corporate sustainability reporting

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2009 Submitted to: Prof. K.M. Kavadia Group 2 205 - Ankur Agrawal 206 Swapnil Agrawal 225 Gourav Garg 234 Karan Madan 239 Anuj Pachauri 264 Tanya Goel Corporate Sustainability Reporting

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Corporate Sustainability Reporting : Business Case of an Indian and an MNC bank

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Page 1: Corporate Sustainability Reporting

2009

Submitted to:

Prof. K.M. Kavadia

Group 2

205 - Ankur Agrawal

206 – Swapnil Agrawal

225 – Gourav Garg

234 – Karan Madan

239 – Anuj Pachauri

264 – Tanya Goel

Corporate Sustainability Reporting

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Acknowledgement

Corporate Social Responsibility has come a long way from being just a philanthropic activity a

decade ago to one that is essential for sustainable development of the firm. Corporate

Sustainability Reporting is an important check and balance tool, both, for the company and its

stakeholders as it depicts company‟s performance on environmental, social and economic

parameters.

We would like to thank Prof. K. M. Kavadia for providing us with this opportunity to do a

project on Corporate Sustainability Reporting. The project was helpful in learning about the

frameworks and trends in reporting. Also business case presentation of an Indian bank and an

MNC bank taught us about the competitive advantages that an organization can derive from

reporting. This assignment was really helpful in understanding that reporting is no more an

exception but has become a norm now. The learning from the assignment would act as useful

guidelines in determining the environmental, social and economic impacts of decisions that we

would make in our corporate careers.

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Table of Contents

Corporate Sustainability Reporting ..................................................................................................... 1

Introduction .............................................................................................................................................. 4

Need for Reporting ................................................................................................................................... 6

Dilemmas related to Reporting ................................................................................................................. 7

Reporting Standards ................................................................................................................................. 7

Global Trends in Reporting ....................................................................................................................... 8

Business Case of MNC Bank: Standard Chartered .............................................................................. 11

About the bank ....................................................................................................................................... 11

Sustainability Initiatives .......................................................................................................................... 11

Sustainability Reporting .......................................................................................................................... 13

Benefits of Sustainability Reporting ........................................................................................................ 14

Business Case of Indian Bank: HSBC India ......................................................................................... 15

Sustainability Reporting .......................................................................................................................... 15

Benefits of Sustainability Reporting ........................................................................................................ 15

Conclusion ....................................................................................................................................... 19

References ....................................................................................................................................... 20

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Corporate Sustainability Reporting

Introduction

Sustainability reporting is a broad term used to describe company‟s reporting on its economic,

environmental and social performance.

Sustainability reporting has gained significance as a tool to monitor and ensure that companies

are looking towards long term sustainable development rather than short term growths.

Sustainable development is defined as “meeting the needs of the present generation without

compromising the ability of future generations to meet their own needs”.

Sustainability reporting can be synonymous with: triple bottom line reporting, corporate

sustainability reporting, ESG (Environmental, Social and Governance) reporting and sustainable

development reporting but increasingly these terms are becoming more specific in meaning and

therefore subsets of sustainable reporting.

An important distinction is made between sustainability reporting and corporate philanthropy,

the latter being defined as the act of donating money, goods time or effort to support a charitable

cause.

There is no single universally accepted definition of Sustainable Reporting. Some useful

definitions are as below:

Sustainability reporting is … the practice of measuring, disclosing, and being accountable to

internal and external stakeholders for organizational performance towards the goal of sustainable

development.”

GRI Sustainability Reporting Guidelines

“Corporate Sustainability is a business approach that creates long term shareholder value by

embracing opportunities and managing risks deriving from economic, environmental and social

developments.

Corporate sustainability leaders achieve long term shareholder value by gearing their strategies

and management to harness the market‟s potential for sustainability products and services while

at the same time successfully reducing and avoiding sustainability costs and risks.

