Научная статья на тему 'Sustainable development reporting: international and Russian experience'

Sustainable development reporting: international and Russian experience Текст научной статьи по специальности «Экономика и бизнес»

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Ключевые слова
SUSTAINABILITY / SUSTAINABLE DEVELOPMENT REPORTING / CORPORATE RESPONSIBILITY / INDICATORS OF SUSTAINABILITY / INTEGRATED REPORTING

Аннотация научной статьи по экономике и бизнесу, автор научной работы — Efimova Olga, Batyrova Nadezda

In recent years, the phenomena of Sustainable Development have been explored in an extensive body of theoretical and empirical research. In order to inform all interested users and to evaluate their own success in achieving the long-term sustainability targets, companies draw up Sustainable Development Reporting (SDR). Although the literature suggests many possible approaches to accounting for sustainability, there is no consensus on the best way forward. This article analyzes methodology and best practice of SDR. In particular, 47 Russian companies’ SD reports were analyzed; that helped find out their main features. The study helpedto outline strengths and weaknesses of SDR in Russia. The results of international SDR best practice analysis were taken into account. Our findings show positive trend in the number and growing quality of SD reports provided by Russian companies. The analysis of SDR best practice helped us to recommend key performance indicators of sustainable development that can be used by small and medium-sized entities in their practice.

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Текст научной работы на тему «Sustainable development reporting: international and Russian experience»

Sustainable Development Reporting: International and Russian Experience*

olga EFIMOVA, Ph. D, Professor

Economic Analysis Department, Financial University, Moscow oefimova2002@mail.ru

Nadezda BATYROVA

Economic Analysis Department, Financial University, Moscow nsbatyrova@yandex.ru

Abstract. In recent years, the phenomena of Sustainable Development have been explored in an extensive body of theoretical and empirical research. In order to inform all interested users and to evaluate their own success in achieving the long-term sustainability targets, companies draw up Sustainable Development Reporting (SDR). Although the literature suggests many possible approaches to accounting for sustainability, there is no consensus on the best way forward. This article analyzes methodology and best practice of SDR. In particular, 47 Russian companies' SD reports were analyzed; that helped find out their main features. The study helped to outline strengths and weaknesses of SDR in Russia. The results of international SDR best practice analysis were taken into account. Our findings show positive trend in the number and growing quality of SD reports provided by Russian companies. The analysis of SDR best practice helped us to recommend key performance indicators of sustainable development that can be used by small and medium-sized entities in their practice.

Аннотация. В последние годы феномен устойчивого развития рассматривался в значительном числе теоретических и эмпирических исследований. В целях информирования всех заинтересованных пользователей, а также для того, чтобы оценить собственные успехи в достижении долгосрочных целей устойчивого развития, компании разрабатывают отчет об устойчивом развитии (SDR). Хотя в литературе предлагаются многочисленные возможные подходы к учету устойчивости, можно констатировать отсутствие единого общепринятого подхода, позволяющего в полной мере решать задачи анализа устойчивого развития. В статье анализируются методология и лучшая международная практика отчетности в области устойчивого развития (SDR). В частности, были проанализированы 47 SD отчетов российских компаний, что помогло установить их основные особенности. Исследование помогло выявить сильные и слабые стороны SDR в России. Наши результаты показывают положительную тенденцию в количестве и растущее качество предоставления отчетов об устойчивом развитии российскими компаниями. Анализ лучшей практики SDR позволил нам рекомендовать ключевые показатели эффективности устойчивого развития, которые можно использовать, в том числе, в практике предприятий малого и среднего бизнеса.

Key words: Sustainability, Sustainable Development Reporting, Corporate responsibility, Indicators of Sustainability, Integrated Reporting.

1. INTRODUCTION

In recent years the issues of sustainable development became very important to the business community due to various factors. Some of these factors are:

• importance of public opinion,

• legislation proposes certain environmental restrictions,

• limitations and the rising cost of the resource base,

• competitors who have already started to work in accordance with the principles of sustainability.

All of them are pushing companies to realize the need to build up a strategy of sustainable development.

The influence of the concept of sustainable development in the investment attractiveness of the business cannot be overestimated. A forward-looking portfolio investor looks at the entire spectrum of risks, including non-financial. The company may be attractive in terms of current yield, but very unstable in environmental and social terms. Therefore, the company’s value is directly linked to its environmental and other reputational risks.

