CCGL9018
Corporate social responsibility
Topic Four
Sustainability Reporting
Spring, 2024
Hong Kong, China
Agenda
• Introduction
• Current Trends in CSR Reporting
• The Sustainability Management Framework
• The Stakeholder Approach
• CSR & Profitability
• Various International ESG Reporting Standards
• Sustainability Reporting in Hong Kong
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Introduction
Market needs of information
The reports constitute pieces of communication that should allow organizations to build relationships of trust with
their stakeholders. Therefore, they should be designed from the perspective of what they want to know about the
interest groups, and not from what the organization wants to express. The demand for information from interest
groups is configured from two elements:
…(1) stakeholder to which communicate …(2) short vs long term
Non-financial
Volume of
Corporate information information
§ Investors needs
In the long run, the information needs
of interest groups are aligned and
§ Clients
Country based on non-financial information,
§ Suppliers
because it is a better predictor of
§ Regulators
future success.
§ Employees
Sites § Local
communities Financial information
Source: KPMG Spain
Time
3
Introduction
Source: https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2017/10/kpmg-survey-of-corporate-responsibility-reporting-2017.pdf
4
Introduction
5
Current Trends in CSR Reporting
Standardization of CSR reporting to enhance credibility:
–Standardizing CSR reports: e.g. GRI, IIRC and SASB
–Assurance: e.g. The ‘ISAE3000 Assurance Engagements other than Audits
or Reviews of Historical Financial Information’. The ‘AA1000S Assurance
Standard,’ launched by AccountAbility in 2002, provides a framework for
assessing processes underlying a CSR report.
–Regulation: The voluntary nature of CSR reporting is starting to be
challenged. More and more countries tend to make CSR disclosure mandatory.
–Integrated reporting: The International Integrated Reporting Committee
(IIRC) proposes one integrated report combining the annual and CSR report.
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Sustainability Management
Framework
Sustainability Sustainability
Reporting Management
Sustainability
Governance
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Stakeholder Approach
According to Stakeholder Approach:
• In defining or redefining the company mission,
strategic managers must recognize the legitimate
rights of the firm’s claimants.
• These include outside stakeholders affected by
the firm’s actions.
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Major Stakeholders
• Customers
• Government
• Stockholders
• Employees
• Community
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Steps to Incorporate Stakeholders
1. Identification of stakeholders
2. Understanding stakeholders’
specific claims vis-à-vis the firm
3. Reconciliation of these claims and
assignment of priorities
4. Coordination of the claims with
other elements of the company
mission
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Key Issues & Difficulties in Stakeholder
Engagement & Dialogue
• Identifying the range of stakeholders to be considered
• Impossibility of direct dialogue and engagement with some
stakeholders
• Addressing heterogeneous stakeholder views and expectations
• Prioritizing stakeholder needs on the basis of maximum negative
consequences
• Negotiating a consensus among mutually exclusive stakeholder
views through discourse ethics
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CSR & Profitability
• Corporate social responsibility (CSR), is
the idea that business has a duty to serve
society in general as well as the financial
interests of stockholders.
• The dynamic between CSR and success
(profit) is complex. They are not mutually
exclusive, and they are not prerequisites of
each other.
• Hey, by the way, what is “profit”?
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ESG Reporting Standard – Global
Initiatives
• The EU Accounting Directive: Transposed to
local laws before end 2016. It becomes
compulsory for PIEs > 500 employees
• The Global Reporting Initiative (“GRI”) is the
independent international organization that
helps businesses, governments and other
organizations understand and communicate
their impacts. The GRI Standards are the
world’s most widely used for sustainability
reporting.
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ESG Reporting Standard – Global
Initiatives
• Sustainability Accounting Standards
Board (“SASB”) Standards are industry-specific
and are designed to be decision-useful for
investors and cost-effective for companies.
• The International Integrated Reporting
Council (“IIRC”)’s vision is a world in which
capital allocation and corporate behaviour are
aligned to the wider goals of financial stability
and sustainable development through the cycle
of integrated reporting and thinking.
