SustainabilityReporting

TheInstituteofCharteredAccountantsofIndia All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form, or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior permission, in writing, fromthepublisher. Disclaimer: The views expresses in this book are those of author(s). The Institute of Chartered Accountants of India may not necessarily subscribetotheviewsexpressedbytheauthor(s). The information cited in this book has been drawn from various sources.Whileeveryefforthasbeenmadetokeeptheinformation cited in this book error free, the Institute or any office does not take the responsibility for any typographical or clerical error which may have crept in while compiling the information provided in this book. Further, the information provided in this book are subject to the provisions contained under different acts andmembersareadvisedtorefertotheserelevantprovisionsalso. Edition Email Website Price ISBN Publishedby : : : : : : January2012 CommitteeforMembersin Industry cmii@icai.in www.icai.org Rs.100(includingCD) 9788187080671 ThePublicationDepartmenton behalfoftheInstituteof CharteredAccountantsofIndia, ICAIBhawan,PostBoxNo.7100, IndrapasthaMarg, NewDelhi110002. PerfactImpressionPvt.Ltd. NewDelhi110003 January/2012/010copies Committee/Department :

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Contents Foreword Preface ListofAbbreviations GlossaryofTerms ExecutiveSummary 1. SustainableDevelopment:Evolution, ConceptandMeaning 2. SustainableDevelopmentandBusiness 3. PrinciplesandPracticeforSustainable DevelopmentApproach 4. SustainabilityReporting 5. GlobalTrendsinSustainabilityReporting 6. AssuranceforSustainabilityReporting 7. RelevanceofSustainabilityReportinginIndia 8. SustainabilityReportingAwards 9. TheWayAhead Appendices Appendix1 Appendix2 References 105 106 109

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ForewordtotheFourthEdition
Sustainability reporting is a process for publicly disclosing an organizations economic, environmental and social performance. Many companies find that financial reporting alone no longer satisfies the needs of shareholders, customers, communities and other stakeholders for information and overall organizational performance.Therefore,companieshavestartedtoreportontheir triple bottom line to describe social, environmental and financial accounting. Generally sustainability report of companies comprises of information on how a company , proactively and beyond regulation, acts responsibly towards the environment around it and works towards equitable and fair business practices and brings products and services with lower impacts on the natural environment . Such a report describes how a company has implemented a greener supply chain and has engaged with local communities and is helping in tackling the climate change issues orisinnovatingforthepoor. I am happy to note that Committee for Members in Industry is coming up with the revised edition of booklet on Sustainability Reporting.Thisbookisjustaperfecttoolthatprovidesyouwith the requisite information wherever and whenever required. Committee has taken every effort to include relevant piece of information and all pertinent knowledge bytes pertaining to sustainabilityreporting. I acknowledge the efforts put in by all the members of the CommitteeforMembersinIndustryinrevisingthisbook. Iamsurethatthisbookwillprove tobeimmensely beneficialto various stakeholders, members of the profession and other readers. Date:February8,2012 Place:NewDelhi Withbestregards CA.G.Ramaswamy President,ICAI

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PrefacetotheFourthEdition
Environmental and social management has now become an integralpartofbusinessoperations.Withorganisationsadoptinga moresystematicapproachtomanaging,measuringandreporting on social and environmental performance, the trend towards greateraccountabilityandvoluntarydisclosureisgatheringpace. A sustainability report provides a balanced and reasonable representation of the sustainability performance of the reporting organization, including both positive and negative contributions. Corporatesustainabilityreportinghasalonghistorygoingbackto environmental reporting. Global Reporting Initiative defines SustainabilityReportasthepracticeofmeasuring,disclosing,and being accountable for organizational performance while working towardsthegoalofsustainabledevelopment. Sustainabilityreportingisgeneratingconsiderableinterestaround theworldandisbecomingoneofthebasiccriteriaforjudgingthe social responsibility of organizations. Companies are issuing Sustainability Reports to enlarge the scope of conventional corporate financial reporting. The report helps them ensure transparent communication and engagement with their stakeholders in respect to the companys sustainability performance.Ithasbecomeimperativeforthecompaniestohave stakeholder engagement due to the growing awareness of the stakeholderbecauseoftheeasyandspeedyaccesstoinformation. Thestakeholderslikegovernmentagencies,employees,investors, financial institutions, community, NGOs, consumers, etc. have become more demanding and ask the company to disclose information on its social, environmental and economic impacts. Sustainability Reporting is also of benefit to the company internally by helping it identify and address business risks and opportunities I acknowledge the efforts put in by Mr. Vijay Kapur, Director, BoardofStudiesinupdatingthisbooklet.Ialsoacknowledgethe efforts put in by the members of the Committee for Members in Industry and the Secretariat of the Committee for Members in Industry.

Date:February8,2012 Place:Bangalore

CA.K.Raghu Chairman, CommitteeforMembersinIndustry

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ListofAbbreviations
BHEL CEO CERES CSR DRL GASS GRI IASB IAASB IAP ICC IFAC ILO ISAE LCA Bharat Heavy Electrical Limited ChiefExecutive Officer Coalition for Environmentally Responsible Economics Corporate Social Responsibility Dr.Reddys Laboratory Generally Accepted Assurance Standards for Sustainability Global Reporting Initiative International Accounting Standards Board International Auditing and Assurance Standards Board Indoor Air Pollution International Chamber of Commerce International Federation of Accountants International Labour Organisation International Standard on Assurance Engagement Life Cycle Analysis

LPG LiquidPetroleum Gas NEPAD NewPartnership for Africas Development NGO RFP SEBI TAP UN UNDP UNEP WGBI WHO WTO NonGovernment Organisation Request for Proposal Securities Exchange Board of India TakeAction Programme UnitedNations UnitedNations Development Programme UnitedNations Environment Programme Welcomgroup Bay Island WorldHealth Organisation WorldTrade Organisation

WBCSD WorldBusiness Council for Sustainable Development

GLOSSARY OFTERMS

AccountAbility An international membership organisation committed to enhancingtheperformanceof organisationandtodevelopingthe competenciesofindividualsinsocial andethicalaccountabilityand sustainabledevelopment.

AdditionalIndicator Anindicatorusedatthediscretion ofthereportingorganisationto enrichareport. Coalitionfor Environmentally Responsible Economies Itisnonprofitorganisationbasedin theU.S.comprisinginvestors, environmental, religious and public interest groups to promote investment policies that are environmentally, socially and financiallysound. Anindicatorinaccordancewiththe GRI guidelines. ItiscooperationofDowJones Index.STOXXLtd.andSAMGroup toprovidebenchmarksforthe financialproductsthatarelinkedto economic, environmental and social criteria. GRIwasconvenedin1997bya Coalition for Environmentally ResponsibleEconomics(CERES)in partnershipwiththeUnitedNations EnvironmentProgramme(UNEP) andwasestablishedtoelevate sustainabilityreportingpracticetoa levelequivalenttothoseoffinancial reporting, while achieving comparability,credibility,rigour, timelinessandverifiabilityof reportedinformation. 3

CoreIndicator DowJones SustainabilityIndex

Global Reporting Initiative (GRI)

GoodCorporation

An accreditation scheme for socially responsiblebusinesslaunchedin 2001asaforprofitcompanybased intheU.K.toprovidemeansfor organisations to develop and enhanceresponsiblemanagement practices. Gaseous pollutants released intothe atmosphere through the burning of fossilfuelsandthroughother avenuesthatamplifygreenhouse effectwhichiswidelyacceptedas the cause of global climate change. A measure of performance, either qualitativeorquantitative. The general types of information thatarerelatedtoaspecificcategory suchasenergyuse,childlabouretc. and may have several aspects. The broad areas are groupings of economic,environmental,social issuesof concerntostakeholders Founded in 1990, it aims to serve worldbusinessbypromotingtrade andinvestment,openmarketsfor goodsandservices and freeflow of capital.Itisthevoiceofworld businesschampioningtheglobal economyasaforceforeconomic growth,jobcreationandprosperity. A detailed examination of the full lifecycleofaproduct,processes, systemandfunction.Forexample incaseofmanufacturedproduct,a lifecycle analysis involves collecting detailedmeasurementduringthe manufactureoftheproduct,from theextractionoftherawmaterials usedinitsproductsthroughtoits use, possible reuse or recycling and eventualdisposal.

GreenHouse Gas Emissions

Indicators Indicatoraspects

Indicatorcategories

International Chamberof Commerce

Life Cycle Analysis

ProductsandServices Both physical and nonphysical productsandservicessuchasloans, investmentsandotherfinancial instruments. World Business Council for Sustainable Development A coalition of 175 international companiesunitedbyashared Commitment to sustainable development through three pillars : economicgrowth,ecologicalbalance andsocialprogress. Itaimsto providebusinessleadershipasa catalyst for change towards sustainable development and promotetheroleofecoefficiency, innovationandcorporatesocial responsibility.

EXECUTIVESUMMARY

SUSTAINABLEDEVELOPMENT:CONCEPT
The earthisfiniteand hasonlya certainlimitedcapacity.Hence, growth can only occur over a limited period, until that capacity isenhanced.Thisgivesrisetotheideaofsustainabledevelopment. Simply put, sustainable development implies development that meets the needs of the present generation without compromising the ability offuture generationsto meettheirown needs. Manyculturesoverthecourseofhumanhistoryhaverecognized theneedforharmonybetweenenvironment,societyandeconomy. In 1983, the United Nations had set up an international commission to resolve the conflict between the interests of economicdevelopmentandtheinterestsofenvironment,thathas createdproblemsroundtheworld.Thecommissionsreport,Our Common Future,popularly known as The Brundtland Report (following the name of its chairperson Gro Harlem Brundtland) that coined the term sustainable development suggested that economic development cannot stop, but it must change course to fit within the earths ecological limits.The report observed that unintended changes are occurring in the atmosphere, in soil, in water, among plants and animals. Nature is bountiful but it is also fragile and finely balanced.There are thresholds that cannot be crossed without endangering the basic integrity of the system. Thecommissionalerted thattodayweareclosetomanyofthose thresholds. Sustainable development thus focuses on improving the quality of life for all of the earths citizens without increasing the use of natural resources beyond the capacity of the environment to supply them indefinitely. The quality of future human activity and development is increasingly dependent on maintaining balance between continued economic and social development withoutdetrimenttotheenvironmentandnaturalresources.

ROLEOFBUSINESSINSUSTAINABLE DEVELOPMENT
Thebusinessandindustrysectorhasasignificantroleinpromoting sustainabledevelopment. Businessmustmakemoney;andstayinginbusinessandprospering is a fundamental value of any forprofit enterprise.At the same 7

time, business is required to take into account the interests of all stakeholders that include customers, employees, investors, vendors, government and the society. The late 1990s and early 2000s were turbulent periods for the global investment community, with vast amount of shareholder wealth being created and destroyed. Both the institutional and retailinvestorshavelearntsomepainfullessons,reexaminedtheir assumptions about what constitute tangible and intangible value, and broadened their scope to consider characteristics that could lead to long term financial success. One area of corporate performance that has begun to capture the attention of investment professionals is sustainable development: asetofresponsibilitiesthatcontributesdirectlytoanorganisations risk management profile and is sometimes also linked with corporateresponsibility. There is considerable evidence that sustainable development contributes to shareholder value in a variety of waysnot only through tangible contribution such as risk reduction and profitability improvement, but also through intangible asset creation such as brand equity, human capital etc. Operating businessbypursuingthesustainabledevelopmentpathstrengthens an organisations intangible assets in a number of ways that in turn leads to tangible shareholder value creation. It is now globally recognised that following sustainable developmentpathmakesgoodbusinesssense.Thisentailsvarious approaches. For example, ecoefficiency is based on a common sense proposition that reduces waste and inefficiency in production processes, saves money and protects the environment at the same time.Life Cycle Analysis (LCA) offers a framework for understanding material flaws and potential impacts involved with providing services or products in a closed loop.Sometimes referred to as cradle to cradle or cradle to grave, LCA looks at an enterprise in terms of input, throughput and output. This helpstoidentifyinefficienciesthatdrainprofitandproducewaste includingpollutants. Many of these approaches e.g. ecoefficiency, LCA, full cost accounting, industrial ecology, systems based pollution preventionetc.arenewtothebusinessworld.Businesseskeento benefit from transition to sustainable development path therefore needtopreparethemselvesandhavealongertimehorizonanda broader set of goals than traditional companies. 8

Realisation and recognition of the significance of sustainable development approach usually starts from the top management. However,bestintentionsaremeaninglessiftheseareonlylodgedin the minds of a few individuals. Values of sustainable development hastopermeatethroughouttheorganisation.Changingacompanys cultureandoutlookrequiresacontributionfromeveryonestarting from the chief executive officer and permeating through senior, middle, junior management, staff and all working as a team. To make this change happen towards sustainable development approach, it is important to: Prepare a mission statement Form inhouse waste reduction and pollution prevention teams Inform employees about economic, environmental and socialtrends Maintainregularcommunicationlines Have commitment for community development efforts Be committed to honest and accessible public relations Measure and report on progress and performance Prepareannualsustainabilityreport

SUSTAINABILITYREPORTING
As a result of global upsurge of interest in sustainable development,practiceforsustainabilityreportinghasemerged. Sustainability reporting implies reporting on the economic, environmental and social aspects of organisational performance (also known as triple bottom line reporting).The World Business Councilfor Sustainable Developmentdefinessustainabilityreport as public reports by companies to provide internal and external stakeholders with a picture of corporate position on activities on economic,environmentalandsocialdimensions. The Global Reporting Initiative (GRI), a multistakeholder, international body with a mission to develop and disseminate globally applicable sustainability reporting guidelines, has developed the framework for sustainability reporting for companies reporting on the economic, environmental and social dimensions of their activities, products and services. The broad structure of sustainability report as developed by GRI contains: A statement of the chief executive officer describing the keyelements ofthe report 9

An overview of the reporting company and scope of the report An executive summary and key indicators Visionofthereportingcompanyandhowthatintegrates economic,environmentalandsocialperformance An overview of the governance structure and management systems that are in place to implement the vision Performance across social, economic and environmental areasof impact and activity Sustainability reporting has the potential to provide critical information for business analysis. These information facilitate financial reporting with forwardlooking information that could enhancethereportusersunderstandingofsuchkeyvaluedrivers as human capital formation in the company, corporate governance,managementofenvironmentalrisksandthecapacity toinnovate. Sustainability reporting has been steadily rising since 1993 and has considerably increased in the recent years. The principal businessdriversforsustainabilityreportingareto: Have a good brand and reputation Bean employerofchoice Maintain a strong market position Earn trust of the financial markets Beinnovativeindevelopingnewproductsandservices andcreatingnewmarkets

SUSTAINABILITYASSURANCE
Companies value the overall contribution that assurance makes to the sustainability reporting process. Organisations in the forefront of sustainability reporting assurance also recognise the key role that they have in ensuring the credibility and usefulness ofinformationflowswithintheorganisation,especiallyfromnon traditionalandnoncommercialsources. Currently, there are only two recognised professional standards forcarryingoutsustainabilityreportingassurance.Theseare:AA 1000assurancestandarddevelopedbytheInstituteforSocialand Ethical Accountability; and ISAE 3000 provided by the 10

International Audit and Assurance Standard Board which is a partoftheInternationalFederationofAccountants.

TRENDSINSUSTAINABILITYREPORTING

Sustainability reporting has become a common practice in a number of countries like the USA, Europe, Japan and Australia. Sustainability reporting is yet at an emerging stage in Asia, LatinAmerica,AfricaandRussia. ThoughsustainabilityreportingisnotmandatoryinIndiaasmall but a sizeable number of both subsidiaries of multinational and local companies are preparing sustainability reports mostly based on GRI guidelines. However, majority of these companies are focusedoncommunityinitiativesratherthangovernanceriskand disclosure. With globalisation, Indian companies are increasingly realizing that they have much to lose by not following sustainability reporting norms. Indian companies now see sustainability reportingascentraltocorporatesocialresponsibilitywithpassive philanthropy no longer a sufficient response to rising expectations. Conclusion The goal of sustainable development requires that the businesses take responsibility for their social, environmental and economic impacts. Sustainable development can provide business with an opportunity to innovate and a means to grow at each level and step of business operation. Making the right choices within a company,whetheritisnewlyexposedtotheconceptofsustainable development or is already advancing its sustainability agenda, contributes to the companys long term success. It is a matter of making the right choices and setting the right priorities.Thisunderliestheneedfora positivemindsettowards sustainable development. Wider the spread of sustainability, greater the chances of its success. In order to attain this, rising awarenessandhenceeducation,iskey.