* Отчетность в области устойчивого развития: международный и российский опыт

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Along with the need to develop and maintain the image of a reliable company with a long-term development strategy there are other very important reasons for the company’s activities to be consistent with the principles of sustainability:

• companies that intelligently and efficiently manage the resources (in accordance with the principles of sustainability) depend less on price fluctuations;

• the earlier the company takes the principles of sustainability, the greater its chances are of getting a competitive advantage in the marketplace;

• the companies undertaking a sustainable development strategy achieve long-term goal, which allows to align all key aspects of their activities, and to control the major strategic risks.

This goal can be divided into a number of targets. The most important targets are:

• the company’s value creation and growth;

• strengthening of positive image and reputation;

• efficient use of resources (financial, material, labor) and providing the required return on invested capital;

• development of policies aimed at staff development, health care of employees, healthy and secure environment, motivation increasing;

• development of environmental policies and responsible use of natural resources.

Realizing the need of an integrated approach to sustainable development, it is important to consider the presence of very significant problems that complicate the implementation of the concept in practice.

Let us to consider the most important among them.

Problems of the methodology: the lack of developed conceptual framework which is necessary to manage long-term sustainability, including the conceptual basis, knowledge base, common reporting content and a set of particular indicators.

As a result, there is no common language that would allow the business community to discuss issues related to sustainability.

Problems of implementation of the concept of sustainable development:

• there is no integrated approach to manage long-term sustainability at the company level. Their efforts are local;

• companies do not have enough information on which they will be able to base their decisions;

• there are no developed techniques for the analysis of long-term sustainability;

• there are no generally accepted indicators for the analysis of long-term sustainability. As a result, the organizations lack understanding of how to determine whether they have succeeded in solving related tasks;

• the major part of analyzed companies use only a specific set of financial and non-financial indicators, but there is no systematic approach for it.

Another group of issues are related to difficulties in implementing the concept due to common economic reasons:

• long-term development strategy is investing in a very long period and it is difficult to calculate the benefits using the traditional approach;

• the advantages and opportunities that a company can get are often highly uncertain;

• some managers are not able to control such issues as the impact of their business on the environment, region, society as a whole;

• per common economic reasons it is rather difficult to put the principles of sustainability as a major issue on the agenda of the company. And, of course, the main difficulty is connected with performance evaluation related to participation in sustainable development.

Along with this, the issues that are more specific to Russia should be noted, including:

• low transparency of Russian business;

• weak involvement of small and medium-sized businesses;

• lack of guidelines and practice (except for public companies) for sustainable development reporting.

We will try to assess the situation on each particular issue in order to provide a possible solution.

2. BACKGROUND & THEORY

The term “sustainable development” (SD) has been widely used after Prime Minister of Norway Gro Harlem Brundtland’s speech at the UN in 1987. The UN Report Our Common Future, better known as Brundtland Report, defined SD as “development that meets the needs of current generations without compromising the ability of future generations to meet their needs and aspirations” (WCED, 1987, p. 43).

The Brundtland Report coined SD as an integrative concept aiming to balance environmental and economic issues in a mutually beneficial way. It outlined SD as an environmental concept for the macroeconomic level (Steurer, 2002, pp. 241 ff, pp. 341-366). Regarding its thematic breadth, issues other than strictly environmental ones were incorporated.

While initially economic and social issues were addressed only as far as they were perceived to be relevant for environmental concerns (Steurer, 2001), they evolved into equally important dimensions of SD. Regarding its conceptual principles, the idea was expanded from the macroeconomic to the microeconomic and individual level. This application of SD on the corporate level is often referred to as Corporate Sustainability (CS).

CS is a corporate guiding model, addressing the short-and long-term economic, social and environmental performance of corporations (firms).

Today, CS is a well-known societal guiding model that asks for the integration of economic, social and environmental issues in all societal spheres and levels in the short- and long-term.

SD AND STAKEHOLDER CONCEPT

Stakeholder theory is built upon the idea that businesses should serve a variety of interests rather than just those of shareholders. In short, stakeholder theory suggests that “there is a multiplicity of groups having a stake in the operation of the firm — all of whom merit consideration in managerial decision making” (Phil-lips,1997, p. 52).

Freeman could be considered to be the modern day founder of the concept via his 1984 book Strategic Management: A Stakeholder Approach. Freeman (1984) defines a stakeholder as follows: “A stakeholder of an organization is (by definition) any group or individuals who can affect or is affected by the achievement of the organization’s objectives”.

