Sustainability Reporting Principles and Process PDF

CHAPTER 2 SUSTAINABILITY REPORTING PRINCIPLES AND PROCESS LEARNING OBJECTIVES Upon completion of this chapter, you should be able to 1. Describe the five sustainability principles. 2. Understand the different sustainability theories. 3. Describe key considerations for an organization seeking...

CHAPTER 2 SUSTAINABILITY REPORTING PRINCIPLES AND PROCESS LEARNING OBJECTIVES Upon completion of this chapter, you should be able to 1. Describe the five sustainability principles. 2. Understand the different sustainability theories. 3. Describe key considerations for an organization seeking to embed sustainability in its business strategy and leveraging sustainability to reduce risks and take advantage of business opportunities embedding sustainability in organizations. 4. Identify and prioritize material sustainability matters. 5. List and understand the five steps to be considered in applying materiality. 6. Explain how the organization develops its position and response with respect to each material sustainability matter. 7. Explain how the organization communicate and provide credibility to sustainability performance and disclosures. Companies today face the challenges of adopting proper sustainability strategies and practices to effectively respond to social, ethical, environmental and governance issues while creating sustainable financial performance and value for their shareholders. The goal of the firm value maximization under business sustainability can be achieved when the interests of all stakeholders are considered. The focus is on long-term shareholder value creation while considering trade-offs among other apparently competing and often conflicting interests of all stakeholders including society, creditors, employees, suppliers, customers, and the environment. The relative importance of the three dimensions economic, social and governance of sustainability performance with respect to each other and their contribution to overall firm value creation is affected by whether these sustainability performance dimensions are viewed as competing with, conflicting with or complementing each other and what sustainability theory or theories are applied to define tensions among ESG sustainability performance dimensions. This chapter examines several principles and theories relevant to all three ESG dimensions of sustainability performance in explaining the tensions between them as well as the associated risk. SUSTAINABILITY PRINCIPLES As business sustainability is gaining increasing attention and recognition as a strategic imperative and being integrated into corporate culture and business environment, its principles are being defined by several professional organizations. The five principles of sustainability, developed based on the definition of sustainability as "a dynamic equilibrium in the process of interaction between a population and the caring capacity of its environment such that the population develops to express its full potential without producing irreversible, adverse effects on the carrying capacity of the environment upon which it depends" provide guidelines for public companies to effectively manage the social, environmental and financial aspects of their business. The five sustainability principles as defined by the Brundtland Commission are the material, economic, life, social and spiritual domains. 1. The Material Domain, which constitutes the basis for regulating the flow of materials and energy which underlie existence. This principle suggests continuous flow of resources through and within the economy as permitted by physical laws and provides justifications for regulating the flow of materials and energy. Policy and operational implications of this principle are concerned with the promotion of highest resource productivity, recycling of non-regenerative resources and regenerating energy resources that underlie existence.  2. The Economic Domain, which provides the guiding framework for defining, creating, and managing wealth. This principle posits that there exist economic and accounting guiding frameworks for managing wealth and aligning economic performance with the planet's ecological processes. Policy and operational implications of this principle are concerned with the effective management of all capitals, including natural, financial, manufacturing, human and social, with a focus on the wellbeing of all stakeholders. It also relies on market mechanisms and smart regulation for the proper allocation of resources and capital assets. 3. The Domain of Life, which provides the basis for appropriate behavior in the biosphere. This principle promotes diversity of all forms of life as the basis for appropriate behavior in the biosphere. Policy and operational implications of this principle are concerned with accountability and stewardship, responsibility for the planet and conservative use of scarce resources. 4. The Social Domain, which provides the basis for social interaction. This principle suggests the basis for providing the maximum degree of freedom and self-realization for all humans and their social interactions. Policy and operational implications of this principle are concerned with the promotion of tolerance as a foundation for social interactions, good citizenship, democratic governance, equitable and fair access to resources, sustainability literacy and sustainability enhancing concepts. 