SDGs and International Framework January 2021: Value Creation and Reporting

Accounting Unit 12 - October 2024

SDGs and INTERNATIONAL FRAMEWORK JANUARY 2021 Accounting Unit 12 - 21 October 2024 9.00-13.00 ANGHERA' 2

Part of this presentation is taken from: https://www.integratedreporting.org/wp-content/uploads/2021/01/InternationalIntegratedReportingFramework.pdf Prof. Federica Farneti

Ecosystem and Sustainable Development Goals

1 We share one natural system, or ecosystem

1SUSTAINABLE GOALS 1 SDGs 2 AND SANITATION D+ 2 AND PREDEETO GO 13 PMET 15 FOR THE POALS

There is increasing pressure to achieve the 2030 Agenda for Sustainable Development, which was endorsed and adopted by all United Nations Member States in 2015 (UN, 2022).

SDGs are the path to follow to act in a sustainable manner, ensure a peaceful and prosperous world, protect (the) people and the planet today and in the future: https://www.undp.org/sustainable-development- goals

3 3 SUSTAINABLE GOALS DEVELOPMENT L 1 SDGs 10 MERALTES AND PRODUCTOS GOO 13 ªME SDGs are: https://www.youtube.com/watch?v=HW76iOQ7qVQ

4 4 2 AND SANITATION M DEVELOPMENTSUSTAINABLE GOALS 1 SDGs 2 AND SANITATION 2 AND PREDILETO GO 13 ªME 14 VET 15 BA FOR THE FOALS

With the 2030 Agenda, world leaders agreed to free humanity from poverty, to protect the planet for current and future generations, and build peaceful and inclusive societies. Currently, SDGs influence policy development. For example, ending poverty should be achieved by setting strategies that advance healthcare (particularly during the COVID-19 pandemic), sustain education, reduce inequality, etc. Given this pressure, it becomes essential to observe and measure the advancement of SDGs. In particular, the contributions towards these goals made by all kinds of organisations need to be measured and disclosed.

5 5 SUSTAINABLE GOALS DEVELOPMENT L 1 SDGs 2 AND SANITATION 10 MILALTES AND PRODUCTO GO 13 ªME

The 2023 UN Sustainable Development Goals Report (Special Edition) clearly showed that the world is lagging in reaching its targets on each of the 17 goals, due to a multiplicity of factors including COVID-19, conflicts, climate change and rising costs of living .... See: https://www.undp.org/blog/where-are-we-now-sdgs-justice-and-human-rights The 2023 UN Sustainable Development Goals Report (Special Edition): https://unstats.un.org/sdgs/report/2023/

Business and Sustainable Development Goals

6 6 3 M DEVELOPMENTPeople are at the core of business

SDGs - In September 2015, all 193 United Nations (UN) member states ratified a set of 17 Sustainable Development Goals to provide a framework for achieving global prosperity within the limits of the planet In the current global context, ensuring this well-being presents multiple challenges. Persistent poverty, inequality, economic instability and a widening skill gap all impact business value despite significant advances in economic development No longer can businesses rely solely on financial assets or returns on financial capital to evaluate their risks and opportunities. They must also understand how trends and shifts in society will affect them and how their actions influence society Despite growing awareness, there is little consensus on how businesses can measure and assess the value of social and human capital resources. The development of measurement and valuation approaches is still in its infancy Even when CEOs and other decision-makers recognise the value of assets such as community relationships or employee talent, they are unable to translate this value consistently into terms that people inside and outside their businesses can understand, trust and, most importantly, use. As a result, businesses struggle to embed these factors into processes such as strategic decision-making and communications. In many cases, this leads to undervaluing and consequently, underinvesting in the people and relationships on which businesses and society depend.

7 SUSTAINABLE GOALS DEVELOPMENT 2 3 DORO HEMTE AND SAMIETER 1 L SDGs M 13 ªME ITUTIONS 17 FOR THE GOALS

Companies need to align their goals to the long-term goals of society, as articulated in SDGs. These will be the successful companies. Major corporations as well as SMEs need to prove they are operating in line with SDGs. These latter companies represent the majority in the world. For example, in Europe there are 25 million SMEs, which represent 99.8% of enterprises, being a significant source of job creation and prosperity (Generali, 2022).

Thus, it becomes relevant to track progress against SDGs with internal and external reporting, as these goals are the compass (GRI and USBS, 2020; p. 9) towards a liveable future and healthy generations.

8 10 MILALTES ANII PRODUCTOS GO 8 4SUSTAINABLE DEVELOPMENT GALS

1. NO POVERTY
2. ZERO HUNGER
3. GOOD HEALTH AND WELL-BEING
4. QUALITY EDUCATION
5. GENDER EQUALITY
6. CLEAN WATER AND SANITATION
7. AFFORDABLE AND CLEAN ENERGY
8. DECENT WORK AND ECONOMIC GROWTH
9. INDUSTRY, INNOVATION AND INFRASTRUCTURE
10. REDUCED INEQUALITIES
11. SUSTAINABLE CITIES AND COMMUNITIES
12. RESPONSIBLE CONSUMPTION AND PRODUCTION
13. CLIMATE ACTION
14. LIFE BELOW WATER
15. LIFE ON LAND
16. PEACE, JUSTICE AND STRONG INSTITUTIONS
17. PARTNERSHIPS FOR THE GOALS

I 9 9 SDGs SUSTAINABLE GOALS DEVELOPMENT 12 20 CO

Accounting is a system that can contribute to this overall aim by considering the SDGs in business operations. Accounting allows for planning, managing ,reporting and disclosing of the progress of companies towards the contents of the 17 SDGs of the 2030 Agenda, such as gender equality, climate action, decent work and economic growth (Farneti et al., 2019).