Now the stakeholder concept is an analysis tool for the strategic management of companies. It is based on knowledge that there are different stakeholders both inside and outside the company that have conflicting and complementary interests which influence corporate sustainability.

As Freeman states individuals or groups can be described as stakeholders if they have a material or immaterial “stake” in the business. The stake of individuals or groups in a company is based mainly on the fact they make resources available to the company. In this case the following main types of material and immaterial resources can be outlined:

• Capital resources, such as financial assets;

• Tangible assets (land, buildings, etc.);

• Human resources;

• Natural resources;

• Goodwill resources, such as social acceptance and good working environment within the company, customer relations and so on.

It seems important to emphasize that modern integrated reporting (IR) is based on a similar approach to classify resources of the company (IIRC, 2011). So IR framework offers following elements of company’s recourses (capitals):

• Financial capital;

• Manufactured capital;

• Intellectual capital;

• Human capital;

• Social and relationship capital;

• Natural capital.

As can be seen, despite some differences in the allocation of capital elements, essentially they are based on a common approach.

Stakeholders make resources available to the company as far as there is a profitable relationship between what they put into company and what they get out (Fegge, Schaltegger, 2000). This connection is a key feature of stakeholder relationships: the fact that stakeholders depend on the company to achieve their business goals and the company in turn depends on them.

As it was emphasized in numerous researches there is a deep connection between SD concept and the stakeholder theory (Steurer, Langer, Konrad, Martinuzzi, 2005), (Reynolds, Schultz, Hekman, 2006), (Lorne and Dilling, 2011) and others. Understanding the fact that SD concept has the stakeholder theory roots helps to outline drivers of company sustainable development. At the same time these factors (drivers) are considered as drivers of stakeholder value (Figge, Shaltegger, 2000).

According to this approach the factors of stakeholder value creation are following:

• value is not created solely by the organization itself or inside;

• value is under the influence of external factors, which are the risks and opportunities of the environment in which the company operates;

• value is created by joint efforts through relationships with stakeholders (customers, business communities, etc.);

• value depends on the availability, accessibility, effectiveness of resources management (financial, industrial, intellectual, natural and social).

As it was mentioned above, acceptance of these principles was the basis for the development of integrated reporting.

Sustainable business is a business that can survive in the long run. In turn, the long-term sustainability involves the providing of conditions for value creation (it is meant stakeholder value). These conditions are connected with both financial and non-financial factors.

The number of reports, articles and surveys that were published last 20 years highlight importance of non-financial drivers for sustainable development that in turn determines long term value of the company. Figure 1 represents this comprehensive approach to understanding the value creation drivers as well as direction of Non-Financial drivers’ impact on key financial value drivers.

There are three key adopted areas of long-term sustainability: the economy, the ecology (environment), and the social responsibility.

In economic terms long-term sustainability is connected with providing conditions for economic value

Stakeholder value

Figure 1. The Value Creation Framework

added creation. It means the company should increase return on capital employed trying to optimize cost of capital.

Social aspects of sustainability are connected with staff development (safety, stable payment of wages, additional medical and social insurance for employees, human resource development through training programs, skills development, assistance in critical situations, and maintaining image of a socially responsible employer), as well as participation in social investments through its internal and external social programs in the territories of its presence, oriented at maintaining their social well-being, security and stability.

From an environmental point of view it is the company’s efforts to protect and restore the environment, including reduction of emissions and other environmental necessities.

Obviously, the problem of sustainable development at the present time can not be viewed in isolation as a separate assessment of the economic, social or environmental sustainability, but certainly in their symbiotic relationship.

Thus, the company’s efforts to ensure the long-term sustainability must be organically integrated into the company’s strategy. As a long-term effect of such integrity the company achieves the cost reduction, and it helps to manage three main elements of intellectual capital: relational, organizational and human capital.

3. HYPOTHESIS DEVELOPMENT

Sustainable value creation involves consideration of economic, environmental, and social factors — not only because different stakeholders have different interests, but also because these factors are interdependent. En-

vironmental and social factors can also determine or affect the market (economic) value of a company. In turn financial factors are crucial for developing environmental and social projects of a company.