5. The Spiritual Domain, which provides the necessary attitudinal, value orientation, and acts as he basis for a universal code of ethics. This principle advocates the recognition of the necessary attitudinal orientation as a need for a universal code of ethics. Policy and operational implications of this principle are concerned with the understanding of humanity's unique function in the universe, the creation of synergy in human endeavors and linking the inner transformation of individuals to transformation in society. The ultimate success of business organizations should be measured in terms of their ability and willingness to achieve all five EGSEE dimensions of sustainability performance by adopting these principles of sustainability. These sustainability principles should assist business organizations to: Focus on creating sustainable performance that benefits humans, society and the environment. Adopt sustainability as an integrated component of their mission and recognize that sustainability integrates social, economic, governance, ethical, environmental and cultural interactions. Encourage the discussion of sustainability concepts throughout the company. Commit to ongoing assessments of the company's progress toward sustainability. Commit to the development and implementation of policies and operating procedures that promote the fulfillment of these principles. These principles collectively suggest that sustainability enables businesses to meet the needs of the current generation without compromising the needs of future generations. A combination of these sustainability principles should be used as the foundation and guidelines for business organizations in transforming business sustainability from a greenwashing exercise into a strategic imperative of integrating business environment and corporate culture. Specifically, these principles should be viewed as foundations for the development of the sustainability theories explained in the following section. SUSTAINABILITY THEORIES The concept of sustainability performance suggests that a firm must extend its focus beyond maximizing short-term shareholder profit by considering the impact of its operations on all stakeholders including the community, society and the environment. Several theories including shareholder/agency, stakeholder, legitimacy, signaling/disclosure, institutional and stewardship help to explain the interrelated ESG dimensions of sustainability performance and their integrated link to business models and corporate culture in creating shared value for all stakeholders. Shareholder/Agency Theory Shareholder/agency theory defines the relationship between shareowners (principal) and management (agent) and addresses the potential conflicts of interest between management and shareholders. This shareholder wealth maximization theory specifies that shareholders are the owners of the firm, and that management has a fiduciary duty to act in the best interest of owners to maximize their wealth. Shareholder/agency theory focuses on risk sharing and the agency problems between principal (owner) and agent (management). In the presence of information asymmetry where the agent (management) acts on behalf of the principal (shareholders) and knows more about their actions and/or intentions than the principal, the agent has incentives not to act in the best interest of owners and/or to withhold important information from them. With proper monitoring, the principal incurs agency costs of monitoring, bonding and residual claims to align their interests with those of the agent. The implications of shareholder/agency theory for sustainability performance is that management incentives and activities may be focused around meeting short-term earnings targets and away from achieving sustainable and long-term performance for all stakeholders including shareholders. Under this theory, non-financial ESG sustainability activities, particularly corporate social responsibility expenditures, are typically viewed as the allocation of firm resources in pursuit of activities that are not in the best financial interests of shareholders even though they may create value for other stakeholders. Firms thus focus only on creating shareholder value and leave decisions about social responsibility to individual investors. Shareholder/agency theory suggests that there is an information asymmetry among stakeholders as only the senior management typically know the true representation of financial and non-financial reports. Thus, to mitigate the perceived information asymmetry, management may choose to voluntarily disclose non- financial ESG performance information. Agency theory postulates that ESG activities can create shareholder value when they increase future cash flows by increasing revenue (better customer satisfaction), reducing costs (reducing waste, better quality and cost-effective products and services, retaining talented and loyal employees) and reducing risks (complying with regulations, avoiding taxes and fines). Stakeholder Theory The stakeholder theory suggests that sustainability activities and performance enhancement of the long-term value of the firm fulfill the firm's social responsibilities, meet their environmental obligations and improve their reputation. However, these sustainability efforts may require considerable resource allocation that can conflict with the shareholder wealth maximization objectives and thus management may not invest in sustainability initiatives (social and environmental) that result in long-term financial sustainability. In the context of business sustainability, stakeholders can be classified as internal stakeholders who have direct interest (stake) and bear risks associated with business activities and