Dow Jones Sustainability Index

Two principal factors driving the sustainability reporting trend are:

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1) An increasing recognition of the potential for sustainability related issues to materially

affect a company‟s long term economic performance.

2) The need for business community (and individual companies) to appropriately respond to

issues of sustainable development.

Other drivers for reporting as identified in KPMG‟s 2008 survey of Global Fortune 250

companies are shown below in Figure 1.

Figure 1 – Drivers for Corporate Responsibility Reporting (G250)

Corporate community has realized that for their businesses to excel in the long term, they need

support of all their stakeholders. Sustainability reporting is the means of communication and

engagement between a company and its stakeholders.

Financial

Stakeholders

Supply chain

stakeholders

Regulatory

stakeholders

Political

stakeholders

Social stakeholders

Shareholders Customers SEBI Central

Government

Local communities

Bondholders Alliance Partners Revenue

Department

State

Government

General public

Banking

Institutions

Direct Suppliers International

Governments

Academia

Employees Upstream

Suppliers

United Nations Charitable organizations

Contractors Environmental & Social

organizations

Table 1 - Typical Stakeholders for a publicly owned Indian company

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Need for reporting

A company‟s value is influenced by the quality of relationship it maintains with its internal and

external shareholders such as the ones shown in Table 1. The ability of a company to

communicate its activities and performance effectively with its key stakeholders can be critical

to its long term success, viability and growth.

The World Business Council for Sustainable Development (WBSCD) and the United Nations‟

Environment Program (UNEP) have produced publications specifically focused on the „business

case‟ for sustainability reporting. The potential internal and external benefits associated with

sustainability reporting are as follows:

Demonstrating

Transparency

Reporting exhibits company’s commitment at looking beyond just

financial benefits and establishes a sound base for stakeholder

dialogue by demonstrating transparency in its operations.

Creating financial value Sustainability reporting often involves assessment of processes and

collection, collation and analysis of data on resources and materials usage.

This process can help a company in further improving its processes by

making them more efficient.

Enhancing reputation Sustainability reporting can help a company in protecting and enhancing

its reputation among its diverse stakeholders.

Achieving continuous

improvement

Internal and external reporting of sustainability information focuses

management attention on sustainability approach, thereby helping in

identification of key improvement areas of reported performance.

Improving regulatory

compliance

Sustainability reporting may assist the company prepare itself to manage

emerging areas of compliance (e.g. greenhouse gas emission data) through

the establishment of appropriate reporting systems and processes,

Reporting may help a company to influence future regulatory responses.

Strengthening risk

awareness and

management

Sustainability reporting assists a company to demonstrate its commitment

to effectively managing risk associated with its sustainability performance

factors and to communicate its risk performance.

Encouraging innovation Reporting may stimulate leading edge thinking and performance, thereby

enabling a company to enhance its competitiveness.

Enhancing management

systems and decision

making

A company would be pushed to put in place a more rigorous and robust

management systems and decision-making processes to better manage

environmental, economic and social risks, opportunities and impacts.

Raising awareness,

motivating and aligning

staff, and attracting

talent

Publication of sustainability information can play a role in positioning a

company as an „employer of choice‟. This status can enhance employee

loyalty, reduce staff turnover and increase a company‟s ability to attract

and retain high quality employees.

Attracting long term

capital and favorable

There are important potential flows on implications for how the company

is assessed and rated by investment analysts and other members of the

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financing conditions investment community. Sustainability reporting would keep the growing

group of investors that include ESG considerations within their decision

making process, happy.

Maintaining licence to

operate

Communities and stakeholders are likely to be more supportive of

companies that communicate openly and honestly about their management

and performance in relation to environmental, social and economic

factors. Reporting would ensure smooth business for the companies.

Establishing competitive

positioning and market

differentiation

A company may use sustainability related performance attributes to

differentiate its brand, products and/or services.

