Integrating Sustainability Into Business Has Essay Benefits. (70 Characters)

Sustainability reporting guide developed by Bursa Malaysia

Explain the importance of both integrating sustainability into business and sustainability reporting utilising both the “Guide” and the relevant accounting literature.

A sustainability reporting guide has been developed by Bursa Malaysia that has the objective of providing assistance to users in making improvement to their sustainability related disclosures for addressing the evolving needs of stakeholders such as customers, investors and regulators. A sound business model is developed on a holistic approach of incorporating environmental, economic, governance and social factors in association with the financial ones and business management. Such model will help in creation of long term value to stakeholders and society at large and business continuity. It is required by organizations to consider embedding of sustainability into the management process and business strategy. The guide developed by Bursa Malaysia enables the listed organization on stock exchange to appreciate sustainability by driving, facilitating and supporting societal value and improve their awareness of the sustainability consideration in terms of their opportunities and risks (Abd-Mutalib et al. 2016).  Moreover, organizations are able to improve the depth and quality of disclose sustainability information so that expectations and needs of sustainability information users are served in a better way. Listed users on the stock exchange are provided with the information on importance of sustainability, importance of embedding it into organization, what needs to be disclosed and selected indicators and themes.

Importance of integrating sustainability into sustainability reporting and sustainability business:

The integrated approach to sustainability is one of the aspects of transparency that helps organization in creating spotlight areas and value leading to further integration. Integration of sustainability into the business helps in ways that contribute to solving global challenges at the same time and delivering benefits.  Companies will be benefitted in terms of gaining access to capital and prepare for future risk by integrating sustainability into their business. The strategy of organization and the process of decision making incorporating sustainability help in reducing resources, future regulatory, price risk and providing a vision to business that will be impacted by long term ,medium and short term social and environmental changes (Bursamalaysia.com. 2018). The case for integration is elevated by the financial success and sustainability factor. All these results are strengthened by linking sustainability with the better operational performance of firms and lower cost of capital.

Stakeholders, suppliers and employees of organization are acquainted of the impact that business have on the environment, economy and society that might be negative or positive. The risk profile of organization, its value and potential liabilities can be significantly affected by sustainability related issues and this call for business to appropriately respond to such issues (Ghanbaria and Sarfia 2016). There are several benefits of integrating sustainability into the business and such benefits are listed below:

Integrated approach to sustainability

Securing capital- Investors are determining their investment in organizations by considering the environmental, social and governance factors in association with the financial performance. There has been considerable increase in global sustainable investment by value of US $ 21.4 trillion. Responsible investment in Asia grew by over 36% and sustainability factors are increasingly considered by local investors in Malaysia in their process of investment decision making (Bursamalaysia.com. 2018). Improving performance of company in terms of sustainability and its disclosure and increased focus of investors would help organization in gaining access to capital both at global and local level.

Maintaining license to operate- License to operate is implicit approval of community regarding the business operation of organization. However, to does not refer to the regulatory or legal license to carry out operations. The link between license to operate and success of ongoing business are increasingly realized by organizations and they are capable of managing the risks associated with business and realizing the opportunities with the help of license to operate. Organizations receive more support from communities and several stakeholders that openly communicate and engage with the matters of environmental sustainability (Lee 2017).

Enhancing brand value and building reputation- It will enable organization to reap long term benefit such as optimized capital expenditure, stronger operating margins and improved reputation. The guide issued by bursa Malaysia index intends to support the users in making decision regarding ESG investment and encourage best practice disclosures, investment interest and capital allocation (Kaur and K. Lodhia 2014). 

Cost optimization and increasing productivity- Organization can expect to enhance their employee and suppliers productivity and retain and recruit top talents by undertaking sustainability effort such as going beyond labor standard compliance and engagement programs for employees such as health and safety programs (Bursamalaysia.com. 2018). Furthermore, benefits of cost efficiencies will be attributable to organization by considering opportunities and risks pertaining to sustainability.

The key step in material sustainability matters identification is stakeholder engagement and engagement of stakeholder is considered critical to the success and sustainability performance of organization. Ability of organization to protect their existing revenues is adversely impacted if they fail to engage with stakeholder and also bear the risk of exposing them to unnecessary costs.

