Sustainability Accounting: A Critique Of British Airways - Essay Example

Sustainability Accounting: A Critique Of British Airways Introduction Many writers assert that business reports that are put forward by companies purporting to provide an accounting of their sustainability activities have little to do with sustainability[Gra10]. The purpose of this paper is to critically examine and evaluate the statement of Gray in relation to the extent to which sustainability reports represent sustainability in businesses in general. In order to test the findings more thoroughly and critically, the paper will evaluate the case of British Airways and compare their annual sustainability reports to the GRI’s Sustainability Reporting Guidelines. In the process, this essay will critically analyse the new reporting relationships and reporting guidelines that are used by entities to present their sustainability activities and its results in a given year. The essay will also evaluate the various options and procedures for the conduct of environmental reporting throughout the world. Additionally, the research will focus on the case of British Airways and their reporting systems and their reporting tradition. This will guide and provide a basis for the evaluation and analysis of their most recent environmental report and sustainability report. PART 1: BASIS OF SUSTAINABILITY REPORTING This section of the essay will critically evaluate important concepts and ideas that define the conceptual and theoretical framework of the entire research. It will include a critique of groundbreaking definitions and important concepts necessary to lay the foundations for the rest of the essay. Background of Sustainability Reporting in British Airways British Airways is a public company in the United Kingdom and it is imperative for the management to get more comprehensive and thorough in their reporting matters. Additionally, it began as a symbol of British imperialism in its early years. Thus, British Airways has had a history of stakeholder engagement and an attempt to maintain a good and positive image. It is noted that the British Airways played a central role in the formulation of reporting standards relating to GRI and other entities that sought to introduce sustainability in the reporting processes and traditions[All10]. British Airways has had a history of using stand-alone reporting systems to present information relating to its sustainability practices and results each year[Ban12]. This goes back to the 1990s when they introduced sustainability reporting and its processes as a means of providing information to stakeholders and also provide information about their activities that were carried out in the year. Thus, this section will discuss the impetus and the procedures that led to the definition and design of the system of sustainability reporting. This will provide the basis for the assessment and evaluation of sustainability reporting in BA. Sustainability “Sustainable development refers to meeting the needs of the current generation without compromising the needs of the future generations.”[Smi12]. Sustainable development is about responsible behaviours in relation to the use of resources in the current generation. This means that economic development must not compromise environmental integrity[Gra10]. One view of the idea of sustainability is that it is some form of constraint placed on the optimal utilisation of resources in the corporate world[How12]. This is because the concept of sustainability developed long after the Industrial Revolution which took the concept of work to the status of the most basic standard. Therefore, sustainability is viewed as a way of preventing firms from exploiting the natural environment. Others view sustainability in the absolute sense and view it as an end of a business, to ensure that they do something to improve the world, rather than destroy it[Her10]. Social & Environmental Accounting Ball and Milne suggest that the growth of businesses come with an inevitable increase in the demand for energy consumption and this in turn leads to more environmental footprints[Bal05]. Therefore, the concept of the triple bottom line seem to provide a system through which the level of emissions are gauged and evaluated in order to find more constructive and improved ways of doing things in order to minimise a firm’s environmental footprints[Cha04]. This involved defining the Economic, Social and Environmental framework of the operation of an organisation in order to achieve the assess performance and ensure better systems are used to improve future performances and minimise the impact of a given organisation’s operations. Thus, there has been an evolution from merely focusing on financial reporting to the inclusion of environmental and social factors in annual reports of companies. However, many of these reports were originally commentaries and they elucidated the sentiments of the management of companies and what they sought to put out to members of the public in a selective manner[Dar09]. After the year 2000, companies moved towards a model where annual reports were to include four main elements: 1. Financial Statements; 2. Management Commentaries; 3. Sustainability Reports; 4. Corporate Governance Reports[Ham04] Sustainability reports were to be presented