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SUSTAINABLE DEVELOPMENT: EVOLUTION,CONCEPTAND MEANING

EVOLUTIONOFSUSTAINABLE DEVELOPMENT

More than one million years ago, humans began to change their environment with stone tools and fire. There is a theory that hunting hastened the extinction of some species even during the Stone Age.The domestication of wild plants and animals, some 10,000 years ago in Asia, the Middle East and Central America marked the beginning of a profound shifting from hunting to agriculture. This created food surplus that allowed development of cities and civilisations and growth of human numbers. Civilisations have been struggling with how to live within the natures envelope for thousands of years.Mesopotamia slid into decline some 4000 years ago after faulty irrigation methods causedalossinsoilfertility.Workersinleadandmercurymines and smelters during Roman times suffered severe health effects, as both the methods were neurotoxins. Lead fallout from their smelting operations was so widespread that it was found in ice coresfromglaciersinGreenlandsome2000yearslater.Anatural climateshiftsentEuropeandNorthAtlanticregionintoawarming periodfromabouttheyearseither600to1400.ThisallowedNorse settlements on Iceland, Greenland and Newfoundland. The little Climatic Optimum or Medieval Warm Period was followed by the little ice age from the mid 1400s to mid 1800s, when harsh winter further drove out the Norse settlements. There is no way of knowing for sure how many humans there were long ago, but there are estimates that it numbered about 40 to 5 millions around the dawn of agriculture. By 2000 years ago, the population had been estimated at about 300 millions, a figurethatgrewslowlyuntilthetimeoftheindustrialrevolution, when it was probably just under 800 millions. In the ensuing three centuries, human numbers have grown more than seven fold. 13

With the industrial revolution, humans learnt how to exploit nature even more efficiently increasing many aspects of human wellbeing,butatagrowingcosttonaturalresourcesandservices. The degradation of natural resources are one of the two great environmental problems caused by humans. combination with Intensivecultivation,sometimes in d eforestation and irrigation from nearby rivers, led to land degradationandisassociatedwiththedeclineofgreatcivilizations in places such as China, Egypt, Greece, North Africa and Central America. The second problem is pollution. Waste from humans and their domestic animals have been a threat to drinking water for many thousands of years, when waste accumulation in any area outstripped natures ability to safely detoxify the harmful organisms. Industrial waste have been accumulating for thousandsofyears. By the second half of the 19th century, overhunting and habitat destruction led to the extinction of passenger pigeon and near extinction of plains bison in North America. Bythesecondhalfofthetwentiethcenturyarapidlygrowinglist of environmental crisis was triggered by the growing human population coupled with greater demands and technological capacity.Sincethentherehavebeenseriousdiscussionsaboutthe depletion of materials, food and energy resources. There is a growing concern about the growth of the worlds populationbeyondthepointwheretherewillbeenoughmaterials, foodandenergytosupportit.Rapiddeteriorationofenvironment air, water and landfeatured as significant agenda for discussion and consideration to arrest ecological imbalance, because increased population means increased consumption, which, in turn, leads to discarding more waste into environment. Hence, it is important that making decisions for growth should recognise the connection between action and effects in the environment,economyandsociety.Sciencetellsthathumansare altering the atmosphere that supports life on earth. There is a growing realisation that one day very soon countries will go to have a plan for the flattening off of growth curves in spite of the potentially painful consequences. The earth is finite and has only a certain limited capacity. Growth can only occur over a very limited period, until that capacity is enhanced. This springs the idea of sustainable development, which simply put, deals with what kind of a legacy the present generation wants to leave for 14

theirchildrenandgrandchildren. Theideaofsustainabledevelopmentemergedinaseriesofmeetings and reports during the 1970s and 1980s. The interest in sustainability was spurred by a number of incidents and discoveries during that period, including the leak of poisonous gas from the Union Carbides Chemical plant at Bhopal, India; the explosion and radioactive release from Chernobyl, Ukraine; theholeintheAntarticOzonelayer;leakingtoxicchemicaldumps, such as Love Canal; general fears about chemical contamination and conflicts over decreasing natural resources, such as forests andfisheries. In 1972, the United Nations (UN) Stockholm Conference on the HumanEnvironmentmarkedthefirstgreatinternationalmeeting on how human activities are harming the environment and putting humans at risk.The 1980 World Conservation Strategy, preparedbytheInternationalUnionfortheconservationofnature along with the UN Environment Programme and the World Wildlife Fund, promoted the idea of environmental protection in the selfinterest of the human species. In 1983, the UN appointed an international commission chaired by Norwegian Prime Minister, Gro Harlem Brundtland, to find ways to resolve the conflict between the interests of economic development and the interests of environment, that has created problems all round the world. The Commissions report, Our Common Future, published in 1987 and widely known as The BrundtlandReport contendsthatsustainabledevelopmentisnot anewidea.Manyculturesoverthecourseofhumanhistoryhave recognisedtheneedforharmonybetweentheenvironment,society andeconomy.Whatisnewisanarticulationoftheseideasinthe context of a global industrial and information society.

KEYEVENTSLEADINGTOSUSTAINABLE DEVELOPMENT
Some key events during the last two decades that illustrate the growinginterestinsustainabledevelopmentareoutlinedbelow: 1972 : The United Nations Conference on the Human Environment,adoptedatStockholmon16June1972. 1980 : WorldConservationStrategyatSwitzerlandin1980for defining the sustainability Development. 1987 : Publication of Our Common Future by World 15

CommissiononEnvironmentandDevelopment,that coined and defined the term sustainable development. 1991 : Amnesty International UK Business Group, a international NonGovernment mainstream Organisation (NGO) established and acknowledges theroleofbusinessinupholdinghumanrights. 1992 : Rio Earth Summit where Agenda 21, the UN Framework Convention on Climate Change and the Rio Declarationwasagreedupon. 2000 : UN Global Compact An initiative by UN Secretary General, Kofi Annan, to promote global corporate citizenshipforupholdingtenfundamentalprinciplesin the area of human rights, labour, and environment protection. 2000 : UN Millennium Development Goals agreed upon to provide definitive, global list of development targets by2015. 2001 : The New Partnership for Africas Development (NEPAD) was formed to provide a common strategy for African countries to address development issues collectively. 2001 : At the fourth World Trade Organisation (WTO) ministrerialconferenceinDoha,Qatar,anewroundof trade negotiations focused on promoting development. 2002 : World Summit for Sustainable Development at Johannesburgunderlinestheneedofworkingacross sectors of society. 2006 : Amsterdam Global Conference on Sustainability and Transparency 2007 : Growth and Responsibility in a World Economy G8 SummitHeiligendamm,SummitDeclaration 2009 : GRI Amsterdam Declaration on Transparency and Reporting

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CONCEPTANDMEANINGOF SUSTAINABLEDEVELOPMENT
The Brundtland Report defined sustainable development as the development that meets the needs of the present without compromising the ability of future generations to meet their own needs; and suggested that economic development cannot stop, butitmustchangecoursetofitwithintheearthsecologicallimits. The Report captured many of the concerns when it said major, unintended changes are occurring in the atmosphere, in soil, in water,amongplantsandanimals.Natureisbountifulbutitisalso fragile and finely balanced. There are thresholds that cannot be crossed without endangering the basic integrity of the system. Today weareclosetomanyof thosethresholds. Sustainable Developmentfocusesonimprovingthe qualityoflife foralloftheearthscitizenswithoutincreasingtheuseofnatural resourcesbeyondthecapacityoftheenvironmenttosupplythem indefinitely. It requires an understanding that inaction has consequences and that innovative ways have to be found out to changeinstitutionalstructuresandinfluenceindividualbehaviour. Itisabouttakingaction,changingpolicyandpracticeatalllevels, from the individual to the international. This landmark report helped trigger a wide range of action including the UN Earth Summits in 1992 and 2002, the International Climate Change Convention and worldwide Agenda 21 programmes, all of which underlined the need for sustainabledevelopment. Each generation is entitled to the interest on the natural capital, and the principal should be handed over unimpaired. In other words, development should ensure utilisation of resources and the present day environment should not damage prospects for the use by future generations. Living should be on the earths income rather than by eroding its capital. It means keeping the consumption of renewable natural resources within the limits of their replenishment; andhanding downtosuccessivegenerations notonlymanmadewealth,butalsonaturalwealth,suchasclean and adequate water supplies, good arable land, a wealth of wild life and ample forests. In 2012, the United Nations convene the United Nations Conference on Sustainable Development (UNCSD) at Rio de Janerio(Brazil)alsoreferredasRio+20asa20yearfollowupto 17

thehistoric1992RiodeJanerioEarthSummit.Theobjectiveofthe Summitistosecurerenewedpoliticalcommitmentforsustainable development, reviewing progress and remaining implementation gaps and assessing new and emerging challenges. The Summit will also try to address the issue that how a green economy can contribute to the sustainable development and poverty eradication. The quality of future human activity and development is increasingly dependent on maintaining balance between continued economic and social development without detriment totheenvironmentandnaturalresources. SustainableDevelopment isbased onthe principlesof: Concern for the well being of future generations; Awareness of the multi dimensional impacts of any decision(broadly categorised as economic, environmental and social);and Need for balance among the different dimensions acrosssectors, themes and scales. The SIGMA guidelines states that creating a sustainable future economically, socially and environmentally requires that the actions of governments, organizations and individuals do not cause irreparable damage to the environment and to society, which would threaten the longterm survival and wellbeing of the planet and its people. Sustainability in the context of organizations encompasses the social, environmental and economic impacts of a business or other organization. These impactsarejudgedintermsoftheextenttowhichtheycontribute tosustainabledevelopment.

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SUSTAINABLE DEVELOPMENT ANDBUSINESS

CORPORATESOCIALRESPONSIBILITY

Businessmustmakemoneyandstayinginbusinessandprospering is a fundamental value of any forprofit enterprise. Companies therefore owe responsibility to their shareholders for improving profitability and enhancing shareholder value. At the same time, companies are required to take into account the interests of all their stakeholders that include customers, employees, investors, vendors, government and the society. It is in this context that Corporate Social Responsibility (CSR) assumes a significant role. CSR is underpinned by the idea that companies can no longer act as isolated economic entities in detachment from broader society. Traditional views about competitiveness, survival and profitability are undergoing a paradigmshift. The drivers pushing business towards CSR are: Shrinking Role of Government In the past, governments have relied on legislation and regulations to deliver social and environmental objectives in the business sector. Shrinking resources of the governments coupled with a distrust of regulations have led to the exploration of voluntary and nonregulatory initiativesinstead. DemandsforGreaterDisclosure There is growing demand for corporate disclosure from stakeholders, including customers, vendors, employees, investors, communities and activist organisations. IncreasedCustomerInterest Thereisevidencethattheethicalconductofcompaniesexerts agrowinginfluenceonthepurchasingdecisionsofcustomers. In a recent survey conducted by Environics International1, morethanoneinfiveconsumersreportedhavingeither

1AninternationalpollingfirmnownamedGlobescan.

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rewarded or punished companies based on their perceived socialperformance. GrowingInvestorPressure Investors are changing the way they assess companies performance, and are making decisions based on criteria thatincludeethicalconcerns. CompetitiveLabourMarkets Employees are increasingly looking beyond paychecks and benefits, and seeking out employers whose philosophies andoperatingpracticesmatchtheirownprinciples.Inorder to hire and retain skilled employees, companies are forced toimprove working conditions. SupplierRelations As stakeholders are becoming increasingly interested in business affairs, many companies are taking steps to ensure that their vendor partners conduct themselves in a socially responsible manner.Some are introducing codes of conduct for their vendors to ensure that other companies policies andpracticesdonottarnishtheirreputation. Growth of a company requires the cooperation of all the stakeholders. To ensure this cooperation, the management of a company needs to act as trustees of the shareholders at large and prevent asymmetry of benefits between various sections of shareholders especially between ownermanagers and the rest of the shareholders. It also has to be fair and transparent to all stakeholders in all transactions.

CORPORATEGOVERNANCE
In this regard corporate governance forms a key element of CSR. Good Corporate Governance helps ensure that a company takes into account the interests of a wide range of constituencies, as well as of the communities within which it operates.While large profits can be made taking advantage of the asymmetry between stakeholders in the short run, balancing the interests of all stakeholders alone helps to ensure survival and growth in the long run.This includes, for instance, taking into account societal concernsaboutlabourandtheenvironment. The credibility offered by good corporate governance helps maintain the confidence of investors foreign and domestic to attract more patient, longterm capital and reduce the cost of 20

capital. This ultimately induces more stable sources of financing. Recently, stock market analysts have acquired an increased appreciationforthecorrelationbetweengovernanceandreturns. TheEastAsianfinancialcrisishasbroughtthesubjectofcorporate governance to the surface in Asia. Further, recent scandals, that disturbed the otherwise placid and complacent landscape in the US, spawned a new set of initiatives in corporate governance in theUSandtriggeredfreshdebateinAsia.Additionally,thethrust giventoglobalisation,settingupoftheWorldTradeOrganisation (WTO)andeverymemberofWTOtryingtobringdownthetariff barriershaveputgreaterimportancetocorporategovernancethan everbefore. When investments take place in emerging markets, the investors wanttobesurethatnotonlyarethecapitalmarketsorenterprises withwhichtheyareinvesting,runcompetentlybuttheyalsohave good corporate governance. Corporate Governance represents the value framework, the ethical framework and the moral framework under which business decisions are taken. CorporateGovernance,therefore,callsforthreefactors: Transparencyindecisionmaking Accountability which follows from transparency because responsibilities could be fixed easily for actions taken or nottaken,and Accountability for safeguarding the interests of the stakeholders of the company. Corporate Governance initiatives in India began in 1998 with the Desirable Code of Corporate Governance a voluntary code published by the Confederation of Indian Industry and the first formal regulatory framework for listed companies specifically for corporateGovernance,wasestablishedbytheSecuritiesExchange Board of India (SEBI) in February 2000 following the recommendations of the Kumarmangalam Birla Committee Report.

CORPORATEGOVERNANCEAND SUSTAINABLEDEVELOPMENT
As part of good corporate governance, the management of a company needs to understand and recognise sustainable development means conducting business in a way that meets the 21

needs of the enterprise and its stakeholders today, while protecting, sustaining and enhancing the human and natural resourcesneededtomorrow. As good corporate citizen, a company should not only be respecting the laws of the countries in which it operates, but also aim to: Make the communities in which it works better places to liveand do business; Be sensitive to the local communities cultural, social and economicneeds; Protect and preserve the environment where it operates;

REALISATIONOFSUSTAINABLE DEVELOPMENTAPPROACHINBUSINESS
The late 1990s and early 2000s were turbulent periods for the global investment community, with vast amount of shareholder wealth being created and destroyed. Both the institutional and retailinvestorshavelearntsomepainfullessons,reexaminedtheir assumptions about what constitute tangible and intangible value, and broadened their scope to consider characteristics that could lead to long term financial success. One area of corporate performance that has begun to capture the Attentionofinvestment professionals is Sustainable Development:asetof responsibilitiesthat contributesdirectlyto an orgnisations risk management profile and is sometimes also linked with corporate responsibility. There is considerable evidence that sustainable development contributes to shareholder value in a variety of ways not only through tangible contribution such as risk reduction and profitability improvements but also through intangibles such asbrandequity,humancapitalandstrategyexecution. In the wordsofGaryM.Pfeiffer,SeniorVicePresidentandChiefFinance OfficerofDuPonteverycorporationisunderintensepressureto create everincreasing shareholder value. Enhancing environmental and social performance are enormous business opportunities to do just that. The investment community increasingly recognised the importance of intangibles in the shareholder value equation. Leadership, strategy execution, brand, human capital, 22

environment and health performance are all currencies in todays market place. A report on the Intangibles Economy to the EuropeanCommissionnotedthatIntangiblessuchasresearch& development, proprietary knowhow, intellectual property and workforceskills,worldclasssupplynetworkandbrandsarenow thekeydriversof wealth production while physical and financial assets are increasingly regarded as commodities. The International Accounting Standards Board (IASB) defines an Intangibleasanidentifiable,nonmonetaryassetwithoutphysical substance help for use in the production of goods or services, for rentaltoothersorforadministrativepurposes.Thus,Intangibles include people, relationships, skills and ideas that add value but are not traditionally accounted for on the balance sheet. The Sustainable Development approach to conduct business can strengthen acompanys intangible assets in a number of ways thatinturnleadtotangibleshareholdervaluecreation.Themany pathwaystoshareholdervalueareillustratedinthefigurebelow: Figure1: Overview of Pathways Linking DevelopmenttoShareholderValue

Sustainable

ProductandProcess Innovation ReducedWasteand Emissions EfficientUseof Resources

Tangible Outcomes

Increased Profitability ImprovedCapital Utilisation

Share holder Value

IntangibleAssets

OccupationHealth andSafety Stakeholder Engagement

CustomerSatisfaction IntellectualCapital LicencetoOperate ReputationandBrand Image ReducedRisk Community QualityofLife

Employee Satisfaction

Environmental Protection

ValuetoSociety

23

Figure:2 How we enhance the value of our Stakeholders through the process of the Sustainability developmentapproach The recent wave of accounting scandals in the United States has led investors and other corporate shareholders to rethink their position of just what is fundamental to the valuation of a company.Thereismountingevidenceoffinancialrisksassociated not only with corporate environmental liabilities, but of global problems such as climate change. The stock market analysts are graduallybecomingawareoftheimportanceofmeasurementand disclosure of nonfinancial elements of a business. For example, upto86%ofoilandgasindustryanalystssurveyedrecentlyinthe United States confirmed that company performance in regulatory compliance, employee health and safety, community service, and law suits do indeed impact the value of a firm.The financialexecutiveLindaDescanoofCitigroupnotedtheseissues are no longer environmental and social issues but are now recognised as strategic business issues. 24

Leading companies now recognise that meeting a range of global challenges, such as protecting the environment and alleviating poverty, is essential to their long term business success. The business needs to build new relationships with key stakeholders increasetheretentionofqualityemployees,developnewmarkets, increase operational efficiency and promote better risk management.CarlyFiorina,theChiefExecutiveOfficer(CEO) of Hewlett Packard observed we now must enter a period of enlightenedselfinterestwherecommunitydevelopmentobjectives arenotseenasseparatefrombusinessobjectives,butfundamental to business objectives. Collaboration among business, government and civil society is an essential way to deal with these issues that increasingly affect business.AsKofiAnnan,SecretaryGeneraloftheUnitedNations, sayscreatingwealth,whichisbusinesssexpertiseandpromoting human security in the broadest sense, the United Nations main concern are mutually reinforcing goals. Thriving markets and human securities go hand in hand.The world of hunger, poverty and injustice is one in which markets, peace and freedom will nevertakeroot.Theseissuesrequiresocialsolutions. Examples of crosssector collaboration include gaining an understandingofspecificsocialissuesatthelocallevel;developing lowcost technologies or business training programmes for local entrepreneurs and small and medium enterprises; establishing independentcertificationbodiestoensure sustainable managementofnaturalresourcessuchasfisheriesstocksorforests; andencouraginggovernmentstoestablishinternationalregulatory frameworks needed to handle global issues such as climate change. StrategicApproachtoembeddingSustainability Todaythemostcriticalchallengefacingbusinessandsocietyisto tackle various environmental economical and social challenges and therefore there is a need for all organization to embed sustainability in their organization. Accounting for Sustainability (A4S) identified ten important elements required to embed sustainabilitysuccessfullyinanorganization.Theseare: Board and Senior Management Commitment Senior Management needs to be committed to the process of embedding sustainability. A Committee may also be establishedtoidentifyandaddressenvironmentalandsocial issues. 25

Understanding and analyzing the key sustainable drivers for theorganizationTheissuesand driversforembedding sustainability varies according to the context in which a particular organization operates. Therefore it is very important for each organization to determine which sustainability areas are most important for it and to understand how sustainability in these areas affect reputation,brandandrelationshipswithkeystakeholders. Integrating the key sustainability drivers into the organizations strategy Having identified the key sustainabilityissuesfortheorganizationandquantifiedtheir impact to the greatest extent possible, it is important that they are incorporated and reflected in the organizations strategy as an integrated and connected part of the whole, ratherthanasstandaloneissuesandobjectives. Ensuring that the sustainability is the responsibility of everyoneintheorganizationandnotjusttheresponsibility of a specific department It is essential that the connection between sustainability measures and the organizational performance is understood and that sustainability is embeddedinmainstreammanagementprocesses. Breakingdownsustainabilitytargetsandobjectivesforthe organization as a whole into targets and objectives which are meaningful for individual subsidiaries, divisions and departments There have to be effective mechanisms for translatingstrategyandtoplevelenthusiasmintothedayto dayoperationsoftheorganization.Itisessentialthattargets andobjectivessetfortheorganizationasawholearebroken down into targets and objectives which are meaningful for individualsubsidiaries,divisionanddepartments. Processesthatenablesustainabilityissuestobetakeninto account clearly and consistently in day to day decision makingSustainabilityfactorswillnotbetakenintoaccount bythemiddlemanagersandothersunlesstheyaregiventhe authority,processesandinformationtobeabletodoso.For example, in setting a target for the reduction of greenhouse gasemissionsduringtheproductionanduseofaparticular project, the manager concerned will not be able to respond meaningfully unless information about greenhouse gas emissions at each life cycle stage is given and unless he or she is able to balance the cost of reducing emissions with 26

otherfactorssuchaspricing,qualityandavailabilityofraw material supply. It is therefore important to ensure that the relevant information and decision making processes are available to those having to take sustainability issues into account. Extensive and effective sustainability training Creating a culture of sustainability begins with staff throughout the organization. Training is very important in this regard as it will help in creating awareness within the employees that whatsustainabilitymeansforthemandhowtheyshouldact. Including sustainability targets and objectives in a performance appraisal It is essential that sustainability issues are reflected fully when setting objectives, assessing andremuneratingstaffandconsideringpromotions. Champions to promote sustainability and celebrate success In order to embed sustainability successfully there need to be people who understand the issues and have the capacityforchangeateverylevel.Inotherwordschampions needtobeidentifiedwhocanbeencouragedandreliedupon tousetheirpassionandcommitmenttoembedthestrategy. Fromtheboardofdirectorsdowntothelowestlevelswithin the organization there should be active involvement with sustainability issues to influence thinking and behaviour throughout the organization. Celebrating success and showcasing good practice can also encourage further innovation and provide case studies from which others can learn. Monitoring and reporting sustainability performance Accountantsareinclinedtosaythatifitisnotmeasureditis not done and reporting sustainability performance in internal and external accounts is essential. Sustainability measures need to be reported in a way that is part of and connected to the other key measures, financial and general, which inform performance evaluation. Measuring sustainability factors and establishing them at the heart of decision making ensures that sustainability is embedded in thedayto daylifeoftheorganization.In order tomaintain support for sustainability improvements it is necessary to demonstrate how the organization has benefited from the changesmade.Thisrequiresmonitoringandreporting back onprogressinachievingsustainabilitypriorities. 27

CASESTUDIES
There are instances across the world and in India of several companies adopting sustainable development approach for conductingtheirbusiness.Afewsuchexamplesaresetoutin the succeeding section of this chapter.