Stakeholder forms an important part of organization and their engagement helps organization focusing on responsiveness, inclusiveness and building continuous relationship between organization and stakeholder. Identification and engagement with stakeholders helps in ensuring that business activities are strategically aligned. Key stakeholders will help organization in identifying the sustainability issues and make prioritization of material sustainability matters. One of the key components in the materiality assessment process is engagement with stakeholders and the sustainability matters that are material to organization and stakeholders are prioritized (Bepari and Mollik 2016). The communication strategies and sustainability reporting of organization is well informed by the engagement process.

Benefits of integrating sustainability into business

License to operate is mainly seen as the approval of community for carrying out the operations of business as it helps in overcoming the obstacle. License to operate has a direct link between the operations of business and success of organization. Such concept is central in the natural resource sector for few years. Organizations that engage with the environment after getting approval of the community are more supportive and it assists them in carrying put operations seamlessly (Cortesi et al. 2015).

The management of risks is one of the prominent features of issues of environmental, economic and social factor and the risk framework of organization should integrate all such risks factor. Sustainability management should incorporate sustainability risk management that serves as a catalyst that prompt for assessing such risks impacting the business. Organizations addressing risk factors in the sustainability management are able to stay ahead in regulation disclosures and addressing emerging risks. When there is emergence of information of green house emission gases, organization would already consider the emission of CHG emission as material (Williams 2015).

The risk related to sustainability issues has reduced exposures when they focus on sustainable risk management.  Organization can incur cost when they fail to manage the risks related to sustainability such as strikes arising from unsafe working conditions and bad weather condition. Therefore, an organization is capable of reducing losses and costs arising from such risks if they are capable of pro actively recognizing and managing the risks.

Lower risk profile of organization helps in reducing the cost of capital as there is tendency on part of investors to favor such organizations that demonstrate a better management of economic, social and environmental factors. Such efficient management of risk factors helps in diminishing risk and enhancing corporate value that would help on lowering the cost of capital. It is so because risk premium is added by investors to the firm’s cost of capital by questioning social and environmental practices (Anas et al. 2015).  

Corporate sustainability reporting incorporates the concept of sustainability materiality and materiality is about reference and significance of reporting information to the users of financial report. The approach of materiality focuses on the key areas and material information that is proved to be an effective stakeholder approach reform. Impacts of environmental, social and economic performance gives rise to opportunities and risks and the relative priority of these matters should be reflected by disclosing of the materiality sustainability matters.

Stakeholder engagement and material sustainability matters identification

Materiality in the sustainability reporting is not only about the consideration of financial impact but it also takes into account the impact of economic, environmental and social factors on the ability of organization to meet the needs of future and current generation. It is essential on part of organization to have detailed understanding of achieving business objectives using materiality matters and in this regard, they need to be clear of the audience of materiality assessment (Bing and Amran 2017). However, both the internal and external audiences are benefitted from sustainable materiality matters. Assessment of materiality has several benefits that are listed below:

• Organizations are able to take sustainability considerations by information the revision and development of business strategies.
• Sustainability issues are identified on relevant basis by considering the impacts of associated opportunities and risks.
• Internal and external stakeholders engage with organization on more effective basis by having considerable focus on addressing their concerns.
• The material sustainability matters required to be managed are identified and are included in sustainability disclosures.

The identification of matters related to material sustainability assessment of materiality is incorporated material assessment in a more holistic way for the sustainability reporting purpose. Organizations are benefitted using the materiality approach as it helps in addressing the dilemma by providing balance between mechanized and selective reporting (Ong et al. 2015). However, subjectivity and interrelationship are the two challenges identified in the materiality approach. Such challenges are regarded as basic concerns and inherent in the current sustainability reporting. It is argued that with the progress of overcoming such challenges, there would be advancement on the road of materiality to sustainability reporting.