Table 2 – Benefits associated with Sustainability Reporting

Dilemmas related to Reporting

1) Disclosure of sensitive information – Disclosing information could give away the

company‟s competitive advantage or trade secrets that are key drivers to the success of

the company

2) Additional corporate infrastructure is required to properly monitor sustainability – A

company would have to put in place extra processes to monitor and manage the

sustainability reporting.

3) It is not a legal requirement to do business – Outside most EU countries, there are not

many laws enforcing companies to report.

4) There is a massive learning curve to reporting – Reporting is a process and takes time to

understand, while the industry is still in its infancy.

Reporting Standards

Figure 2 - Reporting Standards and guidelines used by companies

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More than three quarters (77%) of the G250 and 69 percent of the N100 reporting companies

follow the Global Reporting Initiative‟s (GRI) Sustainability Reporting Guidelines. About 20

percent of both cohorts use internally-developed company frameworks as the basis for reporting

(see figure 2). Even fewer use national standards, though the figure is slightly higher among

G250.

GRI hence is a generally accepted framework developed through a multi-stakeholder, consensus-

seeking approach. First generation of the guidelines was presented in 1999 and the Third

Generation (G3) came in October 2006. It is designed to be used by organizations of any size,

sector, or location. Sector supplements and National Annexes respond to the needs of specific

sectors or national reporting requirements.

In India, though there is no specific sustainability/CSR reporting legislation or guidelines,

sustainability reporting is increasingly becoming a necessity because of globalization. It would

become mandatory for companies to report on social, environmental and economic initiatives

once the ICAI CSR ruling comes into force. Also there is a committee being formed for

standardizing the disclosures related to sustainability reporting. Sustainability reporting has

become mandatory for Indian companies going to be listed abroad.

Global Trends in Reporting

Population

Strategy with objectives identified

Management and measurement system

Corporate responsibility report

G250 (250 total) 73% 64% 79% N100 (2170 total) 43% 41% 45%

Source: KPMG Global Sustainability Services, October 2008

Table 3 – Elements of Corporate Responsibility Management Systems (G250 and N100)

The best strategies are ineffective unless robust and accountable management systems are in

place to ensure they are implemented cohesively and consistently.

Table 3 reveals an interesting gap in the G250 group: 64 percent disclosed that they have

established systems for managing, and reporting on corporate responsibility, but 79% percent

actually issue sustainability reports. This leaves about 35 companies reporting without a publicly

discloses system for managing, measuring, and reporting. Without a systematic approach to

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manage and monitor corporate responsibility initiatives, these companies are in danger of issuing

reports that do not reflect their true performance. The gap is narrower in N100 group, where 45

percent issue a sustainability report and 41 percent disclose that they have a management,

measurement and reporting system in place.

Figure 3 – Global report output by year (Source: corporateregister.com)

Figure 3 shows a per year count of reports issued across all sectors and countries. It is clear from

the figure that sustainability reporting has now become the norm rather than exception as more

and more companies are adopting it. Occasionally a company may produce two reports in one

year so these figures are not directly related to the number of reporting companies.

Figure 4 – Top 20 Countries by Report Output (Source: corporateregister.com)

Figure 4 shows per country count of reports issued across all industry sectors, for the top 20

countries worldwide. The data is broken in to two series, the first being a grand total of reports

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for 1992-2007 and the second showing the total for just 2008 to indicate which countries are

becoming more active in the reporting field.

- Australia & New Zealand are driving voluntary reporting

- Globalization as well as SRI funds and research groups have increased demands for

reports from listed companies

- SRI funds in Europe and NA have created a ripple effect for Japanese companies to

report

Figure 5 – Report Content: Percentage wise (Source: corporateregister.com)

Figure 5 shows that there had been a shift towards Sustainable Reporting on Sustainable

Practices over the years from the erstwhile environmental reporting.