EXAMPLE 1: THE WELCOMGROUP BAY ISLAND HOTEL

AGreenModelforEcoTourism
The Welcomgroup Bay Island (WGBI) hotel, owned and operated by ITCWelcomgroup, is located in Port Blair in the Andaman Islands. The WGBI hotel has created a new green model to operateinanecoresponsiblemannerandtocreateanecotourism model for the island.This model could eventually be replicated, with regional nuances, by the Welcomgroup chain and the entire industry. In order to do this the WGBI hotel first modified its objective to state the following: We are in the business of providing room, food, beverage and ecoknowledgetoourhotelguestsand everybodyintheislands. In developing the new green model the WGBI hotel concentrated on four Rsstrategy: Reduce, Reuse, Recycle and Rethink systems, procedures and policies. It addressed the issues by adopting innovative strategies. An internal green strategy was initiated because hotel employees believed that they must practise what they preached and the programmestartedfromendof1988.Thehoteladdressedissues rangingfromwater,soil,waste,paperetc.inacreativemanner.

WaterManagement
PortBlairhadamajor water crisis in1991whenitsfilteredwater supplies were reduced from 8 kilolitres to 2 kilolitres per day.To run its business the WGBI hotel replaced all interior piping with plastic pipes to avoid corrosion, so that the clean salt water from the sea could be used for flushing toilets, thereby reducing the demand on filtered water supplied by the municipality. It also dugawelltoharvestrainwaterforgardeningduringthesummer season. In the process, there has been saving of water and saving of energy. 28

SoilManagement
The hotel being located on the slope of a hill, soil erosion is a frequent problem.To combat this issue cost effectively the hotel used the outer husk of the coconut or coconut coir, which lie on the island as garbage. This has two advantages. Coir being biodegradable is environmentally friendly and as no longer land fillingisrequired,itisalsofinanciallycheap.

WasteManagement
The hotel adopted a twin approach to reduce waste. Initially,touristswentforsightseeingtripstotheotherislandsof Port Blair with lunches packed in cardboard boxes.These boxes were invariably left behind on the islands thereby creating a garbage problem a veritable visual assault.The hotel replaced cardboard boxes with steel lunch boxes.Users have to return the boxesorpayafine.Thesystemeliminatedrecurringcostofbuying cardboard boxes and reduced the garbage levels on the other islands. Besides,insteadofdisposingofusedcookingoilinthedrain,the hotel converted this cooking oil into soap, which is used for washing utensils. This has reduced effluent levels in the water and saves the hotel from having to purchase washing powder.

Paper Conservation
Allolddocumentsoftheaccountsdepartmentaresegregatedinto benign and confidential lots.The confidential lots are shredded, mixed with wet garbage and converted into fertilizer for use in thehotelgarden.Theotherdocumentsareconvertedintoscratch paper for internal use. The paper caps used by chefs are replaced with cloth caps.The brown paper used as lining in the drawers of writing desksin every room are replaced with velvet.Bytakingtheseactions,the hotel reduced the usage of paper pulps in order to lessen deforestation rates. Further, to build awareness around this subject,thehotelstartedanafforestationprogrammein Port Blair by planting 1500 saplings in the airport complex.

Poverty
Povertyisoneofthebiggestpolluters.TheWGBIhotelcreateda transferable model in this area. The WGBI hotel adopted one of the poorest orphanages on the islandsandprovidededucationalmaterialsaswellastheservices 29

of the hotel carpenters, plumbers and electricians.Children aged 14 to 16 years are given vocational training in the hotel for ten hoursaweekduringfourmonthstoequipthemwithmarketable skills when they leave the orphanage.

EcoTourismMuseum
Additionally, the hotel has created a small ecotourism museum onitsgroundstoeducatepeopleaboutenvironmental degradation.

Results
Through its efforts, the hotel has gained cost, image and operational advantages and has since become a pioneer in eco responsible chain in India.

EXAMPLE2:LAFARGEINDIA
ProjectEmployabilityModel
LafargeIndiaisasubsidiaryofLafargeGroup,theworldslargest cementproducerandaleaderinbuildingmaterials.LafargeIndia launcheditsoperationsinNovember1999withtheacquisitionof Tata Steel Cement and later Raymond Cement. By 2004, Lafarge India augmented its capacity to 5 million tons of cement and is the market share leader in eastern India.Lafarge India has about 1,500 employees operating three cement manufacturing plants in India. Thecompanysmainstakeholdersare: Theyouth population residing in the vicinity of the plants aswell as in the operating markets; Customers who are using Lafarge Cement for building homesandotherstructures; Government,whichlookstocompaniestoplayarolein reducingunemployment; NonGovernment Organisations (NGOs) which are active in underdeveloped rural areas and are actively seeking effectivemethods of community development; Shareholders, the edia and future employees who would prefer to invest in and work for a company which is a responsible corporate citizen, as well as a preferred communitypartner; Currentemployeeswhohavethetalentsandskillstohelp 30

the company succeed and are keen to share them with society.

TheLocalCommunities
LafargeIndiasplantsarelocatedinremoteareasineasternIndia. part of the neighbouring communities belong to the nderprivileged class facing difficult socioeconomic constraints, uch as poor access to infrastructure, including health care and anitation facilities. This part of the population also suffers from low income, scarce opportunities and semiilliteracy, as well as lowwomensempowerment.Alargepercentageofthepopulation isunemployedandmostlyarecasuallabour.Amajorityisunder the age of 30. Manydwellingsarehuts,whicharedilapidatedandbyandlarge unlivable. There islack of ruralsanitation facilities. Safedrinking waterisnotavailableandirrigationishighlymonsoondependent. This is combined with fewer roads than in metropolitan areas and poor quality schools coupled with underdeveloped health and hygiene systems. Lafarge has the resources and talents available to tackle some of these issues, for example, transforming the youth population by makingthemmoreemployable.Lafargehasthepotentialtoassist them to acquire skills and knowledge, and thereby increase their incomelevel.Reducingunemploymentlevelswouldinturnlessen potential conflicts and create a foundation for a healthy, long term and mutually beneficial relationship betweenthe company andthecommunity.Lafargecancreateemploymentopportunities throughitscontactsintheconstructionsector,alargeemployerof masons, as most of them buy its cement. Additionally, establishing a situation where social conflict is reduced would boost Lafarges licence to operate. It is well established that business prosperity amidst largescale poverty and difficult socioeconomic situations is difficult to maintain. The absence of sustained sources of income combined withloweducationlevel andothersocialthreatshavecompelled theneighbouringcommunitiestoexpectLafargeplantstoprovide employment. When employment is not provided, this creates conflict and affects the companys longterm operations. Hence, Lafarge firmly believes that it has to play a critical role both as direct development project implementer as well as a catalyst to bringprosperitytothecommunitiesinwhichitoperates,especially those neighbouring its plants. 31

TheMarkets
Untrained, semiskilled or unskilled masons and a lack of safety norms and practices characterize the Indian construction sector. This translates into high construction costs andlack of adherence to safety rules at the sites. Poor workmanship often results in unsatisfied customers. Masons are also known to be powerful influencers, especially in rural areas where architects and engineers are either not available or not affordable. While individual homebuilders consume 80% of Indias cement production,alargepartoftheruralpopulationlivesinnoncement houses, which tend to be unsafe and uncomfortable. One of the primary reasons for this is the absence of skilled manpower and low awareness of the quality of cement houses. If Lafarge is able to reach the rural markets and provide them with skilled manpower, the overall cement market would expand which is meaningfultothecompany.

Employees
Lafarge India has a pool of qualified engineers and technicians, as well as experienced marketers and seasoned training rofessionals. Many of these employees look towards Lafarge to help them share their experience and expertise with society. This motivates the employeesand make them feel part of the larger picture. In this respect, one area where Lafarge aims to make a ifference is through the creation of a group of corporate olunteers who could take on development projects on behalf of Lafarge and share their expertise with the society in a fulfilling manner. Another opportunity is to increase employee motivation and influence future generations through word of mouth, projecting Lafarge as a preferred company to work for.

Opportunities
LafargeIndiaisturningthecurrentsocioeconomicclimateintoa business opportunity. By providing professional training to youths as masons and helping them gain employment in the construction sector, Lafarge aims to reduce unemployment and increase income levels to a consistent US$ 23 a day. These two improvements in the lives of local population aim to reduce the socioeconomic ills prevalent locally and significantly diminish the chances of conflict within the society. Atthesametime,Lafargewouldsupplytheconstructionmarkets with skilled and trained masons, providing technical superiority 32

and safe and quality workmanship, which benefits the customer byloweringcosts,andbenefitsLafargethroughincreasedsales volumes.

Targets
In India, Lafarge aims to: Provide training to 700 rural unemployed youths residingarounditsthreeIndianplantsandinitsmarkets tobecomeskilledandqualifiedmasons; Ensure that 75% of the candidates find suitable employmentonconstructionsitesatanincomeofUS$23 perdayonaconsistentbasis; Launch rural housing schemes, including slum rehabilitation, which would employ the same masons and increase cement consumption levels, especially those of Lafarge Cement; Ensurethattrainingmethodologyalsoincorporatesspecific Lafarge modules, exposing masons to Lafarges products and processes, thereby making them longterm brand ambassadors.

Activities Toreachthesetargets,Lafargehascreatedapartnershipwiththe Institute of Engineers, a reputed technical training institute in India.Throughthispartnership,fiveLafargemanagersactas corporate volunteers during a twomonth training course called Project Employability. The volunteers are drawn from various disciplines (customer service, quality, sales & marketing, training) and are responsible for developing the project, creating goalsand working methodologies. The Institute of Engineers continuouslyevaluatesthecourse,providesthemethodology structure,coursecontentandisresponsibleforevaluating students for certification. The courseentails theoryand practical classes.Thecandidatesarerequiredtobuildalowcosthouse duringthepracticalexercise. ThecoursealsoincludesavisittoLafargefactoriestobetter understandLafargeproductsandprovideexposuretocement manufacturingprocessesingeneralandthequalityofLafarges processesinparticular.Italsoincludesmotivationclasseswith examplesoflocalrolemodelswhohaveachievedsignificant improvementintheirqualityoflife.Duringthecourse,managers from construction companies (who are often Lafarge customers) 33

are regularly invited to the site to build awareness and evaluate employmentopportunitiesforthecandidates. Thefirsttrainingcoursewaslaunchedon19May2004,in Khakripara,avillagenearthecompanysJamshedpurCement PlantinJharkhand.56ruralyouthswereselectedfortraining, basedoninitialscreening,proximitytotheplant,andother criteria.Apreferencewasgiventothosewhohadmodest exposuretoarithmeticandthezealtobecomepartofatrained workforce. Attheendofthefirsttrainingsession,thestudentswereevaluated usingthecriteriaoftheInstituteofEngineersandawardedgraded certificates as well as identity cards. An on campus recruitment drive was organised which saw all 28 qualified candidates find a job in the construction sector within months of graduating. This factor has made the course very successful. The five corporate volunteershaveacceptedthetaskofmentoringthecandidates during the following 12 months. The mentoring process includes oneonone sessions and awareness building camps.

Results
Theresults oftheprogrammehavesofarbeenexcellent: All 28 candidates who passed the examinations have foundemploymentwithLafargecustomers; Widespread coverage of the programme by local media gaveLafargeafavourablecorporateimage; Lafarges customers have appreciated this step and agree thatthe project should be continued.

EXAMPLE 3: SHELL FOUNDATION

SearchingforSustainableSolutionstoIndoorAirPollution

IndoorAirPollution(IAP)killsmorethan1.6millionpeopleeach yearonepersonevery20secondsandsometwobillionmore are at risk. It kills more people than malaria and nearly as many asunsafewaterandpoorsanitation.Itisthefourthlargesthealth threat to women and children (in the worlds poorest countries) afterwaterbornediseases,malnutritionandHIV/AIDS. The smoke from open fires fills homes with a noxious cocktail of particlesandchemicals,often100timesaboveagreedinternational exposure standards. These particles double the risk of respiratory diseases such as bronchitis and pneumonia. Recent research also 34

points to links between IAP and low birth weight, increasing the vulnerability of the newborn. In October 2004, the World Health Organisation (WHO) and the UnitedNationsDevelopmentProgramme(UNDP)labelledIAP the Killer in Kitchen. IAP is also part of a wellknown poverty chain (the poor, not able to afford cleaner commercial fuels, must spend many hard hours collecting freebiomass fuel) whose indirect costs on time and health are enormous. Cleaner fuels such as electricity and gas have not reached remote developing markets because of high equipment and distribution costs. But access to cleaner fuel and stoves, improved ventilation and health education could all work in tandem to benefit even the very poorest.

TheShellFoundationapproach
ForthesereasonsandbecauseIAPisthemostseriousenergyand povertyrelatedhealthproblem,theShellFoundationhas committedUS$10milliontotackleIAPthroughitsHousehold EnergyandHealthProgramme,brandedasBreathingSpace. BreathingSpacesapproachistoidentify,testandthenideally diffusemarketbasedschemesforgettingkillersmokeoutof verylargenumbersofverypoorpeopleskitchens.Underthis programmesupplyanddemandsideinterventionsbasedon businessandmarketprinciplesarebeingpilotedineight developingcountries.

ANewCustomerValuePropositionNeeded
Anewgenerationofstoveshasbeendesignedtoeffectivelyreduce emissions,buttheyaresignificantlymoreexpensivethanthe lowercostefficiencystoves,increasingthebarrierstoaccess forpoorercustomers.Insomecasestheseimprovedbiomassstoves are more expensive than liquid petroleum gas (LPG) stoves. But LPG as a fuel is often not available in rural areas. The combined effectoftheseproductlimitationsandthelowavailabilityof desiredalternativesisthatthereisoftenaverypoorcustomer valuepropositionfornewstovesandfuels.Consequently,demand is low and marketing costs are high. Againstthisbackdrop,theShellFoundationreasonedthatby successfullydemonstratingthattheremightbeatleastpartially marketbased approaches to tackling IAP, it might be possible to breaktheviciouscycleofineffectiveinternationaldevelopment communityinterventionsbybetterunderstandingandtackling 35

themarketbarriers.Thisinturnmightprovidetheimpetusto attractsufficientdonorand/orprivatesectorinteresttoengage inanavoidablepovertyproblemthathasprobablycaused40 million unnecessary deaths over the last 20 years.

Partneringtofindsolutions
TheShellFoundationstarteditsworkwithastakeholder consultation and a typical donor Request for Proposals (RFP), askingforpotentiallycommercialisableandscaleablewaysof tacklingIAP.TheRFPattractedabout140proposals,primarily from NGOs, of which most addressed the IAP issue but failed to understandwhattheFoundationmeantbycommercialisableor scalable solutions to IAP. Thenexttaskwasthentosetuppilotprojectswithsomevery goodNGOpartnersinanumberofcountriestosystematically explore different marketbased IAP solutions. These included the developmentandsaleofcleanerstoves,cleanerfuels,useof consumerfinanceonamicrocreditmodel,consumereducation andreducingcoststhroughmassproductionanddistribution, etc. Key Actions for the Pilot Phase Throughthesepilotprojects,theShellFoundationanditspartners have tried to learn whether: ThetargetmarketruralhouseholdssufferingfromIAPhas aninterest,willingnessandabilitytopayforIAPsolutions; The improved products really reduce IAP exposure; Therewassomeformofbusiness,manufacturing,financing and distribution model that could produce and market appropriate and affordable IAP products to verypoorhouseholds. In parallel, the Foundation carried out a systematic review of the only two largescale household energy programmes in the world: the National Improved Chulha Programme in India and the NationalImprovedStoveProgrammeinChina.Lessonsfromthese twoprogrammeshavebeenextremelyvaluableindeveloping Shellsapproach,bothintermsofwhathasworkedandwhat has not. In both cases the programmes were highly subsidised buthadmixed resultsinreducing IAP. The China programme is largely deemed a success and has ledtotheestablishmentofathrivingstovemarketaswellas some excellent technical innovations. The Shell Foundation 36

reviewwasthefirstoftheprogrammesincethe1980sandhas brought the China experience to the attention of the international community. In the case of China, the government deemedthesuccessfulcommercializationofstoveproductionand sales a sufficient sign of sustainability in the supply chain. In India and China some state level government agencies have continuedtheprogrammes. MoreThanMoney In addition to providing financial resources to the pilot projects, ShellsBreathingSpaceprogrammehadthreefeatures: The provision of significant technical and business assistance to partners through intensive handson engagement by foundation staff, local Shell staff and financeandbusinessconsultants. Separately funded complementary activities designed to answer key developmental and commercialisation questions raised by the pilot projects. These included development of a standardised monitoring methodology to assessthekeyactionsdescribedabove. The development of a second set of tools for market demand assessment, supplychain research, developmentandsustainablefinancing.