The issue of sustainable value creation cannot be solved without the appropriate information-analytical system. On the one hand it enables the company to assess the progress in achievement of long-term development key objectives, and on the other hand, it allows all interested users (stakeholders) to evaluate the intentions and the success of the company’s efforts to ensure its longterm sustainability.

Stakeholders (partners, customers, shareholders, local and federal authorities, the media) are interested that the principles of sustainability are integrated into the strategy and business plans. In order to meet the expectations of stakeholders, companies need to maintain a dialogue with them, allowing to reduce reputational risk and to find new business opportunities.

This, in turn, creates the problem of choosing the form of information exchange with stakeholders. Reporting under IFRS does not solve the problem, because such statements relate to financial matters of disclosure only. Despite the fact that the voluntary disclosure of additional information in annual report is welcome, specific recommendations on non-financial information disclosure do not exist (except, perhaps, the disclosure requirements of the financial risks of the company).

There is some experience in the development of accounting, which allows to link financial and non-finan-cial information necessary for decision making. So, it is important to mention Guidance on Corporate Responsibility Indicators in Annual Reports published by United Nations (2008); International Guidance Document Environmental Management Accounting, published by IFAC

(2005); A Manual for the Preparers and Users of Eco-Efficiency Indicators, UNCTAD (2004); The Sigma Guidelines -Toolkit Sustainability Accounting Guide, published by the SIGMA Project (2003).

However, using environmental management accounting requires solution of many problems. Moreover, these documents themselves indicated that this reporting is still in its infancy. There is a serious information gap, which greatly complicates the process of justification of investment and financial decisions for both internal and external stakeholders.

Key issues that will contribute to solving the problem:

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• What form of information should be chosen to make it possible to satisfy the interests of sustainable development management as well as the interests of key stakeholders?

• What should the content of the report be?

• What is sustainable development business?

• How to assess the sustainability and what measures to use for this?

• What information is needed to study?

• Is this reporting reliable ?

• How to evaluate the progress of the company’s long-term sustainability?

For purpose to promote an integrated SDR which meets the key stakeholders needs there were a large number of studies at the international level. As a result of them new recommendations on SDR were provided from various professional organizations.

It is evident that the accountant profession plays an important role in the development of the theory and practice of sustainable development.

For example:

The Institute of Chartered Accountants in England and Wales (ICAEW) has provided guidance to its members on the type of services likely to be required in a world where sustainability reporting is commonplace.

The Chartered Institute of Public Finance and Accountancy (CIPFA) has published Sustainability: A Reporting Framework for the Public Services, a model of sustainability reporting that any public sector organization can apply for considering and reporting on organizational and service-level sustainability.

The Association of Chartered Certified Accountants (ACCA) and the Chartered Institute of Management accountants (CIMA) has published a variety of papers that consider how to include sustainability measures in traditional financial reporting, including Full Cost Accounting, Triple Bottom Line reporting and Balanced Scorecard methodologies, as well as a selection of hybrid approaches.

The International Federation of Accountants (IFAC) has issued guidance on environmental management accounting.

Also we should refer:

• Sustainable Value — EABIS Research Project — Corporate Responsibility, Market Valuation and Measuring the Financial and Non-Financial Performance of the Firm, published by European Academy of Business in Society (EABIS) in 2009.

• KPIs for ESG — Key Performance Indicators for Environmental, Social and Governance Issues — A Guideline for the integration of ESG into Financial Analysis and Corporate Valuation (version 3.0): published by DVFA (the Society of Investment Professionals in Germany) in 2010.

• Guidance on Corporate Responsibility Indicators in Annual Reports, published by UNCTAD in 2008.

In response to changes in the concept of corporate reporting the International Integrated Reporting Committee (IIRC) offered another reporting model, which will explain how business creates and sustains its value at present and in the future.

Integrated reporting model is based on the existing reporting elements, such as management discussion and analysis. It also “... brings together material information about an organization’s strategy, governance, performance and prospects in a way that reflects the commercial, social and environmental context within which it operates. It provides a clear and concise representation of how it creates and sustains value (IIRC, 2011)”.

Association of Certified Chartered Accountants (ACCA), International Integrated Reporting Committee (IIRC), World Business Council for Sustainable Development (WBCSD) and other bodies are actively involved in raising public awareness about benefits of informational transparency. Their activity resulted in the increase of number of reporting entities with more transparent corporate reports.

Summing up the main ideas of these documents it can be said that all of them encourage the investment community, governments, regulators and corporations to enhance the integration of environmental, social and governance (ESG) factors for capital investment decisions and to include ESG information in corporate reporting.

