Sustainability

Question 1

Corporate Social Responsibility (CSR)

Definition

Answer 1

• ‘the obligation of business…. to pursue those policies, to make those decisions or to follow those lines of action which are desirable in terms of the objectives and values of our society.’

Howard R. Bowen (1953)

Question 2

Corporate Social Responsibility (CSR)

What is social accounting?

What does it involve?

Answer 2

• Social accounting is ‘the process of communicating the social and environmental effects of organisations’ economic activities to particular interest groups within society at large.
• As such, it involves extending the accountability of organisations, beyond the traditional role of providing a financial account to the owners of capital, in particular, the shareholders. Such an extension is predicated upon the assumptions that companies do have wider responsibilities than simply to make money for their shareholders.’

Grey et al (1996)

Question 3

CSR: Economic

What is the aim?
4 examples?
What is the principle here?

Answer 3

Basics:

• economic CSR aims to strike a balance between maximisation of profits and sustainable practices.

Specifics:

• Using new machinery to minimise waste
• Change to no- or low-emissions vehicles (Amazon)
• Recycling materials
• Employee welfare.

The principle here is that by investing in moral and sustainable activities, profits will increase.

Question 4

CSR – environmental

What is the aim?
4 examples?
What is the principle here?

Answer 4

Environmental CSR aims to reduce damaging effects on the environment from business activities.

Examples to reduce

• Energy use
• Water use
• Waste management
• Recycling
• Emissions
• Travel policies

The principle here is that in safeguarding the environment, the company is safeguarded too.

Question 5

CSR - Social

6 examples
What is the principle here?

Answer 5

• Improving labour practices
• Fairtrade
• Charitable giving
• Volunteering
• Paying fair wages (above minimum wage)
• Paying suppliers on time

The principle here is that by investing in the community, the community will invest in the company.

Question 6

Definitions

Sustainability
Sustainable development
Sustainable development goals

Answer 6

Sustainability:

• Limiting the use of depleting resources to a level that can be replenished

Sustainable development:

• “Development that meets the needs of the present without compromising the ability of future generations to meet their own need”

Sustainable development Goals (SDGs)

• 2015: Adopted by all UN member states as part of “2030 Agenda for Sustainable Development”

Question 7

The global goals for sustainable development split into 3 (picture)

Answer 7

Question 8

Paris Agreement - 2015 (5)

Answer 8

• International treaty
• Signed by 196 countries at COP21
• Framework for international action on climate change
• Maximum 2°C increase global temperature change, with preferred goal of 1.5°C above pre-industrial levels
• Net zero – global reduction in Green House Gas Emissions to net zero by 2050

Question 9

Why are companies focusing on sustainable business practices? (4)

Answer 9

• increased future government focus on sustainable business
• often improve performance by lowering operational, reputational and regulatory risk
• significant business growth opportunities in products and services that address the SDG challenges
• profit based models are reducing in relevance. Companies and their stakeholders are changing how they measure success, and this is becoming more than just about profit.

Question 10

Sustainability reporting

What has growing awareness created in terms of stakeholder expectations?

Why is sustainability reporting a key part of a company’s dialogue?

What disadvantage do companies face if they fail to make disclosures?

What has the emergence of new non-financial reporting standards led to?

Picture of what sustainability reporting is

Answer 10

What has growing awareness created in terms of stakeholder expectations?

• Growing awareness has created stakeholder expectations for disclosures.

Why is sustainability reporting a key part of a company’s dialogue?

• Sustainability reporting is a key part of a company’s dialogue with its stakeholders.

What disadvantage do companies face if they fail to make disclosures?

• Companies failing to make disclosures are now at a significant disadvantage.

What has the emergence of new non-financial reporting standards led to?

• The emergence of new non-financial reporting standards has been driven by the need for sustainability reporting.

Question 11

Sustainability reporting

Important dates and milestones (5)

Answer 11

2000: Global Reporting Initiative (GRI) first issued guidelines for sustainability reporting
2016: GRI = 1st global standards adopted
2017: Task force for Climate Related Financial Disclosures
2021: International Sustainability Standards Board (ISSB) created
2023: Two new sustainability standards issued:

• IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information
• IFRS S2 Climate Related Disclosures

Question 12

Investor perspective

What are the benefits of firms with strong ESG (Environmental, Social, and Governance) propositions?

How do ESG-focused firms achieve better long-term growth and financial returns? (4)

Answer 12

What are the benefits of firms with strong ESG (Environmental, Social, and Governance) propositions?

• Less risky and offer more value potential – Companies with strong ESG practices tend to avoid regulatory fines, reputational damage, and operational disruptions, making them more stable investments.

How do ESG-focused firms achieve better long-term growth and financial returns?

• Revenue growth (new & existing markets) – Sustainable practices can attract environmentally conscious customers and open opportunities in emerging markets.
• Cost savings (from energy efficiency and waste reduction) – Companies that optimize energy use and reduce waste can significantly lower operational expenses.
• Access to cheaper borrowings (lower cost of capital) – Investors and lenders often offer better financing terms to companies with strong ESG credentials, reducing borrowing costs.
• Access to talent – Employees increasingly prefer to work for companies with ethical and sustainable practices, helping firms attract and retain top talent.

Question 13

FTSE Reporting requirements (3)

Answer 13

Companies Act (2006)

• Requires quoted companies to report on environmental matters in their Strategic Report to the extent that environmental information is necessary for an understanding of the development, performance or position of the company’s business

UK Companies (Directors Report) and LLP (Energy & Carbon Report) Regulations 2018

• Requires large UK companies to disclose annual GHG emissions, energy, use and energy efficiency measures in the Directors Report (or cross referenced from the Strategic Report)

FCAs Listing Rule for Climate Related Disclosures (Premium Listed)

• Financial Conduct Authority (FCA) introduced new single listing rules requiring premium listed companies to include TCFD –aligned disclosures in their annual reports on a “comply or explain” basis for accounting periods on/after 1 Jan 2021.

Question 14

How do companies demonstrate sustainability? (5)

Answer 14

• Sustainability reporting in annual report
• ESG metrics e.g. CO2 emissions, waste, diversity
• Climate related disclosures
• Non-financial performance indicators
• Highlight sustainable investments

Question 15

What are the benefits of sustainability reporting? (5,2,2,2,2,2)

Answer 15

What are the benefits of sustainability reporting?

• Enhanced transparency and trust
  
  • Provides clear ESG information to stakeholders.
  • Builds credibility with investors, customers, and employees.
• Accountability and regulatory compliance
  
  • Ensures adherence to legal and industry standards.
  • Demonstrates ethical business practices and reduces compliance risks.
• Informed decision-making
  
  • Offers insights into sustainability performance.
  • Supports data-driven strategies for efficiency and risk management.
• Benchmarking & performance improvements
  
  • Enables comparison with industry peers.
  • Identifies areas for improvement and tracks progress.
• Integration into business strategy
  
  • Embeds sustainability into operations and decision-making.
  • Strengthens resilience against environmental and social challenges.
• Promotes long-term value creation
  
  • Enhances financial performance and brand reputation.
  • Supports business longevity and sustainability goals.
• Competitive advantage
  
  • Differentiates companies through strong ESG commitments.
  • Attracts investors, customers, and talent.