external stakeholders. Stakeholders are those who have vested interests in a firm through their investments in the form of financial capital (shareholders), human capital (employees), physical capital (customers and suppliers), social capital (society), environmental capital (environment) and regulatory capital (government). Stakeholders have reciprocal relations and interactions with a firm in the sense that they contribute to the firm value creation (stake) and their wellbeing is also affected by the firm's activities (risk). Legitimacy Theory Legitimacy theory is built on a socio-political view and suggests that firms are facing social and political pressure to preserve their legitimacy by fulfilling their social contract. The legitimacy theory suggests that social and environmental sustainability performance is desirable for all stakeholders including customers and non-compliance with social norms and environmental requirements threatens organizational legitimacy and financial sustainability. The legitimacy theory is important in improving the reputation of a company's products and services as desirable, proper, of a quality that is acceptable within the social norms and values and beneficial rather than detrimental to the environment and society. Signaling/Disclosure Theory The signaling/disclosure theory helps in explaining management incentives for achieving all three ESG dimensions of sustainability performance and reporting ESG sustainability performance, as well as investors' reaction to the disclosure of sustainability performance information. This theory suggests that firms tend to signal "good news" using various corporate finance mechanisms including voluntary reporting of non-financial ESG sustainability performance. The signaling/disclosure theory suggests that firms with good sustainability performance differentiate themselves from firms with poor sustainability performance and thus, by sustainability reporting, firms signal their good sustainability performance, which cannot easily be mimicked by non-sustainable firms. Institutional Theory The institution theory views a firm as an institutional form of diverse individuals and groups with unified interests, transactions governance, values, rules and practices that can become institutionalized. Institution theory primarily focuses on rationalization, legitimacy, and practicality and aspects of social structure and related processes in establishing guidelines and best practices in compliance with applicable laws, rules, standards and norms. Institutional theory posits that the institutional environment and corporate culture can be more effective than external forces (laws, regulations) in impacting organizations' structures and innovation that would result in technical efficiencies and effectiveness. A more pragmatic institutional theory promotes corporate sustainability by viewing a firm as an institution to serve human needs and protect the interests of all stakeholders from shareholders to creditors, employees, customers, suppliers, society and the environment. A company as an institution is sustainable as long as it is creating shared value for all stakeholders including shareholders. Stewardship Theory Stewardship theory is derived from sociology and psychology and views management as custodians of the long-term interests of a variety of stakeholders rather than as exhibiting self- serving and short-term opportunistic behavior, as under agency theory. Stewardship is "the extent to which an individual [manager] willingly subjugates his or her personal interests to act in protection of others' [stakeholders] long-term welfare" and thus it is very applicable to the emerging concept of corporate sustainability. Two aspects of this definition, long-term orientation and protection of interests of all stakeholders, are the main drivers of corporate sustainability. Stewardship theory is applicable to corporate sustainability because it considers management strategic decisions and actions as stewardship behaviors that "serve a shared valued end, which provides social benefits to collective interests over the long term." Under the stewardship theory, management is the steward of all capitals from the financial capital provided by shareholders to the human capital offered by employees to the social capital extended by society and the environmental capital enabled by the environment. The concept of sustainability performance and the sustainability theories discussed above suggest that a firm must extend its focus beyond maximizing short-term shareholder profit under the shareholder/ agency theory by considering the impact of its operation and entire value chain on all stakeholders including the community, society and the environment. Disclosure of the ESG dimensions of sustainability performance, while signaling the company's sustainability performance and establishing legitimacy with all supply chain partners, poses a cost-benefit trade-off that has implications for investors and business organizations. For example, any environmental initiatives pertaining to reducing pollution levels or saving energy costs may require huge upfront capital expenditures but in the long run will also reduce contingent and actual environmental liabilities. Sustainability information on ESG is typically considered as a set of externalities beyond disclosure of financial performance which can be viewed positively (e.g., social and environmental initiatives, board diversity and independence) or negatively (e.g., natural resource depletion, pollution and human rights abuses) by market participants