Discussing existing practices of social and environmental reporting, the panellists suggest the way forward
24 August, 2017, Bengaluru: The Centre for Corporate Governance and Citizenship (CCGC) at Indian Institute of Management Bangalore (IIMB), as part of its Leaderspeak Dialogue Series, hosted a panel discussion on ‘Sustainability Accounting – A Paradigm Shift in Management Thought’ on August 23 (Wednesday), 2017.
Moderated by IIMB faculty members Professor Vasanthi Srinivasan from the Organizational Behaviour & Human Resources Management area and Professor P D Jose from the Strategy area, the panel discussion covered critical areas in the discipline – that of Sustainability Accounting and Social Value.
It is a well-known fact that a higher cost to planet Earth does not translate to a higher cost to the customer. Businesses are rarely obliged to pay the full toll that the operations have on the planet. Even though Fair Trade practices are gaining ground, customers are rarely ready to pay a higher cost, if we were to add a social or environment cost to the product. This is where value creation becomes central in decision making, whether it is for Corporate Strategy or Policy Intervention by the Government, and the dovetailing of Sustainability Accounting in this process.
With this as the background, the panel explored ways to measure social impact and social value – how we get to know that all we do for social impact is actually adding value and how this value translates in terms of transformation, from a sustainable development goal perspective.
The panel included Jeremy Nicholls, CEO, Social Value UK and Social Value International; Santhosh Jayaram, Partner & Head – Sustainability and CSR Advisory, KPMG; Sandeep Shrivastava, Vice President and Head – Environment & Sustainability, Ambuja Cement, and P.S. Narayan, Vice President and Head – Sustainability and Social Initiatives, Wipro Ltd.
Jeremy Nicholls set the context of the conversation with a presentation on Social Value Accounting. Talking about its history, he pointed out that Sustainability Accounting is a journey of our society across the world, it is about how we become more accountable to each other in everything we do. “Lot of businesses have started thinking about the value of their impacts, positive or negative. How much change we are making to the world, above and beyond the core business operations. That practice in itself will help us to converge on standards. There should be increasing willingness to enforce existing legislation and more standardized data is needed. This will also make decision making on resource allocation easier.” Talking about the rising trend of different forms of non-financial reporting, he said that the line between social and financial accounting is arbitrary. “We need to move from just maximizing financial value for investors to a situation where we are doing the same, subject to not creating damage to the world in any shape or form. As a society if we achieve that, we can move all integrated profit and loss account information into mainstream accounts.”
This was followed by stories from the ‘field’ by Sandeep Shrivastava. His talk went beyond the social and environmental profit and loss case studies, and he spoke about some recent global analysis on the subject. He also detailed his company’s social footprint across the country. “We have comprehensively mapped our initiatives for sustainable development goals, and have touched most of them. We have set medium and long-term goals, with health and safety being focus areas. We use certain yardsticks to measure, control, and improve.”
Santhosh Jayaram built on Sandeep Shrivastava’s presentation and went on to provide more insights. “We are going to face more and more stakeholder and regulatory pressure in the coming years. Externalities are increasingly becoming internalized. When it is time for something, there is a surge of activities around it. A lot of standards and guidelines are coming in this field. There will be a convergence of such things towards a proper accounting method. The country's policies will also start factoring environmental and social accounting.”
P.S. Narayan spoke on Wipro’s experiences on Social Value Accounting. “Humanity is in ecological debt. Various estimates say we need one-and-a half earths to support the human enterprise. But does it have a monetary value? The rate at which the earth’s ecosystem services are being depleted is huge. There is a need for monetary equation to the natural ecosystem and valuation of externalities. Frameworks have come up to include the valuation of non-financial assets and liabilities alongside the conventional notion of GDP. Genuine Progress Indicator (GPI) is a good example. GPI tries to put a value to things like cost of crime, value of household work, value of parenting, value of higher education, negative costs of pollution, cost of leisure time lost, etc. Therefore, in the larger context of society, what businesses should try to do is to value externalities: one of the ways is the life cycle approach or set of environmental impact footprint of your entire life cycle. The monetary equivalent aspect and true cost of products are also relevant.”
Listing why businesses should report externalities, Narayan said that first, it is a core element of good governance, and second, it can also be an ahead-of-the-curve risk management strategy. Thirdly, it can create a cycle of constructive pressure internally, a formal program of reducing negative externalities and expanding positive ones. Fourth, it can have powerful signalling value, it can send a strong message to all stakeholders and set up a model for others to follow. But valuation is not uniformly easy, he observed. One such example is: how to value good education. “Some of the key points in the whole debate about the valuation game are: cost of avoidance vs cost of repair; intrinsic value vs instrumental value; discounting rates for now vs the future; question of nexus and attribution, among others.”