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Business Case of MNC Bank: Standard Chartered

About the bank

Standard Chartered was formed in 1969 through a merger of two banks: The Standard Bank of

British South Africa, founded in 1863, and the Chartered Bank of India, Australia and China,

founded in 1853.Both companies were keen to capitalize on the huge expansion of trade and to

earn the handsome profits to be made from financing the movement of goods between Europe,

Asia and Africa.

Standard Chartered PLC, Listed on both the London Stock Exchange and the Hong Kong Stock

Exchange, ranks among the top 25 companies in the FTSE-100 by market capitalization. The

London-headquartered Group has operated for over 150 years in some of the world's most

dynamic markets, leading the way in Asia, Africa and the Middle East. Its income and profits

have more than doubled over the last few years primarily as a result of organic growth,

supplemented by acquisitions.

Standard Chartered is active in consumer, wholesale, SME, Islamic and private banking. It has a

network of over 1,600 branches and outlets and 5,500 ATMs in more than 70 countries and

territories across the globe, making it one of the world's most international banks.

On June 4, 2009 Standard Chartered was acknowledged by The Financial Times and the

International Finance Corporation as Runner Up in the 2008 FT ‘Sustainable Bank of the Year’

Award. This prestigious award is open to financial institutions involved in the provision of

banking services, including commercial and investment banks, private banks, cooperatives and

development finance institutions, and recognizes excellence in creating environmental, social

and financial value across its operations.

Sustainability Initiatives

Sustainability agenda at Standard Chartered, takes into account the fundamental task of re-

establishing confidence and trust in banks whilst continuing to maintain an unwavering focus on

addressing the longer term challenges that world faces.

Approach to sustainability, adopted by Standard Chartered focuses both on continuing to manage

their core banking practices responsibly and on the seven specific areas which have been at the

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heart of their sustainability strategy, shown in Figure 6, for some years. They have focused on

areas that integrate with their business strategy, based on three criteria:

Relevance to markets

Best use of capabilities and infrastructure to maximize contribution

Distinctive value for business and the nations

Figure 6 – Sustainability Strategy at Standard Chartered Bank

Extensive consultation with stakeholders helped them to identify seven priorities which meet

these criteria:

Protecting the environment: Reducing their environmental impact and helping others to

do the same

Sustainable finance: Addressing the environmental, social and governance risks and

opportunities involved in doing business with their customers

Access to financial services: Making finance more accessible to people excluded from

formal banking services

Tackling financial crime: Detecting and preventing activities such as fraud and money

laundering, corruption and terrorist financing

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Responsible selling and marketing: Treating customers fairly through the highest levels

of service, transparency and responsible banking practices

Great place to work: Attracting, developing and retaining the best talent by making

employees feel valued, included and engaged

Community investment: Using their expertise and resources to help communities develop

and economies grow

Sustainability Reporting

2008 Sustainability Review, reports their activity and commitments, targets and progress under

each of the seven sustainability priorities.

Standard Chartered have sought to cover issues that are most relevant and important to the Bank

and to stakeholders, based on their sustainability strategy and engagement with stakeholders.

They have been reporting on their environmental performance since 2001 and their social

performance since 2004 when they published their first Corporate Responsibility Report. This is

their third Sustainability Review, reporting on integrated strategy.

They use the Global Reporting Initiative (GRI) to guide their reporting. They include a GRI

index and also United Nations Global Compact Index to highlight how activity relates to relevant

indicators.

Sustainability review is a different report from the annual report or any other financial statements

released by the company. The sustainability report covers the following in detail:

1) Strategy for building a sustainable business.

2) Sustainability highlights of the year like CO2 reductions/employee. These indicators

provide a quantitative measure for sustainability initiatives.

3) Financial Highlights: Operating Income, Operating Profit and Total Assets.

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4) Non-Financial Highlights: Number of Employees, Countries and Territories and

Nationalities.

5) Report on the goals achieved under the seven priorities and goals for the next year.

