As a follow up to my previous 4 Lines Is All It Takes post, I’d like to elaborate on what the those 4 sustainability reporting lines would actually report. A Sustainability 10-Q (simplified) if you like. Just as a reminder, the 4 lines are:

INCOME STATEMENT
Sustainability Revenue
Sustainability Costs

BALANCE SHEET
Sustainability Assets
Sustainability Liabilities

So let’s drilldown on what those 4 lines could actually report…

SUSTAINABILITY REVENUE

Instead of starting with hard stuff like trying figure out how to allocate a proportion of revenues to sustainability, start with the easy stuff: revenue directly attributable to sustainability initiatives in your organization, namely:

- Feed In tariff credits
- Sustainability-related tax credits
- Sustainability bonuses (e.g. for carbon reduction)
- Sustainability grants (e.g. for renewable energy/recycling initiatives)

If these sustainability revenues are zero in your business then you have work to do.

SUSTAINABILITY EXPENSES

Again focus on the stuff that is directly attributable to your sustainability agenda:

- Supply chain auditing costs
- Product lifecycle assessment costs
- CSR report production costs
- Purchase of energy saving equipment etc.
- Purchase of EMS/ESG software
- Cost of sustainability-related certifications (e.g. ISO 14000)

Again if you don’t have any sustainability costs then your investors should be asking the simple question: why not?

Since the savings from sustainability initiatives are not reflected in either the revenue or costs line, they could be posted as a fifth line ‘Sustainability Savings’ that functions like a reverse cost of goods sold reporting line. Naturally these savings would have to be quantifiable and evidenced to qualify.

SUSTAINABILITY ASSETS

Sustainability assets are simply those assets that were specifically purchased to support a sustainability agenda e.g.

- Wind turbines
- Biomass burners
- Solar panels
…etc.

This line clearly reflects your investment in creating a sustainable future for your business as many of these kinds of sustainability assets have lifespans of 10+ years.

SUSTAINABILITY LIABILITIES

This one is a bit trickier. For example you could know that you will be subject to penalties for poor energy performance and disclose that here. Or you could be accruing for the future anticipated costs of a planned supply chain audit or product lifecycle assessment and disclose that here. Or you could be aware that you will be required to replace certain plant to comply with incoming legislation and therefore disclose that future liability here. Imagine what this line could look like on say, BP’s sustainability balance sheet?

Clearly, this is easily the line with the most opacity and the one that regulators must focus their attention on to make as transparent as possible.

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This entry was posted on Tuesday, July 6th, 2010 at 2:07 am and is filed under Analytics, Control, Sustainability. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.