Carrots-And-Sticks-Promoting-Transparency-And-Sustainbability.pdf

CARROTS AND STICKS –

PROMOTING TRANSPARENCY

AND SUSTAINABILITY

An update on trends in Voluntary and Mandatory

Approaches to Sustainability Reporting

Project Partners

United Nations Environment Programme (UNEP)

UNEP represents the United Nations’ environmental con-

science. Based in Nairobi, Kenya, its mission is to provide

leadership and encourage partnership in caring for the en-

vironment by inspiring, informing, and enabling nations and

peoples to improve their quality of life without compromis-

ing that of future generations. UNEP’s Division of Technol-

ogy, Industry and Economics (DTIE) aims to help decision-

makers in the public and private sectors to develop and

implement policies and practices focusing on sustainable

development. It works to promote sustainable consump-

tion and production, the eficient use of energy and other

resources, adequate management of chemicals, and the

integration of environmental costs in development policies.

Leading outreach activities with business and industry, sus-

tainability reporting has for many years been a core subject

of its work on corporate social responsibility.

The Global Reporting Initiative

The Global Reporting Initiative TM (GRI) is a multi-stakeholder

non-proit organisation that develops and publishes guide-

lines for reporting on economic, environmental and social

performance (‘sustainability performance’). As the world’s

most widely-used sustainability reporting framework, the

GRI Sustainability Reporting Guidelines are being used by

organisations of all sizes and types, across sectors and

regions. The Guidelines are developed through a unique

multi-stakeholder consultative process involving representa-

tives from reporting organisations and report information

users from around the world. First published in 2000 and

then revised in 2002, the guidelines have now entered their

third generation, referred to as the GRI G3 Guidelines which

were released in October 2006.

United Nations

Environment Programme

PO Box 30552

Nairobi 00100

Kenya

Tel: +254 20 762 1234

Fax: +254 20 762 3927

www.unep.org

UNEP DTIE

15 rue de Milan

75441 Paris Cedex 09

France

Tel: +33 1 4437 1450

Fax: +33 1 4437 1474

unep.tie@unep.fr

www.unep.fr

Global Reporting Initiative

PO Box 10039

1001 EA

Amsterdam

The Netherlands

Tel: +31 20 531 00 00

Fax: +31 20 531 00 31

info@globalreporting.org

www.globalreporting.org

KPMG

KPMG is a global network of professional irms providing

Audit, Tax and Advisory services. We operate in 144 coun-

tries and have 140,000 people working in member irms

around the world. The independent member irms of the

KPMG network are afiliated with KPMG International Coop-

erative (“KPMG International”), a Swiss entity. Each KPMG

irm is a legally distinct and separate entity and describes

itself as such.

Our irms’ clients include business corporations, govern-

ments and public sector agencies and not-for-proit organi-

sations. KPMG irms aim to provide a consistent standard

of service based on our professional capabilities, industry

insight and local knowledge. At KPMG we try to create

sustainable, long-term economic growth, not just for our

member irms and their clients but for the broader society,

too. We seek to be good corporate citizens, making a real

difference to the communities in which we operate.

KPMG’s Sustainability Services practices deliver assurance

and advisory services in the ield of corporate responsbility

(CR), including reporting and assurance on CR reporting. For

further information about our services please go to www.

kpmg.com or contact:

Unit for Corporate Governance in Africa, University of

Stellenbosch Business School

The Unit for Corporate Governance in Africa conducts multi-

disciplinary research, educational and development activities

with the aim of improving the effectiveness of corporate

governance in African organisations.

The Unit focuses on:

The development of the compliance and performance as-

pects of directors’ attitudes, knowledge and skills

The link between corporate governance, business ethics

and total organisational performance

The purpose of the Unit is to improve the effectiveness of

corporate governance within African organisations, predomi-

nantly in the private sector.

The mission of the Unit is to develop both the compli-

ance and the performance aspects of directors’ attitudes,

knowledge and skills, as well as the link between corporate

governance, business ethics and total organisational perfor-

mance.

Unit for Corporate Governance in Africa

PO Box 610, Bellville 7535, South Africa

Tel: +27 21 918 4342

Fax: +27 21 918 4468

governance@usb.ac.za

www.governance.usb.ac.za

Wim Bartels

Global Head of Sustainability Assurance at KPMG

Partner, KPMG Sustainability, the Netherlands

Tel: +31 20 656 7783

bartels.wim@kpmg.nl

Contents

Forewords

Executive Summary

Introduction

Analysis of trends and approaches in mandatory and voluntary

sustainability reporting

Inventory of selected legislation, standards, codes and guidelines

4.1 Global

4.2 Regional

4.3 Country

Country profiles

5.1 Australia

5.2 Brazil

5.3 China

5.4 France

5.5 India

5.6 South Africa

Conclusion

References

Disclaimer and Acknowledgments

Carrots and Sticks - Promoting Transparency and Sustainability

Forewords

The five capital assets of Financial, Human, Natural, Social and Technological have become

critically interdependent. No entity can plan for the long term in the economy in which we

find ourselves without taking account of these critical, interdependent capital assets. A

sustainable economy demands business as unusual and the ability to make more with less.

