(c) Chartered Accountants Ireland. Contact Chartered Accountants Ireland for permission to reproduce this article., Corporate Social Responsibility

How to capture the value of CSR

By Judith Wylie and Anne Marie Ward

Chartered Accountants can add significant value to an organisation’s CSR activity. In this article, we explain how with examples from NI Water.

Corporate social responsibility (CSR) has escalated up the policy agenda in Ireland in recent months with the enactment of the European Union (Disclosure of Non-Financial and Diversity Information by Certain Large Undertakings and Groups) Regulations 2017. This regulation requires large public interest entities and certain organisations with over 500 employees to include a non-financial statement in the director’s report and a diversity report in the corporate governance statements for financial years starting on or after 1 August 2017.

Irrespective of the new regulations, the Irish Government has, for a number of years, seen CSR and other non-financial disclosures as an opportunity to support its objective of “building a strong economy and delivering a fair society so that businesses and communities thrive throughout Ireland”. The Government has stated that it wants “Ireland to be recognised as a centre of excellence for responsible and sustainable business practices”. To this end, the Tánaiste and Minister for Enterprise and Innovation, Frances Fitzgerald T.D., launched Towards Responsible Business: Ireland’s Second National Plan on Corporate Social Responsibility 2017-2020 in June 2017. This plan follows the first National Plan on CSR (2014-2016) in which the Government first indicated its support for CSR activity and reporting.

The National Plan is not mandatory and hence, for the majority of businesses in Ireland, CSR activity and reporting are voluntary and supported though several business initiatives including the Business Working Responsibility Mark from Business in the Community Ireland, Chambers Ireland’s Annual CSR Awards and the government-sponsored CSR stakeholder forum. The CSR stakeholder forum has an online CSR tool for SMEs and it hosts a CSR hub that enables companies to disseminate best practice.

Do Chartered Accountants need to know about CSR?

We would argue that they do, particularly in light of the recent shift in EU regulation towards mandatory disclosure of non-financial information in the annual reports of large undertakings and groups. Moreover, ISA (UK and Ireland) 700 applies to all audits. Under ISA 700, auditors have to read all financial and non-financial information in the annual report of any undertaking being audited to identify material inconsistencies with the financial statements. In addition, they have to identify information in the annual report that is apparently materially incorrect, or materially inconsistent, with knowledge acquired by the audit team in the course of performing their audit. Therefore, if they discover that the CSR disclosures in the annual report do not reflect CSR activities as identified during the course of their audit, they need to consider this when drafting their audit report.

CSR is considered to be intrinsically linked with value creation. Chartered Accountants acting in an assurance role or in an advisory capacity must therefore have an appreciation of CSR and its virtues and to advise companies on developing a CSR strategy as well as best practice for reporting on CSR activities. The same is true for Chartered Accountants working in business. They need to be able to assist the board in its decision-making in respect of CSR. Furthermore, some professional services firms specialise in providing CSR assurance in addition to the statutory audit report. Indeed, two thirds of the world’s largest companies provide assurance over their CSR information.

This article aims to highlight the importance of CSR and CSR reporting for Chartered Accountants. We also aim to provide a brief summary of the breadth of CSR activities implemented by a company we consider to be a trailblazer for CSR strategy – Northern Ireland (NI) Water. Our scrutiny of this company forms part of a wider research project that investigates the CSR communication strategies of Irish companies. Our research involved analysing the CSR disclosures on its website, annual reports and Twitter feed followed by interviews with a number of key staff throughout the organisation, including Chartered Accountants.

The ripple effect

In the words of UN Secretary, Ban Ki-moon in 2016, “Water is central to human survival, the environment and the economy… the basic provision of adequate water, sanitation and hygiene services at home, at school and in the workplace enables a robust economy by contributing to a healthy and productive population and workforce”. NI Water is one of Northern Ireland’s largest companies and is responsible for delivering clean, safe drinking water and taking away wastewater, which it treats before returning it to the environment. Given the nature of its main commodity, it is no surprise that NI Water can be hailed as a beacon for good CSR practice and the hope is that the activities identified in this article will have a ripple effect and inform CSR strategies in other companies.