The literature research identifies a variety of indicators and frameworks developed to promote and reflect sustainability. For example: the Triple Bottom Line that combines economic, environmental and social considerations to promote fair operation activity, eco-efficiency, and environmental justice; the Balanced Scorecard and Sustainability Balanced Scorecard that use strategy maps to integrate sustainability into decision-making processes; and the Sustainability Assessment Model that uses the concept of full-cost accounting, translating all internal and external costs into financial values

to measure the sustainability of a company’s specific projects.

Although the literature suggests many possible approaches to accounting for sustainability, there is no consensus on the best way forward.

By dividing stakeholders into two groups: external and internal, it is possible to advance two hypotheses.

Hypothesis l.The main objective of SDR for internal users is to construct a system of value creation drivers (both financial and non-financial) with the release of the most important operational and strategic risks, including reputation. Making a report on a regular basis will contribute to ongoing coordination and harmonization within the company. It also will help in providing interactions with the environment (investors, creditors, competitors, government agencies, the public), which gives an important experience, connections and advantages in the field of coordination and communication.

Hypothesis 2. The main goal of constructing a report for external users is implementation of effective information dialogue with key stakeholders on the strategy of sustainable development and also evaluating its performance in comparison with other companies.

In our research we examined the stakeholder expectations and, as a result, offered key performance indicators relevant for every group. Table 1 summarizes the most important sustainability indicators, taking into account the different goals of internal and external stakeholders.

There is no doubt that in practice the choice of particular indicators and clarifying methodology will take into account the company objectives and strategy.

Our research based on SDR and integrated reports best practice analysis helped to outline how effective the analyzed companies were in their SD strategy disclosure and how relevant such disclosures were.

4. SAMPLE, MEASUREMENT ISSUES AND FINDINGS

The analysis of international corporate reporting best practice is based on analytical reviews prepared by leading consulting companies and analytical agencies, such as PrciewaterhouseCoopers, Ernst&Young, KPMG, Cor-porateRegister.com, and Russian Union of Industrialists and Entrepreneurs.

In particular, for analysis of international integrated reporting practice we used results of PriceWaterhouse-Coopers research, surveying 2011 corporate reports of the companies listed on Johannesburg Stock Exchange (PWC, 2011) and London Stock Exchange (PWC, 2011).

The PwC report analysed the practices of the Johannesburg Stock Exchange’s (JSE) top 100 companies, 100 in the FTSE 100 and 198 in the FTSE 250. Invest-

ment trust companies were excluded from the analysis, as their more standardised reporting would skew the results.

Russian listed companies quoted on Stock Exchange MICEX do not have common practice of preparing non-financial reports. As a consequence, the sample of this research is limited to 47 reports for 2012, registered in National Register of Non-Financial Reports of Russian Union of Industrialists and Entrepreneurs as of September 10, 2012 (see Appendix 1). Information about industry structure of analyzed companies is provided in Appendix 2. Furthermore, the results of SD Index analysis provided by Interfax-Era (includes 150 Russian companies) were used.

The first Russian company which attempted to prepare integrated report was State Atomic Energy Corporation Rosatom and its subsidiaries in 2009. Nowadays Rosatom and Oil Company Rosneft OJSC are the only Russian companies participating in the initiative of International Integrated Reporting Committee. In this case these reports were analyzed more deeply.

As it is stated in the IIRC report, Towards Integrated Reporting: Communicating Value in the 21st Century (IIRC, 2011), an integrated report should contain, at least, six content elements summarized below. The presentation of the elements should make the interconnections between them apparent:

• Organizational overview and business model;

• Operating context, including risks and opportunities;

• Strategic objectives and strategies to achieve those objectives;

• Governance and remuneration;

• Performance;

• Future outlook.

We examined completeness and quality of information of these sections in the analyzed SDR of Russian and international companies and came to the following conclusions.

Due to the efforts of international bodies involved in raising public awareness about benefits of informational transparency, number of reporting entities with more transparent corporate reports increases.

Gradually recommendations on non-financial reporting worked out by international organizations become regulatory requirements, as it was observed in the United Kingdom and South Africa.

There is no doubt that regulation will continue to have an impact on the level of disclosure and structure of reporting, but its immediate impact on transparency is less clear. Regulation does, however, tend to increase everyone’s attention on certain areas, and this, in time, drives real improvements in the quality and coherence of key information reported.

