Accounting for Sustainability : Practical Insights 9781849776332, 9781849710664

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‘Increasingly, a company’s market value reflects the value attributed by investors to people, knowledge, trust and relationships, none of which are visible in traditional financial and management information. Accounting for Sustainability is a thoughtful assessment of how we can develop accounting and reporting to better reflect what is material to assessing corporate performance today.’ Lise Kingo, Executive Vice President, Novo Nordisk Ltd ‘The Connected Reporting Framework is the most practical way of reporting an organisation’s strategic approach to sustainability available today. This publication will provide helpful guidance to anyone keen to learn from early adopters of the methodology.’ Sir Michael Rake, Chairman, BT Group plc ‘The importance of sustainability to the long-term economic performance and survival of organisations can no longer be ignored. This book sets out a powerful case for embedding sustainability considerations across all organisational activities, with examples of how to translate them into practical actions.’ Justin King, Chief Executive, J Sainsbury plc ‘We believe that it is important that organisations measure and disclose their environmental performance in their statutory annual reports and accounts. The case studies in this report show that it is possible to account for the environment in terms of physical and financial data and present environmental and sustainability information in a clear and meaningful way.’ Mark McLaughlin, Director of Finance, Environment Agency ‘Accounting for Sustainability provides a rich and diverse collection of case studies to help all those organisations looking for a practical way of addressing the major challenges and risks posed by sustainability-related issues.’ Charles Tilley, Chief Executive, CIMA (Chartered Institute of Management Accountants) ‘All too often when discussing sustainability issues the focus is on performance reporting and assurance – whilst the real focus of our attention really ought to be the embedding of sustainability principles, resulting in real change. This text provides excellent examples of real change in action and will be of interest to a broad spectrum of managers and accounting professionals.’ Helen Brand, Chief Executive, ACCA (Association of Chartered Certified Accountants)

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‘This book is a significant contribution to the practice of sustainability, demonstrating why and how it can be embedded in an organisation’s thinking and action. This is done through a series of very perceptive case studies that move us beyond the theoretical to the practical.’ Michael Izza, Chief Executive, ICAEW (Institute of Chartered Accountants in England and Wales) ‘This book provides major learning points on how environmental sustainability can be embedded in organisations and reported on, and the issues likely to arise. This should significantly reduce any “reinventing the wheel” in embedding sustainability in corporate culture.’ Alan Thomson, President, ICAS (The Institute of Chartered Accountants of Scotland) ‘This is a significant contribution and a rich source of learning. It illuminates the practice of pioneers in sustainability reporting who are already reaping considerable benefit. Here is reporting that favours clarity and comparability, links financial and non-financial information, focuses performance and accountability, and has relevance for all sectors.’ Steve Freer, Chief Executive, CIPFA (Chartered Institute of Public Finance and Accountancy)

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Accounting for Sustainability

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Accounting for Sustainability Practical Insights

Edited by Anthony Hopwood, Jeffrey Unerman and Jessica Fries

London • New Y Y ork

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First published in 2010 by Earthscan Copyright © A. G. Carrick Limited, 2010 The moral right of the author has been asserted. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as expressly permitted by law, without the prior, written permission of the publisher. Earthscan 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Earthscan 711 Third Avenue, New York, NY 10017 Earthscan is an imprint of the Taylor & Francis Group, an informa business Earthscan publishes in association with the International Institute for Environment and Development ISBN: 978-1-84971-066-4 hardback ISBN: 978-1-84971-067-1 paperback Typeset by MapSet Ltd, Gateshead, UK Cover design by Rob Watts A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Accounting for sustainability : practical insights / edited by Anthony Hopwood, Jeffrey Unerman, and Jessica Fries. p. cm. Includes bibliographical references and index. ISBN 978-1-84971-066-4 (hardback) -- ISBN 978-1-84971-067-1 (pbk.) 1. Sustainable development reporting. 2. Environmental auditing. 3. Social accounting. 4. Sustainable development reporting--Case studies. 5. Environmental auditing--Case studies. 6. Social accounting--Case studies. I. Hopwood, Anthony G. II. Unerman, Jeffrey. III. Fries, Jessica. HD60.3.A25 2010 658.4'083--dc22 2010005565 At Earthscan we strive to minimize our environmental impacts and carbon footprint through reducing waste, recycling and offsetting our CO2 emissions, including those created through publication of this book.

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Dedication

This book is dedicated to the memory of Professor Anthony Hopwood. A few weeks before Accounting for Sustainability: Practical Insights was published we learned with great sadness that, after a long illness, Anthony had passed away. Characteristic of the vision that Anthony brought to bear throughout his illustrious career, the initial proposal for this book came from Anthony. His drive, energy and enthusiasm ensured not only that the project was undertaken by a team of distinguished academics researching leading organizations, but also that it was completed to a high standard within very tight timelines. His insight and guidance throughout the researching and writing of this book has been invaluable to us, his co-editors, and to the researchers who have written the individual case study chapters. Anthony has left a large and impressive legacy, in particular through his contribution to accountancy. He was an inspirational member of The Prince’s Accounting for Sustainability Project from its inception in 2004 and was heavily involved in the creation of many of the tools and methodologies developed. As one of his final projects, we believe that this book will appropriately add to his legacy, helping to foster a more sustainable future by encouraging the adoption of the principles of Accounting for Sustainability. On behalf of all those who have been involved in researching, writing and publishing this book, we hope that Anthony’s contribution towards achieving brighter prospects for future generations will bring some additional comfort to his widow, Caryl, his sons Mark and Justin, and all his family. Jeffrey Unerman and Jessica Fries, May 2010.

