2020 VISION FOR A SUSTAINABLE SOCIETY
MELBOURNE SUSTAINABLE SOCIETY INSTITUTE
The Melbourne Sustainable Society Institute (MSSI) at the University of Melbourne, Australia, brings together researchers from different disciplines to help create a more sustainable society. It acts as an information portal for research at the University of Melbourne, and as a collaborative platform where researchers and communities can work together to affect positive change. This book can be freely accessed from MSSI’s website: www.sustainable.unimelb.edu.au.
Cite as: Pearson, C.J. (editor) (2012). 2020: Vision for a Sustainable Society. Melbourne Sustainable Society Institute, University of Melbourne Published by Melbourne Sustainable Society Institute in 2012 Ground Floor Alice Hoy Building (Blg 162) Monash Road The University of Melbourne, Parkville Victoria 3010, Australia Text and copyright © Melbourne Sustainable Society Institute All rights reserved. No part of this publication may be reproduced without prior permission of the publisher. A Cataloguing-in-Publication entry is available from the catalogue of the National Library of Australia at www.nla.gov.au 2020: Vision for a Sustainable Society, ISBN: 978-0-7340-4773-1 (pbk) Produced with Affirm Press www.affirmpress.com.au Cover and text design by Anne-Marie Reeves www.annemariereeves.com Illustrations on pages 228–231 by Michael Weldon www.michaelweldon.com Cover image © Brad Calkins | Dreamstime.com Proudly printed in Australia by BPA Print Group
Foreword
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he last two centuries have seen extraordinary improvements in the quality of human lives. Most people on earth today enjoy access to the necessities of life that was once available only to the elites. Most people enjoy longevity, health, education, information and opportunities to experience the variety of life on earth that was denied even to the rulers of yesteryear. The proportion of humanity living in absolute poverty remains daunting, but continues to fall decade by decade. The early 21st century has delivered an acceleration of the growth in living standards in the most populous developing countries and an historic lift in the trend of economic growth in the regions that had lagged behind, notably in Africa. These beneficent developments are accompanied by another reality. The improvements are not sustainable unless we make qualitative changes in the content of economic growth. The continuation of the current relationship between growth in the material standard of living and pressures on the natural environment will undermine economic growth, political
stability and the foundations of human achievement. The good news is that humanity has already discovered and begun to apply the knowledge that can reconcile continued improvements in the standard of living with reduction of pressures on the natural environment. The bad news is that the changes that are necessary to make high and rising standards of living sustainable are hard to achieve within our current political cultures and systems. Hard, but not impossible. That is a central message from this book, drawn out in Craig Pearson’s concluding chapter. This book introduces the reader to the many dimesions of sustainability, through wellqualified authors. Climate change is only one mechanism through which current patterns of economic growth threaten the natural systems on which our prosperity depend. It is simply the most urgent of the existential threats. Climate change is a special challenge for Australians. We are the most vulnerable of the
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developed countries to climate change. And we are the developed country with the highest level of greenhouse gas emissions per person. There are roles for private ethical decisions as well as public policy choices in dealing with the climate change challenge. This book is released at the time of ‘Rio+20’, a conference in Brazil to review the relatively poor progress we have made towards sustainability in the past 20 years, and soon after the introduction of Australia’s first comprehensive policy response to the global challenge of climate change. Australia’s emissions trading scheme with an initially fixed price for emissions permits comes into effect on 1 July 2012. The new policy discourages activities that generate greenhouse gases by putting a price on emissions. The revenue raised by carbon pricing will be returned to households and businesses in ways that retain incentives to reduce emissions. Part of the revenue will be used to encourage production and use of goods and services that embody low emissions. The policy has been launched in controversy. Interests that stand to gain from the discrediting of the policy argue that it is unnecessary either because the case for global action to reduce greenhouse gas emissions and the associated climate change has not been proven, or that the new policy places a disproportionate burden on Australians. The health of our civilisation requires us to bring scientific knowledge to account in public policy. Everyone who shares the knowledge that is the common heritage of humanity has
