Why Sustainabilty Reporting Matters
By Theresa Hickman on Feb 08, 2010
When I attended college pursuing my major in Accounting, I remember my finance professor saying that a corporation's sole responsibility is to increase shareholders' wealth.
That was many moons ago; the world today is very different. We have definitely become a more environmentally and socially aware culture. Driving hybrids is considered cool, paper-less billing is common place, recycling is en vogue, and many companies are offering carbon offset credits to help reduce our carbon footprint.
Because of this, more and more people like you and me are demanding to know the impact a company has on our environment. Many of us base our buying decisions and investing decisions on how environmentally and socially conscious a company is. For example, many people prefer to buy Subaru cars because their Indiana plant was the first "zero landfill" auto factory in the U.S. They recycle 99 percent of their waste and turn the other 1% into electricity. There are also a number of Green Funds that only invest in socially responsible companies.
In today's world, it is no longer good enough to state record earnings and maximize shareholders' profits; companies need to prove they are also good corporate citizens.
So what's the answer? Sustainability Reporting
Sustainability Reporting is basically environmental and social reporting. It is often referred to as the triple bottom line--environmental, social and economic reporting. Sustainability Reporting is a requirement in Europe where Norway, Sweden and the United Kingdom require environmental reporting, while France and Germany require environmental and social reporting.
In the U.S., it is not a requirement yet but more and more companies are electing to produce Sustainability Reports because it just makes good business sense if it will help them attract more customers, investors, employees, suppliers, etc.
On Jan. 27, 2010, the SEC held the Sunshine Act meeting where it discussed disclosures related to climate change. What the SEC is proposing is that companies disclose how business and legal actions related to climate change may impact their business. For example, if global warming causes temperatures to increase another two degrees, how would it impact agricultural companies, or if oil prices go up to combat global warming, how would it affect airlines or other companies that depend on oil for their business. This is not exactly Sustainability Reporting. This is having companies disclose the impacts to their business due to a lack of Sustainability Reporting.
I met up with Mike Malwitz, our local expert on Enterprise Performance Management applications to better understand how Oracle supports Sustainability Reporting. This is what he had to say:
Oracle provides solutions that support Sustainability Reporting as a part of your financial and operational reporting processes using a combination of Hyperion Financial Management (HFM) and Enterprise Performance Management (EPM). With HFM, you can extend your chart of accounts to include special accounts to record these special metrics. This makes perfect sense because you would not store this kind of information in your transactional ERP system, such as your general ledger. For example, you would never debit pollution expense and credit liability to tax payers. HFM can already capture both financial and non-financial data to meet consolidation and reporting requirements so it's the logical place to store your sustainability metrics as well. This prevents the need to have to use an off line collection method or separate data warehouse.
But there's more to sustainability than just reporting. It needs to be part of the overall performance management practices where sustainability issues are factored into the business at all levels. This is where EPM comes in. With EPM, you can monitor and analyze sustainability metrics and adjust goals and initiatives to achieve short- and long-term goals. You can also report progress on sustainability initiatives to internal and external stakeholders.
By integrating sustainability into a balanced scorecard, you can capture a complete picture of how the business is performing across four perspectives of your business:
- The process perspective tracks how efficient you are.
- The customer perspective indicates how you are perceived by customers.
- The financial perspective manages the bottom line.
- The growth or learning perspective makes sure the other perspectives function equally well or even better in the future.