4.16 Public reporting and assurance

4.16.1 Recent developments in public reporting

The reporting of sustainability or environmental, social and governance (ESG) performance should be seen not as an isolated activity but as part of a larger process of sustainable company practice, stakeholder engagement and corporate accountability. When done strategically, reporting can help to manage sustainability resources within the organisation, identify gaps in sustainability information or data collection and generate momentum for environmentally and socially responsible practices in company operations and processes.

There have been some significant new developments in public reporting in recent times, including the arrival of two new frameworks that offer companies different ways to present performance data to their stakeholders:

  • integrated reporting—an initiative of the International Integrated Reporting Council (IIRC)6
  • G4 sustainability reporting—promoted by the Global Reporting Initiative (GRI).7

The two frameworks should be considered not as alternatives, but rather as complementary in reaching different audiences with different interests.

4.16.2 Integrated reporting

Integrated reporting provides a powerful framework for connecting social performance to broader business strategy and provides a means of demonstrating the business value of social investments over time. Identifying material issues affecting value creation in the short, medium and long terms promotes a more sustainable long-term outlook than other corporate reporting frameworks.

Integrated reporting is starting to gain the attention of Australian companies, and some have made their first attempt to produce such a report. Some stock exchanges, such as South Africa’s JSE, are now mandating that listed companies produce one. However, there is a widespread misunderstanding in the marketplace about what constitutes an ‘integrated’ report.

Recent research by the GRI noted that ‘the number of self-declared integrated reports in the GRI database that are explicitly titled “Integrated report” has grown in recent years … but the majority—from 50–60%— are called “Annual report”, followed by “Sustainability report” or “Sustainable development report”.’ (GRI 9999).

A closer look at the figures from GRI’s research suggests that at least 70% of those reports claiming to be ‘integrated’ are not and, if we use a literal definition of ‘integrated report’, the actual figure is possibly closer to 90%.

This misunderstanding has created confusion in the marketplace about reporting options and directions, promoting a view that integrated reporting is the inevitable successor to sustainability and financial reporting. Some organisations believe that producing an integrated report will relieve them of the need for sustainability reporting in future.

Now that both GRI’s G4 and the integrated reporting framework are available to reporters, it is clear that sustainability reporting remains primarily focused on providing information for stakeholders wanting to understand an organisation’s key social, economic and environmental impacts and how it is managing them, while integrated reporting is targeted at providers of financial capital seeking information that demonstrates how an organisation creates value across a range of interconnected capitals in a coherent and strategic way.

4.16.3 New sustainability reporting guidelines

Coinciding with the delivery of the integrated reporting framework has been the release of the next generation of sustainability reporting guidelines, called G4, developed by the GRI. Through G4, the GRI has sought to step up the level and quality of sustainability reporting. It is not simply an update of the previous set of guidelines, but has a clear intent to pull reporters up to the next level of accountability by enhancing key aspects such as disclosures of materiality, boundary setting, governance, supply chains, ethics and management.

Governance and supply-chain reporting are also strengthened in G4. Reporters now need to more fully describe their organisation’s supply chain, including detail on the location of suppliers, changes in their relationships with suppliers, their selection and termination of suppliers, and the monetary value and volume of goods and services purchased directly from suppliers. Governance is covered in Section 4.18 of this handbook.

4.16.4 Energy and emissions reporting

Mandatory reporting

In Australia, the monitoring and reporting of greenhouse gas emissions, energy production and energy consumption by corporations is mandated under the National Greenhouse and Energy Reporting Act 2007 (NGER Act).

The Act requires corporations that emit greenhouse gases or produce or consume energy above specified thresholds to register and report their emissions, energy production and energy consumption to the Australian Government.

Emissions data collected under the NGER Act is integral to the compilation of the National Greenhouse Accounts, and is used to fulfil international reporting requirements under the United Nations Framework Convention on Climate Change; to track Australia’s progress towards targets set under the Kyoto Protocol; and to inform policymakers and the public.

Key documentation on reporting under the NGER Act includes the:

  • National Greenhouse and Energy Reporting Regulations 2008
  • National Greenhouse and Energy (Measurement) Determination 2008
  • National Greenhouse and Energy Reporting Technical Guidelines.

The technical guidelines help corporations understand and apply the NGER Determination by outlining calculation methods and criteria for determining greenhouse gas emissions and energy data. They also contain a step-by-step guide for corporations on how they may register and report under the NGER Act.

The National Greenhouse and Energy Reporting System (NGERS) represents leading practice in the monitoring and reporting of greenhouse gas emissions and energy in Australia. As well as being underpinned by legislation, the NGERS is based on international reporting standards and methods, such as the World Business Council for Sustainable Development’s Greenhouse Gas Protocol (see box), and methods prescribed by the Intergovernmental Panel on Climate Change. To ensure the accuracy of data reported under the NGERS, the NGER Act also contains a series of auditing, compliance and enforcement provisions.