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a responsibility to explain the realities to others wherever and whenever they can. The argument that the new policy places a disproportionate burden on Australians can be answered by seeking honestly to understand what others are doing. The critics of Australian policy argue that the world’s two largest national emitters of greenhouse gases, China and the United States, are doing little or nothing to reduce emissions, so that it is either pointless or unnecessary for us to do so. China has advanced a long way towards achieving its target of reducing emissions as a proportion of economic output by 40 to 45 per cent between 2005 and 2020. It has done this by forcing the closure of emissions-intensive plants and processes that have exceptionally high levels of emissions per unit of output, by imposing high emissions standards on new plants and processes, by charging emissionsintensive activities higher electricity prices, by subsidising the introduction of low-emissions activities, and by new and higher taxes on fossil fuels. China has introduced trials of an emissions trading system in five major cities and two provinces. This adds up to a cost on business and the community that exceeds any burden placed on Australians by the new policies – bearing in mind that the revenue from Australian carbon pricing is returned to households and businesses. The US Government has advised the international community of its domestic policy target to reduce 2005 emissions by 17 per cent by 2020. President Barack Obama said
to the Australian Parliament that all countries should take seriously the targets that they had reported to the international community, and made it clear that the United States did so. United States efforts to reduce emissions are diffuse but far-reaching. They now include controls on emissions from electricity generators, announced in March 2012, effectively excluding any new coal-based power generation after the end of this year unless it embodies carbon capture and storage. From the beginning of next year they will include an emissions trading system in the most populous and economically largest state, California. The United States is making reasonable progress towards reaching its emissions reduction goals, with some actions imposing high costs on domestic households and businesses. Australia has now taken steps through which we can do our fair share in the international effort, at reasonable cost. It would be much harder and more costly to do our fair share without the policies that are soon to take effect. What Australians do over the next few years will have a significant influence on humanity’s prospects for handing on the benefits of modern civilisation to future generations. This book will help Australians to understand their part in the global effort for sustainability. Ross Garnaut University of Melbourne 15 April 2012
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Contents Foreword by Ross Garnaut Table of Contents
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Author Biographies
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Drivers
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1 Population Rebecca Kippen and Peter McDonald
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2 Equity Helen Sykes
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3 Consumption Craig Pearson
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4 Greenhouse Gas Emissions and Climate Change David Karoly
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5 Energy Peter Seligman
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People
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6
Ethics Craig Prebble
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Culture Audrey Yue and Rimi Khan
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Awareness and Behaviour Angela Paladino
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Local Matters Matter Kate Auty
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10 Public Wisdom Tim van Gelder
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11 Mental Health Grant Blashki
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12 Disease Peter Doherty
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13 Corporate Sustainability Liza Maimone
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14 Governance John Brumby
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Natural Resources
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15 Ecosystem-Based Adaptation Rodney Keenan
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16 Water Hector Malano and Brian Davidson
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17 Food Sunday McKay and Rebecca Ford
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18 Zero Carbon Land-Use Chris Taylor and Adrian Whitehead
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Cities
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19 Changing Cities Peter Newman and Carolyn Ingvarson
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20 Affordable Living Thomas Kvan and Justyna Karakiewicz
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21 Built Environment Pru Sanderson
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22 Infrastructure Colin Duffield
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23 Transport Monique Conheady
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24 Adaptive Design Ray Green
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25 Handling Disasters Alan March
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Outcomes
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26 Twenty Actions Craig Pearson
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Further Reading
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Index
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13 Corporate Sustainability Liza Maimone
S
ustainability, once treated as a ‘sideline’ by corporations, is increasingly central to their strategic planning. This chapter outlines the drivers for corporate sustainability, the journey for progressing a sustainability agenda and a leading practice model for integrating sustainability considerations into day-to-day operations and reporting.