6) Standard Chartered initiatives for Millennium Development Goals (MDGs).

Benefits of Sustainability Reporting

The sustainability reporting has helped Standard Chartered Bank in achieving the following:

1) Become proactive than reactive

To appease dissatisfied stakeholders: Human Rights violation, Environment impacts,

Developing Nations by reporting its initiatives on a regular basis.

2) Shaping the future of Standard Chartered

Understanding the importance of social and environment factors in the more conscious

world and for future positioning in the industry as an environment friendly Bank.

3) Open and maintain dialogs with stakeholders

Two way communication to seek focused response and feedback on the ongoing activities

through Corporate Sustainability reporting.

4) Prioritize initiatives with performance indicators targets and goals

Increase efficiency of Standard Chartered bank by prioritizing and by adding new

dimensions to evaluate the business performance.

5) Communicate Internally and Externally

Making employees aware of the company‟s activities with respect to sustainability and

environment and increasing the employee motivation. Standard Chartered has been ranked

as one of the best companies to work with.

6) Innovate and Collaborate to meet the toughest challenges

Align with partners for developing strategic solutions, adoption of the best standards by the

industry and becoming the torch bearer for the other banks.

7) New annual report

Removing the burden of economic performance on Standard Chartered Bank by changing

the standards of evaluating a bank or a company.

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Business Case of Indian Bank: HSBC India

Sustainability Reporting

The Indian bank which we have taken for studying Corporate Sustainability Reporting

is the Indian subsidiary of HSBC Bank. At HSBC, sustainability reporting is an integral part of

the way they do business. Across India, their initiatives span around 26 cities collaborating with

businesses, employees, not-for-profit organizations & customers. HSBC's corporate

sustainability practice, as shown in Figure 7, consists of education, financial inclusion,

environment sustainability and employee engagement, the ultimate goal being to achieve

sustainability for business and build prosperous communities.

Figure 7 - HSBC’s Approach

Benefits of Sustainability Reporting

Financial inclusion initiatives at HSBC are targeted at economically and socially

marginalized and excluded sections of society in different life stages – HSBC supports

underprivileged children to access education, youth to acquire skills for social integration and

employment and women to become economically independent. The ultimate aim of all HSBC

programmes is to enable these communities to participate in the economy, lead productive lives

and become drivers of social change as shown in Figure 8. HSBC tries to achieve this financial

inclusion through 3 major initiatives as shown in Figure 9.

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Figure 8 – Objective of HSBC programmes

Figure 9 – Initiatives for Financial Inclusion

Thus, through this financial inclusion, they are trying to build their own market by contributing

to the lives of people at the basic level & making them more & more self-sufficient in economic

terms & as once, they become self-sufficient, they will definitely be loyal to HSBC as this bank

only helped them in reaching to this level. They are also providing microfinance to various

organizations like Rural Urban Development Institute (RUDI) Manager's School which is

running in 9 districts in the Western India state of Gujarat & is run by SEWA (Self Employed

Women's Association). Thus, by attaching themselves with a national level organization like

SEWA actually helps them in increasing their reach to the rural markets which would otherwise

have remained untapped. They have also tied up with SHARE (Society to Heal, Aid, Restore and

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Educate) India in a Water-Based Livelihood Model in drought prone villages in Raigad district,

Maharashtra. This initiative ensures village based economic livelihood revival through rain water

harvesting systems, formation of self-help groups of women and men, and creation of

entrepreneurship and agricultural livelihood opportunities at the bottom of the pyramid. There

also microfinance initiatives like Students In Free Enterprise (SIFE) & „JA More Than Money‟

which aims to roll out financial literacy and entrepreneurship projects across the country. Thus,

through initiatives like these, HSBC is trying to make people involved in this project accountable

for the kind of business they bring in which helps the people in developing their entrepreneurial

talent & helps the company in making these people more motivated so that they can bring in

more business for them. Thus, it is a win-win situation for both of them.