Results
Todate250,000householdshavebeenremovedfromriskthrough efforts in getting smoke reducing products to poor households. Thisfigurewouldrisetomorethanamillionbytheendofthe pilot phasein 2005 ata total costofUS$ 7million.Althoughthis is the first systematic IAP intervention ever mounted on a global scale,itisstilllimitedcomparedwiththeextentoftheproblem. However,anumberoftheinterventionstestedarerobustenough totaketoscale.NextstagescaleupsunderwayinIndiaand Guatemala,basedonfinanciallyviablebusinessmodels,are targeting three million households. By2008,usingtheShellFoundationsownresourcesasinvestment capitalandsmartsubsidiesprovidedbyotherinternationaland Nationalorganizationsthrough government and non governmental development programmes, the target is to get 10 million households out of risk. In parallel, they are exploring the feasibilityofbuildingstrategicpartnershipsandsettingup 37

financiallyviableinterventionmechanismsattheinternational andnationallevel.

IndiasSmokelessVillage
ThewomenintheIndianvillageofKhanav,southofMumbai, haveturnedtheircommunityintoasmokelessvillage.These women, led by the village selfhelp group, do not want to cough and wipe smoke from their red eyes each time they cook. Nordotheywanttospendhourscollectingwoodfrom surroundingfields. Thelocalselfhelpgrouplendsmoneytovillagehouseholdsso thattheRs.300(US$7)costofanimprovedstovecanbepaid back over months. The richer households subsidise even the very poorest villagersmostly migrant workers so the smokeless villagegoalisachieved. Theselfhelpgrouphasalsodemonstrateditsentrepreneurialflair by showing how village women can use the time once taken up by finding wood to be more productive and raise incomes. The villagehasplanstousethecommunityhallasaworkshopfor producinghandicrafts. InterestofBusinessinSustainableDevelopment With growing global interest in sustainable development during thelasttwodecades,businessalsorecognisedtheneedandits roleinthisregard.Somesignificantrecentinternationalevents in this connection are outlined below: 1994 : Majorcompaniesbegintoreportvoluntarily onenvironmentalperformance

1996 : Avoluntaryinternationalstandard(ISO14001) for corporate environmental management systemwasformallyadopted. 1999 : Reverend Sullivans2 corporate governance principles for South African companies were so successful that they were relaunched for companies operating globally. 2000 : Corporate signatories to the UN Global Compact3 pledges to uphold 9 (later 10) fundamental principles in the area of human rights, labour rights and environmentalprotection. 2001 : The European Unions green paper on Corporate 38

Social Responsibility (CSR) affirms the European Communitys increasing political importance of CSR by creating a regional framework for implementationofCSRpractices. 2002 : The banking industry agrees on a framework to assessenvironmentalandsocialriskswhenfinancing projects.

2004 : The worlds largest ever gathering of leaders from business,governmentandcivilsocietymeet atGlobalCompactLeadersMeeting 4 to discuss crosssectorcollaboration. 2006: Third version of GRI Guidelines known as G3 Guidelineswaspublished 2008: Financial Statements Act requires CSR disclosure for largebusinesses(Denmark) 2010: ISOconcludedanewinternationalguidancestandard onSocialResponsibility(ISO26000) : CERES published The 21st Century Corporation: The CERES Roadmap for Sustainability that sets out 20 expectations for sustanability that needs to be addressed to achieve a comprehensive and coherent sustainablebusinessstrategy
2 Born and raised in Charleston, West Virginia, Leon Sullivan became Pastor ofZionBaptistChurch in urban Philadelphia in 1950. Later in 1971 he joined General Motors Board of Directors and becamethefirstAfricanAmericanontheBoardofamajorcompany.In1977hedevelopedaCodeof Conductforcompanies in South Africa. 3 UN Global Compact is an international initiative of the UN Secretary Generaltobringcompanies togetherwithUNAgencies,labourandcivicsocietytosupportuniversalenvironmentalandsocial principles. 4 TheGlobalCompactleadersmeetonJune24,2004chairedbyUNSecretarytook stock of the Global Compact and charted its future course.

39

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3 PRINCIPLESANDPRACTICESFOR SUSTAINABLE DEVELOPMENT APPROACH

SUSTAINABLEDEVELOPMENTAPPROACH

Asdiscussedinthepreviouschapters,themostcommonly accepteddefinitionofsustainabledevelopmentisthatprovided bytheBrundtlandCommissionin1987developmentthatmeets theneedsofthepresentwithoutcompromisingtheabilityoffuture generationstomeettheirownneeds.Sustainabilitytherefore meansastateofoperationwherebyacompanymeetsthethree corerequirementsforsustainabledevelopment:ecological sustainability, economic equity and social inclusion. Itisnowgloballyrecognisedthatsustainabledevelopmentmakes good business sense. This entails various approaches. For example, ecoefficiency is based on a common sense proposition thatreduceswasteandinefficiencyinproductionprocesses,saves moneyandprotectstheenvironmentatthesametime.LifeCycle Analysis(LCA)offersaframeworkforunderstandingmaterial flows and potential impacts involved with providing services or products in a closed loop. Sometimes referred to as cradle to cradle or cradle to grave, LCA looks at an enterprise in terms of input, throughput and output. This helps to identify inefficiencies that drain profit and produce waste including pollutants. Manyoftheseapproachese.g.ecoefficiency,LCA,fullcost accounting, industrial ecology, systemsbased pollution prevention etc. arenewto thebusiness world.Businesseskeen tobenefitfromthetransitiontosustainabledevelopmenttherefore needtopreparethemselvesandhavealongertimehorizonanda broader set of goals than traditional companies.

BUSINESSCHARTERFORSUSTAINABLE DEVELOPMENT
Inthisregard,referencemaybemadetotheBusinessCharter forSustainableDevelopmentdevelopedbytheInternational Chamber of Commerce (ICC). ICC is a nongovernmental 41

organisation having more than 80 years of experience as an internationalbodyrepresentingtheinterestsofbusinessesinall sectors with its membership extending to over 130 countries.It works to promote world trade and investment based on free and faircompetitionandtoharmonisetradepractices. TheBusinessCharterforSustainableDevelopmentprepared by ICC incorporates sixteen principles.These are: 1. CorporatePriority To recognise environmental management as among the highestcorporateprioritiesandasakeydeterminant to sustainable development; and to establish policies, programmes and practices for conducting operationsinanenvironmentallysoundmanner. 2. IntegratedManagement To integrate these policies, programmes and practices fully intoeachbusinessasanessentialelementofmanagementin all its functions. ProcessofImprovement Tocontinueimprovecorporatepolicies,programmesand environmentalperformancetakingintoaccounttechnical developments,scientificunderstanding,consumerneedsand community expectations, with legal regulations as a starting point. EmployeeEducation Toeducate,trainandmotivateemployeestoconducttheir activities in an environmentally responsible manner. PriorAssessment Toassessenvironmentalimpactsbeforestartinganewactivity orprojectandbeforedecommissioningafacilityorleavinga site. ProductsandServices Todevelopandprovideproductsorservicesthathaveno undueenvironmentalimpactandaresafeintheirintended use, that are efficient in their consumption of energy and natural resources and that can be recycled, reused or disposedofsafely.

3.

4. 5.

6.

42

7.

CustomerAdvice Toadviseandeducatecustomers,distributorsandthepublic in safe use, transportation, storage and disposal of products provided;andtoapplysimilarconsiderationstotheprovision ofservices. FacilitiesandOperations Todevelop,designandoperatefacilitiesandconductactivities takingintoconsiderationtheefficientuseofenergyand materials,thesustainableuseofrenewableresources,the minimisationofadverseenvironmentalimpactsofwaste generation, and the safe and responsible disposal of residual wastes. Research Toconductorsupportresearchontheenvironmentalimpacts ofmaterials,products,processes,emissionsandwastes associated with the enterprise and on the means of minimising such adverse impacts.

8.

9.

10.PrecautionaryApproach Tomodifythemanufacture,marketingoruseofproductsor servicesortheconductofactivities,consistentwithscientific and technical understanding, to prevent serious environmentaldegradation. 11.ContractorsandSuppliers To promote adoption of these principles by contractors and supplierstothe enterpriseandrequiring,where appropriate, improvementsintheirpracticestomakethemconsistentwith those of the enterprise. 12.EmergencyPreparedness To develop and maintain, where significant hazards exist, emergencypreparednessplansinconjunctionwit emergency services, relevant authorities and the local community. 13. TransferofTechnology Tocontributetothetransferofenvironmentallysound technologyandmanagementmethodsthroughoutthe industrialsectors. 43

14.Contributing to the Common Effort Tocontributetothedevelopmentofpublicpolicyandto business, governmental and intergovernmental programmes andeducationalinitiativesthatwillenhanceenvironmental awarenessandprotection.

15.OpennesstoConcerns Tofosteropennessanddialoguewithemployeesandthe public,anticipatingandrespondingtotheirconcernsabout thepotentialhazardsandimpactofoperations,products, servicesandwastes. 16.ComplianceandReporting Tomeasureenvironmentalperformanceandconductregular assessmentofcompliancewithrequirementsofthecompany, lawandtheseprinciples;andtoperiodicallyprovide appropriateinformationtotheboardofdirectors, shareholders, employees, the authorities and the public.

SUSTAINABLEBUSINESSPRACTICES
However,ensuringthatthevaluesofsustainabledevelopment permeatesthroughoutthecompanyusuallystartsfromthetop management.Bestintentionsaremeaninglessiftheyareonly lodgedinthemindofoneindividual.Changingacompanys culture and outlook requires a contribution from everyone starting from the Chief Executive Officer(CEO) and permeating throughsenior,middle,juniormanagement,staffandallworking as a team. Thestepsthatcanbefollowedtomakethechangehappentowards sustainable development approach in conducting business are listed below: PreparationofMissionStatement A mission statement is a declaration of the goals, principles and operating procedures of a company. Best issued from a committed CEO, the statement should be distributed to all employees and stressed repeatedly. If the employees know that performance will be measured against the stated goals, and are given the resources to achievethem,themissionwould be taken seriously. The CERES principles, issued by the Coalition 44

for EnvironmentallyResponsibleEconomics,couldbea goodsourceofideasforacompanysmissionstatement. TheCERES principles are outlined in Appendix 1. In house waste Reduction and Pollution Prevention Teams Green teams comprising personnel from different departments can be formed to devise effective strategies forimprovement of environmental performance.However, it is vital that the teams have top level support, adequate budgetand ready access to all teams. MaterialsInforming,Employees about Economic, Environmental and Social Trends Informed employees are betterequippedtopromote company goals and to respond to major trends. LinesofCommunication Regular staff meetings, email bulletins, accessible superiors and aninhouse newsletter can help maintain linesofcommunication. CommitmenttoCommunityDevelopmentEfforts. Instead of contribution to local communities in cash or cheque, a growing number of companies reckon engagement in more active form of community work is preferredtoattainsustainabledevelopment. CommitmenttoHonestandAccessiblePublicRelations Successfully conveying information about a company to customers, the press, the local community and any one who hasaninterestin whattheenterprisedoes,requiresan upfront approach and clear, understandable language because with knowledge comes familiarity, security and support. Measurement and Reporting on Progress and Performance Internalandexternalcommunicationscanbeusedbya company to report on its progress in achieving social, economical and environmental goals. By developingbenchmarksagainstwhichtomeasureprogress andreportingonsuccessesandfailures,companiescan reinforcetheircommitmenttostatedobjectives;andalert employees and other stakeholders to areas where more effort is needed. 45

AnnualSustainableDevelopmentReport An annual report highlighting progress made towards improving environmental performance and enhancing work place and societal wellbeing may be the best advertisement for a company when read by shareholders,customers,suppliers,employees,investors, regulatorsandmembersofthelocalcommunityandsuch reportcangoalongwaytodemonstrateacompanys commitment to sustainable development, including social responsibility.

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SUSTAINABILITYREPORTING
INTRODUCTION

Asaresultoftheglobalupsurgeofinterestinsustainable development,sustainabilityreportingsystemhasemerged. Sustainability Reporting means reporting on the economic, environmentalandsocial aspects of organizational performance (also known as triple bottom line). It may be clarifiedthatthetermsustainabilitydoesnotmeanthata company is sustainable or that it will continue in existence for any specified period of time.On the other hand, sustainability reportingisdesignedtoprovideinformationonacompanys environmental,socialandeconomicperformanceandimpacts andtheinitiativesforimprovingperformanceintheseareas. The World Business Council for Sustainable Development (WBCSB),acoalitionofabout175internationalcompanies unitedbyasharedcommitmenttosustainabledevelopment, definessustainabilityreportaspublicreportsbycompanies to provide internal and external stakeholders with a picture of corporatepositiononactivitiesoneconomic,environmental andsocialdimensions.

GUIDELINESFORSUSTAINABILITY REPORTING
TheGlobalReportingInitiative(GRI)hasissuedguidelinesfor sustainabilityreportingforcompaniesreportingontheeconomic, environmental and social dimensions of their activities, products andservices. GRIisamultistakeholder,internationalbodywithamission todevelop anddisseminateglobally applicablesustainability reportingguidelines.TheGRISteeringCommitteeconsistingof organisations, such as, the World Business Council for Sustainable Development (WBCSD); the World Resources Institute,USA;CERES;EnvironmentAuditingForum,Japan; Tellus Institute, USA; Centre for Science and Environment, India; United Nations Environment Programme (UNEP); Institute of Chartered Accountants of Canada; etc., has first 47

issued the guidelines for sustainability reporting in June, 2000. Theseguidelineshavebeendevelopedafterseveralyearsof crosssectoralcooperationtoidentifyamethodologyfor reporting on sustainability. As per these guidelines, the reporting relies ontypesofdatathat are oftenalreadycollected forotherpurpose;andaimstogainabetterunderstandingof whatsustainabilitymeansbydevelopingastandardapproach thatallowsforcomparison. The guidelines for sustainability reporting issued by GRI in June, 2000andrevisedsubsequentlyin2006aimstohelpcompanies reportinformation in a way that : presentsaclearpictureofthehumanandecologicalimpact of business, to facilitate informed decisions about investments,purchasesandpartnerships; provides stakeholders with reliable information that is relevant to their needs and interests and that invites further stakeholderdialogue and enquiry; provides a management tool to help the reporting company evaluate and continuously improve its performanceandprogress; promotes transparency and credibility in accordance with wellestablished, widely accepted external reporting principles, applied consistently from one accountingperiodto the next; is ina format easy to understand and facilitates comparison with reports by other companies; complementsotherreportingstandards,includingfinancial; illuminates the relationship among the three linked elements of sustainabilityeconomic, environmental and social. TheGRIGuidelinesdocumentisstructuredinfiveparts: 48 Introduction It describes the trends driving sustainability reporting and benefits of such reporting. UsingtheGuidelines This part sets out the general directions on use of the guidelines.

ReportingPrinciples Thissectionlaysdownprinciples and practicesof reporting. ReportContent This part provides the content and compilation of the report. GlossaryandAnnexes It containsadditional guidance for using the guidelines. Asopposedtofinancialreporting,whichisprimarilyaimed at one principal stakeholderthe shareholder sustainability reporting has a large and diverse audience. In view of the objectives of sustainability reporting and the audience it targets, the GRI Guidelines provide eleven principlesforreportinggroupedinfourclusters.Theseare:

Cluster 1 :Framework of the Report Transparency Thereshouldbefulldisclosureofthe processes,procedures and assumptions in preparation of the report. Inclusiveness Stakeholders who are both directly and indirectly affected should be systematically engaged to help focus and continuously enhance the quality of the reports. Auditability Reported audited data should be recorded, compiled, analysedand disclosed in a way that would enable internal auditors or external assurance providers to attest to its reliability. Cluster 2 : Decision on What Information to Report Completeness All significant information to users for assessing the companyseconomic,environmentalandsocialperformance should be covered in the report in a manner consistent with the declared boundaries (i.e. range of entities for whichthe reportingcompanygathersdata);scope(refersto aspects such as energy use, health, safety and other areas for which the Guidelines include indicators); and time period to whichthereportpertains. 49

Relevance Information reported should serve the needs of the stakeholders concerned. Hence, the report should contain information that is useful and relevant to both the reportingcompany and the users of the report. SustainabilityContext The reporting company should seek to place its performanceinthelargercontextofecological,socialor other limits or constraints, where such context adds significantmeaningtothereportedinformation. Accuracy The reported information should be intended to achieve degree of exactness through clarity, detail and balance inpresentation,sothattheusersofthereportcan makedecisionswith high degree of confidence. Neutrality Thereportshouldbebasedonunbiasedselectionand presentation of information; and provide fair and factual presentation of the companys economic, environmentalandsocialperformance. Comparability The report should be prepared on principles of consistency with reference to boundary and scope.Should there be any changes,thesehavetobedisclosed andpreviouslyreported information should be restated.

Cluster3:QualityandReliabilityofReportedInformation

Cluster4:AccessibilityofReportedInformation Clarity Sincetherearediversestakeholdergroups,thereporting information should be clearly presented, so that it isunderstandable by the different user groups. Timeliness Report should provide information on a regular schedule thatmeetsuserneedsandcomfortswiththenature oftheinformationitself.Basedontheseprinciples,theGRI Guidelines suggest what a sustainability report should ideally contain.The contents of thereportsuggestedbythe GRIaresetoutinthefollowingtable: 50

Table:Contents of an Ideal Sustainability Report as per GRI Guidelines

S.No. 1. ContentTitle CEOStatement Description AstatementoftheCEOor equivalentseniormanagement persondescribingkeyelementsof thereport.Itissuggestedthatthe CEOsstatementshouldinclude: highlightsofthereportcontent andcommitmenttotargets; commitment of the companys leadership to economic, environmentalandsocialgoals; statementofsuccessesand failures; performance against benchmarks; thecompanysapproachto stakeholderengagement majorchallenges inintegrating responsibilitiesforfinancial performancewiththosefor economic,environmentaland socialperformanceandthe implicationsforfuturebusiness strategy. An overview of the reporting ReportingCompany company andthescopeofthereportto provide a context for understandingandevaluating information in subsequent sections. Thissectionofthereportshould include: organisationprofile scope of the report profileofthereport

2.