and supply chain partners. These factors are important determinants of firms' future performance, operational risks and supply chain management beyond the factors that are typically included in the basic financial statements. Taken together, the six theories are not exclusive and there are other sustainability theories that have implications for business sustainability. Firms will realize that their main objective function is to create shareholder value in compliance with agency/shareholder theory while protecting the interests of other stakeholders under the stakeholder theory, contributing to society and human needs in accordance with the institutional theory, securing their legitimacy under the legitimacy theory, differentiating themselves from low ESG/CSR firms through the disclosure/signaling theory and pursuing the long-term interests of a variety of stakeholders as suggested by stewardship theory. EMBEDDING SUSTAINABILITY IN ORGANIZATIONS Organizations can benefit most when they successfully embed sustainability rather than considering it separately, on a standalone basis. The following provides some key considerations for an organization seeking to embed sustainability in its business strategy and leveraging sustainability to reduce risks and take advantage of business opportunities: EXHIBIT 2.1 Key Considerations for Embedding Sustainability Identifying and Communicating and Managing providing credibility prioritizing Tone from the material to your sustainability material Top sustainability performance and sustainability matters disclosures matters TONE FROM THE TOP How sustainability is positioned and governed within an organization ("sustainability governance") is key to its successful alignment with corporate strategy. Organizations with strong corporate governance culture will be better positioned to manage sustainability risks and opportunities. There is no standard 'one size fits all' approach to sustainability governance. An organization's culture, needs, sector, size, sustainability-related risks and opportunities, and maturity in responding to sustainability matters, will influence how sustainability governance is considered. Given this, companies are encouraged to adopt an approach that is fit for purpose. To embed sustainability effectively, accountability should be at the highest level, i.e., the Board. Board-level commitment is crucial as it is the Board that sets the strategic direction of the organization. Such commitment is also important towards ensuring that sustainability is embedded across the organization and adequate resources, systems and processes are in place for managing sustainability issues. This includes incorporating sustainability considerations into the organization's existing risk management framework. A move towards embedding sustainability in your organization is only possible with a supportive culture and strong leadership. It is the leaders within an organization i.e., Board members and the Chief Executive Officer, who need to provide strong stewardship towards incorporating sustainability into an organization's business strategies, and applying a sustainability lens to business decisions, pushing the focus beyond compliance. The United Nations Environment Programme Finance Initiative ("UNEP FI") explains that the journey of embedding sustainability at the Board level usually goes through three phases as set out in Exhibit 2.2 below: EXHIBIT 2.2 Phases of Embedding Sustainability at the Board Level Phase 1 Phase 2 Phase 3 Sustainability is not Sustainability issues Oversight if integrated one of the agenda are included in the Strategy sustainability items during the Board Board's agenda into Board strategy meeting The desired-state is where sustainability is considered as 'business-as- usual', integrated within business strategy, and governed by the Board. Organizations in this phase seek to integrate responsibility for the achievement of sustainability goals throughout the organization. A Sustainability Statement that reflects its commitment to consider material sustainability matters in a comprehensive and strategic manner must be presented by the organization in its annual disclosures to stakeholders. This is set by the tone from the top. The Statement must be presented within the organization's annual report or, alternatively, in the form of a standalone sustainability report published in tandem with its annual report. The annual report may also link sustainability costing within the financial statement. CASE STUDY A global science-based company active in health, nutrition and materials ensures that sustainability has the attention of its Managing Board, with the Chairman as the primary focal point. The Corporate Sustainable Development department under the responsibility of the Chief Operating Officer, reports directly to the Chairman. Furthermore, members of the Board chair various sustainability-related projects such as the organization's partnerships with the World Food Programme. Source: Royal DSM Integrated Annual Report 2011, Sustainability Section. IDENTIFYING AND PRIORITIZING MATERIAL SUSTAINABILITY MATTERS The extent of ESG risks and opportunities ("sustainability matters") for organizations can be wide ranging. Sustainability matters are considered material if they: - reflect the organization's significant ESG impacts; or - substantively influence the assessment and decisions of its stakeholders. The abovementioned definition enables the consideration of sustainability matters from both internal and external perspectives, i.e., from the organization's point of