The Connected Reporting Framework
Background to Development
External reporting is an important component in the effectiveness of the capital markets and in giving employees and other stakeholders confidence in an organisation. As society’s awareness of the importance of sustainability issues has increased, in particular the impact of climate change, so has this agenda moved onto and up public bodies’ and companies’ agendas. The result has been increasing discussion of how best to report sustainability performance; or to put it another way, of how to give a more balanced and complete picture of overall performance.
External corporate reporting has evolved from the simple financial reporting of profits and losses, assets and liabilities to give more information about how organisations are managed and conduct their business affairs. This change has embraced information on governance as well as non-financial information such as environmental and social policies.
With these changes in mind, proposals for improved sustainability reporting has built on the work of many organisations which have been operating in this area for a number of years, in particular the Global Reporting Initiative, the United Nations, AccountAbility and Defra/Trucost.
The Accounting for Sustainability project has developed a Connected Reporting Framework which will help provide clearer, more consistent and comparable information for use both within an organisation and externally. At the same time, it is envisaged that this model will provide a better picture of the connected nature of an organisation’s actions. The following illustration attempts to show this by explaining how environmental issues impact all of an organisation’s strategic issues.
In developing the Connected Reporting Framework, Accounting for Sustainability was not trying to create a new accounting model, rather it was more about making better use of existing financial and non-financial information. It is hoped that the information that is included is that which the organisation already uses to run the business, and that this is not seen as more reporting, but better reporting.
The new Connected Reporting Framework has the following five key elements.
- An explanation of how sustainability is connected to the overall operational strategy of an organisation and the provision of sustainability targets. The challenge is to ensure that in mainstream reporting the sustainability information included is strategically important. Targets are important to ensure and demonstrate that sustainability issues are taken into account when making investment decisions.
- Five key environmental indicators, which all organisations should consider reporting, they are: greenhouse gas emissions, energy usage, water use, waste and significant use of other finite resources.
- Other key sustainability information should be given where the business or operation has material impacts. The Framework is not prescriptive in this respect to avoid the provision of irrelevant information and a “one-size-fits-all” approach.
- To aid performance appraisal, industry benchmarks for the key performance indicators when available.
- The up-stream and down-stream impact of the organisation’s products and services: the sustainability impacts of its suppliers and the use of its products or services by customers and consumers.
An illustrative example of what a Connected Reporting Framework might look like in practice has been prepared. It includes a number of callouts which demonstrate the key recommendations and features of the framework proposed. Beyond this set of core indicators an organisation can choose to include any others that it feels are useful in understanding organisational impact and performance. A blank template of this Framework is also available for you to download.
In testing the model a number of pilot studies were undertaken, this was done to check that the framework can be used in practice and to ascertain how information is captured, presented and, importantly, used internally to drive decision-making. Examples of these pilot studies along with further details of the model, including its underlying principles and information on the choice of mandatory and optional indicators, are given in the Reporting Sustainability report.