as a means of showing the level of environmental footprints the organisation was exerting. And this was to present a profile whereby their energy consumptions and responsible actions in the year under review was conducted and its impact on the firm and other stakeholders. Thus, sustainability reporting became a branch of the firm’s activities as part of the corporate governance commitments and desires to meet social responsibility patterns and requirements. This was to give impetus to corporate reporting and provide a holistic view of the activities of the year on the basis of the Triple-Bottom Line system and approach. After 2010, the need to standardise the practice of corporate reporting on social issues and environmental issues took a different turn. The Integrated Reporting system gained prominence with its introduction as a form of reporting recognised under the framework of regular and mainstream reporting. This was developed and pioneered by the Accounting for Sustainability Project of Prince Charles and GRI in 2010 and it took account the submissions and views of many stakeholders to create a standardised system of guiding reporting on issues relating to sustainability and environmental accounting. This culminated in a discussion paper that led to the formulation of the International Framework for Sustainable Reporting. This set of guidance was to become standardised and since it was supported by the IFAC and other mainstream entities in the accounting and corporate world, the framework became somewhat centralised and recognised. This is meant to guide and provide the framework for environmental and sustainable reporting and with time, gradually, it is becoming the code of desired and standard practice. This is postulated to grow and improve in order to help to gain the best of results and achieve better reporting standards and requirements. Eventually, the International Integrated Reporting Council published an International Framework for sustainability reporting in December 2013. “An integrated report deals with externalities. It takes into account social, economic, environmental and financial dimensions that the company is affected by and/or responsible for. It should give a true sense of the full value of the company once social and environmental dimensions are taken into account.” [Blo13]. Therefore, sustainability reporting and the integrated reporting system includes the creation of sustainable value in the strategic sense and trying to maintain this value throughout the various time horizons of the business and its growth. This calls for an appropriate reporting regime that takes into account all the needs and demands and expectations of stakeholders. Critical Review of Sustainability Reporting & Integrated Reporting Due to the fact that there was no standardised form of sustainability reporting system, the Integrated Reporting system and the GRI framework was created as a means of providing the blueprints for the creation and maintenance of a set of guiding principles for sustainability related reporting. The Integrated reporting system also provides important indicators and pointers that include the following necessary elements: 1. Annual Reporting: Reports must be prepared once each year; 2. Combination of Financial & Sustainability Elements; 3. Strategic Focus with Emphasis on Past & Future Matters; 4. Stakeholder Orientation; 5. Considers all Timeframes: Long-term, Short-term & Medium-term; 6. Relevance and Materiality Important Integrated reporting implies that a report of an organisation must cut across all the frameworks and processes of the organisation. The Global Reporting Initiative (GRI) includes 5-energy related indicators and 3 emission related indicators that are important and vital for the guidance of an entity that seeks to report its environmental footprints[OEC101]. The GRI scheme is applicable to all corporate entities and it enables them to integrate important standards and metrics into the sustainability reporting systems and processes[McB09]. The GRI reporting system aims at three main values and pointers that ought to be demonstrated through the use of their guidelines and they include: 1. Benchmarking; 2. Demonstrating & 3. Comparing[Glo12] In a standard disclosure system, there are three main matters that must be disclosed in a sustainability report and they include amongst others: 1. Strategy & Profile; 2. Governance & Management Approach; 3. Performance Indicators[Glo12] Assurance & Sustainability Reporting Traditionally, auditing concerns itself with the provision of an opinion about the truth and fairness of a given financial statement[Tii14]. Auditing therefore provides an independent review of the books and documents of a company and this culminates in the provision of a view of whether the financial statement presents true and fair information or not. This provides a degree of assurance to the users of those financial statements. Since sustainability reporting has been merged with annual reporting, there is the need for firms to conduct assurance services on all the accounts they turn in to the members of the public. And instead of looking out for financial accuracy as the case may be in mainstream statutory audits, there is the need to provide a review of sustainability reports in order to guarantee that they