A strategic imperative

NI Water’s CSR strategy is evident at all levels of its business, from being part of the company’s strategic vision to being encouraged at operational level. In commenting on CSR in NI Water, Head of Corporate Governance and Risk, George Ong FCA, stated that CSR is “the lifeblood of the organisation, it is part of everything we do”. NI Water has a dedicated CSR committee comprised of key staff from across the organisation. The CSR committee adopts a proactive and reactive approach to the development of the organisation’s CSR strategy. For example, when NI Water created its long-term strategy (2015-2040), it did so after extensive engagement with customers and other key stakeholders. The strategy includes a vision “to be a valued and trusted provider of one of Northern Ireland’s most essential services; an organisation our customers and staff are proud of”. The strategy outlines eight strategic priorities that support the company’s achievement of their vision, four of which are CSR objectives and relate to social, environmental, ethical and philanthropic issues.

NI Water has a formal system in place to record, measure, monitor and report on its CSR activity. A quarterly CSR report is prepared, which identifies each CSR activity’s overall objective, aim and progress during the quarter along with any supporting evidence on the impact or outcome of the activity. The CSR committee meets quarterly and includes representatives from the executive committee. The committee is tasked with ensuring that CSR is integrated into NI Water’s operations, processes and core business strategy. Examples of the breadth of CSR activity within NI Water are outlined under the CSR committees’ three reporting streams.

Environment: NI Water is aware that many of its impounding reservoirs are located in areas of outstanding natural beauty. The company is sensitive to visual pollution and takes design steps to minimise the impact that infrastructure can have on beauty spots. The company also adopts a multi-agency approach to sustainable land management. For example, it recently collaborated with Irish Water, the Agri-Food and Biosciences Institute (AFBI), Ulster University, The Rivers Trust and East Border Region to apply for €40.2 million of EU Interreg funding for cross-border projects. The projects involve engagement with local communities to increase awareness of the importance of protecting drinking water supplies; piloting best practice forestry measures; restoring peatland on riverside stretches formerly used for forestry and introducing a land incentive scheme to reduce the entry of contaminants such as pesticides and sediments into watercourses. NI Water is also engaged in a number of renewable energy programmes including solar installations, and it utilises intensive treatment solutions that require less energy. One such solution called an integrated constructed wetland resulted in a 100% reduction in electricity usage in comparison to the former wastewater treatment process. The company has also committed to reducing carbon emissions and is working with other water companies through Water UK to help develop a common accounting methodology that will allow for the more robust reporting of carbon emissions.

Colleagues: NI Water has a policy of supporting health and well-being activities for their staff. The cornerstone project is a volunteering programme called Cares Challenge, under which employees are encouraged to undertake volunteering activities during working hours to help benefit the greater community with key staff, including the Chief Executive, Sara Venning, getting involved. The company estimates that NI Water employees contribute over 1,000 volunteering hours per annum to a wide range of projects from painting, decorating and gardening for local community groups and charitable organisations to nature and wildlife projects such as creating pathways in the Mourne Mountains and helping protect wildlife on Rathlin Island.

Community: NI Water has several initiatives aimed at educating the public about how they can help keep water clean and safe, including resourcing NI Water educational centres and getting involved in numerous community talks and events. The most successful initiative under this scheme is probably the famous Waterbus. The Waterbus visits over 19,000 pupils in primary schools each year. It provides interactive activities to engage and educate pupils on the importance of the water cycle, and its resources are designed to link with the national curriculum. NI Water’s philanthropic activities extend beyond engaging with local communities and include corporate support for the global charity, WaterAid, whose aim is to create a world where everyone everywhere has safe water, sanitation and hygiene. Fundraising and the promotion of this charity by NI Water within Northern Ireland generates around £75,000 for WaterAid per year.

Conclusions

The example provided by NI Water shows how important a formal approach to managing and reporting on CSR activities has become. Although the focus to date has been on public listed companies and large companies, the fact that the CSR stakeholder forum commissioned an online CSR toolkit for SMEs is indicative of policymakers’ belief that SMEs need to formally recognise that their responsibilities extend beyond the internal business and that the formal recognition of CSR activities has its benefits.

Most SMEs undertake CSR activities on an ad hoc basis – for example, providing sponsorship to a local sporting team, encouraging staff to save on electricity or engaging in fundraising activities for charity. Chartered Accountants will increasingly have an important role to play here in advising how these activities can be effectively captured and reported on, in order to integrate them into a value-creating business strategy.

Judith Wylie is a lecturer of Accounting at Ulster University. Anne Marie Ward is Professor of Accounting at Ulster University.