In this particular section, two companies listed on Australian stock exchange and two companies listed on Bursa stock exchange of Malaysia have been selected for comparing and contrasting their respective sustainability disclosures.  Two organizations that have been selected from Australian stock exchange are Wesfarmers and BHP Billiton limited and the companies selected from Bursa Malaysia securities Berhad are Petronas chemical group Berhad and PPB (Perlis Plantation Berhad) group Berhad.

Petronas chemical group is the leading integrated Malaysian chemical producer that has its operation in number of world class production sites. The operation of organization is primarily in marketing, manufacturing and selling of wide range of chemical products such as fertilizers, olefins, basic chemicals and polymer. PPB group Berhad is a diversified conglomerate of Malaysia that engages in agriculture, food production, property investment, film development and property investment. It is one of the leading oil and palm producer and Agribusiness Company of the world. 

BHP Billiton Limited is a global resources company that is listed on ASX and is the various commodities producers such as metallurgical coal, iron ore, uranium and copper (Bhp.com 2018). The segment of operation of company is in copper, iron ore, petroleum and coal. On other Wesfarmers limited is a conglomerate of Australia having a diversified business portfolio operating in supermarket, hardware, software, energy, coal, gas processing and safety product industry.

Corporate sustainability reporting and materiality assessment

The sustainability disclosures of all the companies have been analyzed by using the information from their latest sustainability report for the year ending 2017.

Petronas engage with their stakeholders on regular basis using different platforms for building relationship based on trust and openness. Organization conduct formal and informal sessions for obtaining relevant input on concerns of stakeholders and communication with stakeholders are valued for gaining a better understanding of their operational environment. Some of the relevant stakeholders that organization engages with comprise of customers, employees, communities, regulators and investment community and media. Petronas enquire into the main stakeholder interest and using different measures for addressing such concerns. Some of the engagement channels used is employee performance management, appreciation and staff engagement sessions, and product stewardship and customer appreciation and product stewardship programs, programs of corporate social responsibility, networking sessions and issuance of media release.

PPB group Berhad intends to deliver sustainable value to its stakeholder through policies, principles, strategies and objectives. Organization set specific targets relating to their sustainability matters and disclosures by taking feedback from their stakeholders. A meaning relationship and integrity in corporate reporting is maintained with the stakeholders. Stakeholders are provided information with accurate, timely, equal and clear access to material information on the performance and operation of company. Employees of organization undergo annual performance review that seeks to provide an engaging, healthy and supportive community for empowering individual to reach their potential.  

BHP Billiton being a global company needs to interact with stakeholders and uses diversified methods for communicating with the stakeholders. Company makes use of several platforms such as annual meeting, sustainability reports and website for effectively communicating with stakeholders. Sustainability issues pertaining to organization is well understood by regularly engaging with stakeholders and they have been setting the sustainability targets for decades (Bhp.com 2018).

Wesfarmers limited for understanding their stakeholder expectations engages on regular basis and such stakeholders are community, nongovernment organizations, suppliers, customers. The business of organization is committed towards building collaborative and relationship with suppliers. Delivery of great products is enabled by helping suppliers to become efficient and grow their business (Sustainability.wesfarmers.com.au 2018). Since organization believes in making innovation in serving community, it continuously makes investment.

A robust risk management practice is acknowledged by the board of Petronas Chemicals for ensuring good corporate governance with the objective of safeguarding the assets of the group and investment of shareholders. The achievement of corporate governance objectives might be materially affected by management and materiality of critical risks. Best practice of risk management is implemented by organization by assessing, treating, identifying and monitoring the risks.

An enterprise risk management framework is organized by PPB group for evaluating, identifying and managing the considerable business risks faced by group due to its operation on social, environment and economic factors. Management and staffs are provided education and training on going risk faced by organization and how to deal with such risks. Group has achieved excellence into their sustainability by integration of sustainability practices into the business activities. For the sustainability of business for such conglomerate, risk management is of utmost importance. For fostering a healthy and safe working environment, a wide range of actions are taken by organization such as training session for stakeholders and employees and creation of safety awareness and strictly complying with the environmental laws are undertaken (Zulkarnain et al. 2016).