The Sustainability Agenda Many people in corporate organisations have long viewed sustainability as a matter of corporate philanthropy, with no relevance to their corporations’ core strategies. The cost of sustainability activities (eg, waste and recycling initiatives, community partnerships, product and social marketing) was seen as detracting from profitability and was often accounted for in a public relations or marketing budget. But those days are gone, or at least fading from view. Most progressive organisations understand that the traditional trade-off between sustainability and profitability is an outdated perspective. Corporations have come to realise that their ability to prosper depends upon their responses to the challenges of a carbon-constrained world and other issues critical to sustainability.
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Business leaders who operate sustainably recognise that social, environmental, economic and ethical factors affect their core business strategy. They know that operating sustainably creates and protects long-term stakeholder value, and they identify and respond to the changing needs and demands of society. These leaders evaluate the range of sustainability issues and respond by mitigating risks and leveraging opportunities. They also understand that to operate in a sustainable manner, they must work collaboratively with all stakeholders, including suppliers, shareholders, employees and regulators. The following diagram (Figure 1) represents the potential linkages between sustainability activity and stakeholder value.
The Sustainability Journey Sustainability encompasses a broad range of issues such as water quality and quantity, pollution, climate change, poverty, health, safety and human rights. While the global challenges relating to sustainability are evident – defining how corporate organisations can meet the challenges can be daunting. Not surprisingly, corporations often wonder where to begin when it comes to progressing sustainability.
Corporate Sustainability
Reduced regulatory intervention
Access to and lower cost of capital
Minimise risks and impacts of our operations
Enhanced reputation and stronger brand
Improved integration benefits
Sustainable returns to key stakeholders
Cost savings
New business opportunities
Better stakeholder relations
Rewarding work environment for our employees
Customer satisfaction – loyalty and higher sales
Figure 1. Sustainability drivers of stakeholder value. Source: Adapted from ABN AMRO Morgans.
Corporations around the world are at different points in addressing sustainability issues. PricewaterhouseCoopers (PwC) developed a framework (Figure 2) that identifies three phases in the corporate response to sustainability, from simple regulatory compliance to making sustainability a competitive advantage.
Phase 1: Recognition and Understanding Organisations in Phase 1 are beginning to recognise and understand the implications of not addressing sustainability issues effectively. They realise that issues such as climate change and safety can present material risks and potentially impact their profit and brand if not effectively managed. At the same time, regulations might compel them to develop a sustainability strategy.
Phase 2: Management Organisations in Phase 2 are managing sustainability risks and issues by implementing programs that are able to cut costs (eg, by using less energy, reducing waste and recycling more). These corporations start to reorganise their operations in order to exploit sustainabilityrelated opportunities and can thereby promote their brand as more sustainable.
Phase 3: Performance As organisations in Phase 2 start seeing the benefits in cost-efficiencies and brand differentiation, organisations in Phase 3 develop a deeper understanding of the long-term value of sustainability and how it can become a strategic advantage. They are able to measure their sustainability performance internally and
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Opportunity
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Business opportunity This is where the leaders are heading
Cost inefficiencies
Risk
Licence to operate Brand protection
Compliance and risk management Phase 1 1 year
Cost efficiencies
Brand enhancement
Brand differentiation
Build market share
Risk management This is where many organisations start
Managing for value Phase 2 2-3 years
Strategic advantage Phase 3 3+ years
Figure 2. The Sustainability Maturity Framework. Source: PwC.
externally and have a true competitive advantage often signalled by increasing market share. There is no quick fix that will make an organisation sustainable; it is a journey that takes time. The time to move through the phases depends on an organisation’s strategy and the level of investment they are willing to make. Most Australian corporations are in Phase 1, with only a few in Phases 2 and 3. Some industry sectors – such as finance, retail and telecommunications – have not been as quick as their global peers to seize sustainability opportunities. Many Australian corporations either do not have a stance on sustainability or are only focusing on specific issues such as water and energy consumption, packaging rather than product innovation, ethical sourcing or supply chain issues. Global experience indicates sustainability will soon be a mainstream concern and a core part of business rather than an ‘end game’.