Our resources are not infinite and the world can no longer absorb waste. The hundred years

of taking, making and reducing to waste cannot continue. There is no time for a business-

as-usual approach. The time is ripe to follow the example of several governments who have

introduced legislation on a report-or-explain basis regarding the impact which the operations

of any company may have economically, societally and environmentally.

Many developments since the first edition of this publication point to things moving in

the right direction. Governments around the world should follow the Danish regulation

requiring its largest companies to report or explain as described above. Mandatory and

voluntary approaches to integrated reporting are not mutually exclusive options. They

are complementary, and the challenge for governments is to determine the appropriate

mandatory requirements.

World bodies need to share knowledge and reduce duplication of effort because we all have

to move forward in the interests of Planet Earth and those who will come after us. It has

become essential that the G20 agree to legislate that all entities within their jurisdictions

report or explain how they have impacted on society, the environment and the economy.

Mervyn King

Chairman of the Board of Directors, GRI

Stakeholders need integrated reporting, and that’s why GRI is at the forefront of working with

governments, regulators, civil society and other key players around the world, to make this a

reality.

The need for regulatory frameworks for reporting has for long been debated. Should

companies be left to their own initiatives to explore further transparency, thus creating

a real commitment to reporting based on a genuine thought process, but with the risk

that progress is too slow? Or should governments take the lead in setting frameworks

for reporting, thus creating a level-playing field in reporting but providing companies

with the opportunity to complete nothing more than a tick-the-box exercise?

In this era of low trust in the corporate world it would seem to be the duty of all

parties to ensure that transparency is elevated to a level where an organisation’s

stakeholders can understand its comprehensive performance in such a way that trust

is rebuilt and decisions can be taken in an environment where dialogue is an integral

part of business.

In this context frameworks for sustainability reporting (whether voluntary or

mandatory) can assist those who want to be part of this world, as well as stimulating

or forcing those who prefer the old situation to report on the wider impact they have

on society – negatively and positively.

We are proud to be able to contribute to further progress in this area by participating

in studies such as this and by advising companies and governments on current

practices and the state of play in sustainability reporting.

Wim Bartels

Global Head of Sustainability Assurance

at KPMG, Partner KPMG Sustainability,

the Netherlands

Carrots and Sticks - Promoting Transparency and Sustainability

Core environmental issues today – climate, biodiversity and others – are clearly socio-

economic challenges as well. Looking at the stress we put on our natural resources as our

economies expand and populations grow, it is abundantly clear that business as usual will

not do. As managers in public and private organisations face changing market conditions,

information overload and growing public demand for accountable resources use, they need

new management tools and credible information to take action.

This implies a new era for public reporting, both at national and organisational level. It

implies that conventional models of running financial reporting and so-called non-financial

reporting as two separate islands are no longer acceptable. It also implies that sustainability

reporting can no longer remain the speciality of a top one hundred corporations, or an

experimental area of expertise left to advanced communications agencies. It needs to

be mainstreamed and scaled up on a grand scale. This cannot simply be the result of

regulatory pressure, but different forms of regulation – including self-regulation – can play

an important role in advancing the comparability, credibility and relevance of information

disclosed.

The Global Reporting Initiative remains the international reference for how to approach the

reporting of holistic information on sustainability performance. Public regulators can build

on this. They can help us to engage the accounting and investment community in defining

integrated reporting and use of forward-looking indicators that reflect key resource use risks

that organisations, markets and societies face today. UNEP looks forward to working with

Governments, our project partners and others in this.

Angela Cropper

Deputy Executive Director, UNEP

GRI Governmental Advisory Group

The Global Financial Crisis has focused for many of us the need to rethink how we

finance and to what end we use our human organisations – private, public and non-

profit. One can see a distinct change of mindset occurring where the previous notions

of economic rationality, the paramountcy of quantification and the automatic balancing

of free markets are beginning to have to take into account human irrationality,

behavioural economics and emotional sensitivity, and more pragmatic approaches to

the asymmetric nature of market intelligence.

One sees this in the growing interest especially in the Corporate Governance world

in two distinct ways. First, the developing differentiation between managing, and

directing. Second, the growing public awareness of the connectedness of living

systems. This both broadens and strengthens the definition of “stakeholders” of our

organisations but leads to intellectual and operational discomfort amongst current

directors and managers. Globally, one can see the continuing historical move to create

an annual reporting system for our organisations based on The Triple Bottom Line.

This is easy to recommend but as we are only too aware it is easy for humans to

agree the rhetoric and then argue “Lord, make me chaste, but not just yet”. The big

issue is how does one get humans to willingly commit to the values and subsequent

assessable behaviours that would allow a sustainable world to come into being? This

report contains valuable insights into how to move forward and I commend it.

Professor Bob Garratt

Chairperson, Unit for Corporate

Governance in Africa, University of

Stellenbosch Business School

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