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Contents

Foreword by His Royal Highness The Prince of Wales List of Figures, Tables and Boxes List of Contributors Acknowledgements List of Acronyms and Abbreviations 1

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Introduction to the Accounting for Sustainability Case Studies Anthony Hopwood, Jeffrey Unerman and Jessica Fries Sustainability, sustainable development and climate change The role and significance of sustainability for organizations Embedding sustainability considerations into business practice through accounting for sustainability Summary of the case studies Conclusions The Prince’s Accounting for Sustainability Project: Creating 21st-Century Decision-Making and Reporting Systems to Respond to 21st-Century Challenges and Opportunities Jessica Fries, Karen McCulloch and Will Webster Introduction The ten main elements to embed sustainability into decision-making An overview of the A4S decision-making tool An introduction to the concept of connected reporting and the Connected Reporting Framework (CRF) Next steps: The creation of an International Integrated Reporting Committee Sainsbury’s: Embedding Sustainability within the Supermarket Supply Chain Laura J. Spence and Leonardo Rinaldi Introduction The context of the A4S decision-making tool at Sainsbury’s

xiii xv xvii xxiv xxv 1 3 8 15 19 26

29 29 32 32 36 44

47 47 49

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The lamb supply chain and sustainability Sainsbury’s perspective on embedding sustainability The supplier perspective The next step for Sainsbury’s: The Connected Reporting Framework (CRF)? Conclusions 4

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Using the Connected Reporting Framework as a Driver of Change within EDF Energy Linda Lewis and David Ferguson Introduction: EDF Energy The case study Background and history of EDF Energy and accounting for sustainability EDF Energy’s sustainability journey Conclusions A Golden Thread for Embedding Sustainability in a Local Government Context: The Case of West Sussex County Council Suzana Grubnic and David Owen Introduction Chapter overview Background: Local government and West Sussex County Council Embedding sustainability within the county council Policies, performance structures and tools Conclusions Building from the Bottom, Inspired from the Top: Accounting for Sustainability and the Environment Agency Ian Thomson and Georgios Georgakopoulos Introduction The Environment Agency: Background information Environmental management and strategy Environmental accounting: A systems approach Connected actions, connected reporting, carbon reduction, staff mileage, key performance indicators (KPIs) and corporate scorecards The Prince’s Accounting for Sustainability Project (A4S), the Connected Reporting Framework (CRF) and the Environment Agency Conclusions

51 54 63 65 69

73 73 74 74 81 89

95 95 96 97 99 107 123

129 129 131 132 134

136

142 144

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Contents

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Evolution of Risk, Opportunity and the Business Case in Embedding Connected Reporting at BT Jeffrey Unerman and Brendan O’Dwyer Introduction Changes in directions of causality: Reporting driving action, action driving reporting Evolution of risk and opportunity considerations in sustainability decisions: Making the business case Nuancing the business case: Degrees of uncertainty and appealing to the interests of managers at different levels Materiality helping to determine the content of connected sustainability reporting Case example: Supply-chain initiatives – Sourcing with Human Dignity Conclusions Sustainability and Organizational Connectivity at HSBC Alnoor Bhimani and Kazbi Soonawalla Introduction Linking financial and non-financial performance and risk Implementation of the Equator Principles and sector policies Integration of responses to environmental impacts of HSBC’s business and culture The role of sustainability reporting Conclusions

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149 149 150 151 153 155 162 170 173 173 174 175 180 185 188

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‘One Aviva, Twice the Value’: Connecting Sustainability at Aviva plc 191 Martin Brigham, Paraskevi Vicky Kiosse and David Otley ‘One Aviva, one world’ 192 Linking responsibility and sustainability 193 Connected reporting 197 Climate change and carbon-neutral Aviva 199 Stakeholders and the value chain 201 Embedding sustainable and responsible investment practices 203 Reporting practices 207 Conclusions and lessons from Aviva 209

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Integrated Reporting at Novo Nordisk Colin Dey and John Burns Introduction Context and background The Novo Nordisk ‘Way of Management’ Triple bottom line (TBL) management

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Accounting for Sustainability

‘Sarb-Oxing’ the non-financial control environment The balanced scorecard Facilitation Full integration at Novo Nordisk: Embedding sustainability

224 225 228 229

Summary and Conclusions Anthony Hopwood, Jeffrey Unerman, Jessica Fries and Karen McCulloch Introduction Lessons learned Summary

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Glossary Index

233 234 242 243 251

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Foreword

CLARENCE HOUSE

I established my Accounting for Sustainability Project - over five years ago now - to help ensure thai sustainabiJity (considering what we do not only in tenns of ourselves and today, but also of others and tomolTOw) is not just talked and worried about, but becomes embedded in organizations' "DNA". Climate change and the rapidly increasing destruction of the Earth's c