reflect the realities and provide guarantees that it will be reasonable for stakeholders can rely on the elements of a sustainability report presented by a given company[Dar091]. Another view asserts that assurance could be seen in the broad sense where it is defined as a process through which an organisation satisfies itself and others that it is doing what it is supposed to do[Bro131]. This includes a series of mechanisms put in place to ensure that a firm is appropriately directed and this includes: 1. Review 2. Verification and Validation 3. Internal Audit and 4. External Audits[Bro131]. This includes internal controls and supervision applied with the view of achieving the best results for a given organisation in relation to its sustainability reporting system and structure. PART 2: BRITISH AIRWAYS CASE ANALYSIS This section of the paper will critically review and analyse the aspects of the British Airways Sustainability Report. To this end, there will be a review of the sustainability report of the airline and assess whether they are prepared to be in conformity with the normal standards of the GRI or not. And this will include an assessment of whether BA provided this report to serve their own personal corporate needs or to provide a logical and consistent system of report that is independent of all forms of selfish gains. As Milton Friedman said, the corporate social responsibility of a company is to make profits[Bec14]. Thus, there is the need to examine whether British Airways sought to present their Sustainability Report to attain the end of enhancing their image as a prelude to boost their corporate profile and enrich their shareholders. Introductory Words The foreward of the report is presented by the executive chairman of the airlines. Basically, this has to present a summary of things in the report and show its impact. However, the executive chairman presents aspirations and previous activities that the airline was involved in that is relevant to sustainability and the reputation of the airline[Bri14]. However, it must be identified that the Introductory Words of sustainability reports are not regulated by GRI rules nor by any entity that supports the Integrated Reporting system. Annual Reporting British Airways has an annual reporting system and this is done on a year-on-year basis[Ban12]. However, there is evidence that the previous sustainability reports had changing basis of assessments and changing methodologies and processes[All10]. This means there is a consistency issue with British Airways and this affects the way they carry out their activities. Financial Elements in Report Financial elements are restricted to activities that were conducted of a sustainability nature[Bri14]. However, most of the other financial elements in the report are presented in relation to the financial reports and activities of British Airways which are not really relevant to sustainability issues and matters. Strategy & Profile The strategy in the report is not clear in terms of sustainability matters. It specifies the firm’s social matters and mixes all the activities in a manner that is not clear. However, the profile of the company is given clearly and the strategy and plans are outlined. In spite of this, it is not very well laid out and it is not presented in a very realistic manner. Their approach to sustainability is stated in a half-paged presentation which is not very clear nor straightforward[Bri14]. The rest of the process focuses on other goals and desires meant to clearly provide a view of how they are using shareholders money, therefore the report seem to be pursuing a unified stakeholder agenda of pleasing shareholders. Governance and Management Approach Stakeholder engagement is discussed in page 8 and 9 of the report[Bri14]. This provides a major identification of the power dynamics and the approaches used by the stakeholders to deal with issues and matters of interest. Basically, this is thorough and provides a clear view of the commitment the company has made towards corporate social responsibility and sustainability. However, the fact that they are presented in a clear-cut manner and situation that allows a reader to get a good picture of the procedure and system used by the company to deal with its CSR and SR issues. The environmental goals and objectives are shown. However, the responsibility relationships are not overtly stated. Which managers and directors are responsible for CSR and SR is not specified. Rather, it is left in a rather vague context. Performance Indicators The performance indicators in the sustainability report involves a series of goals that are stated in page 16 and they are complemented by targets and actions that are stated in clear and concise fashion[Bri14]. And the current services and achievements for the year are stated in the table on the page. This shows that the activities of BA is somewhat shown in a straightforward manner and the performance backgrounds and basis are stated. Strategic Focus Climate change and carbon emissions as well as ground efficiency is discussed in a clear and definite process[Bri14]. This includes various efficiency matters and situations that are meant to ensure that the operations of BA. This forms the main process through which the airline reports on its environmental matters and