However, not much has been done to report against SDGs. Explicit reference to SDGs in disclosure requirements remains limited. Instead, there is the need to better measure and disclose how organisations impact in relation to the SDGs.

Integrating SDGs into Corporate Strategies

10 10 5SUSTAINABLE GOALS O H AEED CO Y

The followings goals are particularly easy to understand and integrate into existing corporate strategies: SDG no. 8, which refers to decent work and economic growth; SDG no. 12 on consumption and production practices, that also encourage companies to adopt sustainable practices and integrate sustainability information in their reporting cycle and SDG no. 16, which refers to inclusive societies and accountable institutions. These are examples of topical issues with reference to sustainable development which perfectly address company impacts and should be disclosed. Hence, organisations can use the SDGs to influence the formulation of plans, aligning their goals to SDGs and reports against them.

Social and Environmental Accounting and Reporting

11 11 [WITH CON. Social and Environmental Accounting and reporting (SER) refers to public disclosures on the social and environmental performance of an entity aimed at outlining the social and environmental effects of the actions of the organization.

12 6 [ SDGs 12DISCLOSURE OF NON-FINANCIAL AND DIVERSITY INFORMATION BY CERTAIN LARGE UNDERTAKINGS AND GROUPS

DIRECTIVE 2014 n.95 indicates that specific undertakings must disclose specific aspects Identifying, measuring and disclosing social and environmental information is vital to acquire the required knowledge about a company for stakeholders who need to make decisions daily .

13 [ WITHIN ACCOUNTING ... SER EU citizens expect organizations to understand the positive and negative impacts they have on society and the environment and to prevent, manage, and mitigate any negative impacts, regarding also their global supply chains.

DIRECTIVE 2014 n.95 indicates that specific undertakings must measure and assess the value of environmental, ethical, and social issues. Thus, the process of formal measurement and valuation has started in Europe.

Non-Financial Statement Requirements

14 7[ ARTICLE 19A NON-FINANCIAL STATEMENT.

Large undertakings which are public-interest entities exceeding on their balance sheet dates the criterion of the average number of 500 employees during the financial year shall include in the management report a non- financial statement containing information to the extent necessary for an understanding of the undertaking's development, performance, position and impact of its activity, relating to, as a minimum, environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters, including:

1. a brief description of the undertaking's business model;
2. a description of the policies pursued by the undertaking in relation to those matters, including due diligence processes implemented;
3. the outcome of those policies; L 330/4 EN Official Journal of the European Union 15.11.2014 ( 1 ) Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338).
4. the principal risks related to those matters linked to the undertaking's operations including, where relevant and proportionate, its business relationships, products or services which are likely to cause adverse impacts in those areas, and how the undertaking manages those risks;
5. non-financial key performance indicators relevant to the particular business.

Corporate Sustainability Reporting Developments

15 [ NEW PROPOSAL REGARDING CORPORATE SUSTAINABILITY REPORTING: MAIN DEVELOPMENTS

The EU proposal (2021) was designed starting from the sustainability reporting requirements set in the previous Non-Financial Reporting Directive, incorporating the proposal with the objectives of the European Green Deal. The proposal requires common reporting standards, which will also greatly facilitate the digitalization, assurance and enforcement of sustainability reporting.

Main Requirements for Corporate Sustainability Reporting

16 8NEW PROPOSAL REGARDING CORPORATE SUSTAINABILITY REPORTING: MAIN REQUIREMENTS

• to extend the scope of reporting requirements to additional companies, including all large companies and listed companies (except for listed micro-companies), thus even listed SMEs.
• to provide assurance of sustainability information; in the earlier NFRD instead, this aspect was left to the legislation of national governments and this led to very few countries requiring the assurance. Now all the above- mentioned undertakings need to be assured.
• to provide more details about the information companies should report on and require them to do so in line with mandatory EU sustainability reporting standards; a great number of details are needed based on the proposal that will be finalized by the end of 2022. As a consequence, more specific, transparent information will be supplied by companies.
• to ensure that all information is published as part of company management reports, and disclosed in a digital, machine-readable format.
• to include information on intangibles, among which intellectual, human, social and relationship capitals such as brand or intellectual property intangibles related to research and development; skills development, reputation capital, human health, ... All this needs to be considered and disclosed.

Subsidiary Aspects of Corporate Sustainability Reporting

17 NEW PROPOSAL REGARDING CORPORATE SUSTAINABILITY REPORTING: SUBSIDIARY

The proposal that will be reviewed and adopted by the end of 2022 is very powerful because it will guarantee the same form of disclosure for all the EU member states in line with EU legislation. "Only the EU can ensure that rules on sustainability reporting are consistent with other EU laws, including the Sustainable Finance Disclosure Regulation and the Taxonomy Regulation, and with delegated and implementing acts adopted pursuant to those regulations ... The EU intervention can ensure a significant contribution to global policy developments, in order to better defend the interests of European companies and other stakeholders."

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