Table 1. Primary objectives of Sustainable Development Reporting and KPIs

Stakeholders Communication goals Performance indicators

External

Shareholders and creditors Improving disclosure mechanisms Realizing enterprise fair value Operation mechanism improving and investor relationship Providing of information for making decision Reporting on management’s stewardship Public relations maintaining Meeting legal and regulatory requirements A higher price/earnings ratio promotion Value added attributable to shareholders Return on capital employed Owner interests Dividends, bond interest distribution EPS, DPS

Customers Meeting of customer demands Undertaking of market analysis Developing and implementation of marketing programs Improving of product and process activities Revenue generated from ten largest clients, as percentage of total revenue; Average revenue per client; Gained and lost clients during the year Length of customer relationship

Suppliers Developing and implementing of supplier selection criteria and evaluation Cost contract Payment Contract Contract Terms

Financial and insurance companies Finance and insurance policy implementing Reducing finance risks Payment schedule Compensation rates

Business Partners Market analysis undertaking of industry and peer company Establishing of effective business partnerships Revenue Return of capital Market share Stakeholder liaison groups

Government Development of social infrastructure A return on capital providing New jobs creation Taxation Creating jobs Rate of industrial accidents Contribution of Social Public Welfare

Community Increasing of investment in social welfare Responsibility for the environment protection of natural resources Pollution complaint cases Social welfare spending Total CO2 emissions from energy sources Environmental improvements made this year Total waste to landfill Fresh water consumed Volume of ozone depleted substances released into the environment Cost savings from energy efficiency gains Chemicals used in production

Nongovernmental organisations (NGOs) Strengthening of communication Establishing of effective partnerships Promotion of the company’s business

Internal

Employees Meeting employee demands Effective communications undertaking Improving of employee training Improving of employee welfare Human resources development Revenue per person Revenue per partner Productive hours worked as percentage of available time (that is, excluding holidays, sick and professional development leave, etc.) Employee training Rate of signing collective contracts Investment in human capacity development Rate of employee retention Rate of complaints closed Staff satisfaction Lost time injuries Length of employee service

Owners and Management Development of quantifiable measures of performance in terms of strategic and operational goals meeting Risks and rate of return evaluation Verifying of information from other sources Forecasts making Analysis of industry sector EBITDA ROCE EPS EVA

Our findings show that reporting entities appear to be taking a broad-based approach without providing sufficient detail in important aspects.

Other areas for improvement lie in establishing connection between key content reporting elements and rationalization volume of reported information. The study found that the vast majority of companies disclose large volumes of information but that much of it may not be material. So, companies must seek for the balanced approach, since excessive disclosure makes perceiving information complicated. On the other hand, superficial disclosure of key company’s value drivers has adverse impact on the effectiveness of integrated reporting.

Therefore, it is worth emphasizing the importance of raising public awareness and popularization of integrated reporting.

As for Russia, the greatest achievement of our reporting practice is positive trend in the number of corporate reports. Thus, according to Russian Union of Industrialists and Entrepreneurs, as of the beginning of 2008 there were 55 companies registered in the National Register of Non-Financial Reports, which issued in total 113 reports (since 2000), and as of September 10, 2012-121 companies published 389 reports. Leaders of corporate reporting are the companies of energy, oil and gas and finance industries — 34, 14 and 16 reports respectively.

The analysis of SDR content has shown the following main aspects. Description of the company profile is mandatory. This section is presented in all SDR — both Russian and foreign companies. Analyzing the economic component of SDR it should be noted that this section has a large number of interpretations.

Furthermore, we can identify the relationship between the target audience and, consequently, the reporting objectives and those indicators that the company uses. For example, one of the largest Russian oil companies OAO Lukoil’s report reflects company’s contribution to the socio-economic development in the regions where it operates, opportunities and barriers faced by the company, as well as the impact of legislative regulation of the major economic indicators. The other Russian oil company OAO Rosneft provides the same disclosure.

Environmental dimension of sustainable development is the most developed and widely recognized. Almost all companies include aspects of efficient use of natural resources and reduction of harmful environmental impact in their reports. Most reports disclose principles and strategies of environmental policy implementation.

Some of the commonly used indicators should be mentioned: the percentage of materials used that are wasted, direct energy use and energy consumption, im-

pacts of company’s activities and operations on protected and sensitive areas, greenhouse gas emissions, total amount of waste by type and destination, penalties for non-compliance with all applicable regulations associated with environmental issues.

