Water is the drop for December

With devastating floods sweeping across parts of NSW and Victoria, water is ironically in abundance this time. The Murray Darling Basin Plan came about because the Basin is under enormous stress as a result of past water-allocation decisions, prolonged drought, natural climate variability and emerging climate change.

Recent Institute events have brought the topic of accounting for water into the spotlight for members. There were some lively sessions on water accounting held at the Institute’s Business Forum in Brisbane and at the Wine Industry Day in Adelaide.

By bringing hydrologists and accountants to the table, the Water Accounting Standards Board (WASB) released an exposure draft of its first water accounting standard, called Exposure Draft of Water Accounting Standard 1: Preparation and Presentation of General Purpose Water Accounting Reports (EDWAS 1).

The purpose of the draft is to elicit practical feedback for the final Australian Water Accounting Standard. By accounting for water, valuable information will be available to different user groups about one of Australia’s most essential yet precious resources. As water becomes scarcer and competition for water grows, the need to account for how it is sourced and distributed will increase.

So what is water accounting? It is a systematic way of identifying, recognising, quantifying and reporting on water, water rights, water obligations or other claims to water. Water accounting is very similar to general financial accounting, but we’re using volumetric rather than financial measurement, and the focus is on water rather than other assets and liabilities.

The challenges of water scarcity were very evident during a discussion at the Institute’s Wine Industry Day. Water is an integral part of the process of making wine - from growing grapes to actually producing the finished product. The wine industry has been proactive in establishing new ways of doing things to reduce the need for water although, obviously, water can never be removed completely from the wine making process.

Water and the way the wine industry is starting to adapt are really good examples of why companies are embracing sustainability as core to strategy. As I have said previously, sustainability is about managing risks - water and its availability in the future will be a major risk to many organisations.

To tax or not to tax, that is the question

Does a carbon ‘price’ mean a carbon ‘tax’?

The government’s Multi-Party Climate Change Committee met recently for the first time. It was interesting to hear the opening position of the committee: that a carbon price is necessary to reduce emissions. They went on to encourage investment in low emissions technologies and to complement its existing programs.

So the question is not whether there should be a price on carbon but, rather, how that price should be applied.

This takes us to the field. Let’s consult the major players.

The government has, therefore, established two new roundtables – one representing business and the other with Non-Government Organisations (NGOs). The business roundtable comprised key players from right across the economy: mining, transport, manufacturing, energy, retail and banking.

The NGO roundtable, on the other hand, includes leaders from across the community sector: unions, social services, environment groups and local government.

This is good initiative by government – engaging across the spectrum will likely ensure the views of business and the general community are front and centre as the government progresses this important economic reform.

Even if the starting premise is agreed, there is still so much to be worked out. A carbon tax or an emissions trading scheme, a full emissions trading scheme or a limited emissions trading scheme? What price to put on carbon? How much, if any, assistance should be paid to emissions intensive industries?

Given the problems the draft ETS had in getting agreement, it will be interesting if the committee and the roundtables can build a consensus this time around.

We’re conducting a survey at the Institute which will run for another week, asking for members’ position on the topic of carbon tax.

http://www.surveymethods.com/EndUser.aspx?B490FCE6B6F5E6E7B1

Integrated reporting - here we come

In one of my earlier blogs I mentioned that integrated reporting was coming. Well recent events seem to support this view.

In early August the Prince of Wales' Accounting for Sustainability Project (A4S) and the Global Reporting Initiative (GRI) announced the formation of the International Integrated Reporting Committee (IIRC). The IIRC's remit is to create a globally accepted framework for accounting for sustainability.

This framework aims to bring together financial, environmental, social and governance information in an 'integrated' format. It is envisaged that this would then result in an organisation providing better and more meaningful information about its performance. More comprehensive information about an organisation's total performance looking at prospective as well as retrospective information will meet the needs of the emerging, more sustainable, global economic model. The formation of the IIRC will put integrated business reporting on the international business community's agenda and will provide the catalyst for changing business practices. This is a terrific initiative, however, there is a lot more to be done.

Don't think these developments are only happening overseas! Closer to home I attended a session in Sydney organised by GRI Focal Point Australia is explore two propositions on the future of reporting requirements arising from the May GRI bi-annual conference in Amsterdam. The propositions were:

• By 2015, all large and medium-size companies in OCED countries and large emerging economies should be required to report on the environmental, social and governance (ESG) performance and, if they do not do so, explain why?
• By 2020, there should be a generally accepted and applied international standard which would effectively integrate financial and ESG reporting by all organisations.

There appears to be a lot of interest in integrated reporting and several organisations in Australia are beginning to integrate their ESG information into their annual reports. It is a good sign, but still only early days.

The 'greening' of buildings

These days we frequently hear about new commercial buildings which contain a host of green features, wind turbines, underfloor air-conditioning, blackwater recycling, green scapes - just to name a few, which are leading to real reductions in greenhouse emissions. But what about the 330 million square metres of existing commercial buildings around Australia? Most of these are more than 25 years old and account for approximately 10% of Australia's emissions.

The Institute in its submission to the Henry tax review suggested encouraging green behaviour through tax policy. It specifically recommended the introduction of specific provisions such as increasing depreciation rates for emissions-reducing capital expenditure.

Recently, the Labor Government announced a proposed new investment allowance for existing commercial buildings. In the proposal businesses will be able to claim a one-off 50 per cent tax deduction for capital works that improve energy efficiency of existing buildings. These could include initiatives such as, energy efficient lighting or air-conditioning.

The tax break will provide a real incentive for businesses to start upgrading commercial buildings across Australia. If the proposal goes ahead it will not be long before we start to marvel at the transformation of two star buildings into four or even five star eco-friendly developments.

I truly hope that this is the start of further measures that could be introduced through the tax system to complement other carbon reduction initiatives. The Institute would strongly support any tax reduction measures that would further contribute to the 'greening' of Australian businesses.

Could your building and business benefit from such measures? What ‘green’ measures are currently in place at your organisation? I would love to hear from you.

Successful business drives sustainable growth

A recent study of nearly 1000 CEOs, business leaders, and academics conducted by Accenture and UN Global Compact has identified a uniform theme that good performance on sustainability amounts to good business overall. Sustainability is no longer just a case of good deeds, but a good business case.

93% of CEOs surveyed see sustainability as important to their company's future success. Although sustainability is supported by the business case and is becoming part of the business strategy for many organisations, there are still hurdles to overcome in executing the strategy. The survey identified five conditions needed to enable sustainability to be integrated throughout a company, and become part of its organisations DNA. These conditions include:

• Reform to education in order to create sustainability skills and mindsets in executives and workforces
• Financial reforms to enable sustainability to be incorporated into valuations by investors
• New concepts of value and performance need to be developed to measure positive and negative impacts of sustainability strategy.

Chartered Accountants are uniquely placed to develop solutions to some of these hurdles. They have the skills and ability to measure value and develop metrics which will assist both the company itself, and its investors in understanding the impact of the sustainability strategy.

The impact of sustainability on core business metrics such as revenue growth, cost reduction, risk management and reputation should be measured. CFOs and finance departments need to embrace the sustainability strategy and provide the 'real story' that investors can understand, rather than a company's sustainability story being told only in terms of marketing or public relations.

Once the metrics are right the next step is ensuring the reporting process is also right. The sustainability performance needs to be integrated into a company's general business reporting. (See the Institute's Broad Based Business Reporting initiative for more information).

Yes integrated reporting is coming and sustainability reporting will be part of this story.