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International standard
harmonization
• IFRS Foundation has a consultation on
sustainability reporting in September of
2020
• https://www.ifrs.org/projects/work-
plan/sustainability-reporting/comment-letters-
projects/consultation-paper-and-comment-
letters/
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EU Accounting Initiatives
§ Since 2003 it has been obligatory for large public limited companies to
report non-financial key performance indicators in their status report.
§ The directive 2003/51/EC of the European Parliament and of the Council,
amending the directives 78/660/EEC and 83/349/EEC, regulates the
following: „To the extent necessary for an understanding of the
company‘s development, performance or position, the analysis shall
include both financial and, where appropriate, non-financial key
performance indicators relevant to the particular business, including
information relating to environmental and employee matters.“
§ Directive 2014/95/EU lays down the rules on disclosure of non-financial and
diversity information by large companies. This directive amends the accounting
directive 2013/34/EU. Companies are required to include non-financial
statements in their annual reports from 2018 onwards.
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EU Accounting Initiatives
2014/95/EU
§ “In its resolutions of 6 February 2013 on, respectively, ‘Corporate Social
Responsibility: accountable, transparent and responsible business behaviour
and sustainable growth’ and ‘Corporate Social Responsibility: promoting
society's interests and a route to sustainable and inclusive recovery’, the
European Parliament acknowledged the importance of businesses divulging
information on sustainability such as social and environmental factors […]. […]
Disclosure of non-financial information helps the measuring, monitoring and
managing of undertakings' performance and their impact on society.”
§“In order to enhance consistency and comparability of non-financial
information disclosed throughout the Union, companies should be required to
include in their annual report a non- financial statement containing information
relating to at least environmental matters, social and employee-related
matters, respect for human rights, anti-corruption and bribery matters. Such
statement should include a description of the policies, results, and the risks
related to those matters […].”
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EU Accounting Initiatives
§ EU rules on non-financial reporting only apply to large public-interest
companies with more than 500 employees. This covers approximately 6,000
large companies and groups across the EU, including listed companies,
banks, insurance companies, other companies designated by national
authorities as public-interest entities
§ Directive 2014/95/EU gives companies significant flexibility to disclose
relevant information in the way they consider most useful. Companies may
use international, European or national guidelines to produce their
statements – for instance, they can rely on
§ the UN Global Compact
§ the OECD guidelines for multinational enterprises
§ ISO 26000
§ In June 2017 the European Commission published its guidelines to help
companies disclose environmental and social information. These guidelines
are not mandatory and companies may decide to use international,
European or national guidelines according to their own characteristics or
business environment. 18
Global Reporting Initiative (GRI)
• http://www.globalreporting.org
• Goal
– to produce a report that “reflect[s] the organization’s
economic, environmental and social impacts” and should
include all material information
• materiality is defined as information that could “substantively
influence the assessments and decisions of stakeholders”
• UNEP sponsored but independent
• Facilitate comparisons
– over time
– across organizations
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Global Reporting Initiative (GRI)
An evolution of GRI
From 31 December 2017: GRI the standards
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Global Reporting Initiative (GRI)
GRI: evolution, perspectives
q Leadership in the market
q Excellence: not possible without a clear
business and governance model.
q Specific standards: focuses on materiality .
Source: Sustainability Disclosure Database
Challenges:
q Incentives of using it
q Apparently competes with IIRC.
q Relationship with EU and IIRC
q Relevance and credibility par
q Corporate Leadership Group: 2025 e IIRC.
Fuente: The KPMG Survey of Corporate Responsibility Reporting 2015
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Global Reporting Initiative (GRI)
Will allow: Main differences from G4:
Adapt and update quickly the individual GRI They are organized in universal and specific standards.
requirements to be aligned with trends and
material issues. They differ according to requirements,
recommendations or guides.