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An Integrated Approach One of the biggest challenges that organisations face is integrating their sustainability approach with the broader objectives of the organisation. Sustainability programs run the risk of being short-lived and viewed as ‘nice to have’ unless they demonstrate tangible business value and are hardwired into day-to-day operations of the organisation. Essentially, it is about making the shift from ‘doing’ sustainability to ‘being’ sustainable. The model set out in Figure 3 provides a logical structure for thinking about the information needs of a business and the critical links and interdependencies that exist between the various information sets – external, strategic, business and performance. The suggested model is grounded in years of PwC research and work with investors and organisations from broad industry sectors.
Corporate Sustainability
organisations excel in this space, at this stage. But we believe that it is now a key determinant of corporate success. The four core categories are common to all industries and organisations, but their relative importance and the information that sits beneath each category will need to flex depending on how these dynamics impact industries and influence corporate strategies and business operating models. Each category is discussed in more detail on the next page.
rs ive r ld
Str at
Technological Societal
Geopolitical
y eg
Ext ern a
None of the information that flows from each category of the model is new – the real insight and value comes when each category is considered in the context of another, rather than in isolation. It succeeds when governance interfaces with remuneration and risk; when strategy is designed to exploit a changing market environment; and when strategic priorities align with key performance indicators (KPIs). It is this cohesive and integrated way of thinking that’s critical to the model and to being a sustainable organisation. Few
Governance
Economic Competitive
Strategy & Objectives
Environmental
Remuneration Risk Business model
ps shi
hips
ti o
re
an
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rela
lat
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Value drivers
Strategy
ou
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Key performance indicators
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Funding Wealth creation
fi n a n ci a l r
Social contribution
nancial re so n-fi no
es urc
Consumption
Performance
Corporate contribution
ce Reso
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Figure 3: Integrated approach. Source: PwC.
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1. E xte rn
External Drivers rs ive r d al Technological Societal
Geopolitical
Economic Competitive
Environmental
Some shifts in strategy are the result of internal activities, but many are inspired by shifts in the external environment. The more an organisation can identify and respond to these shifts and then explain this process – including its connectivity to the market environment and the ecosystem on which it relies – the better able it will be to secure a competitive advantage The ability to identify the main ‘emerging’ risks to which organisations are increasingly exposed is a key driver. There are a number of external drivers that present sustainabilityrelated risks: • Scarcity of raw materials • Regulatory, political and economic factors • Changing societal expectations • Climate change/physical risks Operating sustainably is broader than identifying and containing risks. For leading businesses, risk identification can yield rich opportunities if they are identified, assessed and managed for competitive advantage.
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Organisations must focus on enhancing their market intelligence, leveraging it in their decisions and making this visible in their stakeholder engagement and reporting processes. Keeping abreast of market developments and ensuring that a longer-term perspective is brought to this process will require most organisations to rethink their current processes. Scenario planning and stresstesting will become more commonplace to help organisations identify their sustainability risks and issues. For example, the growing number of consumers seeking healthy and sustainable lifestyles constitutes a potentially vast market for new products and services. Consumers’ environmental, ethical and social concerns mean that their definition of quality is increasingly extending to the product lifecycle. Wherever environmental, social or ethical issues can be addressed, organisations have an opportunity to innovate, differentiate, create value and attract more customers. These issues can also create opportunities to attract and motivate employees. Although organisations now understand that pursuing sustainability is a long-term investment, they constantly face the challenge of balancing short-term shareholder concerns with long-term business objectives. The global reach and complexity of supply chains, the raw materials required for production, the nature of products and the special characteristics of an organisation’s workforce all determine which risks play the most significant roles in any given sector, and which opportunities exist.