Further information about the reporting obligations of corporations under the NGER Act is available from the Clean Energy Regulator.8

Greenhouse Gas Protocol

The Greenhouse Gas Protocol, created by the World Business Council for Sustainable Development and the World Resources Institute, is the most widely used international accounting tool for government and business leaders to understand, quantify and manage greenhouse gas emissions. It provides the accounting framework for nearly every greenhouse gas standard and program in the world.

The Greenhouse Gas Protocol Corporate Standard provides standards and guidance for companies and other organisations preparing a greenhouse gas emissions inventory. It covers the accounting and reporting of the six greenhouse gases covered by the Kyoto Protocol—carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6)—and was amended in May 2013 to include nitrogen trifluoride (NF3).

The objectives of the corporate standard are:

  • to help companies prepare a greenhouse gas inventory that represents a true and fair account of their emissions, through the use of standardised approaches and principles
  • to simplify and reduce the costs of compiling a greenhouse gas inventory
  • to provide business with information that can be used to build an effective strategy to manage and reduce greenhouse gas emissions
  • to increase consistency and transparency in greenhouse gas accounting and reporting among various companies and greenhouse gas programs.

If leading practice organisations are not required to report under the NGER Act in Australia (or under similar mandatory reporting frameworks in another countries), they nonetheless prepare a greenhouse gas inventory; the Greenhouse Gas Protocol Corporate Standard makes it easier to do so.

In 2014, the Australian Stock Exchange (ASX) Corporate Governance Principles were updated to include mandatory disclosure of material environmental risks, including climate change risks, and any associated information about energy and emissions management and performance.

The current version of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (3rd edition) was released on 27 March 2014 and took effect for listed entities’ first full financial year commencing on or after 1 July 2014. The new principles and recommendations require companies to disclose material environmental and social sustainability risks and how they are being managed. Clear understanding of climate change risks (physical and regulatory) and an effective strategy for managing energy and emissions is central to this disclosure.

The ESG reporting guide for Australian companies (ACSI–FSC 2011) was developed to complement the reporting requirements spelt out in the ASX Corporate Governance Principles and Recommendations and other best practice guides. In addition to other environmental, social and governance considerations, the guide outlines why energy and emissions reporting is important to investors and what information they want to see disclosed in public reports.

Acknowledging that climate change regulation imposes costs on companies that produce and consume carbon-intensive goods and services, investors consider that companies that fail to understand their carbon emissions, reduce their emissions, cost-effectively manage their carbon liability, and understand their physical exposure to climate change, risk:

  • higher costs as the cost of complying with carbon regulation increases
  • loss of market share as customers move to low-emissions suppliers
  • damage to assets as the physical impacts of climate change increase. Commonly reported indicators that investors look for include:
  • direct (scope 1) emissions, by facility or process, including those occurring in equity stakes
  • indirect (scope 2) emissions associated with purchased electricity
  • supply-chain carbon emissions (scope 3)
  • opportunities to pass carbon costs on to customers
  • opportunities to reduce carbon emissions and energy use
  • targets for reducing carbon emissions and improving energy efficiency
  • effective carbon liability management, including ways to reduce emissions or meet carbon liabilities at low cost
  • an assessment of the physical risks from climate change
  • business opportunities that climate change regulation presents.

International operations

Certain international projects (such as those financed either by the IFC or by financial institutions that are signatories to the Equator Principles) may be required to meet the IFC’s Performance Standards on Environmental and Social Sustainability (IFC 2006). IFC Performance Standard 3 (IFC PS 3) on resource efficiency and pollution prevention has three key objectives:

  • to avoid or minimise adverse impacts on human health and the environment by avoiding or minimising pollution from project activities
  • to promote more sustainable use of resources, including energy and water
  • to reduce project-related greenhouse gas emissions.

The IFC PS 3 sets particular requirements for energy and emissions performance for the corporation at project level:

In addition to the resource efficiency measures described above, the client will consider alternatives and implement technically and financially feasible and cost-effective options to reduce project-related GHG emissions during the design and operation of the project. These options may include, but are not limited to, alternative project locations, adoption of renewable or low carbon energy sources, sustainable agricultural, forestry and livestock management practices, the reduction of fugitive emissions and the reduction of gas flaring.

A recent revision of IFC PS 2 introduced additional requirements for greenhouse gas accounting:

For projects that are expected to or currently produce more than 25,000 tonnes of CO2 annually, the client will quantify direct emissions from the facilities owned or controlled within the physical project boundary as well as indirect emissions associated with the off-site production of energy used by the project. Quantification of GHG emissions will be conducted by the client annually in accordance with internationally recognised methodologies and good practice.

Footnotes

6 IIRC, http://integratedreporting.org/the-iirc-2/.

7 GRI, https://www.globalreporting.org/standards/g4/Pages/default.aspx.

8 Clean Energy Regulator, http://www.cleanenergyregulator.gov.au/NGER/Pages/default.aspx.

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