Being able to refer to GRI on more occasions
They have been edited with greater clarity and
Greater applicability to integrated reports and simplicity of language.
facilitates updating
Clarifications are specified about G4 elements that
were not understood.
Universal
Standards
Reporting Principles General disclosures Management disclosures,
and how to use the to report about the specific, material
standards corporate’s context disclosures
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Global Reporting Initiative (GRI)
Specific Standards
6 economic 19 social 601 – Employment
401 - Economic 602 – Labour / management relations
performance 402 - 603 – Occupational health and safety 604
Market presence – Training and education
403 - Indirect economic 605 – Diversity and equal opportunity
impacts 404 - 606 – Non-discrimination
Procurement practices 607 – Freedom of association and
405 - Anti-corruption collective bargaining
406 - Anti-competitive 608 – Child labour
behavior
609 – Forced or compulsory labour 610 –
8 environmental 501– Materials Security practices
502– Energy 611 – Indigenous rights
503– Water 612 – Human rights assessment 613 –
504– Biodiversity Local communities
505– Emissions
614 – Supplier social assessment 615 –
506– Effluents and waste
Public policy
507– Environmental
compliance 616 – Customer health and safety 617 –
508– Supplier environmental Marketing and labelling 618 – Customer
assessment privacy
619 – Socioeconomic compliance 23
Global Reporting Initiative (GRI)
Sectors covered
q Financial services sector
q Electric utilities sector
q Mining & metals sector
q Food processing sector
q NGO sector
q Media
q Oil and gas
q Airport operators
q Construction
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Sustainability Accounting Standards
Board (SASB)
Sustainability Accounting Standards Board™ (SASB™), is an organization that has developed a
set of indicators of 80 sectors in 10 industries, providing a set of globally applicable industry-
specific standards which identify the minimal set of financially material sustainability topics and
their associated metrics for the typical company in an industry. It is typically used to report 10-k,
20-F forms.
Conceptual framework
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Sustainability Accounting Standards
Board (SASB)
Investors use of Materiality
Map: Analyze portfolio
exposure to specific
sustainability risks and
opportunities represented by
each issue.
Source:https://materiality.sasb.org/
The idea of the Materiality
Map® was first introduced
by the Initiative for
Responsible Investment at
Harvard University in the
white paper From
Transparency to
Performance: Industry-
Based Sustainability
Reporting on Key Issues.
The current Materiality
Map® is adapted from the
evidence- based methods
piloted in that study.
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International Integrated Reporting
Council (IIRC)
FASB
IIRC
IASB
A B
Financial Integrated
Report CSR Report
Report
Link A: US GAAP or IFRS
Link B: International <IR>
Framework
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International Integrated
Reporting Council (IIRC)
Why do We Need Integrated Reporting?
Since the current business reporting model was designed, there have been major changes in the way business is conducted,
how business creates value and the context in which business operates. These changes are interdependent and reflect
trends such as:
•globalization,
•growing policy activity around the world in response to financial, governance and other crises,
•heightened expectations of corporate transparency and accountability,
•actual and prospective resource scarcity,
•population growth, and
•environmental concerns.
Against this background, the type of information that is needed to assess the past and current performance of organizations
and their future resilience is much wider than is provided for by the existing business reporting model. While there has been
an increase in the information provided, key disclosure gaps remain.
Reports are already long and are getting longer. But, because reporting has evolved in separate, disconnected strands, critical
interdependencies between strategy, governance, operations and financial and non-financial performance are not made clear.
To provide for the growing demand for a broad information set from markets, regulators and civil society, a framework is
needed that can support the future development of reporting, reflecting this growing complexity.
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International Integrated
Reporting Council (IIRC)
Why? The need for change
Globalization and interconnectivity mean the world’s finances, people and knowledge are inextricably linked, as
evidenced by the global financial crisis. In the wake of the crisis, the desire to promote financial stability and
sustainable development by better linking investment decisions, corporate behaviour and reporting has become
a global need.
