MANDATORY LEGAL requirements emerged as the most popular method for ensuring companies were maintaining sustainable businesses from a survey by CPA Australia released last month.
However, CPA itself said this approach would be “a mistake” as it felt it was questionable whether all companies had the capacity to meet compulsory reporting of sustainability measures.
The accounting body favours leaving it to market pressures and says a mandatory regime would also introduce a one-size-fits-all approach that is not risk-based, and would be inconsistent with the “nature” of sustainability information.
Its arguments are in line with decisions made on the new ASX guidelines, which came into force this month and steer clear of specific requirements for dealing with sustainability.
Government regulation (89 per cent) and government incentives (87 per cent) were seen by the overwhelming majority of participants in the survey as the most effective ways to encourage environmentally-sustainable corporate behaviour. The least-favoured was market mechanisms, although it was still popular on 70 per cent.
However, CPA CEO Geoff Rankin said while they understood the impulse for compulsory rules, “the capacity of business to undertake mandatory sustainability reporting is unclear … [And] sustainability reporting must be allowed to evolve through market and voluntary mechanisms and cannot be short-circuited through pre-emptive regulation”.
Although they are specific requirements, federal laws requiring mandatory reporting of greenhouse emissions for companies emitting above 25 kilotonnes or more of greenhouse gas, or that produce or consume 100 terajoules or more of energy will come into force in July.
The latest Confidence in Corporate Reporting survey also gave strong backing for true triple bottom-line reporting, and specifically found strong support for mandatory reporting of water use in annual reports.
Backing those supporting market forces, the survey also confirmed consumer and investor sentiment was strongly motivated by environmental concerns.
Eighty-six per cent said they would be discouraged from working for a company with an unfavourable environmental reputation, for instance and 85 per cent would hesitate investing in such a company.
CPA’s report also found annual reports, ratings agencies and investor briefings were now given much more credence as sources of information on corporate sustainability than in 2005.
Sustainability reports were then nominated as a good source for 46 per cent of respondents from the general public, but last year none saw them as among the most important sources.
Lend Lease’s head of global sustainability, Maria Atkinson, agreed reports on sustainability had to move from a separate document, to being a part of annual reports.
“I think the community is so cynical of a separate branded marketing exercise that we’ve seen the trend is that sustainability should be embedded in your traditional reporting requirements,” Atkinson said.
“Once you’ve moved sustainability from a separate piece of marketing, into your annual report, you immediately have to comply with the auditing governance of an annual report disclosure,” Atkinson said. “And therefore I just can’t say that we’ve estimated our electricity consumption and greenhouse emissions without creating a set of reporting guidelines that are audited and have the capacity to be audited as well.”
Others, such as Ramsay Moodie, Fuju-Xerox’s head of corporate affairs, have changed their position in recent times to advocate mandatory requirements as they believe market forces are not going to be swift enough.
Almost 80 per cent in CPA’s survey also supported an emissions trading scheme within five years.
Rankin said the accounting and audit issues associated with such a scheme needed to be urgently tackled and said he had written to the chairman of the International Accounting Standards Board encouraging him to take action on the issue.
Professor Michael Adams, head of the University of Western Sydney’s school of law is one of the authors of a report on Australia’s corporate governance reforms, The Changing Roles and Responsibilities of Company Boards and Directors, released late last year.
He says they found the one area where Australian business appears to be falling behind the performance of other countries is in the reporting of corporate social responsibility (CSR) and sustainability, even though his research “discovered many examples of extensive commitment to [CSR] and sustainability” in large and small companies.
“Although the balance of opinion remains in favour of voluntary rather than mandatory reporting, the lack of a framework for reporting and greater impetus to use this, suggests businesses here will not be reporting as comprehensively as in the UK, Europe and Japan,” Professor Adams said.
However, he said the change of federal government and global pressures “may see grater emphasis on risk management and CSR”.