The material risk across all the business activities of BHP Billiton is managed by the functioning of the assets and resources. Assessments of such risks are done in consideration of safety, health, community, and environment, financial, reputational and legal impacts. The contents of sustainability report are evaluated by third party assurance providers for ensuring that actions and commitment are accurately represented. Effectiveness of process of sustainability is designed every year by internal audit programs that help in creating detailed management plans for addressing the identified gaps (Bhp.com 2018).

Wesfarmers take strategies by focusing on continuous improvement by targeting reduction of risks associated with sustainability factors. Safety initiatives have been undertaken by each business units that helps in targeting of their specific safety risks. Each division of business has strategic teams that help in management and identification of sustainability risks including human rights and modern slavery risks. Risk based approaches have been adopted by Wesfarmers towards human rights that is focused on respecting human rights in the supply chain and other areas (Sustainability.wesfarmers.com.au 2018).

Assessment of materiality issues by Petronas chemicals helps in determining of the issues that are of considerable importance to both stakeholder and organization as a whole. Sustainability issues faced by organization are identified using materiality assessment index of sustainability. It also helps in assessing such issues significance to stakeholders and then prioritizing focus areas of sustainability (Macve 2015). Materiality assessment is conducted by organization once every two years.

Materiality assessment by PPB group is conducted once in every three years for ensuring that there is any considerable change in business and any change in environmental and socio economic factors are taken into consideration. As a part of sustainability roadmap and materiality assessment, carbon emission have been identified by the group from animal feed and flour milling that is regarded as key sustainability area of group. For the operations in Malaysia for year ending 2017, carbon assessment has been completed. Assessment of carbon is the first step taken by organization when addressing change in climatic conditions and it also helps in identifying opportunities for reduction of emission (Robson et al. 2017).

The assessment of materiality helps in aligning sustainability strategies for ensuring that transparent coverage is provided on key topics of consideration. Materiality assessment of BHP Billiton is in accordance with the principles of Global reporting initiative. Organization is able to successfully deliver their strategy and accordingly helps in creation of stakeholder value by identifying and responding to material sustainability issues. The longer term goals and sustainability performance targets are created in collaboration and consultation with stakeholders and are approved by sustainability committee (Bhp.com 2018).

The environmental and social impact influencing decision and assessment of stakeholders helps in reflecting the material issues faced by Wesfarmers. Such assessment involves capturing of emerging issues and prioritizing key sustainability topics by consulting with external and internal stakeholders. Materiality is determined by assessment of criteria and board in accordance with ASX principles and the materiality guideline is applied in accordance with Australian accounting standards (Lokuwaduge and Heenetigala 2017).

Petronas chemicals ensure that their operation complies with the regulatory requirements and this also include license to operate in their manufacturing facilities impacting reputation and assets. On other hand, there is no mentioning of the license to operate by PPB group and BHP Billiton limited. Wesfarmers limited source their materials sustainably and there is a sustainable cotton standard to which the organization complies. The liquor division of the conglomerate addresses the alcohol related issues by working in collaboration with licensees and other stakeholders (Shanmugam 2017).

When comparing the sustainability disclosures of all the organizations selected, it can be seen that sustainability disclosures of Petronas chemicals and PPB group is in compliance with the guidelines issued by Bursa Malaysia. On other hand, sustainability disclosures of BHP Billiton and Wesfarmers limited is accordance with the Australian accounting standards and Global Reporting initiatives. However, there are some common criteria for measuring the sustainability impacts and their effectiveness such as engagement of stakeholders and using a risk management approach by all the listed companies. Some organizations such as PPB group and BHP Billiton have not sought for license to operate and they comply with the basic requirements.

Conclusion:

The report is prepared for analyzing the importance of integrating sustainability into the business activities. Guides to sustainability issued by Bursa Malaysia have assisted listed companies in enhancing their sustainability disclosure quality and have made stakeholders and investors more reliable on the annual report issued. Sustainability disclosures of all companies that is Petro Chemicals, BHP Billiton, PPB group and Wesfarmers limited have incorporated stakeholder engagement in their sustainability efforts as it helps in seeking valuable information on how to improve sustainability reporting. However, the sustainability reporting guidelines of the company is operating in Australia and Malaysia is different and takes into account some other factors that is provided in the guideline.

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