HSBC believes in sharing responsibility with governments and citizens for

minimizing the damaging effects of human activity - pollution of land, water and air and the

depletion of resources. The depletion of the planet's natural resources on which life depends can

only lead to human conflict. HSBC‟s environment initiatives are targeted towards nature, habitat

and biodiversity conservation, water harvesting and climate change initiatives as shown in Figure

10.

Figure 10 – Environmental initiatives

By investing in the climate conservation initiatives like Earth Sciences Forum, HSBC Climate

Partnership, HSBC Young Rangers – for a Cooler World, HSBC Living Business in some of

which they have tied up with TERI (The Energy and Resources Institute), they are directly trying

to benefit their own balance sheets by increasing their carbon credits which they can sell in the

global markets.

By investing in the Ecosystem Conservation initiatives which are targeted towards protection of

biodiversity (especially endangered species), afforestation and water conservation through

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watershed and rain water harvesting projects, they are trying to build a responsible brand name

for themselves which is likely to positively affect their business.

HSBC India tries to develop good practices in terms of energy saving habits like using low

energy light bulbs, air conditioning controls, smart controls for all the electrical installations etc.

among their employees which helps them in saving their costs.

The initiatives like Annual Helping Hands Mela, Junior Achievement Mentoring

Programme, Kuch Dil Se Payroll Giving Programme, Mumbai Marathon, HSBC Climate

Champions, World Environment Day, Breaking Barriers - Celebrating with a difference,

Volunteering Action Fortnight in which the employees are directly involved which help the

company in team building among the employees & motivating them by making them a part of

these social initiatives which give them a sense of satisfaction as they are able to do their bit for

the society. Also, these initiatives help the employees in taking much needed rest from their

stress filled life & also, give them a feel of importance in the company as the company organizes

these initiatives for these employees.

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Conclusion

The question is no longer “Who is reporting?” but “Who is not?”. Corporate responsibility

reporting is now a mainstream expectation of companies. Since more than 80 percent of the

world‟s 250 largest companies now report on corporate responsibility and as motivations for

reporting have shifted away from reactive and risk management factors and towards aspirational

and innovative ones, we can expect this trend to roll out rapidly at the country and sector levels

in the coming years.

We are seeing a distinctive maturing of corporate responsibility management systems overall.

Reporting is now more likely to occur within the context of an overarching strategy and

management system. The use of GRI guidelines by the majority of Global Fortune 250

companies shows that this has become a leading standard for reporting. Now that some of the

world‟s largest companies have been able to quantify the business case for corporate

responsibility and reporting, it is likely that the practice will spread through countries and sectors

to the smaller players.

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References

1. KPMG International Survey of Corporate Responsibility Reporting 2008

2. Sustainability Reporting: Element and Experiences, GCS Monthly Meeting, 29

December 2008

3. The future of Corporate Sustainability Reporting – A rapidly growing assurance

opportunity by Brian Ballou, Dan L. Heitger and Charles E. Landes, Journal of

Accountancy, December 2006

4. International trends in corporate „sustainability‟ reporting by Markus Milne and Rob

Gray, Chartered Accountants Journal, December 2008

5. Undisclosed Risk: Corporate Environmental and Social Reporting in Emerging Asia by

Dana Krechowicz and Hiranya Fernando, International Finance Corporation, April 2009

6. Corporate Sustainability at HSBC in India

7. http://www.corporateregister.com/

8. http://www.enviroreporting.com/

9. http://www.sustainabledevelopment.in/services/corporate_substainability_management/a

ctivities/sustainability_reporting.htm

10. http://www.globalreporting.org/ReportingFramework/NationalAnnexes/

11. http://www.sustreport.org/business/report/trends.html

12. www.standardchartered.com

13. www.ftconferences.com/sustainablebanking

14. www.sustainabledevelopment.in