/2021
AccountAbility, 2005, The Stakeholders Engagement Manual, Vol.2 , accessed from
GRI, 2021, Standards, accessed from https://www.globalreporting.org/how-to-use-the-gri-standards/gri-standards-english-language/ (accessed on 07/08/2021)
GRI, G4 Sustainability Reporting Guidelines, accessed from http://miod.azurewebsites.net/Media/Resource%20Packs/grig4-part1-reporting-principles-and-standard-disclosures.pdf (accessed 07/08/2021)
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