Sustainability Flashcards
Corporate Social Responsibility (CSR)
Definition
- ‘the obligation of business…. to pursue those policies, to make those decisions or to follow those lines of action which are desirable in terms of the objectives and values of our society.’
Howard R. Bowen (1953)
Corporate Social Responsibility (CSR)
What is social accounting?
What does it involve?
- Social accounting is ‘the process of communicating the social and environmental effects of organisations’ economic activities to particular interest groups within society at large.
- As such, it involves extending the accountability of organisations, beyond the traditional role of providing a financial account to the owners of capital, in particular, the shareholders. Such an extension is predicated upon the assumptions that companies do have wider responsibilities than simply to make money for their shareholders.’
Grey et al (1996)
CSR: Economic
What is the aim?
4 examples?
What is the principle here?
Basics:
- economic CSR aims to strike a balance between maximisation of profits and sustainable practices.
Specifics:
- Using new machinery to minimise waste
- Change to no- or low-emissions vehicles (Amazon)
- Recycling materials
- Employee welfare.
The principle here is that by investing in moral and sustainable activities, profits will increase.
CSR – environmental
What is the aim?
4 examples?
What is the principle here?
Environmental CSR aims to reduce damaging effects on the environment from business activities.
Examples to reduce
- Energy use
- Water use
- Waste management
- Recycling
- Emissions
- Travel policies
The principle here is that in safeguarding the environment, the company is safeguarded too.
CSR - Social
6 examples
What is the principle here?
- Improving labour practices
- Fairtrade
- Charitable giving
- Volunteering
- Paying fair wages (above minimum wage)
- Paying suppliers on time
The principle here is that by investing in the community, the community will invest in the company.
Definitions
Sustainability
Sustainable development
Sustainable development goals
Sustainability:
- Limiting the use of depleting resources to a level that can be replenished
Sustainable development:
- “Development that meets the needs of the present without compromising the ability of future generations to meet their own need”
Sustainable development Goals (SDGs)
- 2015: Adopted by all UN member states as part of “2030 Agenda for Sustainable Development”
The global goals for sustainable development split into 3 (picture)
Paris Agreement - 2015 (5)
- International treaty
- Signed by 196 countries at COP21
- Framework for international action on climate change
- Maximum 2°C increase global temperature change, with preferred goal of 1.5°C above pre-industrial levels
- Net zero – global reduction in Green House Gas Emissions to net zero by 2050
Why are companies focusing on sustainable business practices? (4)
- increased future government focus on sustainable business
- often improve performance by lowering operational, reputational and regulatory risk
- significant business growth opportunities in products and services that address the SDG challenges
- profit based models are reducing in relevance. Companies and their stakeholders are changing how they measure success, and this is becoming more than just about profit.
Sustainability reporting
What has growing awareness created in terms of stakeholder expectations?
Why is sustainability reporting a key part of a company’s dialogue?
What disadvantage do companies face if they fail to make disclosures?
What has the emergence of new non-financial reporting standards led to?
Picture of what sustainability reporting is
What has growing awareness created in terms of stakeholder expectations?
- Growing awareness has created stakeholder expectations for disclosures.
Why is sustainability reporting a key part of a company’s dialogue?
- Sustainability reporting is a key part of a company’s dialogue with its stakeholders.
What disadvantage do companies face if they fail to make disclosures?
- Companies failing to make disclosures are now at a significant disadvantage.
What has the emergence of new non-financial reporting standards led to?
- The emergence of new non-financial reporting standards has been driven by the need for sustainability reporting.
Sustainability reporting
Important dates and milestones (5)
2000: Global Reporting Initiative (GRI) first issued guidelines for sustainability reporting
2016: GRI = 1st global standards adopted
2017: Task force for Climate Related Financial Disclosures
2021: International Sustainability Standards Board (ISSB) created
2023: Two new sustainability standards issued:
- IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information
- IFRS S2 Climate Related Disclosures
Investor perspective
Firms with strong ESG propositions are? (2+3)
- Less risky and offer more value potential
- Better long-term growth potential & superior financial returns
- Revenue growth (new & existing markets)
- Cost savings (from energy savings)
- Access to cheaper borrowings (lower cost of capital)
- Access to talent
FTSE Reporting requirements (3)
Companies Act (2006)
- Requires quoted companies to report on environmental matters in their Strategic Report to the extent that environmental information is necessary for an understanding of the development, performance or position of the company’s business
UK Companies (Directors Report) and LLP (Energy & Carbon Report) Regulations 2018
- Requires large UK companies to disclose annual GHG emissions, energy, use and energy efficiency measures in the Directors Report (or cross referenced from the Strategic Report)
FCAs Listing Rule for Climate Related Disclosures (Premium Listed)
- Financial Conduct Authority (FCA) introduced new single listing rules requiring premium listed companies to include TCFD –aligned disclosures in their annual reports on a “comply or explain” basis for accounting periods on/after 1 Jan 2021.
How do companies demonstrate sustainability? (5)
- Sustainability reporting in annual report
- ESG metrics e.g. CO2 emissions, waste, diversity
- Climate related disclosures
- Non-financial performance indicators
- Highlight sustainable investments
Benefits of sustainability reporting (7)
- Enhanced transparency and trust
- Accountability and regulatory compliance
- Informed decision making
- Benchmarking & performance improvements
- Integration into business strategy
- Promotes long term value creation
- Competitive advantage