Profileofthe ReportingCompany

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3. ExecutiveSummary andKeyIndicators VisionandStrategy Policies,Organisation andManagement Systems A sufficient overview of thereport Providethevisionofthereporting. Company for the future and discussion on how that vision integrates economic, environ mentalandsocialperformance. Itshouldespeciallyaddress: whatarethemainissuesforthe companyrelatingtothemajor Themes of sustainable development? how are stakeholders included inidentifyingtheseissues?. foreachissue,which stake holders aremost affectedbythe company?. howaretheseissuesreflected inthecompanysvaluesand integratedintoitsbusiness rategies? what are the companys objectives and actions on these issues? An overview of the governance structure and the management systemsthatareinplaceto implement the vision. Central to

4.
5. 6.

7.

Performance

GRIContentInde

this section of the report is a discussionengagement. Performance should be addressed across social, economicandenvironmental areas of impact and activity as well as on an integrated/crosscutting basis, ifpossible. A table identifying location of each element of the report content by section and indicator.

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TheGRIGuidelinesarenota:

codeofconduct performancestandards managementsystem provide instruction fordesigningacompanys internal datamanagement and reporting systems offer methodologies for preparing reports or for monitoringand verification of such reports However,theseGuidelinescanbeusedvoluntarily by companies reporting on their economic, environmentalandsocialperformance.

TheGuidelinesalsodonot:

BenefitsofSustainabilityReporting The relevance of sustainability reporting is of particular importance in emerging economies like India. The corporates are realizing that sustainability reporting is an essential tool for competitiveness. Sustainability reporting is also important because stakeholders such as consumers, media, NGOs and the societyarebecomingincreasinglyconsciousoftheenvironmental and social impacts of business. Consequently, there is a pressure on companies to be not only socially and environmentally responsible, but also report on their non financial performance through sustainability reporting. Some of the benefits of sustainabilityreportingfororganizationsare: To demonstrate their interest in the health of the environment, their employees and the communities they serve To demonstrate their commitment to and efforts involving humanrightsandfairlaborpolicies To promote transparency and solicit feedback on their performance from a growing number of stakeholders includingnongovernmentalorganizations(NGOs) To demonstrate their efforts to build and maintain relationships with external parties such as the community andotherstakeholders Tobettermanageandcommunicaterisk Toenhanceorprotecttheirreputation Togrowshareholderandbrandvalue Toincreasemarketshare 53

SustainabilityReportingRoleofGovernmentandRegulators Asaresultofglobalfinancialcrisisandseverecorporatescandals, there is an increasing demand from the general public to the government and regulators for playing a major role in the sustainabilityreportingfield.Whilethenegativeimpactofglobal financial crisis is acute and visible, the growing sustainability crises poses a long term threat to the global stability and prosperity and have a wider and more costly impact on global economies. The financial crisis has initiated a debate that whether financial crisis is linked with sustainability related crisis such as climate change and whether the sustainability agenda offers solutions to bothfinancialandsustainabilitycrisis.Theinvestorsandanalysts have started assessing investor value through their economic, social and environmental performance. The investors, NGOs and generalpublicaredemandinganincreasedroleofthegovernment andregulatorsinpromotingsustainabilityreporting. Over the last five years it has been observed that the regulatory role has evolved substantially in all parts of the world. A recent joint study done by GRI, UNEP, KPMG Sustainability and the University of Stellenbosch Business School in 30 countries revealed that the voluntary codes, guidelines, national and international standards on sustainability reporting have been stronglyevolving.Theresearchrevealedthefollowing: Atotalof142countrystandardsand/orlawswithsomeform ofsustainabilityrelatedreportingrequirementorguidance. Approximatelytwothirdofthesestandardscanbeclassified asmandatoryandonethirdasvoluntary. A total of 16 standards with some form of reporting requirementattheglobalandregionalleveland Atotalof14assurancestandards. While the above trends shows that the awareness about the sustainabilityreportinghasbeenincreasedbutstillamoreactive role for government regulators in sustainability reporting is required. The need of the hour is that how regulation can speed up the pace of making relevant, accurate and comparable informationavailabletovariousstakeholders.

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SUSTAINABILITYREPORTINGPRACTICES
Despite efforts from GRI to push for standard reporting formats, no two sustainability reports are the same. The reasons are obvious. Reporting on different processes such as mining an paperproductionoraddressingdifferentaudiencescanhavea significantimpactonreportingformatanddatapresentation. Apart from standard reporting approach developed by GRI, a few other reporting templates have been developed, each aiming foradifferentmainobjective.Theseare: Template for creating a positive impression Templatefordescribingthebusinesscaseforsustainable development.

TEMPLATE:CREATINGAPOSITIVEIMPRESSION
Theobjectivesforthisreportingtemplatearetobuildtrust,provide informationandimparteducation. Thereportistargetedforgeneralpublic,shareholdersandsocially responsible investors;andcould bemade available on the webor inprinted form. It is recommended that the report should contain more graphics thantextoneachpage.Itisalsosuggestedthatshortformsshould beavoided(e.g.sulphurdioxideandnotSO2).Conceptsand generalpoliciesshouldbelimited. Thesuggestedcontentsofthe reportare: Table of contents illustrating how different sections fit together.Itenablestoprovideclarityofmessage. Descriptionofthecompanyspecifyingwhatitdoes,location, number of employees, the stock exchange where its shares arelisted.Thishelpstoeducatethepublicaboutthecompany. StatementfromtheCEOorseniorexecutiveinchargeof sustainability reporting identifying sustainability as acorporatepriority. Statementofhowthecompanyvalueandvision,including profitandgrowth,arelinkedtosustainabilitytoillustrate commitmentandunderstandingofthesustainabilityconcept. Anoverview,say,intwopageswithdiagram,ofhowthe activitiesofthecompanyfittogetherunderasustainability umbrella.Thisdemonstratesawarenessofinternal linksand cause and effect relationships across areas of activity. 55

Explanation of how sustainability reporting is accomplished. Thisshouldcontainaflowchartordescriptionofhow sustainabilitypolicyandimplementationcouldbetracked throughout the company, acknowledge deficiencies, indicate howthingsareplannedtobeimprovedinthefuture(e.g. training), outline of the reporting team and its accountability tothe boardofdirectors. Summary of company specific sustainability challenges and achievements.Thisrequiresastrategicevaluationofthekey factorsthatmakeadifferenceinprogressofsustainability andadetailedanalysisshowingcommitment.Aggregated dataintrendlineforms,ifpossible,shouldbeprovidedin support of the statements in this section. Statement of targets for key sustainability indicators derived from international standards (e.g. ISO 14000 series), nationalregulations and the companys voluntary measures. Site specific data for problematic or exemplary conditions to illustrate success and willingness to face problems head on and therefore increasing likelihood of finding solutions. Resultsofexternalauditasinternalauditsdolittletobuild credibility with the public. Going beyond what is expected. For example, update on employee or community awards programme for innovations that help with company progress towards sustainabilityas this is effective in building and demonstrating commitment. However, this section is optional. Identificationofcontactpersonformoreinformation. Glossary of technical terms. Feedbackformforbothpositiveandnegativecommentsand staff reply, where needed.

TEMPLATE :MAKINGTHEBUSINESSCASEFOR SUSTAINABILITY

The objective of this reporting template is to illustrate that sustainabilityisgoodforbusiness. The report is targeted for shareholders, employees and potential investors;andcouldbemadeavailableonthewebandanexecutive summary in printed form. It is recommended that the report should contain equal amount of text and graphics on each page; and short forms should be 56

avoided (e.g. greenhouse gases and not GHG).Also, the report should present explanation of some broader concepts to link business and sustainability perspective (e.g. full cost accounting) and illustrations using real life company examples. The suggested contents of the report are: Table of contents Description of the company Statement of the CEO or senior executive of the company Statement of how the company vision and values, including profit and growth, are linked to sustainability. Explanation of changes resulting from tracking the companys progress on sustainabilitynew expenditures, costsavings,employeetraining,operationaladjustments, reducedorincreased emission levels and acknowledgement of deficits inthe area and indicate plans for improvement in future.

Description of how sustainability reporting is accomplished. Summary of financial statements and company specific sustainabilitychallengesandachievements. Integrated indicators that link economic performance with environmental improvements and employee and communitywellbeing. Dataonenvironmentalperformance. Results of external financial and environmental audit. The goals and targets of the company for the coming year. Thereareseveralcompanieswhichhavedevelopedtheirown way for sustainability reporting based on the GRI Guidelines.A few examples of best practices of sustainability reporting are set out in the succeeding paragraphs.

STRATEGICFOCUSONDATA
Procter and Gamble builds credibility and uses resources most effectivelybyprovidingdetaileddataonareasofgreatestconcern to the company.For instance, in 1999, its report emphasised on water quality and use and on health and hygiene. Other more generalindicatorsofprogresswerealsoreporteduponbutthe detailed assessment in these two areas gives the impression that thecompanyislookingfortriggersofimprovementinareaswhere they are neededthemost. 57

CONNECTINGLIFECYCLE ASSESSMENT TO FINANCIAL PERFORMANCE

NorskHydrohasappliedlifecycleassessmenttotheworkingsof the entire company. The aggregated data allows for a striking overview of the companys consumption of natural resources and pollutantemissionsinlightofannualprofits.Lifecycleassessment hasalsobeencompletedforeachmajordivisionofthecompany. Electroluxhasalsoreportedonthelifecycleanalysisofanumber of their products. A strongimpetus forthe appliance industryto offerproductswithreducedenvironmentimpactisusuallygreater inproductusethanduringproduction,andfurthermoreisclosely connected to the individual household economy. A life cycle assessment of a washing machine for example shows thatabout80 percentofthetotalenvironmentimpactduringthe life of the machine consists of water, energy and detergent consumption. Asimilaranalysisofthetotalcostoftheentirelife cycleofthemachineshowsthatthecostofwater,energyand Detergentconsumptionexceedstheinitialpurchaseprice. For the customer, this implies that choosing an appliance with a high environmental performance also means longterm savings. For the appliance industry it means making consumers aware of thisconnection. PaperlessReport Monsantos report is presented exclusively as an electronic document.This is a departure from the past when these reports werebeenprinted.Forthepastseveralyears,thesehavebeen convertedintoelectronicpresentationsandmadeavailableon theMonsantowebsitebuttheywerenotdesignedspecificallyfor internetuse. CredibleReporting Good Sustainability Reporting builds on core values and sets out decisionmakingprinciplesthatareconsistentwiththesevalues. SustainabilityReportingframeworkcanprovideabroadercontext for linking priorities rather than viewing them as competing objectives. Making broad policy statements is easy. The real test of commitmentisimplementation.Thisisparticularlydifficultinthe field of sustainability where decisions can be guided by general 58

principles but much practical application is still a matter of trial anderror. Ifthestatedvaluesandprincipleshaveanymeaningtoacompany outsidetheneedforreportingtothepublic,therewouldbeobvious connections among the corporate management team, senior operationsstaffandemployeesgenerally.Companiesthat could Demonstrate these connectionse.g. specific instances where policy has affected operations, the nature and extent of staff education and training, a responsibility flow chartgenerally have very convincing reports. Reports that dwell on policy statements with no concrete results givetheimpressionthattheCEOandotherseniorcorporate managersmayunderstandthechallengesbutthatthisknowledge has not been translated into tracking and evaluating progress or anyrealchangeinsidethecompany. Areportlooksasifitisbeingwrittenbythecommunications department if it contains little more than broad policy statements and,insomecases,referencestoglobalagreementsandevents. Itwillreadasanattemptedgreenwashevenifthecompany hasrealinformationtoshareaboutitssustainability accomplishments. Factors that influence credibility include: Stakeholder participationshowing how input from different stakeholders has improved performance demonstrates a sincerecommitmenttocommunityparticipation. Honesty in reportingreports that include results of environmental (and economic) audits and other forms of outside verification could build confidence in a company with a less than stellar public image. However, the controversial figures must be verified. Getting external verification for a noncontroversial figure like quantity of energy consumed and then failing to verify contentious information likethelevelofdioxinemissionscouldheighten suspicionofthedataandthewholereport. Admittinglimitationsforsomeactivities,theremaybe tendency to tell only part of the story. This could backfire sinceraisingtheissuewouldprovokequestions about what has not been done. Verification is one exampleofthis.Anotherislifecycleanalysis.Somereports explain how the company operates on the principle of life 59

cycle analysis. On close inspection, it emerges that while the production process is viewe from a lifecycle perspective, the impacts of the actual end use of the product (cradle to grave material flows) are not figured in. Credibilityisbuiltbydemonstratingaclearunderstanding of an approach, including where the company falls short and why. Companies should be careful to strike a balance between positive and negative results. Consistencystressing the importance of sustainability to the company but neglecting to show how it relates to core valuesand business activities detracts from credibility.

RELATIONSHIPBETWEENSUSTAINABILITY ANDFINANCIALREPORTING
Sustainability reporting communicates a wide range of subject matter about environmental, social and economic impacts arising from a companys activities, products and services. Economic impacts include but are not limited to financial performance in meeting the expectations of investors and lenders.On the other hand,financialreportingcommunicatesaboutacompanys performanceincreatingvalueforinvestorsanditsaccountability formonetaryresourcesinvestedinit.SustainabilityReporting andfinancialreportingbothcommunicateaboutrisksand intangibles,butdosoinwaysthataredifferentandpartially complementary. SustainabilityReportinghasthepotentialtoprovidecritical informationforbusinessanalysisthatisnormallyabsentfrom financialreports.Theseinformationfacilitatefinancialreports with forwardlooking information that could enhance the report users understanding of such key value drivers as human capital formationinthecompany,corporategovernance,management ofenvironmentalrisksandliabilitiesandthecapacitytoinnovate. Itprovidesinsighttosupportbusinessanalysisandhasrelevance withintheframeworkoftraditionalfinancialreports. By consistently measuring sustainability performance, companies could strengthen both their internal business practices and their external communication. The succeeding paragraphs briefly outline how the advantages of sustainability reporting could strengthentranslatingsustainabilityinformationintothelanguage offinancialanalysis. 60

Increasedprocessefficiencyisanexampleofaproven sustainability strategy for decreasing cost and improving profitability.Opportunitiestoreducecostsorcreaterevenues throughincreasedyield andsale of waste streamsexist throughoutthevaluechainofabusinessandcouldoffersignificant benefits. Costanalysiscouldbegreatlyenhancedbya holistic approachto assessing risks and uncertainty, which have strong links to environmentalandsocialconcerns. Sustainability initiatives and strategies also provide opportunities for product differentiationa key component of competitive advantage. Companies could reposition their products and services as part of their attempt to reduce their environmental or social impacts. In the process, this would help differentiating theirproductsandservicesinamannerthatwouldenhancetheir competitive position. Other intangible assets such as intellectual capital, ability to innovate,investmentin research anddevelopment and networks andalliancesareintegraltoanalysingacompanysfinancial prospects. These assets are influenced by the companys commitment to training, skill development, employee relations and employee turnovera fociof social performance indicatorsin sustainability reporting. Innovative partnership with stakeholders around environmental or social aspects of productsormarketscouldleadtoproductdifferentiationand brandenhancement. Inotherwords,ampleopportunityexiststotranslatesustainability information into a form that speaks to the needs of the financial analysts.SustainabilityReportingoffersrealvaluetothosewhose businessistoassessthecurrentfinancialhealthofcompaniesand Anticipate futureperformance.Atpresent,thecontentof sustainability reports tend to appear in forms and units that are notreadilyconvertibleintofinancialterms;butrapidadvances inareassuchasenvironmentalmanagementaccounting,valuation ofintangibleassetsandvaluereportingpromisetomake sustainability information useful to the financial community.

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5 GLOBALTRENDSIN SUSTAINABILITYREPORTING
Many of the companies who are preparing sustainability report began with environmental reports that documented how the organisationwasmeetingenvironmentalregulations.

BUSINESS DRIVERS FOR SUSTAINABILITY REPORTING

Companiesproducesustainabilityreportformanyreasons.There isseldomasinglereasonandtherationaleforproducingthereport could changeovera period oftime. The factors that lead companies to produce sustainability report are: Providing information about challenges and achievements to shareholders, employees, the public and other stakeholders; An internal commitment to environmental and social responsibility; As a marketing tool, associating the company with sound environmentalmanagementandsustainableactivities; Trackingprogressonintegrationofsustainabilityprinciples intocompanyplanningandprogrammes; Taking first steps towards doing things in a more sustainableway; A successful pilot project persuading decisionmakers to taketheinitiativecompanywide;and Acommitmenttoremainingcompetitivewhilebecominga world leader in sustainability. Arecentsurveyin2005ofover1600companies,includingthe top250companiesoftheFortune500(Global250)and100leading companiesin16countriesfindsimportantbusinessdriversfor sustainability reporting are to: Have a good brand and reputation Beanemployer ofchoice

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PORTRAYALOFPERFORMANCE
Context thebest reportsprovideinformation onhow the sustainability report relates to other company reporting initiatives (e.g. financial statements). They also give trend line data presenting current information in the contextofpastdata. Data Collectionmost reports do not indicate how information was collected. Others provide an outline of howmanagement,differentdivisionsandindividualunits all contributed to the report. In one case, assembling information to evaluate performance resulted in a restructuringofthecompany.Aclear,concisedescriptionof how data is collected underlines a companys commitment to detailed and responsible reporting. Rio Tinto presents this information in a flowchart that illustrates how both corporate policy and operation specialistsinthecompanydrivethereportingprocess. Indicator clustersfor environmental reporting the most common indicators are grouped around emissions and energy efficiency. For sustainability reports, social, economic and environmental information is frequently reported in separatesections.Theabsenceofagreedupon social indicators is a common thread throughout the reports. Level of detail several reports provide little meaningful 2 data. A report is datapoor when the only quantitative data is percentages in some pie charts. Data aggregatedtothecompanylevelillustratesasenseof responsibilityforalloperations.RioTintopointsoutin its report the need to identify which indicators are more meaningfulwhenpresentedatthecompanywidelevel(e.g. totalemissionsofCO )andwhichoneshavethegreatest impactatthelocallevel(e.g.dischargetosurfacewater). A strategic focus on tracking progress in the areas of most concern to the company (e.g. Procter and Gamble emphasises water quality and health and hygiene) is one methodofdeterminingwhichdatadeservepriority. Targetsstated targets show commitment to monitoring performance. Companywide targets related to the sustainability report help employees see the practical 64

implications of broad policy. Targets could be based on meeting minimum certification requirements (e.g. ISO 14031)orinternationalagreements(e.g.KyotoProtocol)oron setting goals for constant improvement yearbyyear within an individual company (e.g. reductions in Nox emissions,lessuseofenergy perunitof product).

