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Sustainability Reporting and Corporate Social Responsibility Presented to Northwest Food Processors Sustainability Summit April 18, 2012 Laurie Tish, Partner, Moss Adams Michelle Gall, Senior Manager, Moss Adams . Sustainability Reporting.

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Sustainability Reporting and Corporate Social Responsibility

Presented to Northwest Food Processors Sustainability Summit

April 18, 2012

Laurie Tish, Partner, Moss Adams

Michelle Gall, Senior Manager, Moss Adams

sustainability reporting
Sustainability Reporting

“Sustainability isn’t just a social issue—it’s very much a business imperative as well. On a national and global level, it will have a significant effect on our economy. It’s just a question of how and when.

At Moss Adams, this discussion is taking center stage as we seek to understand and prepare for the impact sustainability reporting will have on our clients and their industries.”

- Rick Anderson, Chairman and CEO, Moss Adams LLP

defining sustainability
Defining Sustainability

The United Nations defines sustainability as “meeting the needs of the present without compromising the ability of future generations to meet their own needs.”

The Center for Sustainable Enterprise at the University of North Carolina’s Kenan-Flagler Business defines it as “a way of doing business that creates profit while avoiding harm to people and the planet.”

sustainability and business
Sustainability and Business
  • Underlying theory is that there is a link between improvements in corporate social/sustainability performance, the well-being of the communities they are located in, and long term profitability
  • Europe is ahead of the US in compiling such data and reports
    • Data indicates that over 80% of European companies publish some form of CSR report
corporate social responsibility csr reporting
Corporate Social Responsibility (CSR) Reporting
  • Creation of reports that provide a picture of overall performance across the ‘triple bottom line’
      • Economic
      • Environmental
      • Social performance
  • Reporting financial and non-financial information to key stakeholders
      • Increases accountability
      • Measures how well the company is living up to its values
sustainability and business1
Sustainability and Business

Five main reasons to conduct business in a sustainable manner:

  • Supplier networks demand it – “greening of the supply chain”
  • Government contracts necessitate it
  • Customers require it
  • Potential employees insist on it
  • Public policy encourages it – laws are starting to require it
california transparency in supply chains act
California Transparency in Supply Chains Act
  • Law passed in 2010
    • Applies to all retailers and manufacturers doing business in California with total gross revenues in excess of $100 million
    • Must formally publish their policies and safeguards to prevent the use of slave labor and human trafficking in their product supply chains
    • Estimate is that over 3,200 companies, many domiciled outside the state, will be required to report
    • In effect as of January 1, 2012
standards and criteria
Standards and Criteria

There is no globally accepted framework for sustainability.

Current frameworks and standards in use:

  • The Global Reporting Initiative (GRI)
    • International Integrated Reporting Committee (IIRC)
  • Country specific standards (Australia, Japan, Netherlands, UK)
  • Global Impact Investment Rating System (GIIRS)
  • US Generally Accepted Auditing Standards (GAAS)
  • International Auditing and Assurance Standards Board
  • Internal Company Criteria
standards and criteria1
Standards and Criteria
  • GRI External Assurance
    • Activities designed to result in published conclusions on the quality of the report and the information contained within it
      • Including consideration of underlying processes for preparing the information
    • Key qualities include:
      • Conducted by group/individual external to the organization
        • Competent in subject matter and assurance practices
        • Independent
      • Implemented in a manner that is systematic, documented, and evidenced-based
      • Application of GRI Sustainability Reporting Framework (G3)
      • Results in an opinion or set of conclusions
    • Does not require independent audit or verification of data, subject matter or the underlying systems
standards and criteria2
Standards and Criteria
  • US GAAS
    • Promulgated by the American Institute of CPA’s
      • Assurance
      • Agreed Upon Procedures
    • Results in an opinion
  • IAASB
    • Promulgated by IFAC
      • Facilitates convergence of US and international standards for audit and accounting
    • No guidance yet for Corporate Social/Sustainability Responsibility reporting
standards and criteria3
Standards and Criteria
  • Company Criteria
    • Explanation of perspective, context, vision
    • Identification of key performance indicators
      • Measurable
      • Clearly understood
    • If subject matter relates to a highly technical area, third-party specialists can be utilized and then relied upon by verifier
    • Should be supported by a well-documented structure of internal controls
    • Timeliness of reporting is important
csr verification
CSR Verification

Who performs the review or verification of data?

