Sustainability reporting and key benefits for corporates

By Cheranka Mendis

The awareness among the local corporates on the importance of sustainability reporting has been on the rise in the recent past and ACCA held the popular ACCA Sri Lanka Sustainability Reporting Awards at the Cinnamon Grand last night.

Prior to the event, ACCA Executive Director Market Stephen Heathcote and ACCA Director of Emerging Markets Asia Lucia Real-Martin joined the Daily FT for a discussion on the importance of sustainability reporting.

Following are excerpts from the interview:

Q: When we talk about sustainability reporting what exactly does it mean and what are the key areas companies should focus on?

Heathcote: When we talk about sustainability reporting, we are talking about how the company actually works, how it delivers its objectives and strategies, and how all this comes together in terms of how people work in the company – the finances, people who invest in the country, the impact they have in terms of civil society, environment, and in terms of economic growth. All of that has to come together and be integrated to understand the process as a whole. Sustainability reporting at its most effective will link itself to a company’s strategy and objectives.

Q: From ACCA’s point of view, why get involved in sustainability reporting?

Real-Martin: in Sri Lanka, ACCA has been involved in sustainability for over 20 years. We have seen the journey of how sustainability matters, how sustainability reporting has evolved and how it has been considered as a part of an organisation’s strategy.

As an accounting professional, what matters is the role of a professional accountant, not only in reporting, but also in communicating the aspects of an organisation. That is why we are more and more involved in the concept of integrated reporting which looks at all aspects of the organisation in communicating to its stakeholders its purpose and core objectives.

Q: How important is sustainability reporting for an economy?

Heathcote: Sustainability is about the long term viability and value in the organisation and the country it operates in. I think what we have learnt from the post global financial crisis is that some of the issues that arose during that period were because people were not thinking in the long term and were taking short term decisions and the consequences of that were the unlawful connections etc.

More and more, organisations are recognising that they must work more and more towards long term views. Companies do their best and survive when they think longer.

Real-Martin: The focus of the sustainability debate is that it makes more economical sense in the long term. As a professional body and as accountants, we are able to really add value to that debate. If you are only looking at the short term, we are concerned about the aspects. However, for an organisation to be economically viable in the long term there has to be sustainability at the heart of its strategy.

Q: Where does Sri Lanka stand in this debate compared to other countries in the region?

Heathcote: What has been encouraging for me here is the level of interest and awareness about sustainability. We had a workshop yesterday and it was well attended. The interest in the Sustainability Reporting Awards is incredible. We have had more reports than last year and some of the best organisations are coming up for the awards. If you compare this with other countries, it places Sri Lanka far ahead in terms of recognition of sustainability, economic relevance and competitive advantage. Sustainable reporting is much stronger here than in many other countries and it will serve Sri Lanka well as it is an attractive feature for a country that is waiting to lure in investors. You are in a very good position.

Sustainability reporting in Sri Lanka is evolving and while you find that some of the reports can get better and stronger, the more you get involved, the more likely it is that you will gain more courage to try new things.

Real-Martin: In relation to economic development, it is impressive how Sri Lanka is taking the sustainability debate to the next level at a time when the economy is still developing. Some understand sustainability as an area that mature economies have tackled and emerging economies have to tackle.

Sri Lanka has really embraced it, developed it and used it as a developing tool of its economy. This is how it really should be – not waiting for maturity to enter sustainability aspects but rather to use it as a long term feature in economic growth.

Q: What are some of the best practices you have seen in Sri Lankan companies in sustainability reporting?

Heathcote: The key is when reports directly show how sustainability links back to the company’s objectives and core activities. The best report is when anyone with some business knowledge can pick up a report and understand how the business operates, the business model, the risk factors of the organisation and how it manages.

Q: The SR awards have been a key feature on ACCA’s calendar for the past few years. Have you achieved your objectives on that front?

Real-Martin: We have been hosting these awards for almost 10 years and I think every year we look at it as how it is benefiting the organisations so that they see their rewards and mechanisms and utilise them, showcase their best practices, and thereby encourage other organisations to take on that journey.

From our point of view, year-on-year, we continue to achieve our objectives because we are receiving more and more interest from organisations. We have close to 50 corporates coming in, a big increase from last year. It is not just a flagship event of ACCA but has become a flagship award for Sri Lankan corporates.

This year for the very first time, we held an integrated reporting seminar and a workshop for our own integrated reporting.  ACCA is therefore, not just showcasing what others are doing, but is also part of leading the debate.

Q: What are the key benefits a company stands to achieve when it comes to integrated reporting?

Heathcote: The main benefit is the thinking it promotes within the company. The surprising thing is that we started this as a reporting project and quickly realised it is not just that. Through this, companies can analyse the questions such as where are we going as an organisation, where do we stand in risks, are the risks we are preparing to take worth it, and what do stakeholders think about us.

The biggest benefit is actually getting the company to think about its objectives, risks, investment levels and the best way to deliver on its missions and goals. Once we get that and communicate it to other people, it creates a lot of confidence within the company.

One of the main benefits we see from companies adopting sustainability reporting is that they also tend to perform well. There is also a co-relation between good reporting and share prices of companies in listed companies. For smaller entities and businesses, it gives confidence as banks will lend money, and suppliers will note them as more reliable. Benefits are partly internal but this leads to external benefits as well.

Real-Martin: From an investor’s point of view, it showcases a very user friendly platform to fully understand an organisation. It is not only the performance that comes through clearly but also the values and the strategies. It is an easy tool to understand a business.

Q: For companies that do not engage in sustainability reporting as yet, what are the basics they should implement?

Heathcote: The basic is not necessarily trying to move to a full report because it can be quite daunting to an organisation. The starting point is to take some of the integrated thinking of the report and to try and have some discussions within the company – with the board, senior management etc. and understanding its value and objectives, risks etc. I would start with that and then move on to try and describe how the business works and what makes it tick. That may lead to more manageable goals and evolving and focusing on risk management.

Real-Martin: This will be a mechanism for organisations to think of their financial values and other added values such as engagement with employees and other stakeholders, understanding of the communities about the business, contribution etc.

Q: What should companies in Sri Lanka do to ensure that sustainability reporting continues?

Heathcote: Some of that involves looking at what the advantages are and how they are adding value and making better decisions. This is the starting point. They must find out if the people are working in an effective way, track them, benchmark, set goals and train their people as needed.