Visibility is a great inducer of change. When things enter the public eye, they become more difficult to ignore. Yes, in the short term hypocrisy can provide a cover—carry on saying one thing while doing another. But in the longer term, the facts are likely to win and a wider audience will want to confront the underlying reality.
Nowhere could this be more relevant than in the environmental area. There is now a well-established, scientific consensus that global warming and the associated climate change constitute the major challenges of the coming century. Human activity has created, and still is creating, a problem of immense proportions that will have profound consequences for all of us, wherever we live and work.
Of course a great deal could be done if there was a will to act. A lot is known about how to moderate the environmental consequences of our actions. But, at present, that will is very weakly developed. People talk but action still is much rarer, be that from major national leaders, corporate executives or ordinary consumers. Even where there is action, it usually remains quite superficial. Retailers are addressing issues of sourcing and packaging, but they still want us to buy repeatedly, following the dictates of fashion rather than being sensitive to the scarce resources being used.
Yet the imperative to act needs to remain as important as ever. No one can be isolated from the consequences of the momentous changes underway. In Asia alone, carbon emissions increased by almost 60% from 1995 to 2005, with China most likely to already be the world’s greatest carbon emitter. Rapid deforestation and the reduction of the Himalayan snow cap will only add to the havoc that will beset the 60% of the world’s population which lives in Asia, many in coastal regions where they are particularly vulnerable to the effects of climate change.
So a real will to change needs to be created and making the environmental consequences of all our actions more visible is a significant way of trying to do this. As we know from many other areas, information can be a powerful stimulus for change. Product labelling can guide consumer choices. Emissions trading in newly established carbon markets can highlight the wider costs of environmental damage. Equally, corporate environmental reporting can cast a light on the consequences of business activities, helping us not only to identify the sluggish movers and the hypocrites, but also providing an incentive for all to create a pattern of change and improvement across time.
In the UK, the Prince of Wales initiated a project to do just this—The Prince of Wales’ project on Accounting for Sustainability. Launched by the Prince and Tony Blair in late 2006, the project reported at the end of 2007, proposing both a workable format for regular environmental reporting and the basis for a website giving guidance on how to instil sustainability concerns into the very fabric of organizations. Already attracting corporate attention because of the focused and readily understandable nature of its recommendations, the formats proposed are being implemented by the likes of Aviva, BT, EDF Energy and HSBC, and at a global level interest is being expressed by the World Bank.
The Accounting for Sustainability project placed a lot of emphasis on the need for environmental reporting to become part of mainstream corporate information provision rather than being something that can be conveniently isolated on the side—perhaps along with social responsibility reporting. It is not an add-on—it must now be regarded as part of the core. One important way that the project sought to realize this aim was to propose what it termed a ‘connected reporting framework’. That is to say, the primary focus must be on providing information that gives an insight into the interconnected nature of all aspects of corporate decision making and its consequences.
As environmental considerations become more important with regulation, shifting expectations and the creation of new markets, the environmental and the financial will become more and more intertwined. Environmental factors will increasingly impact on the bottom line—profit—and forward-looking reporting must show that—equally for the environmental and economic impacts on both upstream and downstream business partners, something of growing significance at a time when corporations can seek to offload the dirtier parts of their operation on to other parts of the supply chain.
The ‘connected reporting framework’, therefore, provides a way of anticipating an emerging corporate world where the active management of the whole supply chain is even more important, where environmental decision making can impact significantly on costs and profits, and where questions of sustainability have to enter into the strategic positioning of the firm.
The framework focuses on five key environmental indicators, although it also recognizes that other information can, and should, be provided when it has a material impact. The five key indicators are polluting emissions, energy use, water use, waste and significant use of other finite resources. Alongside these, it proposes that corporations should also provide an explanation of how sustainability considerations are connected to the overall strategy of the firm, and targets and benchmarks to aid appraisal.
Taken as a whole, the connected reporting framework provides a comprehensive but workable way of building environmental considerations into the way we view and consider corporate achievements. And it looks ahead—although not too far ahead—to the days when the management of the corporate environmental profile will be seen as part of the regular mainstream operations of all firms.
That is why it has already attracted a lot of serious interest. As yet it is a voluntary code, although in times when environmental information and calculation is becoming ever more important, one suspects that such information provision is likely to become a requirement before too long. Relevant to all companies in all countries, the reporting model provides an excellent way of learning to operate in an emerging environment. One hopes that it will attract the attention of far-sighted companies in India as elsewhere.
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Professor Anthony Hopwood was formerly dean of the Saïd Business School at the University of Oxford. He acted as senior adviser for The Prince of Wales’ project on Accounting for Sustainability.