Describing his learnings from Wipro’s experience, he said: “You have to socialize ideas with key stakeholders, it takes time, but it is important to get started. Direction is important, not accuracy – so don’t get lost in methodology and numbers. Public disclosure should be a strategic mix of narrative and numbers. Moreover, the mindset is important, it should not be that of balancing out. It is crucial to know the difference between value and price.”
Summarizing the discussion, Professor P D Jose said that Sustainability Accounting is about behaviour change. He also raised some questions: Should Sustainability Accounting be left to Sustainability experts and accountants? “The answer to that should be a ‘No’. From accounting, how do we make sure that negative externalities get transferred back to society? Cash is real, accounting is numbers, but the two might not meet.”
About numbers to complement narrative, he said we need to think if we are making enough efforts to create an efficient matrix.
The other questions he raised were: How do we future-poof our reporting? How regulation should shape balance between what is mandatory and what should be voluntary? Should we have an inflexible reporting standard as we do not understand all issues? Should we use reporting and disclosure as a means to drive innovation and improve performance?
“We often talk about measuring impact. But we should also consider the impacts of measuring. Not just corporates, but society needs to keep pace as well.”
About CCGC: IIMB’s CCGC is a Centre of Excellence, created in 2003, to bring, under a single umbrella, research, teaching and policy support related activities of the faculty in the field of corporate governance, ethics, corporate social responsibility and sustainability. The Centre offers courses on Corporate Governance and Social Responsibility at the MBA level and also conducts specialized training programmes and workshops for company directors and senior management in the private and public sectors. It provides policy support in the field of corporate legislation and regulation. All such relevant research data and articles are captured in the Centre’s website www.teachcsr.com. A core area of the centre’s activities focuses on research on Corporate Governance and related areas of responsible business and corporate responsibility. At present, Professor Rejie George Pallathitta from the Strategy area of IIMB is the Chairperson of the Centre for Corporate Governance and Citizenship.
Discussing existing practices of social and environmental reporting, the panellists suggest the way forward
24 August, 2017, Bengaluru: The Centre for Corporate Governance and Citizenship (CCGC) at Indian Institute of Management Bangalore (IIMB), as part of its Leaderspeak Dialogue Series, hosted a panel discussion on ‘Sustainability Accounting – A Paradigm Shift in Management Thought’ on August 23 (Wednesday), 2017.
Moderated by IIMB faculty members Professor Vasanthi Srinivasan from the Organizational Behaviour & Human Resources Management area and Professor P D Jose from the Strategy area, the panel discussion covered critical areas in the discipline – that of Sustainability Accounting and Social Value.
It is a well-known fact that a higher cost to planet Earth does not translate to a higher cost to the customer. Businesses are rarely obliged to pay the full toll that the operations have on the planet. Even though Fair Trade practices are gaining ground, customers are rarely ready to pay a higher cost, if we were to add a social or environment cost to the product. This is where value creation becomes central in decision making, whether it is for Corporate Strategy or Policy Intervention by the Government, and the dovetailing of Sustainability Accounting in this process.
With this as the background, the panel explored ways to measure social impact and social value – how we get to know that all we do for social impact is actually adding value and how this value translates in terms of transformation, from a sustainable development goal perspective.
The panel included Jeremy Nicholls, CEO, Social Value UK and Social Value International; Santhosh Jayaram, Partner & Head – Sustainability and CSR Advisory, KPMG; Sandeep Shrivastava, Vice President and Head – Environment & Sustainability, Ambuja Cement, and P.S. Narayan, Vice President and Head – Sustainability and Social Initiatives, Wipro Ltd.
Jeremy Nicholls set the context of the conversation with a presentation on Social Value Accounting. Talking about its history, he pointed out that Sustainability Accounting is a journey of our society across the world, it is about how we become more accountable to each other in everything we do. “Lot of businesses have started thinking about the value of their impacts, positive or negative. How much change we are making to the world, above and beyond the core business operations. That practice in itself will help us to converge on standards. There should be increasing willingness to enforce existing legislation and more standardized data is needed. This will also make decision making on resource allocation easier.” Talking about the rising trend of different forms of non-financial reporting, he said that the line between social and financial accounting is arbitrary. “We need to move from just maximizing financial value for investors to a situation where we are doing the same, subject to not creating damage to the world in any shape or form. As a society if we achieve that, we can move all integrated profit and loss account information into mainstream accounts.”