<IR> has been created to enhance accountability, stewardship and trust as well as to harness the information
flow and transparency of business that technology has brought to the modern world. Providing investors with
the information they need to make more effective capital allocation decisions will facilitate better long-term
investment returns.
Businesses require an evolution in the system for reporting, facilitating and communicating mega-trends
without the complexity and inadequacy of current reporting requirements. Currently, there are significant
information gaps in reports, with the organizations such as the World Bank and IMF calling for a greater focus
on aspects such as risk and future development.
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International Integrated Reporting
Council (IIRC)
• Integrated reports
• Six Capitals
• “An integrated report should
provide concise information that is
material to assessing the
organization’s ability to create
value in the short, medium, and
long term”
• Materiality: “information that could
substantively affect the
organization’s ability to create
value in the short, medium, or
long term”
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©
E
F
F
International Integrated
A
S
2
0
Reporting Council (IIRC)
2
0
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International Integrated
Reporting Council (IIRC)
…Companies not only use financial capital, and
do not only produce financial capital
… The capacity of an organization to create value
will be determined by its business model, that is,
as it captures capitals, transforms them, and the
results it obtains...
... distinguishing between the direct results of its
activity...... and the indirect consequences of
these results on the group of interest groups
Capitals are obtained from the group of
stakeholders...
... and the results and consequences of the
activities of the Organization’s impact on the
stakeholders...
... so an organization must design its business
model, mission and vision and government in
response to the challenges of its environment
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Sustainability Reporting in HK
• HKEx issues ESG Report preparation guideline in
December 2015 that become fully effective for
accounting periods starting on or after 1 January 2017.
(Appendix 27)
• This Guide is organised into two ESG subject areas
(“Subject Areas”): Environmental (Subject Area A) and
Social (Subject Area B).
• An issuer must report on the “comply or explain”
provisions of this Guide.
• The ESG report should state the issuer’s ESG
management approach, strategy, priorities and
objectives and explain how they relate to its business.
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Sustainability Reporting in HK
Reporting Principles
(1) Materiality is the threshold at which ESG issues
become sufficiently important to investors and other
stakeholders that they should be reported.
(2) Quantitative: KPIs need to be measurable.
(3) Balance: The ESG report should provide an unbiased
picture of the issuer’s performance.
(4) Consistency: The issuer should use consistent
methodologies to allow for meaningful comparisons of ESG
data over time.
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Sustainability Reporting in HK
• Recommended Social KPIs:1) Workforce by gender,
employment type, age group and geographical region
and 2) Employee turnover rate by gender, age group and
geographical region.)
• Environment KPIs: 1) types of emissions and respective
emissions data; 2) Greenhouse gas emissions in total (in
tonnes)
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Sustainability Reporting in China
• China - The SOEs ESG reporting guidelines are set by
State-owned Assets Supervision and Administration
Commission, (SASAC) which have required publishing of
CSR reports since 2012.
• The Shanghai Stock Exchange (SSE) “Notice on
Strengthening the Social Responsibility of Listed
Companies and Issuing the Guidelines on Environmental
Information Disclosure of Listed Companies on the
Shanghai Stock Exchange.
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Creditability of Sustainability
Reporting
Some issues:
§The creditability of
information? Audit required?
§Standard, format and
disclosure? GRI?
§Do we need to have
assurance service?
§Who can assurance service
for CSR report? Big-4?
37
ESG Performance Index
• International - Dow Jones Sustainability Index, MSCI ESG
Research, FTSE Russell, Sustainalytics,
Refinitiv, Bloomberg, RobecoSam, ISS, etc
• China - SynTao Green Finance ESG rating index; China
Alliance of Social Value Investment ESG rating index
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Conclusion
Having attended this seminar, you should be able to
understand the following concepts:-
•The reasons for engaging in CSR Reporting;
•The stakeholder approach and its challenges;
•Profitability and CSR with complicating factors;
•Various international ESG reporting standards;
•Sustainability Reporting in Hong Kong and its possible
issues.
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