view and that of stakeholders. Applying materiality will help the organization identify what is most important to act on and to report. In this respect, the materiality assessment could provide information that may positively or negatively influence the organization's ability to deliver on its vision and strategy. What are Sustainability Matters? What is Materiality? Sustainability matters are the Materiality is the principle of risks and opportunities arising from identifying and assessing a the ESG impacts (i.e., impacts that wide range of sustainability relate to sustainability themes such matters and refining them to what as energy, diversity, human rights, are most important to your etc.) of an organization's operations organization and your stakeholders. and activities. There could be instances where a material sustainability matter need not be highly significant to both the organization and its stakeholders. This occurs when the organization can foresee significant emerging sustainability risks, but the stakeholders do not, and vice versa. In such a case, the organization would still be required to manage such matter and disclose accordingly. Materiality Assessment Material sustainability matters for each organization are likely to differ, even if the organizations are in the same sector. Factors contributing to the determination of material sustainability matters may include the business model and strategy, products and services, types of stakeholders, size of the organization, geographical presence, and the organization's risk appetite, etc. Therefore, organizations should apply materiality based on its own set of circumstances. When applying materiality, organizations may consider formulating criteria to determine what is significant or substantive. The criteria that organizations could consider adopting to determine if ESG impacts are significant, or if the matter substantively influences stakeholders' assessments and decisions may include, among others, the severity and likelihood of the impacts over time on financial performance, actual or perceived value of the organization, availability of products/ services or reputation. Applying Materiality Across Organizational Value Chain In applying materiality, organizations are encouraged to closely consider all parts of its organization's value chain. This simply means considering more broadly the impacts of the organization's products and services beyond its operations. For example: a. once its product has left the production line, does it contribute to negative impacts (e.g., excessive consumption of electricity due to inefficiency) during its usage?  b. can opportunities be created through the management of such a risk (i.e., product redesign using less packaging, which in turn could drive cost efficiencies)? Sometimes the smallest part (either financially or physical operations) of the organization's business can pose the most significant ESG risk. Therefore, organizations should also consider the nature of its operations (e.g., use of hazardous chemicals) and location (e.g., remote locations or countries with poor sustainability- related legislation and inadequate enforcement), in addition to its size in applying materiality. Five Steps to be Considered in Applying Materiality There is a lot of information available on how to apply materiality in the sustainability context, including approaches provided by the GRI, Accountability, Sustainability Accounting Standards Board ("SASB") and International Integrated Reporting Council ("IIRC"). Although each defines materiality differently and focuses its requirements on different users (e.g., GRI for all stakeholders; IIRC and SASB - for investors), the key steps and considerations of materiality are generally the same. The approach set out in Exhibit 2.3 below has been simplified to allow ease of use and applicability for all types of organizations at different stages of considering sustainability. There is flexibility in how far organizations seek to develop the materiality process, depending on its size, capacity and level of understanding. However, organizations should move towards a more comprehensive materiality assessment overtime. EXHIBIT 2.3 Materiality Assessment Process Phase 1: Objectives and Scope As a start, organizations should consider the objectives of the materiality assessment. The objectives may include, among others, identification of material sustainability matters to enable internal and external stakeholders to make better informed decisions (e.g., revisions of business strategies by the Board or investment decisions by shareholders) or facilitating more effective engagements with stakeholders. In setting the objectives, the organization should likewise consider and understand the intended audience of the materiality assessment. Understanding the objectives enables the organization to structure its materiality process more strategically. Organizations should also set the scope within which materiality will apply. Further, it may consider the following: a. Physical locations of the organization (geographical boundary) organization's assessment will provide a global view or examine specific geographical whether the regions or both. b. Entities within the organization (organizational boundary) - whether the organization want to cover the overall group level or specific key business operations. c. Operations within or outside the organization (including the entire value chain) - whether the organization want to cover the entire value chain or specific operations (e.g., upstream or downstream) which may