This was followed by stories from the ‘field’ by Sandeep Shrivastava. His talk went beyond the social and environmental profit and loss case studies, and he spoke about some recent global analysis on the subject. He also detailed his company’s social footprint across the country. “We have comprehensively mapped our initiatives for sustainable development goals, and have touched most of them. We have set medium and long-term goals, with health and safety being focus areas. We use certain yardsticks to measure, control, and improve.”
Santhosh Jayaram built on Sandeep Shrivastava’s presentation and went on to provide more insights. “We are going to face more and more stakeholder and regulatory pressure in the coming years. Externalities are increasingly becoming internalized. When it is time for something, there is a surge of activities around it. A lot of standards and guidelines are coming in this field. There will be a convergence of such things towards a proper accounting method. The country's policies will also start factoring environmental and social accounting.”
P.S. Narayan spoke on Wipro’s experiences on Social Value Accounting. “Humanity is in ecological debt. Various estimates say we need one-and-a half earths to support the human enterprise. But does it have a monetary value? The rate at which the earth’s ecosystem services are being depleted is huge. There is a need for monetary equation to the natural ecosystem and valuation of externalities. Frameworks have come up to include the valuation of non-financial assets and liabilities alongside the conventional notion of GDP. Genuine Progress Indicator (GPI) is a good example. GPI tries to put a value to things like cost of crime, value of household work, value of parenting, value of higher education, negative costs of pollution, cost of leisure time lost, etc. Therefore, in the larger context of society, what businesses should try to do is to value externalities: one of the ways is the life cycle approach or set of environmental impact footprint of your entire life cycle. The monetary equivalent aspect and true cost of products are also relevant.”
Listing why businesses should report externalities, Narayan said that first, it is a core element of good governance, and second, it can also be an ahead-of-the-curve risk management strategy. Thirdly, it can create a cycle of constructive pressure internally, a formal program of reducing negative externalities and expanding positive ones. Fourth, it can have powerful signalling value, it can send a strong message to all stakeholders and set up a model for others to follow. But valuation is not uniformly easy, he observed. One such example is: how to value good education. “Some of the key points in the whole debate about the valuation game are: cost of avoidance vs cost of repair; intrinsic value vs instrumental value; discounting rates for now vs the future; question of nexus and attribution, among others.”
Describing his learnings from Wipro’s experience, he said: “You have to socialize ideas with key stakeholders, it takes time, but it is important to get started. Direction is important, not accuracy – so don’t get lost in methodology and numbers. Public disclosure should be a strategic mix of narrative and numbers. Moreover, the mindset is important, it should not be that of balancing out. It is crucial to know the difference between value and price.”
Summarizing the discussion, Professor P D Jose said that Sustainability Accounting is about behaviour change. He also raised some questions: Should Sustainability Accounting be left to Sustainability experts and accountants? “The answer to that should be a ‘No’. From accounting, how do we make sure that negative externalities get transferred back to society? Cash is real, accounting is numbers, but the two might not meet.”
About numbers to complement narrative, he said we need to think if we are making enough efforts to create an efficient matrix.
The other questions he raised were: How do we future-poof our reporting? How regulation should shape balance between what is mandatory and what should be voluntary? Should we have an inflexible reporting standard as we do not understand all issues? Should we use reporting and disclosure as a means to drive innovation and improve performance?
“We often talk about measuring impact. But we should also consider the impacts of measuring. Not just corporates, but society needs to keep pace as well.”
About CCGC: IIMB’s CCGC is a Centre of Excellence, created in 2003, to bring, under a single umbrella, research, teaching and policy support related activities of the faculty in the field of corporate governance, ethics, corporate social responsibility and sustainability. The Centre offers courses on Corporate Governance and Social Responsibility at the MBA level and also conducts specialized training programmes and workshops for company directors and senior management in the private and public sectors. It provides policy support in the field of corporate legislation and regulation. All such relevant research data and articles are captured in the Centre’s website www.teachcsr.com. A core area of the centre’s activities focuses on research on Corporate Governance and related areas of responsible business and corporate responsibility. At present, Professor Rejie George Pallathitta from the Strategy area of IIMB is the Chairperson of the Centre for Corporate Governance and Citizenship.