SUSTAINABILITY REPORT COVERAGE

Thesocialandeconomicissuesgenerallycoveredbythecompanies in their sustainability reports are: CorelabourstandardsdefinedbyInternationalLabour Organization (ILO) in respect of right to equality of opportunityandtreatment,righttofreedomofassociation and collective bargaining, abolition of child labour andprohibition of forced labour. Working conditions covering aspects such as working time, work organisation, wages, work and family, maternity protection, occupational safety and health, harassment, stressandviolence. Community Involvement in terms of relevance of programmes undertaken by the company to address the socialconcernsrelated to the operations of the company. Philanthropic activities carried out by the company. However,philanthropic programmes are less strategic than other formsofsocialinvestmentsintermsofaddedsocial andbusinessvalue. Data on economic performance, which not only illustrates thesize and economic importance of the company, but also serves as a reference for measuring the relative significanceofvoluntary contributions to the society. With globalisation, many companies are outsourcing a partoftheirproductiontosuppliersinlowcosteconomy. Thisplacesanaccountabilityontheglobalcompaniesfor actionsoftheirsuppliersandvestsresponsibilityonthemfor ensuring that their suppliers comply with the code of conduct laid down by the companies. This has brought forth supply chain issues as major component of sustainability reporting.

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Climatechangeisoneofthemostpressingenvironmental issuesforthecompanies.Hence,reportingonthequantum of greenhouse gas emissions from their business operationsfeatures as a significant item.

ISSUESINSUSTAINABILITYREPORTING

Thetwomajorissuesconfrontingthecompaniesinpreparationof sustainability reports are: Materiality Several companies are not able to decide what they should report. In other words, they are unable to identify really significantormaterialissuesfor theusersofthereport. To address this issue the company needs to systematically undertake stakeholder engagement in order to identify the information needs of specific user groups. Also, the companies can follow the GRI Guidelines to determine the reportcontents. StakeholderDialogue A companys stakeholders are those groups who impact and/or are impacted upon by the activities of the company. It is important to have regular dialogue with the stakeholders in a structured manner as this enhances two way communicationandthrustleadingtoreducedlegal and reputation costs; strengthens shareholder value; increasesaccesstomarketsandidentifiespotentialrisks.Asa part of stakeholder engagement it is critical to have feedbackonthereportfromtheusers.Thisfacilitatesthe company to be responsive to the issues and concerns raised by the users. However, till date not many companies have undertakenstructuralstakeholderdialogue.

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6 ASSURANCEFORSUSTAINABILITY REPORTING

SUSTAINABILITYASSURANCE
Thirdpartyassuranceisawayforcompaniestobuildstakeholder confidence that its approach to an issue is robust and reliable either when it comes to a particular issue of concern or meeting an external standard. Independent assurance contributes significant value to reporting. Thegoalofsustainabledevelopmentrequiresthatcompaniestake responsibility for their social, environmental and economic impacts. Credible information about performance is crucial in effectively managing these impacts and communicating with diverse stakeholders. Assurance is not simply about boosting the credibility and usefulnessofacompanysclaimstotheoutsideworld.Companies in the forefront of sustainability reporting assurance recognise thattheyplayakeyroleinensuringthecredibilityandusefulness of information flows within the organisation, especially informationfromnontraditionalandnoncommercialsources. Therefore, sustainability reporting assurance that is conducive to the fulfillment of different stakeholder needs could be more effective in enabling accountability to drive performance improvement. Limited forms of assurance, which guarantee data accuracy and reporting of well established issues, can help to deliveraccountabilitytoconsumersandcivilsocietyaswellas performanceintermsofcompliancewithbasicstandards. Assurance is intended for: Indoorstakeholdersi.e.managementandboardofdirectors concerned with risk and value creation which require assurancethatinformationisaccurateandcomplete. Backdoor stakeholders i.e. investors and regulators interestedin assurance that looks at risk and legal breaches. Frontdoor stakeholders i.e. media and activist organisations who remain cynical about assurance, but someofthemareresponsivetocertification. 67

Thoughatpresent,thereisnorequirementforcompaniestohave theirsustainabilityreportsaudited,companiesareseekingtogive assurance concerning how their actions and impacts affect their stakeholders. AssuranceFrameworkvisvisSustainabilityReporting Assurance is an important means to enhance the credibility of sustainabilityreports.Companiesintheforefrontofsustainability reportingassurancerecognisethattheyplayakeyroleinensuring the credibility and effectiveness of information flows within the organisation.Assuranceisintendedfor: Indoorstakeholdersi.e.managementandboardofdirectors concerned with risk and value creation which require assurancethatinformationisaccurateandcomplete. Backdoor stakeholders i.e. investors and regulators interestedinassurancethatlooksatriskandlegalbreaches. Frontdoorstakeholdersi.e.media,NGOsetc. It is observed that numbers of companies are seeking external assurancefortheirsustainabilityreports.Asurveyin2008reveals that56%ofthereportsofglobal250(G250)companieshavesome formofthirdpartyassurance,while40%utilisedformalassurance statements by independent professional assurance providers. Currently International Standard on Assurance Engagements Assurance Engagements other than Audits or Reviews of Historical Financial Information(ISAE 3000), issued by InternationalAccounting&AuditingStandardsBoard(IAASB)of International Federation of Accountants (IFAC) and AA1000 Assurance Standard developed by the Institute for Social and Ethical Accountability are the main international standards used for assurance on sustainability reports. Both ISAE 3000 and AA1000setoutprinciplesandguidelinesthatcouldbeappliedfor sustainabilityreportingassurance. ISAE 3000 provides a framework in which assurance providers coulddeliversustainabilityassuranceoninformationreportedby the client and in doing so apply the principles of materiality, completeness and responsiveness to the pre defined subject matter. AA 1000 requires that the assurance provider considers whether the principles of materiality, completeness and responsivenesshavebeenaddressedbytheclientinthechoiceof information to disclose and report their finding on these principles. 68

ISAE 3000 provides rigorous procedural guidelines for undertaking an assurance engagement, whereas AA 1000 emphasis on the relevance of the reported information for stakeholders and requires involvement of stakeholders in determining the subject matter as well as suitable criteria for the report and assurance engagement. However, the two approaches arecomplimentaryandmanyofthecompaniesareappropriately usingtheboth. GRI recommends that the assurance should be conducted by competentgroupsorindividualsexternaltotheorganizationthat follow professional standards for assurance in addition to any internal resources. The key qualities for external assurance of reportsusingtheGRIreportingguidelinesarethat: Assuranceshouldbeconductedbythegroupsorindividuals external to the organization who are demonstrably competentinboththesubjectmatterandassurancepractice; Assurance should be implemented in a manner that is systematic, documented, evidence based and characterised bydefinedprocedures; Assurance providers should assess whether the report provides a reasonable and balanced presentation of performance,takingintoconsiderationtheveracityofdatain areportaswellastheoverallselectionofcontent; Assuranceprovidersshouldutilisegroupsorindividualsto conduct the assurance who are not unduly limited by their relationship with the organization or its stakeholders to reach and publish an independent and impartial conclusion ofthereport; Assurance providers asses the extent to which the report preparer has applied the GRI Reporting Framework (includingtheReportingPrinciples)inthecourseofreaching itsconclusion;and Results in an opinion or set of conclusions that is publicly availableinwrittenform,andastatementfromtheassurance providerontheirrelationshiptothereportpreparer. With the increasing attention given to the link between greenhouse gas (GHG) emissions and climate change, many entities are quantifying their GHG emissions for internal management purposes, and an increasing number are also preparingaGHGstatement: 69

 Aspartofaregulatorydisclosureregime;or Aspartofanemissionstradingscheme;or Toinforminvestorsandothersonavoluntarybasis RecentlyinJanuary2011,duetotheincreasingneedtoensurethe reliability of green house gas data in connection with emission trading schemes, the International Auditing and Assurance Standards Board (IAASB) has issued an Exposure draft on proposedInternationalStandardonAssuranceEngagementsISAE 3410, (Assurance Engagements on Greenhouse Gas Statements). The objective of issuing this assurance standard by IAASB is to assist the professional accountants practicing in the field of assurance standards on sustainability and similar reports, as no such assurance standard is available, which is globally accepted forassuranceonsustainabilityandsimilarreports.ProposedISAE 3410 is intended to address the need of professional accountants that are engaged in the field of assurance on greenhouse gas statements(GHG).TheproposedISAE3410dealswithassurance engagements when the practitioner is engaged to report on an entitysGHGstatement.Incasepractitionerisengagedtoreport on a sustainability report of which a GHG statement is only one part, in that case ISAE 3410 will apply to assurance procedures performed with respect to GHG statement and ISAE 3000 will apply to assurance procedures performed with respect to the remainderoftheinformationcoveredbytheengagement.

COMMITMENTOFSENIORMANAGEMENT
It may be underlined that independent assurance process is strengthenedwhentheboardofdirectorsorthetopmanagement Recognizestheytheyareresponsibleforthecontentofthe sustainability report; and the assurance provider has to be given accesstoallindividuals,groups,sites,recordsandinformation thattheassurerconsidersnecessarytocarryouttheassurance engagement. It also has to ensure that adequate resources are made available for the independent assurance providers work.

ASSURANCE BENEFITS
Ingeneral,assurancehelps: Meeting legal compliance requirements; e.g. for financial andenvironmentalreporting. Convincing; e.g. building trust and credibility or gaining 70

specificcertification. Decisionmaking; e.g. ensuring credible information to facilitate decisionmaking by stakeholders. Learning; e.g. improving management systems through use of standards and processes of continuous improvement.

Mandatoryvs.VoluntaryReporting Various approaches can be followed to encourage sustainability reporting.Overthepastdecadetherehasbeenalivelydebatethat whetherthesustainabilityreportingbemandatedbylawandifso in what manner or should it be kept voluntarily and the corporates are encouraged to do so. There are many arguments both in favour of and against both voluntary and mandatory reporting. It is suggested that instead of presenting mandatory and voluntary sustainability reporting as exclusive options, they are assumed as complementary and the challenges for the governments is to determine the appropriate minimum level of mandatoryrequirements.Thegovernmentcanfollowoneormore ofthefollowingapproaches: Mandatory Reporting Detailed regulations may be developedwithanobligationtoreport Voluntary Reporting with an incentives for companies to report voluntarily Voluntary guidelines may be issued withorwithoutreferencetointernationalstandardssuchas GRIorUNGlobalcompact A mixture of Mandatory and Voluntary Reporting Under voluntary reporting companies may be free to report any thing in addition to the set mandatory framework of the reporting.

IntegratedReportingAnewconcept RecentlyinAugust2010GlobalReportingInitiative(GRI)andthe Global Princes Accounting for Sustainability Project (A4S) established International Integrated Reporting Committee (IIRC) to bring together the key standard setters of financial and sustainability reporting to plan and promote the transition to integratedreporting andtocreateaglobally acceptedframework that brings together financial, environmental, social and governance information in a clear, concise, consistent and comparableformat.Theobjectivesforanintegratedreportingare to: Support the information needs of long term investors, by showing the broader and longer term consequences of 71

decisionmaking; Reflect the interconnections between environmental, social, governanceandfinancialfactorsindecisionsthataffectlong term performance and condition, making clear the link betweensustainabilityandeconomicvalue; Provide the necessary framework for environmental and social factors to be taken into account systematically in reportinganddecisionmaking; Rebalance performance metrics away from an undue emphasisonshorttermfinancialperformance;and Bring reporting closer to the information used by the managementtorunthebusinessonadaytodaybasis Whiletheconceptofintegratedreportingisinitsinfancy,intimes to come, it is expected that it will provide more transparent and comparableinformationtostakeholdersthatmayhelpinavoiding newfinancialscandalsandcrises.

THEFUTURE
Tounderstandthekindsofdynamicsthatarelikelytoleadinthe field of sustainability reporting assurance in the coming years three scenarios are outlined below: Scenario 1: Legislation is introduced, requiring companies to disclose a range of social and environmental performance indicators. Assurance need to be focused on data accuracy but have little effect on improving performance. Scenario 2: A set of overarching standard is established. Assurance moves away from a limited focus of public reporting to providing information for learning and innovation based on stakeholderengagementandexaminationofmanagement systems.Thisisaccompaniedbyenablinglegislation. Scenario3:Amultitudeofcompetingassuranceapproachesthat initially flourish but lack of rigour leads to diminishing effect of assurance. Assurance becomes an internally directed tool for ensuringlegalcompliance. Scenario1offersuniversalapplicationandmainstreamingbeyond leading companies. However, reporting and assurance become removed from stakeholders concern and the basis on which performance is achieved. Under Scenario 3 approaches to assurance flourish at the outset but end in diminishing returns and leads to greater regulation of businesss social and environmentalimpacts.Scenario2providesflexibilitywithvigour 72

and offers the greatest contribution to sustainability development throughassuranceandmoreenablinglegislation.Itremainsmost ambitious outcome for sustainability reporting assurance to aim for. The current diversity in approaches is likely to continue over the medium term, reflecting the needs of the companies and stakeholdersinrelationtodifferentindustries,issues,culturesand national regulatory environments. There are a number of key tensions and problems facing the development of a robust and widespread assurance methodology.These include: the need to ensure both materality and comparability theissueofassurerliability the problem of how to integrate the three pillars of sustainability and the need to demonstrate that the benefitsof assurance justify its cost.

Acrucialsteptowardsaddressingthesetensionsisthe developmentofGenerallyAcceptedAssuranceStandardsfor Sustainability (GAASS). For this purpose, the following parametersneedtobeconsidered: Focus on diving performance. Assurance of timely and appropriatedataandunderlyingsystemsisessentialtoenable stakeholderdecisionmakingandcompliancewithstandards and policies. Assurance that incorporates stakeholder engagementwouldgofurtherincapturingcontroversialand contested areas of responsibility and driving necessary learningandinnovation. Basedonmaterialityandstakeholderengagement.Assurance thatislimitedtoapredefinedsetofissuesmayoverlookissues material to the present and future decisions of stakeholdersand the health of the company.A redefinition of materiality is needed, that does not limit assurance to a predefined set of issues but defines it in relation to the full rangeofcompliancerequirements,policypositions,peer based norms and stakeholder concerns affecting the organisation. Enable a range of organisations and individuals to provide assurance.Nosingleassuranceproviderisabletoassurethe sustainability of an organisation. Multiple sources of legitimacyandexpertisewouldneedtobe involved insustainabilityassurance. 73

Build on diverse assurance processes. Specific assurance processeshavebeendevelopedtomeetdifferentstakeholder appetites (these include financial assurance, supply chain assurance,labellingschemes,etc).GAASSwouldnotreplace these,butprovideacommonplatformforoverallassurance, which would go further in understanding tradeoffs, emergingissuesandtherelativeimportanceofdifferentareas ofimpact. Enable integration. Assurance must be able to provide an evaluation of an organisations overall performance and forwardlookingindicationsofitsabilities. Integrationisnot only a matter of aggregating information flows from within the company and from specific assurance processes but alsoofensuringthequalityofthesesystems,which underpinperformance.

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7 RELEVANCEOFSUSTAINABILITY REPORTINGININDIA

COUNTRYPROFILE
The Sovereign Democratic Republic of India occupies a small proportion of Indias long history over half century since 1947. Within this short time span its economic regime has experienced two radical transformations. First, with the establishment of PlanningCommissioninMarch,1950,Indialauncheduponan uniqueexperimentinstateledgrowthwithsocialjustice within the constitutional framework of parliamentary democracy. However,thispolicymatrixcameundersignificantpressure inthe1980sculminatinginseverebalanceofpaymentcrisisin 199091. Government of India responded to this crisis with an equally forthright policy regime grounded in a reforms trinity, popularly referred to as liberalisation, privatisation and globalisation.These three economic concepts have necessitateda seriesofongoingpolicyreformsbytheunionandstate governments. Today,Indiahasanincreasinglyinfluentialroletoplayinthe shifting politics,strategies and alliancesthat would determinethe natureofglobalisationintheyearstocome.Theinternational focusonIndiaislargelyduetoitsemergingstatusasglobalplayer economically and politically. On current trends, the countrys roleinfuturecultural,politicalandeconomicevolutionofthe regionandbeyondissettobepivotal. Indiaishometoabout17percentoftheglobalpopulationand ispredictedtoovertakeChinaastheworldsmostpopulous nation in next three decades.It is the 12thlargest economy; and inAsiaitseconomyisthirdonlytoJapanandChina.Assuch, it presents compelling opportunities to the globalising world withregardtoboththemarketitoffersandthecostbenefitsof acheaperlabourpool,oftenwithaccesstogoodeducationand English language capabilities. Whether companies look upon Indiaasamarketorconsideritasasourceofwelltrainedand affordablelabour,onethingisclearnocompanycanaffordto ignoreit. 75

There are a number of positive indicators for growth despite the infrastructurefacilitiesinthecountrybeingnotuptointernational standards;waterscarcitytoppingthelistofenvironmental concerns followed by air pollution and loss of biodiversity; and vulnerability to natural disaster. The judiciary, which is separate from government, is an increasingly influential and modernizing force. Thereislegislationwithregardtolabourrightsand environment,andtherehavebeenhighprofileactionssuchas the closure of polluting industries around the Taj Mahal. India has a long tradition of a highly active civil society with about 2 million NGOs. The Bhopal disaster in 1984 doubtlessly contributedtotheformationofahighlyvigilant,vocaland networkedcommunityofactivistsandNGOscompetentto campaignonboththenationalandglobalstageandsophisticated intheuseofglobalbrandstocatapultlocalissuesontotheworld stage. As home to Bhopal and the Union Carbide disaster, India continuestodealwithandlearnfromtheongoinghumantragedy andbattleforcompensationofthevictims. Indian media is free andactiveinthisrighttoo. National companies in India have a long tradition of local philanthropy springing from a nationbuilding attitude to their role and contribution to society. Foreigndirectinvestmenthasonlybeenallowedsince1991.Prior tothat,followingthecountrysindependencein1947andina determinedquestforselfsufficiency,thegovernmentrequiredall companiesoperatinginthecountrytobemajorityownedby Indians.Thisresultedinmanymultinationalsleavingthecountry; but in the last decade, they have returned enmasse. However,astypicaltoanyemergingeconomy,corporategood governance isa burningissue inIndia. WhySustainableDevelopmentimportantforIndia? According to CII ITC Centre of Excellence for Sustainable Development,Indiaishometo18%oftheworldspopulationbut itaccountsforonly2.4%oftheplanetslandmass,4%ofthefresh water resources about a percent of the worlds forest. Indias ecosystemarehighlydegradedandmostIndianrivershavewater quality unfit for direct human use. Air quality in Indian cities is degrading despite significant improvements in emissions from vehicleandindustries. This shows that sustainable development becomes a very 76

important need for India in todays scenario as we embark on a path of rapid economic growth and in this process we are depletingouralreadymeagernaturalresources. RelevanceofSustainabilityReportinginIndianContext Relevance of Sustainability Reporting and the form and contents of its adoption by the Indian corporates have been under discussion for some time. Indian economies are growing rapidly and in the era of globalisation adoption of Sustainability Reportingisinevitableinordertoseekinternationalmarketsand attractforeigncapital.Toacquirecompaniesabroadoreventoset up operations abroad, sustainability reporting is must. For many Indian companies, Sustainability Reporting has become a mandatory requirement for listing abroad. Stock Exchanges at LondonandJohannesburghavestartedinsistingonSustainability Reporting for listing procedures. In US, Sarbanex Oxley has imposed several new requirements for companies to be listed in stockexchangefor increased corporatetransparency.The pattern is same in the European Union Countries. In order to be competitive, Indian companies need to be at par in adopting the bestpracticesinreporting. Important initiatives in promoting CSR and Sustainability ReportinginIndia It is observed that currently in India there are no officially recognised guidelines/standards on sustainability reporting. Howeverstepshavebeeninitiatedbygovernmentandregulators in creating awareness on sustainability reporting. In 2011, Ministry of Corporate Affairs, Government of India released Voluntary Corporate Social Responsibility Guidelines with the objective that Indian companies will adopt these voluntary guidelines and partner with the government in progressing the national development goals by exhibiting socially, environmentally and ethically responsible behaviour in governance of its operations, generating long term value and sustainability for itself while managing positive contributions to the society. These guidelines ask a company to disseminate information on its CSR policy, activities and progress in a structured manner to the public at large. The guidelines contain following9PrincipleswiththeCoreElementstoactualiseeachof theprinciples. 1. Business should conduct and govern themselves with Ethics,TransparencyandAccountability; 77

2. 3. 4.