include operations within or outside the organization. In determining the scope, an organization should consider the basis of selection as well as the basis for exclusion of scope, if any. For example, an organization which has operations in the Philippines as well as in Vietnam may, for a start, choose to scope its sustainability disclosure to its Philippine operations because the operations in Vietnam is relatively new and the data monitoring mechanism is in the process of being developed. As it progresses in its sustainability journey where its data collection is more advanced, it may then extend its reporting scope to cover both its Philippines and Vietnam operations. Best practice is where an organization's scope considers all operations and the organizational value chain. Phase 2: Identification and Categorization of Sustainability Issues To gain a broad knowledge of an organization's sustainability issues, it should understand the context within which the organization operates. This would include external and internal issues that can affect the organization's ability to achieve its intended outcomes related to sustainability. Such issues could be identified from a combination of internal and external sources, including, but not limited to: a. Internal sources: Board or Board committee reports, risk management assessments and risk registers, and minutes of management meetings. b. External sources: regulations, standards, the underlying criteria for indices, NGO reports, stakeholder feedback and complaints, media review (including social media) and external peer review. After establishing the organization's list of relevant sustainability issues, the organization may then seek to refine the list and categorize by placing similar issues under the same heading (e.g., categorizing issues such as personal data protection, anti-money laundering under the heading of security). Phase 3: Stakeholder Engagement Stakeholders play an important role in relation to an organization's business, either as advocates, sponsors, partners or agents of change. Engagement with stakeholders will help the organization better understand how its activities impact on the economy, environment and society. It provides the organization with the opportunity to identify sustainability risks and opportunities that may not otherwise be considered by the organization. The stakeholder engagement process entails the identification and assessment of the relevant stakeholders and the understanding of their needs and expectations in relation to the organization's sustainability performance. Depending on the nature of the business, the organization may have a diverse range of stakeholders with different levels of influence or interest in the organization. Engaging with all the stakeholders with the same level of intensity may be impractical. Therefore, identifying stakeholders are those with the highest level of influence or interest, and who may be the target audience of the sustainability performance and disclosures. However, the organization must also consider stakeholders who may not bear the greater influence on or have very strong interests in the organization as they may also be impacted by its operations. Stakeholders will have different information needs and expectations, which can help determine material sustainability matters (from the initial list of sustainability issues) and disclosures. It is also important to tailor the messages and methods of communication for different stakeholders to allow for effective engagement and meaningful dialogue. Engaging with stakeholders can also provide a way for the organization to prioritize the sustainability matters. This will result in a list of material sustainability matters. The following example illustrates how the different needs and expectations from different stakeholder groups can be captured. This example shows the different engagement methods spread across varying levels of frequency: Stakeholder Frequency of Engagement method group engagement Customer feedback management Daily Customer support centre Daily Customers Market research Regular Events, dialogue sessions, Ad-hoc roadshows and Transparency survey Annually Suppliers training programmes Regular Suppliers Supplier relationship management Regular Vendor Development Programme Ongoing (VDP) Formal meetings Ad-hoc Government Performance reports Regular and authorities Discussions on Government Ad-hoc initiatives Employee satisfaction survey Annually Dialogue and engagement Regular ntranet, departmental meetings, Regular newsletter Employees Employee engagement programmes Regular TM Clubs: Kelab TM, BAKIT, TIARANITA, TM Bikers, Pakar Regular Semboyan (Source: Telekom Malaysia Berhad 2013 Sustainability Report)  Phase 4: Prioritization Now that the list of sustainability matters has been identified, organizations now need to determine which are material. Material sustainability matters refer to those that reflect the organization's significant ESG impacts or substantively influence the assessments and decisions of stakeholders. Organizations will now need to confirm the relevant ESG impacts from its activities, products and services to prioritize sustainability issues and determine the material sustainability matters. The two tests often used to determine materiality are significance of ESG impacts and importance to stakeholders. Prioritizing organization's sustainability matters helps in focusing its effort and allocate resources to areas that matter most. The result of the prioritization process should be a list of the organization's material