Muhammad Bilal Farooq
31 Aug 2021
This article is republished from NZ Management Magazine, and written by Muhammad Bilal Farooq, AUT Senior Lecturer in Accounting and Edith Cowan, Lecturer in Accounting ,Edith Cowan University in Perth. Read the original article.
The AA1000AP standard offers a valuable framework for guiding managers in integrating sustainability into corporate operations, according to Muhammad Bilal Farooq and Rashid Zaman who encourage managers to pay greater attention to it.
“As an island country reliant on primary production and tourism for much of its economic wealth, New Zealand is particularly vulnerable to the economic and environmental impacts of climate change. New Zealand must both adapt to changes in climate and contribute to a coordinated international response to reduce greenhouse gas emissions to the atmosphere,” according to the Ministry for the Environment, 2021(link is external).
The 2021 New Zealand Climate Change Commission(link is external) report also issues a strong warning that New Zealanders must do more to reduce their carbon emissions and halt the damaging effects of climate change.
To do so organinsations need to incorporate sustainability(link is external) into business operations. However, experts struggle with how this idea can achieved.
In our study(link is external) we explore the potential of AccountAbility’s AA1000AP standard(link is external) and how it offers a useful framework for managers in embedding sustainability(link is external) into their organisations and subsequently evaluating the success (or otherwise) of their efforts.
The AA1000AP standard places organisational stakeholders at the heart of any efforts to achieving corporate sustainability. The standard presents four key principles of inclusivity, materiality, responsiveness and impact.
AccountAbility says inclusivity(link is external) is defined as “…actively identifying stakeholders and enabling their participation in establishing an organisation’s material sustainability topics and developing a strategic response to them. An inclusive organisation accepts its accountability to those on whom it has an impact and to those who have an impact on it”.
“Materiality(link is external) relates to identifying and prioritising(link is external) the most relevant sustainability topics, taking into account the effect each topic has on an organisation and its stakeholders. A material topic is a topic that will substantively influence and impact the assessments, decisions, actions and performance of an organisation and/or its stakeholders in the short, medium and/or long term.”
AccountAbility states that “responsiveness(link is external) is an organisation’s timely and relevant reaction to material sustainability topics and their related impacts. Responsiveness is realised through decisions, actions, and performance, as well as communication with stakeholders” .
The principle of impact(link is external) “…the effect of behaviour, performance and/or outcomes, on the part of individuals or an organisation, on the economy, the environment, society, stakeholders or the organisation itself. Material topics have potential direct and indirect impacts – which may be positive or negative, intended or unintended, expected or realised, and short, medium or long term”.
“Impact can encompass a range of environmental, social and governance topics and can be measured on a local, regional or global level” and can be measured quantitatively, qualitatively and attributed a financial value.
In our study, we interviewed 12 senior managers based in listed New Zealand companies and asked them to share with us their experience of embedding sustainability into their corporate operations.
Inclusivity: In terms of inclusivity, we find that listed New Zealand companies do engage with their stakeholders on sustainability.
However, this engagement is more frequent, sophisticated and in-depth when it comes to traditional commercial stakeholders such as customers, suppliers, investors and lenders than say local community (who are less powerful).
A range of engagement mechanisms are used to support this engagement. We find that the use of social media (e.g. Facebook, Twitter and LinkedIn) is growing in popularity and shows some potential in improving corporate stakeholder engagement efforts.
However, stakeholders (except for shareholders) are generally not involved in corporate decision-making. Thus, stakeholder participation, a key component of AccountAbility’s principle of inclusivity, remains unaddressed. Overall, stakeholder engagement is primarily monologic (one way) as opposed to dialogic (two way) in nature.
Materiality: In terms of materiality, we find that the materiality assessment drives corporate sustainability reporting. Although, senior management and board participation in the exercise varies.
Stakeholder engagement, an important component of the materiality assessment, is used to identify issues material to stakeholders. Some companies go one step further and use the results of their materiality assessment to drive not only corporate sustainability efforts but also overall corporate planning and decision making.
Responsiveness: Responsiveness to stakeholder concerns is demonstrated in corporate governance and sustainability initiatives.
Corporate governance initiatives include establishing specialist sustainability committees, setting up senior management teams to address sustainability issues and the use of codes of conduct.
However, the use of sustainability committees is rare as most companies prefer senior management teams. Further, the effectiveness of codes of conduct is unclear as evidenced in other studies. Sustainability initiatives include internally focused and externally focused sustainability activities.
Impact: The impact of sustainability programmes and initiatives is monitored and measured through sustainability KPIs and using international standards and guidelines (e.g. the Certified Emissions Measurement and Reduction Scheme).
However, while companies find it easier to measure well-known metrics such as those relating to say carbon emissions or health and safety, other areas such as community impact are considerably more difficult to monitor and measure.
Further, a few companies are beginning to link their sustainability KPIs with executives’ remuneration.
To conclude, we find that AA1000AP offers a valuable framework for guiding managers in integrating sustainability into corporate operations and we encourage managers to pay greater attention to this standard.
This standard offers organisations a useful tool to both guide and evaluate the integration of sustainability and corporate accountability to stakeholders.