Considering the other part of SDR — a social component — it is possible to distinguish two main blocks of this section: human resources and social responsibility.

In general, social indicators include: health protection, improving working conditions, skills and qualifications increase, building a system of relationships with customers, respect for human rights and development of cooperation with local communities.

Of course, different companies include various social indicators. Indicators of social policy in respect of employees and charitable activities are the most common for Russian companies.

Summarizing, we can conclude that all analyzed Russian companies accept the need for practical implementation of sustainable development.

GRI standard is applicable and useful for the reporting of sustainable development in the Russian context by structuring and social orientation. To spread the reporting of sustainable development further it is necessary to involve small and medium businesses into the process.

Taking into consideration best practice international corporate reporting, we can distinguish such areas for improvement as business analysis, strategic plans and important decisions in connection with macroeconomic analysis and company’s strategic objectives. In order to make a report easier to interpret, it would be advisable to describe external factors analysis and its impact on the business strategy.

Based on the results of our survey, we came to a conclusion that Russian companies included a rather superficial external factors analysis without disclosing any measures to mitigate macroeconomic risks.

Taking into account the reporting practice of foreign companies we would recommend domestic entities to put attention on improvement of economic analysis, include their vision of industry development in the nearest future, in connection with their own strategy and relevant issues of industry and country as a whole.

Quality of risks disclosure in the reports of Russian companies has been increasing during the last decade. Most of organizations prepare explicit risk profile with risk management description. However, in our opinion, the integrated report would have benefited from qualitative perspective, if it contained quantitative analysis of possible financial outcomes of the identified risks. The inclusion of the required or budgeted levels of key performance indicators gives a

stakeholder an opportunity in the next reporting period to compare actual results with budgeted amounts. This, in turn, would allow making an unbiased assessment of KPIs trend.

For summary overview of sampled corporate reports broken down by the set forth elements, please refer to Appendix 3.

5. CONCLUSION

Let us sum up. Sustainable development of the company is a new management concept, which assumes that any economic decision should take into account economic, environmental and social effects. To implement it, companies need a strategic business approach to managing economic, social and environmental sustainability.

In order to inform all interested stakeholders and to evaluate their own success in achieving the long-term sustainability targets, companies draw up SDR. Although the literature suggests many possible approaches to accounting for sustainability, there is no consensus on the best way forward.

We analyzed 47 SD reports of Russian companies, registered in National Register of Non-Financial Reports of Russian Union of Industrialists and Entrepreneurs. For purpose of comparative analysis the results of SD Index provided by Interfax-Era (includes 150 Russian companies) were used.

Our findings show positive trend in the number and growing quality of corporate reports providing by Russian companies. As result of our analysis we can conclude that all Russian companies attempt to provide information reflecting key aspects such as business model, risks and opportunities, strategic objectives and strategies to achieve those objectives, governance and remuneration, performance, future outlook. At the same time, we must admit that such disclosure is often a formality. First of all, it concerns information about the risks and risk management, remuneration and forecast.

It is clear that implementation of such an expensive project as development and publication of the SDR in accordance with the standard of GRI or IR is possible for large companies only. At the same time, the reporting principles can be used by small and medium-sized businesses in order to establish an effective dialogue with business partners, representatives of the legislature. Compiled in an acceptable form, SDR can be a tool of corporate governance, brand formation, business risk minimization, which ultimately enhances the effectiveness of overall business and its long-term sustainability. Analysis of SDR best practice helped us recommend key performance indicators of sustainable development that can be used by small and medium-sized entities in their practice.

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MANAGEMENT SCIENCES IN CONTEMPORARY RUSSIA Research Conference

Research Conference “Management Sciences in Contemporary Russia” will be held at Financial University on November 21 -22,2013.

Conference goal: To provide a venue for scholarly discussions on topical issues in the management science; to provide opportunities for interaction between the scholars, experts and practitioners.

Conference participants: Russian and overseas scientists, instructors in management science, consulting experts, corporate managers and experts in public administration and corporate governance are invited to participate. Postgraduate students are also welcome.

Conference type: off-line. Presence in person is required.

Conference languages: Russian, English.

Paper publication: Conference proceedings with appropriately ISBn- and library code-marked publications will be published upon the Conference final date. The proceedings published will include only the papers that were presented at the conference in person.