sustainability matters. Here is where organizations focus their efforts in ensuring the appropriate management, monitoring and disclosure of the matters. Not all material sustainability matters are of equal importance. Thus, in disclosing the matters, the emphasis should reflect the relative priority of these material sustainability matters. This means that more material sustainability matters should be given more prominence in the disclosure. Phase 5: Process Review It is important that the process and outcome of the organization's materiality assessment are reviewed and approved by the senior management. The outcome should also be approved by the Board as the Board is ultimately responsible for the information disclosed. Together, this ensures the integrity and credibility of the organization's materiality assessment. Approval at the senior levels of the organization will secure buy-in across the organization and ensure an adequate response to its material sustainability matters (by ensuring allocation of resources and accountability for the management of these matters). Once the material sustainability matters have been determined, the organization should reconsider them at least annually. Although a full and detailed materiality assessment may not be required year-on-year, at a minimum, the organization should review its material sustainability matters and disclose to the market the review process and any changes to the material sustainability matters. This ensures that the sustainability matters being managed and reported remain material to the business and are aligned to stakeholder needs. MANAGING MATERIAL SUSTAINABILITY MATTERS Once material sustainability matters are reviewed and approved, the next step is for the organization to develop its position and response with respect to each material sustainability matter. The response could be in the form of: a. Developing policies and procedures. b. Implementing various initiatives, measures or action plans. c. Setting indicators, goals and targets and a timeframe and, where possible, setting longer term goals (e.g., five-year goals), in line with the strategic objectives of your organization. d. Implementing new, or changing existing systems, to capture, report, analyze, and manage data requirements associated with each material sustainability matter. Information, or where applicable data, for each indicator (identified for each material sustainability matter) needs to be collected and tracked against a set target. High quality, comparable and consistent information that is material and relevant is important for stakeholders (e.g., investors and market analysts) to understand an organization's sustainability performance, as well as how this is linked to the organization's overall business strategy and financial performance. This provides a better understanding of its investment risks or informs investment strategies associated with the organization. Management of material sustainability matters must be fit for purpose and where possible, applicable. For example, matters that affect the entire operations may be guided by group-wide policies and strategies. Management of the material sustainability matters are also often guided by relevant local legislation and international standards. Best practice suggests that the management of material sustainability matters, i.e., policies, measures, indicators and targets, should be approved by the Board, or delegated to a Board committee (if applicable). COMMUNICATING AND PROVIDING CREDIBILITY TO YOUR SUSTAINABILITY PERFORMANCE AND DISCLOSURES Once the organization understand what material is and how this is to be managed, it should now consider how best to communicate this to the stakeholders. It would be useful to investors and stakeholders alike if the organization will provide a content index to its sustainability-related disclosure which could also include relevant information in its Corporate Governance Statement or Statement of Risk Management and Internal Control. This content index essentially refers to a table of contents indicating precisely where the sustainability information can be found and should optimally feature the pages of the report (or webpages, where applicable) where the information is located. A content index would facilitate the stakeholders navigating complex sustainability information in the public domain within the shortest period. Accuracy and reliability of sustainability information are important for informed business decision-making. Organizations should familiarize themselves with their stakeholders' (especially investors) preference for the types of assurance (internal or external). Sustainability- related information (like financial information) informs both internal and external decision- making in relation to performance. Therefore, the Board and senior management should ensure credibility of the information before relying on or communicating the information- either internally or externally. One of the methods to instill confidence in the accuracy and reliability of sustainability-related information is via the provision of assurance. Essentially assurance options can be characterized as internal or external assurance. External assurance enables an independent opinion to be provided in relation to the sustainability disclosures, while internal assurance generally relies on the accountability of the governance body of the organization. For example, the Board may provide assurance in its Sustainability Statement on the robustness of its management system for sustainability matters. ASSURANCE Assurance, whether done internally or externally, provides a method whereby the organization can demonstrate the credibility of its sustainability disclosures. Options for assurance are varied and provide flexibility to an organization depending on its size, risks and cost constraints. Assurance over sustainability performance and disclosures should be aligned with established internal and external assurance frameworks over other management information (such as financial information or production data). Assurance can be provided across different types of sustainability disclosures including: a. Data and/or its associated collection process.  