situations. Relevance and Materiality It is evident that the preparers of the report did well and tried to cover activities that were carried out in the year. However, there seem to be a situation with this, because there is a general lack of consistency in the definition of what is important and what is not. And if there was any form of rule or regulation, it was lacking in the preamble section. Hence, the British Airways Sustainability system was quite problematic. Secondly, the report does not seem to present the way the figures were built up. The final figures are presented in their final states and this does not seem to provide a very clear and a material system through which important pointers could be identified for users of the report to make judgements and decisions. Assurance There is no evidence of assurance in the normal and the standard sense because there are no section of the report showing the extent to which the project was audited or given an independent review. Clearly, there is no audit report and it appears that the auditors of the financial statements put together a holistic and a blanket audit report that was to cover this report alongside all the other features that were carried out. This indicates that the report was not given a technical review that would have made it more thorough and more credible. Rather, it was given a general view and a general perspective that comes with numerous challenges and problems that limits its applicability and its acceptability. Conclusion The study identifies that sustainability is an important and a vital aspect of corporate social responsibility and this has evolved over the years due to the modification of the terrain for financial reporting and disclosure requirements around the world. This process has led to the need for sustainable accounting to complement traditional financial accounting. The development of sustainable accounting occurred with some challenges. First of all it involved elements that were difficult to quantify. Secondly, it was inherently difficult to set standards and universal systems and processes that were necessary to guide the interpretation of these reporting arrangements. In spite of this, the Integrated Reporting system has been instituted and the GRI complements it by way of providing important practical guidelines for reporting sustainability issues. The sustainability reporting standards involve the definition of important strategic goals and measurable targets that are carried out. This calls for annual reporting and this must be valued in financial terms in the presentation. Relevance and materiality must be an important element and the quest for consistency should be a major guiding point for such sustainability reporting systems and structures. After critically evaluating and reviewing the sustainability report of British Airways it was identified that the management of the British Airways sought to present information about their sustainability issues in the best way and most appropriate manner possible. However, it had major divergences with and from the mainstream standards and regulations presented in the system of sustainability reporting and demands. It is evident that British Airways sought to create a system of reporting social and corporate governance issues through a convenient system based on the pre-2010 systems and procedures which seeks to use a combined and unregulated system to put together a process in which there is a presentation of activities and accounts of processes that occurred in the system. In spite of the effort that was made to present the information in a comprehensive and appropriate manner, there seem to be a situation whereby the emphasis and focus was placed on serving one class of stakeholders – shareholders. This is because shareholders were given a lot more information and this defeats the stakeholder expectation and demand for the creation and maintenance of such information. Contents PART 1: BASIS OF SUSTAINABILITY REPORTING 1 Background of Sustainability Reporting in British Airways 2 Sustainability 2 Social & Environmental Accounting 3 Critical Review of Sustainability Reporting & Integrated Reporting 5 Assurance & Sustainability Reporting 6 PART 2: BRITISH AIRWAYS CASE ANALYSIS 7 Introductory Words 8 Annual Reporting 8 Financial Elements in Report 8 Strategy & Profile 8 Governance and Management Approach 9 Performance Indicators 9 Strategic Focus 10 Relevance and Materiality 10 Assurance 10 Conclusion 11 References 14 References Gra10: , (Gray, 2010, p. 48), All10: , (Allen, 2010), Ban12: , (Bansal & Hoffmann, 2012), Smi12: , (Smith, 2012, p. 2), Gra10: , (Gray, 2010), How12: , (Howarth, 2012), Her10: , (Herrmann, 2010), Bal05: , (Ball & Milne, 2005), Cha04: , (Chapman & Milne, 2004), Dar09: , (Darnall, et al., 2009), Ham04: , (Hammond & Miles, 2004), Blo13: , (Blowfiield, 2013, p. 32), OEC101: , (OECD, 2010), McB09: , (McBeth, 2009), Glo12: , (Global Reporting Initiative, 2012), Tii14: , (Tiina, et al., 2014), Dar091: , (Darnall, et al., 2009), Bro131: , (Brown, 2013), Bec14: , (Becker Friedman Institute, 2014), Bri14: , (British Airways, 2014), Bri14: , (British Airways, 2014, p. 17), Bri14: , (British Airways, 2014, pp. 8-9), Bri14: , (British Airways, 2014, p. 16), Bri14: , (British Airways, 2014, pp. 17-31), Read More