Corporate Sustainability
Strategy
Until recently, most corporate organisations’ sustainability efforts operated outside of their core business strategy. But as corporations become increasingly aware of the strategic implications of climate change, population growth and resource use, this situation is changing. In fact, in future we expect the term ‘sustainability’ to disappear altogether as sustainability issues are integrated into core business thinking. These issues pose a unique set of challenges and afford a distinct set of opportunities to every industry. However, there are components to every strategy that are critical to all businesses, some of which must be reconsidered in the context of sustainability, for example risk and governance. A clear understanding of the culture, values and governance practices of any organisation is important when determining how a sustainability strategy should be embedded. Ideally, it should be developed with consideration of how it will be integrated and cascaded through the organisation, with reference to risks and opportunities, people and relationships, and
performance measurement. Failure to consider the capacity in the organisation in all of these areas when developing a sustainability strategy will limit its chances of success. For example, a well-considered strategy that is aligned to risks and opportunities may not yield results if there is no one in the organisation to champion the strategy, or if there are no mechanisms in place to measure its success or outcomes. Good strategies are built on a foundation of clear goals and objectives. A goal is a statement that clearly describes desired longterm improvement/change in the organisation through the integration of sustainability into the business. Once goals have been defined then objectives can be developed. Objectives describe the specific changes within the organisation that are required to achieve the goals, and ideally should relate to risk factors. Objectives are the stepping-stones to achieving set goals.
Resources and Relationships
Unlike organisational functions – such as marketing, logistics, information technology and human resources – the responsibility of
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sustainability seldom fits discreetly within a single group. Sustainability issues are often all-encompassing and impact a number of different areas. For example, sustainability activities could be leveraged by the marketing team to differentiate an organisation’s product from the competition; the logistics team could use sustainability to improve the efficiency of the supply chain; and the human resources team could use the organisation’s commitment to sustainability as a point of differentiation to attract and retain employees. As such, an effective sustainability strategy needs to be integrated across all functions and operations. Key performance indicators (KPIs) need to be established for particular sustainability issues and cascaded across the business, and a comprehensive range of communication and engagement initiatives are needed to help employees understand how sustainability is relevant to them. Many organisations are in the early stages of the maturity curve when it comes to integration of sustainability within the business (in Phase 1 of the sustainability journey depicted). This is similar to where many organisations were in relation to safety culture in the 1980s and 90s. Safety was once seen as the responsibility of safety professionals within an organisation but nowadays it is largely part of corporate cultures. As with safety in the past 20 years, the concept of sustainability is expected to become a shared responsibility that delivers benefits across all areas of an organisation. However, organisations that are currently in the early
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stages of their sustainability journey will find that significant investment into education and integration of sustainability will be required to create a culture of shared responsibility and strategic advantage.
Performance
Performance measurement is the final link in the integrated approach to sustainability. Assessing performance allows management to evaluate the implementation of the sustainability strategy and determine targeted actions for the future. Accountable personnel and reliable data are both critical factors that will influence the effectiveness of an organisation’s sustainability strategy. Systems and resources must be capable of delivering the strategic objectives of the organisation’s sustainability vision. Specifically this requires personnel with accountability to performance, and data that is complete, accurate and timely. Performance can be measured on a personal level or in the context of the organisation as a whole. In leading organisations, KPIs of individuals in the organisation are linked to the
Corporate Sustainability
Identifying leading practice In a recent survey conducted by PwC, which investigated the quality and maturity of sustainability reporting of the top 30 companies listed on the Australian Stock Exchange (ASX), a number of best-practice examples were identified: • Amcor disclosed its stakeholder engagement process and the issues of concern that emerged. It directed the reader to sections of the sustainability report addressing those issues. • Westpac charted the impact or potential impact of several sustainability risks to the business and the level of stakeholder concern.
overall goals and objectives of the organisation and are used to assess an individual’s annual performance and often linked to remuneration. Personnel sustainability-related KPIs can often assist an organisation to progress and deliver its overall sustainability strategy. Effective performance measurement allows for scrutiny of a sustainability strategy. Based on this process, management can assess the effectiveness of the strategy and the relevance of the goals and objectives leading into the next performance period.
Corporations manage what they measure Origin Energy has a five-year sustainability strategy with quantitative targets for various indicators. Year-on-year performance data is presented graphically to show how progress is being made against the target and to disclose actions for the forthcoming year.
