Discuss about the Sustainability Accounting Standard Board.
Sustainability reporting is a non-financial report although the same is similar to environmental reporting. The said term has gained importance recently basically focussing upon ‘vessels of transparency and accountability’. There is no set standards spelt out for such a reporting but is an accepted practice wherein the companies are required to present one such report as well along with the financial statements presented. The main reason behind the said report in accountability is the fact that the shareholders, customers, debtors, creditors and many such other investors have understood the value of precision in a business conduct. The said report will highlight upon the importance of sustainability reporting in accounting, how the same can be achieved and the various issues involved with the same (Confino, 2013). The report talks about the sustainable reporting done by Woolworths Limited an Australian Company.
Woolworths Limited is an Australian retail giant formed in the year 1924 and is ranked number two in Australia after Wesfarmers and is listed in the ASX. It is the largest takeaway liquor retailer , hotel and gaming poker machine operator in Australia and was ranked 19th in the year 2008 as the largest retailer in the world. In the year 2007 the Company launched its sustainability strategy with a vision to convert oneself into a sustainable business. However the said strategy can be achieved only if focus is upon increasing operational efficiency, dealing with the environmental wastes and adhering to the expectations of its customers towards responsible sourcing.
The importance of the Company’s sustainable reporting in accounting can be understood from the successes it has achieved due to the same. Sustainable reporting is mainly inclined towards various non-financial matters but the report clearly states that it does not free the accountants from accounting for the same. The sustainability strategy has ensured the Company to achieve the following successes:
A 42% reduction in the carbon emissions
The Company’s car fleet emissions have also decreased by 30%
The company is saving over 200 million of annual water
Has implemented its policies for sourcing of raw materials ethically such as palm oil, timber paper and also keeping in mind welfare of the animals.
Materiality is a compulsory disclosure to be made across all standards of various countries and also as per the International Accounting Standards. Disclosure of all material facts is the core of fundamental accounting principles which points straight towards transparency of data. Sustainability reporting is one such area which also highlights the importance of disclosure of material information which may not be financial in nature but has an impact on the accounting methodologies to be applied by the company (Sustainability Accounting Standard Board, 2016). Woolsworth Limited has done an autonomous appraisal of the material sustainability issues basis the AccountAbility AA1000 Assurance Standard (2008) principle on materiality and guided by their Five Part Material Test thus identifying the issues with regards the impact of the same on the financials of the Company, the concern of the shareholders and the other investors, societal pressure, performance basis the various policies and the business peer-based norms (Woolsworthslimited2015.csr-report.com.au, 2015).
In today’s world customers are inclined towards companies who operate in a responsible and a sustained manner. The environment, social and government matters (ESG) also known as the non-financial matter should be dealt carefully. Companies link the appraisal of the employees with the various ESG matters thus enabling accounting for the same in monetary as well as non-monetary terms. In order to prove their contribution towards these sustainable matters they tend to maintain the data in value terms as well which helps in accounting of the same in the financials thus portraying a clearer picture to the investors. Woolsworth has established various methods so as to drive in the administration into the Company’s various non-financial matters which otherwise was ignored. The board reviews these matters on a quarterly basis. To boost up this strategy the Company has also set up a Sustainability Executive Committee, chaired by the CEO and comprising of various sustainability champions from various divisions of the Company who conduct regular monitoring of the strategies and its progress report. Its importance is recognized since the profitability and the revenue generation of the Company is linked to matters such as the turnover ratio of the employees and the safety of the staffs. Further the Company is also providing short term incentives to the senior executives as well for selection of the non-financial KPIs. In this manner the cost can be under control and the benefit can be more than the cost incurred(accaglobal.com., 2011). If accountability of such expenditure is not done then the Company will not be able to know how much profit it has earned from such an investment.
The Company has been facing various issues with regards the accounting in sustainability reporting simple reason being the diversity in business segments. The Business Benchmark on Farm Animal Welfare report ranks Woolsworth in tier 4 wherein tier 1 being the best and tier 6 being the worst. However in actual scenario the Company is expected to have been performing better than that reported. However the reporting is not as accurate as it should be due to which its ranking and efforts are subdued (Scott, 2016). Therefore the Company will have to find better means to report so that the actual scenario can be accounted for and thus benefit the Company both financially as well as non-financially. The same is because there is no specific methodologies formulated for the reporting of the same due to which its authenticity is still a question. Thus adequate transparency is lacking even now.
Another issue faced by the Company is the fact that it is very difficult to account for every single matter which is a part of the sustainable report. Although the Company has taken all the necessary steps to get itself certified for its various range of products yet its brand value and the cost of these certification apart from the actual outflow is difficult to judge. Further to this there has not been any set standard with the help of which the cost and benefit may be matched. Thus the benefit may seem overstated as compared to the hidden costs which are still not possible to account for. Thus the true picture of the cost and the profits available for the stakeholders is still an unanswered question. For example the Company’s venture in South Africa where the majority crowd was unaware about certified products, selling such highly certified products may seem to be a waste of money thus lowering the profitability index of the company. Therefore to ensure the same is valued by the South Africans , Woolsworth Limited is taking all steps to make them aware about the advantage of such a certification (LaChappelle, 2014). Accountability of all these are yet to be spelt out by the accounting standards and thus the integrated report just carries a small paragraph about it in percentage terms but the actual vale is still not being captured in total.
Conclusion
Thus the same can be well summarized as Woolsworth Limited being one such entity who has got a competitive advantage over and above all the competitors due to their ‘ do the right thing sustainability strategy 2007-2015’. Woolsworth has not taken sustainability reporting as a single topic and dealt in isolation, rather taken steps to integrate it into everything they do. Further linking the same with the performance of the employees is one of the best way to achieve success in this field as well and therefore gain greater confidence of their stakeholders and investors. Sustainability reporting has also benefitted the Company in the form of loyalty from the customers and they are made aware of the fact in value terms as well the amount the company is spending in protecting the environment and the society. This encourages them to spend a little more in buying their products but be loyal too therefore improvising the profitability of the company. Thus Woolsworth Limited has defined the meaning of sustainability correctly as the activities undertaken by an entity which inculcates the environmental and societal needs and problems within oneself and in its business operations in such a manner which boosts the confidence and trust of its stakeholders and its customers.
References
accaglobal.com., (2011), Adoption of Integrated Reporting by the ASX 50, Available at https://www.accaglobal.com/content/dam/acca/global/PDF-technical/sustainability-reporting/tech-tp-air2.pdf (accessed 18th January 2017)
Confino, J., (2013), What is the Purpose of Sustainable Reporting?, Available at https://www.theguardian.com/sustainable-business/blog/what-is-purpose-of-sustainability-reporting (Accessed 18th January 2017)
LaChappelle, J., (2014), Woolworths sees benefits of working with sustainability standards, Available at https://www.isealalliance.org/online-community/blogs/woolworths-sees-benefits-of-working-with-sustainability-standards (accessed 18th January 2017)
Scott, K., (2016), Woolsworths, Coles encouraged to do better after debut in global animal welfare report, Available at https://www.abc.net.au/news/2016-01-28/woolworths-coles-encouraged-do-better-animal-welfare-report/7120022 (accessed 18th January 2017)
Sustainability Accounting Standard Board, (2016), Why Is It Important?, Available at https://www.sasb.org/materiality/important/ (Accessed 18th January 2017)
Woolsworthslimited2015.csr-report.com.au, (2015), Corporate Responsibility Report 2015, Available at https://woolworthslimited2015.csr-report.com.au/files/Woolworths_CSR_2015.pdf (Accessed 18th January 2017)
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