5. 6. 7. 8. 9.

Business should provide goods and services that are safe andcontributetoSustainabilitythroughouttheirlifecycle Businessshouldpromotethewellbeingofallemployees Businessshouldrespecttheinterestsof,andberesponsive towards all stakeholders, especially those who are disadvantaged,vulnerableandmarginalised. Businessshouldrespectandpromotehumanrights Business should respect, protect, and make efforts to restoretheenvironment Businesses, when engaged in influencing public and regulatorypolicy,shoulddosoinaresponsiblemanner Businessesshouldsupportinclusivegrowthandequitable development Businessesshouldengagewithandprovidevaluetotheir customersandconsumersinaresponsiblemanner

In2008Standard andPoors(S&P),CRISIL andKLD Research & AnalyticsannouncedthelaunchoftheS&PESGIndiaIndex,the first index of companies whose business strategies and performancedemonstrateahighlevelofcommitmenttomeeting environmental, social and governance standards and incorporate sustainability measures into their investment decisions. Fifty IndiancompaniesthatmeetcertainESGcriteriaweredrawnfrom the largest 500 companies listed on the National Stock Exchange (NSE)ofIndia.TheS&PESGIndiaIndexisbeingmaintainedby India Index Services Limited,ajoint venture betweenCRISL and theNationalStockExchangeofIndia. In 2007, Reserve Bank of India (RBI) issued notice to all commercial banks to embrace principle of corporate social responsibility and sustainable development. RBI believes that financialinstitutionscanplayavitalroleinsensitisingtheirclients totheissuesrelatedtoenvironmentalandsocialissues.

INDIANCORPORATESCENARIO
ThereareseveralcompaniesinIndiawhichhaveinitiatedthe sustainabledevelopmentapproachandsustainabilityreporting aspartofcorporategovernance. In the absence of any specific guidelines/standards, it has been noted that a small percentage of companies in India initiated voluntaryreportingonenvironmentalandsocialissuesaspartof 78

corporategovernance.Atotalof56companiesacross12industrial sectors have come up with a sustainability report in 2009 out of which 35 companies have referred to GRI guidelines. A survey completed by the CIIITC Centre of Excellence for Sustainable Development in 2007 mentioned that information regarding companys policiesandprogrammeson environment, health and safety, corporate social responsibility, community development, human resource, supply chain, energy conservation, optimum resource utilisation through innovations, reduction of pollution etc., followed by social elements like supporting local NGOs, promoting education in the local communities, campaigning againstHIV/AIDS,promotingentrepreneurshipinlocalyouthand women,etc.,arethecommondisclosureaspects. Forexample,theAdityaBirlaGrouphasasavisiontoactively contributetothesocialandeconomicdevelopmentofthe communities in which it operates; and in so doing, build a better sustainablewayoflifefortheweakersectionsofsocietyandraise the countrys human development index. The group has institutionalised the concept of triple bottom line accountability representedbyeconomicsuccess,environmentalresponsibilityand socialcommitment.Thus,ina holistic way,theinterestofallthe stakeholders have been textured in the groups fabric. Bharat Heavy Electricals Limited (BHEL) has joined the Global Compact of United Nations and has committed itself to support itandthesetofcorevaluesenshrinedinitstenprinciples. BHEL sharesthegrowingconcernonissuesrelatedtoenvironmental, occupationalhealthandsafety;andiscommittedtoprotecting environmentinandarounditsownestablishment,andto providingsafe and healthyenvironmenttoallitsemployees. For fulfillingtheseobligations,aHealth,Safety&EnvironmentPolicy has been formulated and implemented through management systems. Dr. Reddys Laboratory (DRL) has taken an initiative in the financial year 200304 to prepare and release sustainability report as part of its continuing effort to establish global benchmarks in corporate governance. The CEO of DRL commented that it believesthatanorganisationhastoperformwellonthethree dimensions of performance economic, social and environmental to achieve sustainable growth and success. As a company, DRL is fully committed to the principles of sustainability. The reportdetailsthevariousinitiativesandactivitiesofthecompany 79

as a responsible corporate, in the community, as a global citizen, itscommitmenttoprotectingstakeholdersinterest,andin contributingtobroadensocietalgoals.DRLisamongaselect groupofcompaniesinthehealthcaresectorworldwidetopublish asustainabilityreport. Corporate governance aspractised by the Tata Group translates into being fair and civicminded fulfilling its duties to the entire spectrum ofstakeholdersandmostimportantlymakingintegrity an article of faith across all its operations. TataSteelhaspreparedandreleasedoneofthestrongestcorporate sustainability reports from the emerging economic countries according to UNEP and Sustainability, Standard & Poor. There are several other companies in India which have initiated sustainability reporting on voluntary basis as a part of their corporate governance and commitment to sustainable development.As per the Global Reporting Initiative (GRI) data base, there are about 624 companies worldwide which currently publishsustainability reports,of which 10 areIndian companies. Theaboveinitiativesshowthattherehavebeenvariousefforts in India to promote and create awareness on Sustainability Reporting. However it is observed that in the absence of any specificguidelines/standardsissuedinIndia,Indiancompanies arebecomingincreasinglyorientedtowardsglobalstandardson sustainabilityreporting.

FUTURE IN INDIA
Sustainability reporting is increasingly becoming integrated with acompanyscorebusinessstrategyinindustrialisedcountries. This is largely in response to a call by stakeholders and investors forgreatertransparencyandsocialandenvironmental accountability. Accordingly, global sourcing companies insists that suppliers follow corporate sustainability reporting. Nonconforming companies stand to lose out. In such ascenario, Indian companies are increasingly realizing that they have much to lose by not following sustainability reportingnorms. Anotherdrivertowardssustainabilityreporting for Indian companies is their global ambitions. To acquire companies abroad or even to set up operations abroad, 80

sustainabilityreportingisbecomingamust.Companieslooking for foreign investments and listings abroad also look at meeting demanding sustainability reporting requirements. Stock ExchangesatLondonandJohannesburghavestartedinsistingon sustainability reporting for listing procedures. In the US, SarbanesOxleyActhasimposedseveralnewrequirementsfor companiestobelistedinstockexchangecallingforincreased corporate transparency. The pattern is same in the European UnionCountries. A recent survey found that Indian companies see sustainability reportingascentraltocorporatesocialresponsibilitywithpassive philanthropynolongerasufficientresponsetorising expectations. The drivers are already present in the Indian corporate sector and companies would have no other option but to follow sustainabilityreportingsystemtoexistandremaincompetitivein the market in the years to come. Based on the guidelines of GRI and formats used by different leading companies, a specimen template for sustainability reporting is given in Appendix2.

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8 SUSTAINABILITYREPORTING AWARDS
Theeffortstoembedandreportsustainabilityinitiativesare now under public scrutiny. Several organizations have Transparency and instituted awards under disclosure are the various categories for foundation of good reporters providing credible corporate governance, information. and these winning All such awards seek to models that other encourage better reporting on companies and organizations should sustainability performance, emulate reward best practice and MindyS.Lubber provideaknowledgebankfor PresidentCeres guidance to other are organizations that publishing or intend to publishsustainabilityreportsandincreasetheaccountability for impacts and responsiveness to stakeholders. The most importantobjectiveistorewardtransparency. Themajor awardsconferredtoorganizationsforexemplary sustainability reporting are covered in this section and includethefollowing:
CorporateRegisterReportingAwards GRIReadersChoiceAwards ACCA (Association of Certified Chartered Accountants) AwardsforSustainabilityReporting GlobeAwardforSustainabilityReporting 83 reports are exemplary

AustralasianReportingAwardsSustainabilityReporting Award

EuropeanSustainabilityReportingAward CorporateRegisterReportingAwards1 The CR Reporting Awards (CRRA) are annual, global online corporate responsibility reporting awards. The program was developed in 2007 to identify and acknowledge the best in corporate nonfinancial reporting. The CR Reporting Awards are managed by Corporate Register .com. There are a total of nine categories of award, five of which are for specific transparency aspects such as carbon disclosure. The overarching theme of the CRReportingAwardsistransparencyincorporateresponsibility. The awards are based on the report content and communication, and are not a reflection of the an organizations performance, profileoranyothersuchconsideration. TheReportingAwardsaredividedintotwocategories:
1)

Typeofreportandorganization i) ii) iii) Bestreport Bestfirsttimereport Best SME report (SME = organization with fewer than250employeesandanannualturnoverofless than50m) Bestintegratedreport Carbondisclosure Creativityincommunication Relevanceandmateriality Opennessandhonesty Credibilitythroughassurance

iv)
2)

Aspectsoftransparency i) ii) iii) iv) v)

Corporate Register website: http://www.corporateregister.com/crra/help/crraabout.html

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The five elements that are used to judge the reports include Content, Communication, Credibility, Commitment and Comparability. GRIReadersChoiceAwards2 TheaimoftheGRIReadersChoiceAwardsistodeterminewhat the report readers of the world think of sustainability reporting today, and which reports deserve recognition. The GRI Readerschoice A wide spectrum of stakeholders decide the awards.Readersareaskedtoscorereportsofinteresttothemona scaleof1to5alongfivecriteria: 1) Materiality 2) Stakeholderinclusiveness 3) Sustainabilitycontext 4) Completeness 5) Quality

Todeterminethefinalscorereport(FRS)theaverageweight of the attributes is multiplied by the average score readers assigntoeachattribute.Thenallfiveattributesareaddedup resultingintheFRS.
GlobeAwardforSustainabilityReporting3 TheGlobeAwardisgivenoutinfourcategoriestorecognizeand encourage societies, the corporate sector, individuals and academia that have excelled in the area of sustainability. Globe Award, an initiative by Globe Forum, is a notforprofit organizationwiththeaimoffosteringsustainabledevelopmentin society. These awards are based on the principle that sustainabilityreportingprovidesthekeystakeholderswithaclear understandingofthesignificanceofsustainabilityimpactstokey business activities, and the strategic actions taken in response to theseimpacts.

GlobalReportingwebsite:

http://www.globalreporting.org/NewsEventsPress/ReadersChoiceAwards/

GlobalAwardwebsite:

http://www.globeaward.org/criteria_sustainability_reporting_award

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TheGlobeAwardstakeintoaccountthefollowingcriteria:

Reported information is determined by its importance to the organizations strategy and the extent to which it impactskeybusinessactivities The impact of sustainability trends on the business in the short,mediumandlongertermareassessedandexplained Information is reported for each critical area of business activity with the connection between sustainability and financial performance demonstrated through the use of financial,nonfinancialandnarrativeinformation Targets have been set and performance against these targetsexplained Reportedinformationincludesupstreamanddownstream impactsofproductsandservices,wherethesearematerial Reportingisintegratedintomainstreamannualreporting An assessment as to how the organization is reducing its risk and will earn profits by integrating social and environmentalissuesintoitsbusiness Reported information is verified and assessed by an independent third party, what information is verified; by whom;whethertheentirereportoronlyportions;levelof assuranceetc. Reports should provide a structure to the information contained therein to ease comparability and easy comprehension.

AustralasianReportingAwards4 The Australasian Reporting Awards, initially called the Annual Report Awards, were established in 1950 by a group of leading businesspeopletoimprovethestandardsoffinancialreportingin Australia. The ARA has contributed to the dramatic improvements in the qualityofreportingsince1950by:

Australasian Reporting Awards website: http://www.arawards.com.au/index.php/eng/Criteria/CriteriaApplicable-to-Special-Awards-for-Excellence/Sustainability-Reporting-Award

4

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preparing and widely distributing ARA criteria based on worldbestpracticesasguidelinesforpreparingreports conductinganannualseminaronreporting providing constructive feedback by arrangement to those thatentertheAwards recognising excellence in reporting with Gold, Silver and BronzeAwards

Special Awards have been introduced to encourage excellence in annual reporting in areas of Sustainability, Governance, Occupational Health and Safety, Online Reporting and Communication. The Awards provide an opportunity for organizationstobenchmarktheirreportsagainsttheARAcriteria. The criteria have moved from a checklist or recipe approach to reporting,toonewhichfocusesonthecharacteristicsofexcellent sustainability reports. The criteria are grouped with regard to: completeness,credibilityandcommunication. Itshouldbenotedthatsustainabilityreportscomeinavarietyof formats, including corporate social responsibility (CSR) reports, sustainable development reports, health safety environment and communityreports,integratedintoannualreports. AnalysisofReportingAwardsCriteria An analysis of the criteria used in the awards discussed above, reveal the following significant factors contributing to a high qualityreport: 1) Completeness(40%) Anexcellentsustainabilityreportshouldenablethereadertoform a complete view of the organizations operations and impacts. Once the completeness of the reporting entity has been established, the credibility of the information presented becomes important. Acompleteviewhastwoparts.First,thereshouldbeclaritywith regardtothedefinitionofthereportingentityforthepurposeof the sustainability report. There is an expectation that entities whichhave beenreportingforsometimewouldincludeall their operations in a sustainability report unless they produce a range ofreports. 87

The second aspect ofcompletenessisthe extenttowhich,forthe reportingentity,allsignificantimpactsarepresentedinthereport. Where reports are not complete in the manner outlined above there should be some indication of the extent to which completeness has not been achieved and some estimate of the impactofthislackofcompletenessshouldbeattempted. 2)Credibility(35%) Therearetwoaspectstocredibility:namelyinternalandexternal. Internalcredibility Assurance(fromthepresentationofevidence)thatorganizational structures, processes and controls are in place to enable the organizationtoaccuratelypresentinformationonitsimpacts.This includes having policies, appropriate personnel in place, information gathering systems, management systems and targets whicharedesignedtoachievesustainabledevelopment. Externalcredibility Externalcredibilityrelatestotheextenttowhichthereisevidence that, where appropriate, the internal systems and information have been tested and the views of external parties have been incorporated into the report. This includes stakeholder interactionsaswellasthirdpartystatementsonthereport. 3)Communication(25%) This entails evaluation of the extent to which the sustainability report communicates to the declared target audiences, including assessmentofthemediaofcommunication.

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9 THEWAYAHEAD

THEFUTUREVISION

Business fulfilsa very central and important role in society. By providing products and/or services, they serve customers, create employment, generate profit for shareholders and tax revenues forgovernment,driveinnovationandusecapitalandresources fromtheir environment.Businesshasresponsibilities andarole to play in society as corporate citizen beyond economic success. Leadingcompaniesarebeginningtounlockvaluebytakinga broaderviewofwhattheyareaccountableforandusethat knowledgetorebuildtrustandstrengthentheirabilitytorespond toinvestorsperennialquestion:howwillyoudealwhen somethingunexpectedhappens? Successfulcompanies: Articulate their own vision of accountability and sustainability and embed it within core business strategiestocreatevalue. Takeproactivemeasurestochangemindsetsabout relationshipbetweenvaluecreationandsustainable development; and not simply be reactive for the sake of compliance. Make accountability and value creation mutually reinforcing throughouttheenterprise, integrating sustainable developmentacrossfunctionsratherthancreatingaseparate silo.