KEY CONFERENCE THEMES

- Topical Theoretical Issues in Management

- R&D Management and Innovations.

- Mathematical Methods and Models in Management

- Corporate Governance and Corporate Social Responsibility

- Strategic Management and Business.

- Modern Marketing

- Efficiency and Effectiveness Assessment

- HR Management

- Project Management

- Financial and Investment Management

- Changes in the Social and Economic Systems

- Operations Management in the Financial Sector

- Managerial Methods and Techniques in Public Administration

- Information Management

- Issues and Solutions in Modern Manager Training

CONTACT PERSON

Ms. Irina A. FIRSOVA, Ph.D.

Associate Professor, Deputy Dean for Research, Faculty of Management

Tel.: 8 499 270 2208; cell: 8 926 723 0671; e-mail: IFirsova@fa.ru www.fa.ru

Appendix 1

Integrated (non-financial) reports in Russia (at September 10, 2012)

(According to the Russian Union of Industrialists and Entrepreneurs)

Industry IR* SDR** SR*** ER**** Total

Housing and communal services 1 1

Mining and metals 1 2 1 4

Non-for-profit organizations 1 1

Oil and gas S 1 9

Health care and education 1 1

Food manufacturing 1 З 4

Other services 2 2

Telecommunications З З

Finance and insurance 5 5

Chemicals, petrochemicals and perfume 2 1 2 5

Energy 7 З 2 12

Total 11 17 18 1 47

*IR - integrated report, **SDR - sustainable development report, ***SR - social report, ****ER-ecological report.

Appendix 2

Industry structure of non-financial reports in Russia

(According to the Russian Union of Industrialists and Entrepreneurs)

Industry Amount of non-financial reports prepared Share in total,%

Energy 12 26%

Oil and gas 9 19%

Finance and insurance 5 11%

Chemicals, petrochemicals and perfume 5 11%

Mining and metals 4 9%

Food manufacturing 4 9%

Telecommunications 3 6%

Other services 2 4%

Housing and communal services 1 2%

Non-for-profit organizations 1 2%

Health care and education 1 2%

Total 47 100%

Appendix 3

Executive summary of integrated reporting overview

Content element International companies Russian companies Comments Recommendations

Organizational overview and business model + + Most international companies provide description of their business model, although a limited number of entities support their statement with detailed commentary or measures. The vast majority of Russian companies (67%) describe their business in conformity with GRI, however, business model narrative is rather disconnected with no or limited presentation of key value drivers. To provide a more explicit description of business model highlighting key value drivers and key aspects of business as a comprehensive system.

Operating context, including risks and opportunities + + International companies’ risk profiles are traditionally prepared at a high level quality, although this element should be showed in connection with other aspects, such as strategic priorities, external trends, and performance. The Russian companies also prepare an explicit risk profile describing nature of risks and mitigating measures. Nonetheless, both international and Russian reporting entities failed to provide a detailed quantitative analysis. To provide quantitative analysis of possible financial outcomes of the identified risks.

Strategic objectives and strategies to achieve those objectives + + Both international and Russian companies disclose strategic objectives in their reports. However, further improvements should be implemented by demonstrating a link between external drivers and opportunities and company’s strategic choices. To integrate strategic themes and intent throughout report supporting it with quantitative analysis.

Governance and remuneration + + International companies traditionally demonstrate best practice in governance and remuneration disclosure. The Russian companies also provide a very qualitative disclosure on corporate governance, although information about remuneration is either omitted at all, or presented in a condensed form. A very limited number of companies disclose total amount of key management personnel remuneration and total amount and average salary of other personnel. For the Russian companies -to strengthen disclosure on remuneration of key management personnel, for all entities - to demonstrate relationship between the remuneration policy and corporate strategic objectives.

Performance + + Both international and Russian companies provide an explicit and qualitative disclosure of key performance indicators system, yet a limited number of them clearly define and provide a rationale for KPIs. To provide trend analysis and explain the underlying drivers that caused major changes in KPIs, align KPIs with strategic priorities, provide a detailed set of measures to monitor progress in delivering strategic priorities.

Future outlook + + Both international and Russian companies nominally include a separate paragraph with information about future plans and prospects. However, narrative is rather vague and not backed up by quantitative information. To provide quantitative information about future outlook, emphasizing key drivers of the current and future growth.

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