Finance: Triple bottom line reporting ...............
Reporting on more than the financials is now de rigueur for many of the world’s largest companies
The idea of the “triple bottom line” was first coined in 1994 by UK consultant John Elkington. In essence it is an attempt to enhance our economic system by increasing the range of ways that business activities are monitored and evaluated. Elkington’s argument was that in addition to reporting on the most familiar ‘bottom line” of financial accounting, companies should be preparing a ‘people account’ measuring social responsibility, and a ‘planet account’, measuring environmental responsibility. Businesses doing this would take into account their entire impact on the world, and could then make a realistic assessment of all the costs and benefits associated with their activities. This kind of thinking has spread rapidly, and today some form of environmental and social reporting is becoming the norm among big businesses, and has even become mandatory in many countries.
Interestingly, it is often the same major accounting firms that have traditionally handled corporate financial accounts that are now promoting this much broader approach, showing just how mainstream this kind of thinking has now become.
Julia Hoare, a partner with PWC says: “For some businesses it just makes good business sense in terms of things like energy efficiency, for some it is about remaining relevant to their market, and for others it is about integrity and staff retention.”
She added that New Zealand has historically lagged behind on this, although many top NZ companies are now taking it seriously. This may be partly driven by pressure from our key export markets: environmental and social monitoring is now compulsory for suppliers to many European supermarket chains for example, particularly in France and the UK, where these higher values have been driven by increasing consumer consciousness.
There is now a proliferation of monitoring systems for companies to monitor their supply chains, covering everything from animal testing to indigenous rights. While generally positive, this can make it difficult to accurately assess the relative merits of different businesses and sectors: is a company whose wood is certified by the Forest Stewardship Certified (FSC) wood better or worse than one whose wood is certified by the Programme for the Endorsement of Forest Certification (PEFC)? Can we trust one organic certification more than the next?
Currently two great shifts in business monitoring are happening, both of which should make things clearer in the long run. Firstly, companies are increasingly using independently monitored and externally audited standards like FSC and PEFC, rather than their own internal systems. This means that those certifying the activities have a vested interest in the integrity of the certification, rather than just the profits of the companies concerned. Secondly, progressive companies are not simply producing separate sustainability and corporate social responsibility reports, but integrating the information into a company’s annual report and strategy documents, where they are more likely to be more widely read and considered.
The big question, of course, is whether this all adds up to real positive change.
Hoare says: “There is change, although it is slow.”
“...companies should be preparing a ‘people account’ measuring social responsibility, and a ‘planet account’, measuring environmental responsibility.”