ACCOUNTABILITYAPPROACH

Theapproachthatisoutlinedabovehelpstohealthetrustwound andfacilitatescompaniestomoveforwardtocreatevalue;and notjustavoiddestroyingit.Intodaysglobalandincreasingly saturatedmarketplacesdevelopingabetterwayofdoingbusiness offersachancetoopenupnewbusinessopportunities.Ifvalue protectioncomesfromdoinglessbadthenvaluecreationis aboutdoingmoregood.Businessesandthepeoplewithin themareentirelycomfortable withbeingheldtoaccountabilityforprofitsbyinvestors,legal 89

compliancebyregulators,orqualityandtimelydeliveryby customers. But the traditional view of accountability is failing to equipcompanieswiththetoolstheyneedtosurviveandprosper. Tobetterunderstandwhataccountabilitymeansandwherethe potentialopportunitieslie,companiesneedtoaddressfive questions: Whoisaccountable? Companiesareaccountableatdifferentlevelsbyrole,function, hierarchyandgeography. Accountabilityisforwhat? Accountability encompasses social and environmental performance as well as broader economic impacts. Accountability is to whom? Corporate governance reforms is shifting the power from corporateboardroomtosocietyandsupplychainasbusiness has become networked organisation; subject to multiple forces. The conventional audience has been joined by wider interest groups: specialised socially responsible investors, employees, NGOs, local communities, rating agencies, customersandregulators. Accountability will be through what mechanism? It would bethroughguidanceandcomplianceofcompanycode of conduct, laws of the country, reporting requirements of regulators, internal metrices and processes and public reporting. Whatisthelikelyoutcome? Itisexpectedtoresultinpositiveoutcomescostreduction, lowercostofcapital,improvedreputation,betterrecruitment andretentionofemployees,bettermotivationofstaff,greater competitiveness, innovative processes and systems. Inordertoprovidecompanieswithpracticalanduserfriendly tooltofacilitatepursuanceofthenewaccountabilityapproach, AccountabilityhasonbehalfofWBCSDdevelopedadocument thatdiscussesandexplainstheensuingstrategicchanges, origination, operationalisation and rigourof applicationof certain key codes, standards and frameworksrelevant to sustainability agenda.Thisdocumentbroadlycoversprinciplebasedcodes(e.g. Global Compact and UN norms), accounting and disclosure frameworks(e.g.GRIandAA1000guidelines),specialstandards 90

(e.g. ISO 14001), investor related initiatives (e.g. Dow Jones Sustainability Index) and regulatory related requirements (e.g.SarbanesOxleyAct). Increasingly businesses are recognisng the value of sustainability andcompaniesworldwidearewalkingthetalk,contributingto the establishment of sustainable development through employmentandproductionofgoodsanddeliveryofservices. Sustainabilityismovingfromavisiontoaneverydayreality,where the practical challenges begin to show. It is therefore required to moveoutsustainabledevelopmentfromitsspecialistboxintothe mainstreamandintotheheartoftheorganization:theemployees. In this context, it may be pertinent to mention the step taken by NovoNordisk,acompanyfocusedonhealthcareandworldleader in diabetes care with broadest product portfolio in the industry. In January, 2003 Novo Nordisk launched a Take Action Programme(TAP)tocreateandenhancetriplebottomline mindsetandcultureacrossthecompany.Theprogrammeinforms, inspires and supports the employees to initiate and drive social and environmental activities and allows employeestospendtime doing these activities. It serves as a platform for sharing best practices. Under this umbrella programme, numerous and varied sub programmesaretakenupthatfacilitatessustainabledevelopment in terms of meeting social, environmental and financial responsibilities. The progress of TAP is measured and its results are communicated to all employees. This has resulted in making a positive impact to Novo Nordisks triple bottom line approach; andhassignificantlycontributedinattractingtalentsandretaining people. Issues in Sustainable Development and Sustainability Reporting Definition of Sustainable Development and Sustainability in Indiancontext The first important issue is whether there exists a definition of Sustainable Development and Sustainability that suit the Indian conditions and requirements and whether there is a need to develop one or adopt one of the existing definitions for Sustainable Development and Sustainability that suit to Indian conditionsandrequirements? Therehavebeenmanyattemptstoprovideanabsolutedefinition 91

of Sustainable Development and Sustainability but it has been observed that they typically vary with to the authors personal and organizational perspective. The most commonly accepted definition of Sustainable Development is that provides by the Brundtland Commission in 1987 development that meets the needs of the present without compromising the ability of future generationstomeettheirownneeds. The SIGMA guidelines states that creating a sustainable future economically, socially and environmentally requires that the actions of governments, organizations and individuals do not cause irreparable damage to the environment and to society, which would threaten the longterm survival and wellbeing of the planet and its people. Sustainability in the context of organizations encompasses the social, environmental and economic impacts of a business or other organization. These impactsarejudgedintermsoftheextenttowhichtheycontribute tosustainabledevelopment. The UK government interpretates that the goal of sustainable development is to enable all people throughout the world to satisfytheirbasicneedsandenjoyabetterqualityoflife,without compromisingthequalityoflifeoffuturegenerations. InthewordsofMahatmaGandhiTheearth,theair,thelandand the water are not an inheritance from our forefather but on loan fromourchildrensowehavetohandovertothematleastaswas handedovertous. Thedifferencesininterpretationismostlyduetothefactthathow each of the three goals or pillars of sustainable development environment,society,andeconomyareemphasisedbydifferent authors. The concern with balancing the needs of present and future generations and the need for balance among the different dimensions across sectors, themes and scale is also a point of difference.Thustherecanbeprofoundlydifferentunderstandings ofwhatsustainabledevelopmentstandsforandtherewillalways be an argument over the exact defintion of Sustainable Development and Sustainability. However, it is most important thatthereareenoughcommonelementsthatmostlyagreeonasa parttoasustainabledevelopmentapproachincluding: Concernforthewellbeingoffuturegenerations Awareness of the economic, environmental and social impactofanydecision Theneedforbalanceamongthedifferentdimensionsacross 92

sectors (e.g. mining, manufacturing, transportation), themes (climate change, community cohesion, natural resources management) and scale (local, regional, national, international). Difficultiesinaccountingandreportingofsustainableissuesin India Ithasbeenobservedthatmanycompaniesarenotabletodecide what they should report under sustainability reporting. In other wordstheyarenotabletoidentifythekeyissuesfortheusersof the report. In the absence of any standardized framework/guidelines for Sustainability Reporting in India it is suggested that following aspects may be covered by the companiesintheirSustainabilityreports.Theseare: i) HumanAspects Employees Development and Welfare, Employee discussion forums, Vendor satisfaction surveys for customers, Health andSafetyofemployeesetcinitiativesmaybereported. ii) SocialAspects Community Development and Welfare, Health & Safety of the community near the companys manufacturing plant, Regular donations to NGOs, Recognising talents, Human rightsetcinitiativesmaybereported. iii) NaturalAspects Climate change initiatives, Go Green initiatives, Goals on beingcarbonneutral,BioDiversityRestoration,Strategiesto becomewatersustainableStrategyforminimisationofsolid waste,Strategiesforminimisationofuseofvirginresources etcinitiativesmaybereported. iv) EconomicAspects Adherence to laws and regulations, Energy security for the nation, Energy conservation & Efficiency, Payment to exchequers,Incomegeneratingactivitiesincommunitiesetc. initiativesmaybereported. v) FinancialAspects Enhancing shareholders value, Corporate Governance and Transparency, Maintaining a sustainable growth strategy andprotectingmarginsevenduringrecession,Enhancement ofbrandvalue,EconomicValueAddedetc.maybereported. 93

NatureofReportingMandatoryvs.Voluntary Another important issue is what should be the nature of sustainability reporting in India. Should it be mandated by law andifso,inwhatmanner;oritshouldbekeptvoluntarilyandthe corporatesareencouragedtodoso?Whatshouldbetheapproach followed to popularise voluntary reporting and promote integration of culture of sustainable development and reporting withenterprisegovernance? Itissuggestedthattheframeworkofsustainabilityreportingisto bedividedintotwopartsnamely: i) MandatoryReporting ii) VoluntaryReporting Undermandatoryreportingfollowingaspectsmaybecovered: i) WaterManagement ii) ResponsibleEnergy iii) Emissions&Effluents iv) 4Rs Reduce:Wastepreventionorsourcereduction Revise:Revisingitems Recycle:Recycleturnsmaterialsthatwouldotherwise becomewasteintovaluableresources Rebuy:Buyingofrecycledproducts v) Biodiversityconservation On the above 5 parameters the companies would provide informationtotheextenttheyhavemaintainedordestroyedthese parameters,theiroutcomeandachievementsintheseareas. Apart from mandatory reporting it is suggested that the companieswouldbefreetoreportanythinginadditiontotheset framework of reporting as sustainability reporting is much diversified. ComponentsofSustainabilityReportingFramework Another important issue is what should be the framework of sustainability reporting? Should it be confined to expenditure incurredoralsoextendedtocostandbenefitsaswell?Howto capture consequential and ultimate impact of activities and products of an entity? In what manner elements of sustainability reportingshouldbelinkedwiththefinancialaccounting? 94

It is suggested that a suitable framework for sustainability reporting for companies reporting on the economic, environmental and social dimensions of their activities may be dividedintofourperspectives,namely, 1. Strategic/policyperspective 2. Internalmanagementperspective 3. Investorsperspective 4. Otherstakeholdersperspective 1.Strategicperspective It is proposed that the concept of sustainable reporting be considered from a higher level perspective through which a commonunderstandingofthisimportantconceptispromotedand which helps encourage the integration of sustainability issues into strategy, objective setting and performance appraisal. The consideration of sustainability from a strategic view point is important, especially before an organisation wants to initiate sustainable accounting and reporting. This is so because such reporting and accounting activities shall have a positive impact onlywhenthereisafundamentalshiftinthethoughtprocessofthe organisations management regarding its various operations. Concepts like sustainability, sustainable development, sustainable management or CSR should be recognised and understood at the strategic level and there should be some understanding of what they mean to a sustainable organisation, the risks of non complianceandthevariousopportunitieswhichappearalongwith. Inthisregarditwillbeworthwhilethatdefinitionsrelatedtothese importantconceptsaredevelopedintheIndiancontext. Some principles which could be laid under the strategic perspectivesaresuggestedbelow; The vision of the organisation regarding sustainability and theleadershipactionandsupporttoreinforcesuchavision. Ensuring that sustainability management is carried out within the broad strategic framework visualised by the organisation.Thismayincludethefollowing; o Understandingtheneedofintegratingsustainability issuesintodecisionmakingatthestrategicleveland subsequently including them into the operational facet. o Understanding the trade off between the 95

environmental,socialandeconomicfactors. Define policies regarding environmental and social issues for furthering effective future decision making. o Increase awareness of sustainability issues and their potentialimpactontheorganisation. o To imbibe sustainability into the financial and cost accountingsystems. Identifying sustainability issues which have an effect on value creation. This could be either a threat or an opportunityforthetacklingofwhichtheorganisationneeds to develop and execute effective strategy. This shall also include the identification and prioritisation of various environmental social and other impacts which could be measured only after having effective monetisation procedures for costs, savings and revenues relating to sustainableactivities. o

2.Internalmanagementperspective The Internal management perspective may include activities relatingtothefollowingareas; Environmentalawarenessandrelatedsavingsincosts. Environmentalmanagementandaccountingsystems. Sustainable accounting including cost identification, classification,emissiontradingandcapitalbudgeting. Theroleofsocialandenvironmentalissuesincost,riskand brandmanagement. DesignofKeyPerformanceIndicators(KPIs) As shall be clear from the above, internal management perspective encompasses within itself areas like Discounted CashFlows,etc.Someprincipleswhichcouldbelaidunder theinternalmanagementperspectivearesuggestedbelow; Determining environmental and social information requirement. This would include the understanding and analysisoftheexistingsystemswithaviewtothenewlylaid downobjectivese.g.whetherthereisaneedtoredesignan existing management accounting system in the wake of the needtorecogniseenvironmentalorsocialcosts! Incasetheenvironmentalandsocialcostsaresignificant,the 96

incorporationoftheseintoinvestmentdecisionanalysis. Promotingacrossfunctionalenvironmentinwhichthereisa positive interaction between the finance and non finance functions.

3.Theinvestorsperspective The Investors perspective shall include activities relating to the followingareas; The need to understand and report sustainable issues in financial statements. This shall help investors understand the various sustainability impacts, risks and accompanying opportunities. Inanera whereinvestorsexpect companystoworkonthe EVA concept, sustainability and the management of such issues are being increasingly acknowledged as a way of identifying opportunities and threats posed by the sustainabilitychallenge. Inthepresentdayenvironmentwheremarketcapitalisation of companys is directly associated with future projected cash flows, investors have become conscious of the various risks and opportunities which a company may face in the future. In this regard the need of non financial information likecustomerandemployeesatisfaction,innovationstrength ofthecompany andtheimpactofenvironmentaland other sustainableissuesassumessignificance. Some principles which could be laid under the investors perspectivearesuggestedbelow; Financial statements should contain information relating to environmental,socialandeconomicissues. The above mentioned information should be enough to reflecttheenvironmental,socialandeconomicimpact. The reported information should be accurate, reliable and sufficiently detailed to enable shareholders to assess performance. Thereportingofissuesshouldbeconsistent,comparableand timely. 4.OtherStakeholdersperspective TheotherStakeholdersperspectiveshallincludeactivitiesrelating tothefollowingareas; 97

Companies may either separately publish environmental, sustainabilityorCSRreportsormayintegratesustainability aspects into existing statements. Another way which organisationsmayadoptisofreportingsuchinformationin theformofanarrativereport. Companiesshallneedtounderstandtherequirementsofthe other Stakeholders which may require their active engagement. This may require a process of identifying stakeholders and establishing reasonable expectations and interest. Principlesinthisperspectiveshallremainthesameasthoseofthe internal perspective; however, a significant difference is the engagementofabroadersectionofstakeholdersengagement. ProposedcontentsofaSustainabilityReport In the wake of the above mentioned four perspectives, sustainabilityreportsmaycontainthefollowing; A statement of those who are responsible for governance describingthekeyelementsofthereport An overview of the reporting company and scope of the report Anexecutivesummaryandkeyindicators Vision of the reporting company and how that integrates economic,environmentalandsocialperformance An overview of the governance structure and management systemsthatareinplacetoimplementthevision Performance across social, economic and environmental areasofimpactandactivity AssuranceMechanism AnotherimportantissueiswhatshouldbeAssuranceMechanism. Should the sustainability reporting be independently audited? WhatshouldbetheframeworkofAssuranceStandards? It has been observed that ISAE 3000 issued by the International Accounting & Auditing Standards Board (IAASB) and AA1000 Assurance Standard developed by the Institute for Social and Ethical Accountability are the main international standards used for assurance on sustainability reports in India by the companies thatarereportingonsustainabilityrelatedissuesvoluntarily. In above scenario role of Chartered Accountants assumes great 98

importance in developing a suitable framework of assurance standardsinIndia. RoleofCharteredAccountants With increasing activity and awareness in respect of the preservation of the environment and the fast depleting natural resources, there has also been a corresponding increase in the expectations of the various stakeholders regarding information from the organization as to its commitment to these aspects. Organizations need the services of an independent accountant to provide independent assurance on the above information being furnishedbytheorganizations. The professional accountants have also an important role to play in developing the Framework for sustainability reports that is amenable to being provided independent assurance upon. In other words, the Sustainability report should be able to meet the requirements set down in the Framework for Assurance Engagements applicable to the professional accountants. The typesofservicesthataCharteredAccountantcouldprovidewith respecttosustainabilityreportingare: Advisoryservicestodevelopsystemstocaptureinformation relatedtosustainabilityreporting; Assessment and management of Business Risks associated withenvironmental,socialandeconomicissues; Voluntary codes encourage organizations to improve particular aspects of their sustainability performance. Chartered Accountants can provide expert services in identifyingacodeappropriatetothebusinessorintegrating operation of the code with an existing management informationsystem. Advisory services to promote improved dialogue and relationships with employees and communities in which operationsarelocated; Providerelevantandreliableinformationforbenchmarking; Evaluate and monitor purchase policies and provide assurance on application of standards in Supply Chain Management; Monitor and ensure compliance of all relevant and applicableregulations 99

Assurance services with respect to the effectiveness of internalcontroloversustainabilityreporting

Prerequisite for Chartered Accountants before providing AssuranceonSustainabilityReport The following may be considered as a prerequisite before the accountingprofessionalsareropedinforprovidingassuranceon sustainabilityreports: Developsuitablecriteriaforsustainabilityreporting Clients need to develop effective and reliable system to capture information required to be given in sustainability reports Professional accountants need to gain sufficient knowledge in respect of aspects included in sustainability reports, includingcertainnonfinancialaspects Professional accountants may also need to hire subject specialist experts or have multidisciplinary team engage in theassuranceengagement

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Conclusion The goal of sustainable development requires that the businesses take responsibility for their social, environmental and economic impacts. Sustainable development can provide business with an opportunitytoinnovateandameanstogrowateachleveland stepofbusinessoperation.Makingtherightchoiceswithina company,whetheritisnewlyexposedtotheconceptofsustainable developmentorisalreadyadvancingitssustainabilityagenda, contributes to the companys long term success. It is a matter of making the right choices and setting the right priorities. This underlies the need for a positive mind set towards sustainable development. Wider the spread of sustainability, greater the chancesofitssuccess.Inordertoattainthis,risingawarenessand hence education, is key. Corporate Sustainability Reporting is gradually finding acceptance in India. Many Indian companies have started reportingonsustainabilityrelatedissues.Howeverthereisaneed to promote Indian companies towards greater Corporate Accountability on social, ethical and environmental issues that have an impact on the society and the environment. Moreover there is a need for developing consensus on a standard sustainability reporting format and a system for providing assuranceonsuchreportsbyanindependentexternalagency.

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 APPENDICES

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Appendix:1 CERESPRINCIPLES

TheCoalitionforEnvironmentallyResponsibleEconomics(CERES) isanonprofitorganisationbasedintheUS,whichcomprises investorsandenvironmental,religiousandpublicinterestgroups. Thecoalitionspurposeistopromoteinvestmentpoliciesthat areenvironmentally,sociallyandfinanciallysound. CERES believes that companies and their shareholders have a directresponsibilityfortheenvironment.Itbelievesthat companiesmustconducttheirbusinessasresponsiblestewards of the environment and seek profits only in a manner that leaves the earth healthy and safe. It believes that companies must not compromise the ability of future generations to sustain theirneeds. CERESofferstenprinciplesasguidanceforcompaniestofollow: Protection of the Biosphere Sustainable Use of Natural Resources Reduction and Disposal of Waste WiseUseofEnergy RiskReduction MarketingSafeProductsandServices DamageCompensation Disclosure of Effects of Business Operations on Environment,HealthandSafety ImproveManagementResourcestoImplementthe Principles AssessmentandAudit

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APPENDIX:2 SPECIMENTEMPLATEFOR SUSTAINABILITYREPORT

Contents
1. 2. 3. 4. 5. 6. Messageor statement of theCEO Visionofthe organisation Commitment of the organization to economic,environmentai and sociai goais Initiativestakenbytheorganisationinregard tosustainabiiity TheChaiiengesfaced Purpose and highiights of the report

Profileoftheorganisation Vision and Mission Area of operation, products and services Organisationstructure Operatingprocess ExecutiveSummary Anoverview ofthe report KeyIndicators Performanceineconomic,environmentaiandsociai areas Comparison of performance with previous year andbenchmarkfoiiowed Scope of the report Purpose Targetedaudience Vision and vaiues Drivers of sustainabiiity EconomicPerformance Business strategy Researchstrategy Economic impact on stakehoiders

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7.

EnvironmentalPerformance Focus on safety, heaith and environment Environmentaimanagementsystem Initiatives taken such as water usage, energy usage, waste water discharge, hazardous waste disposai, green house gas emission, waste recyciing etc. SocialPerformance Commitment to sociai responsibiiity Empioyeereiationsandweiibeing Communityweifare Promotionofcharitabieinstitutionsand foundations

8.

9. AwardsandAchievements Note:Thecontentsundertheabovesectionsshouidbesupported withactuaiactionsandiiiustrations. 10. AssuranceStatement

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1. 2. 3.

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19. The Future of Sustainabiiity Assurance a Research Report ofACCA 20. KPMGSurveyReport,2005 21. AssuranceandReguiatorybySustainabiiity 22. Towards an Indian Approach to Giobaiisation by Adarsh Kishore 23. TataSteeisCorporateSustainabiiityReport 24. Annuai Report of Asea Brown Boveri Ltd., 2002 25. Business and Sustainabie Deveiopment: A Giobai Guide

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