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Is T&T ready for sustainability reporting?
These days, it seems movie-star cool to be an advocate of all things on the sustainability spectrum, from the environment to corporate social performance to social justice. Many entities have hopped onto the sustainability bandwagon with fancy claims that their activities are sustainable.
“Sustainability” and “sustainable development” are buzzwords in today’s language. These terms are often used interchangeably. The purpose of this article is firstly to describe sustainability and its reporting in simple terms. Secondly, to call for some form of sustainability reporting to be required by entities with public accountability (listed entities and state enterprises).
Reporting on an entity’s performance has traditionally been focused on the financial statements. It is widely accepted that both financial and non-financial measures are needed to obtain a holistically representative view of an entity’s performance.
ACCA in its 2014 policy paper on sustainability noted the following:
“Over the past 20 years, there has been increasing pressure placed on organisations by various stakeholders to measure and manage their impacts on the environment and society, and communicate this publicly. This has usually been in the form of a separate sustainability report, distinct from a company’s annual report and accounts.”
Many stock exchanges around the world require listed entities to report on sustainability in some form. There are no such requirements in T&T. Critics will say that T&T is a small country and we are not yet ready for this.
As a country with huge aspirations in terms of developed nation status and given our exhausting natural resources (which we only now seem to understand are being exhausted), surely, we need to at least get the ball rolling and giving serious thought to how entities give an account of their sustainability actions.
Sustainable development is defined by the UN World Commission on Economic Development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.
In an analysis of the current state of the planet, the World Wildlife Fund (WWF) commented that human development is unsustainable. The shift to a sustainable economy will require significant changes in the way in which goods are produced and consumed.
A sustainability report is an organisational report that gives information about economic, environmental, social and governance performance.
There are several globally recognised sustainability reporting standards. It is very important for readers to recognise that sustainability reports cover more than just environmental issues, although there is a strong focus on them.
So, they would also include reporting on subjects such as emissions, energy conservation statistics, recycling, labour practices, giving back to communities, regulatory compliance, etc.
1. Key global issue:
It is acknowledged globally that responsible actions in the way we live today are needed to ensure a sustainable future for the earth and its people.
2. Stakeholder demand
The demand for sustainability reporting globally is growing rapidly, driven not just by shareholders and investors, but by stakeholders such as customers, employees, regulators, stock exchanges, rating agencies, civil society groups and communities. Investment decisions and capital allocation increasingly rely on non-financial information included in sustainability reports.
Financial decision making incorporates financial and non-financial measures, including those about sustainability.
Socially responsible investments are among the fastest-growing category of investment assets.
3. Global Practice
Sustainability reporting is a widespread global practice and there are many reporting standards.
A recent study by a prominent US University found that the governments or stock exchanges of 33 countries have required or encouraged some level of sustainability reporting.
ACCA in a recent publication on sustainability indicated that: “Organisations tend to communicate their sustainability activities through sustainability reports and currently over 3,000 companies worldwide, including over two-thirds of the Fortune Global 500, issue annual reports on sustainability and corporate responsibility.
“The pool of companies reporting is global, and represents all sectors and industries. The quality of reporting varies significantly, but companies should aim to produce clear and credible reports that place the organisation’s activity in the context of the wider societal and environmental systems within which the organisation operates.”
By far, the most widely used sustainability reporting standards are those set by Global Reporting Initiative (GRI). Some other examples of sustainability reporting standard setters are: International Integrated Reporting Council (IIRC), Sustainability Accounting Standards Board (SASB) and Climate Disclosure Standards Board (CDSB), International Organisation for Standardisation (ISO) 26000, UN Global Compact 10 Principles and United Nations Environment Programme Finance Initiative (UNEP FI).
4. Recognition by the
International accounting bodies and professional services firms have recognised the importance of sustainability reporting. There are large dedicated professionals around the world working in this arena.
In fact, the recognition goes further to the rapidly developing practice of Integrated Reporting (IR), which helps to complete financial and sustainability reports. IR’s contribution to global sustainability was described as “a better language for businesses to communicate with their investors, in order to deliver more sustainable value creation and more efficient capital markets”.
In January 2017, the International Federation of Accountants (IFAC) updated its policy position paper on integrated reporting which outlines IFAC’S position that integrated reporting is the way to achieve a more coherent corporate reporting system, fulfilling the need for a single report that provides a fuller picture of organisations’ ability to create value over time.
5. Governance responsibility
Entities are under greater pressures from various stakeholders, not just shareholders to justify their legitimacy.
Many of issues involved relate to sustainability. Those responsible for an entity’s corporate governance have a responsibility to ensure valid legitimacy concerns are addressed. Sustainability reporting plays a critical role in supporting effective communications and closing governance gaps.
In T&T, we have many businesses engaged in activities with critical sustainability accountabilities. eg oil and gas exploration, petroleum refining, petrochemical manufacture, mining, manufacturing, hotels and ports, to name a few. Service industries such as banking, tourism, health are not insulated from sustainability reporting.
As T&T strives for developed nation status, the regulatory architecture needs to be put in place to ensure sustainability is reported on by those entities where it matters most.
I urge parties such as the T&T Securities and Exchange Commission (TTSEC) and Ministries of Energy, Finance and Trade to consider making sustainability reporting a requirement for listed entities and certain state enterprises, appropriately tailored to our national context.
Wendell Ramoutar is ACCA International Assembly representative for T&T