b. Narratives. c. Management processes. d. Disclosures developed in accordance with standards and frameworks such as the GRI Standards. However, in undertaking such an activity, the organization needs to set several criteria as follows: a. Scope of the assurance assignment. b. Standard to which it is being performed. c. Competence of the assurance team. d. Method of presentation. Scope of the Assurance Assignment In setting the scope of the assignment, the organization should have a clear understanding of its purpose and the level of assurance to be achieved. Is it necessary to verify data, determine the adequacy of a process or both, or enhance performance improvement? For example, if it is to verify data for some form of accounting process then the level of assurance required may be greater than if it is simply for performance improvement. The organization should ensure that the purpose of the assurance engagement is clearly stated and that the assurance provider completes the assignment as stated. The organization should carefully consider the need to assure its materiality process. If the materiality process is flawed, the organization may be monitoring and measuring unnecessary performance indicators and placing its resources in areas which do not warrant such efforts. Progressive organizations may seek the assurance provider to suggest areas of improvement for future reports. Standard to Which the Assurance is Being Performed To be effective, the assurance process should be conducted against a recognized standard. By using such standards, the organization can audit the assurance process and demonstrate in the public domain the credibility of the assurance which has been performed. Recognized standards include those set by the accounting profession, the International Standards Organization, GRI and AccountAbility. Competence of the Assurance Team The organization should identify the competence required of the assurance team. This may include both accounting and engineering or other technical knowledge depending on the scope of the assurance assignment. For example, if the assignment involves the reporting of GHG data it may be necessary to determine the accuracy of the equipment collecting the monitoring and measuring information. This will require technical expertise in terms of assessing the calibration of the collection equipment and its link with the recorded information. A single profession may not have the competence to undertake this work in isolation. Method of Presentation The assurance provider should ensure that the assurance statement clearly reflects the scope of the assignment, the level of assurance attained, the standard to which the assurance was provided, the team competence and any deficiencies found in the report. Where the improvement for future reports these should be supplied in a positive tone. The assurance statement should be signed by the assurance team leader. KEYS TO SUCCESSFUL REPORTING To be meaningful, sustainability reporting essentially needs to be embedded within the strategic objectives of an organization. It should be used as a practical tool for improving transparency to stakeholders and improving performance. Leadership and executive commitment are often emphasized, but alongside the facilitation of bottom-up approaches. Understandable reporting language is also emphasized, as well as assurance, the need for appropriate key indicators, and using both qualitative and quantitative data. Moreover, sustainability reporting requires some information gathering and data collection systems. In some cases, insufficient data or its quality might be a major challenge. Despite the broad nature of the sustainability concept, many advise to keep reporting practices simple. Many of the issues mentioned above are present in the criteria of awards schemes for sustainability that are promoting best practice for voluntary reporting. The motivation for setting up awards schemes is to promote sustainability reporting and to improve the quality of reporting. As for companies, awards provide an opportunity to present their activities and to get positive publicity. One problem in sustainability policies in general, including sustainability reporting practices, has been that they easily become very large in scope as more and more information is pumped into reports. This can lead to a reporting burden for reporting organizations and disclosure overload for report users. In ambitious practices, the amount of information included in the report can become significant.One alternative could be to focus on some important issues, where preferably the ecological, social and economic aspects meet. Another possibility is to make a conscious decision to concentrate, for instance, on the ecological dimension of sustainability. A key challenge is defining the scope and parameters that the sustainability report will cover and striking a balance between depth and readability for the reader.