Reporting Over recent years, the demand for greater transparency in corporate environmental, social and ethical performance reporting has risen significantly. So much so, there is now a large and growing movement worldwide toward mandatory public company disclosure of sustainability information, often referred to by the investor community as non-financial or Environmental, Social and Governance (ESG) data. • The Australian Stock Exchange released Guidelines from the Group of 100 about the Review of Operations that suggests companies provide information including discussion and analysis of non-financial KPIs, risk profile and investments in future performance of the business’ dynamics: environmental, social, legal and regulatory compliance. • The importance of ESG risk consideration has been discussed, and has gained increasing recognition in recent years. A 2009 report by the United Nations Principles for Responsible Investment (UNPRI) supports the view that
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pension funds should address climate change as part of their fiduciary duty, and should be pursuing investment strategies that will mitigate the potential systemic risk of climate change and profit from low-carbon capital opportunities. Not surprisingly, there has been an increase in the number of Australian companies preparing sustainability reports. The Australian Council of Superannuation Investors (ACSI) has been surveying sustainability reporting practices of ASX 100 over recent years, and the number of companies reporting on sustainability has increased from 83 per cent in 2008 to 96 per cent in 2011. Despite this, ‘sustainability’ reports are usually stand-alone documents with little
connection to the company’s annual or other shareholder reports. Sustainability issues are often discussed in isolation from information on corporate strategy and therefore result in disjointed and inconsistent messages about the company’s overall performance. Disjointed reporting confuses stakeholders and raises questions about the quality and integrity of an organisation’s management and governance frameworks. ‘Integrated’ reporting, where both financial and non-financial (ie, sustainability) data is reported together in mainstream annual reports, is being proposed as the best way of reporting. It recognises that financial information alone does not provide a complete view of the company’s overall performance or respond to the varying interests and concerns of multiple-
The evolution of sustainability reporting – where are you today?
Past
Present
‘I have someone who looks after the sustainability agenda’ Silo
Future
‘We need to incorporate the most material sustainability issues into our mainstream thinking and reporting’ Mainstreamed
‘We’ve transformed our business model, culture and values of the company to reflect the new business landscape’ Integrated
Mainstream Reporting
Sustainability Reporting
Figure 4: The integration journey. Source: PwC.
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Inclusion but isolated
Strategic and aligned
Hardwired
Corporate Sustainability
stakeholder groups. Integrated reporting does not mean adding the sustainability report to the annual report. The process demands the integration of information, which can flex with changing dynamics and can deliver truly valuable strategic and operational insights to management and stakeholders. Figure 4 depicts the integration journey. An organisation cannot move to integrated reporting in a single step. Organisations must first manage their business in an integrated manner, in order to monitor and assess the performance of both financial and nonfinancial KPIs. While the concept of integrated reporting is getting more attention, the benefits have been known for a number of years. In 2003, the Australian Government commissioned ‘Corporate Sustainability – an Investor Perspective (The Mays Report)’. It found that those companies which integrated sustainability activities into their core business had a lower risk profile while enhancing their brand and reputation.
value. Companies that intend surviving and prospering long-term will need to more clearly demonstrate that they are currently thinking long-term. Such a perspective allows shareholders and other key stakeholders to understand the quality and sustainability of performance by providing insights into external influences, strategic priorities and the dynamics of the chosen business model, as well as the key drivers of success.
ACTIONS FOR 2020 The integration of sustainability into core business requires a fundamental rethink of the corporate business model, culture and values. It requires corporations to identify and address the most material sustainability issues into dayto-day operations and business decisions. A short-term focus on business survival will remain important for many, but the shift to a longer-term strategic perspective will be essential in the battle to build trust and market
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Further Reading Corporate Sustainability PwC Thought Leadership (2010). Integrated reporting: what does your reporting say about you? www.pwc.com/gx/en/ corporate-reporting/integrated-reporting PwC Thought Leadership (2011). How sustainable is your reporting? A survey of sustainability reporting across the ASX30. www.pwc.com/consulting/publications/how-sustainable-is-your-reporting