  • Certified Public Accountants
    • Usually structured as an attest engagement
    • Review report for Greenhouse Gas Emissions
  • Industrial Compliance firms
    • Checklist format
    • Pass/fail report
    • ‘Client’ is often not the auditee
  • ‘Expert’ Panels
    • This is not an attest engagement or any form of verification
    • Assessment of content only
external review committee report
External Review Committee Report
  • Committee members are usually selected by the Company and/or have close ties to the Company’s Board or management
  • Report contains the following:
    • Identification of task or focus of group
    • Description of process
    • Disclaimer that any data was verified or audited
    • Observations and comments regarding report content
  • See Shell report for example
a good reason to have an audit
A good reason to have an audit…..

“The accuracy of environmental and social data may be lower than that of data obtained through our financial systems”

-- Shell Oil 2010 Sustainability Report

audit report content
Audit Report Content
  • Addressed to stakeholders
  • Identification of data or activities that is the subject matter of the report
  • Identification of the criteria used to evaluate the data/subject matter
  • Explain which standards were used in connection with the audit/verification
  • Identification of procedures performed (optional)
  • Opinion
greenhouse gas ghg emissions
Greenhouse Gas (GHG) Emissions
  • Scope of emissions
    • Scope 1 Direct
    • Scope 2 Indirect
    • Scope 3 Other Indirect
  • Measurement and verification of GHG emissions present unique challenges
    • GHG quantification is subject to inherent uncertainty
      • Emission factors are used in mathematical models to calculate emissions
      • The models, due to scientific knowledge and other uncertainties, may be unable to precisely characterize the relationships between the various inputs and the resultant emissions (lots of moving pieces!)
      • The selection of different but acceptable measurement techniques can result in materially different measures
greenhouse gas ghg emissions1
Greenhouse Gas (GHG) Emissions
  • Criteria is comprised of an “exhaustive list of standards”
  • Even if criteria is defined, data is measurable and generally acceptable, the ability to compile and quantify company data may be difficult due to:
    • Machine and equipment specifications
    • Location of plants/stores in developing countries
    • Cost vs. benefit
    • Internal control structure and systems are not robust and may not be reliable
embracing sustainability
Embracing Sustainability

Walmart

  • New auditing system to increase supply chain transparency
  • Ethical sourcing - Assist suppliers in sustainability efforts
  • Direct-import supplier requirements
  • Worldwide sustainable product index
  • Zero Waste initiative
  • Energy efficient stores
  • Alternative trucking fuels
  • Elimination of greenhouse gas emissions
  • www.walmartstores.com/sustainability
embracing sustainability1
Embracing Sustainability

Shell Oil

  • Global Warming Potential
  • Energy Efficiency
  • Total Spills
  • Fatal Accident Rate
  • Injury Frequency
  • Carbon Dioxide Release
  • Methane Release
  • Regulatory, Health, Safety Fines
  • www.sustainabilityreport.shell.com/2010
embracing sustainability2
Embracing Sustainability

Starbucks

  • Coffee Purchases
  • Cocoa Purchases
  • Reusable Mug Usage
  • Recycling in Stores
  • Electricity and Gas Usage
  • Greenhouse Gas Emissions (scope 1 and scope 2)
  • Investment in Farmers (loans)
  • www.starbucks.com/sharedplanet
benefits of csr
Benefits of CSR
  • Transparency and accountability
  • Implication of high quality management
  • Stronger relationship with vendors
  • Higher retention of employees
  • Engagement and relationship with stakeholders
  • Branding
  • Higher levels of trust
  • Scrutiny of operational data at same level as financial data
  • Can be a good management tool
challenges to csr
Challenges to CSR
  • Scope is controlled by company/client as there are no set consistent CSR standards
    • Indicators used can be arbitrary or modified to fit certain situations
    • Stakeholders do not typically have formal input
  • CSR reports vary widely in content and methodologies
    • Criteria for data and conclusions may not be clear
  • Audit report may not clearly identify the criteria used
sustain your interest
Sustain Your Interest

International Corporate Sustainability Reporting www.enviroreporting.com

An international resource library dedicated to Corporate Sustainability Reporting and environmental reporting.

International Integrated Reporting Committee www.integratedreporting.org

The IIRC was created to respond to the need for an integrated sustainability reporting framework.

Accounting for Sustainability www.accountingforsustainability.org

A4S is bringing organizations together to develop practical tools to enable environmental and social performance to be better connected with strategy and financial performance.

sustain your interest1
Sustain Your Interest

Global Reporting Initiative www.globalreporting.org

GRI is a network-based organization that pioneered the development of the world’s most widely used sustainability reporting framework and is committed to its continuous improvement and application worldwide.

Carbon Disclosure Project www.cdproject.net

Pertaining to Greenhouse Gas Emissions

questions
Questions?

Laurie Tish

206. 302-6466

laurie.tish@mossadams.com

Michelle Gall

541.225-6021

michelle.gall@mossadams.com