Social accounting

Assignment – Social Accounting

1 | P a g e

What is Social Accounting?

“Social accounting and auditing is about understanding the impact of organisations on our

society and the overarching context is sustainability: both sustainability of the organisation

itself (the interrelation of the social, the environmental, the cultural and the financial) and

sustainability of behaviour which contributes to a future for the people and the planet.

Social accounting is distinct from evaluation in that it is an internally generated process

whereby the organisation itself shapes the social accounting process according to its stated

objectives. In particular it aims to involve all stakeholders in the process. It measures social

and environmental performance in order to achieve improvement as well as to report

accurately on what has been done.

Purpose:

Each sector and each particular organisation will have its own reasons for looking to account for their social performance. Some reasons reported by organisations include the following; acting sustainably, ‘walking their talk’, improving social and environmental performance, being more accountable, attracting additional funds, becoming more economically viable, being a leader in the field, attracting a wider market, a public relations tool, meeting objectives, working within a framework and improving reporting ability.

An additional factor that applies to the ‘for profit’ sector is that of mandatory social

reporting. In some countries social reporting is a legal requirement. For instance, in France

companies with over 300 employees are required to produce a social report. In the UK a

regulation on Pension Funds “requires trustees to state the extent to which they have taken

environmental and ethical considerations into account in fund management” (New

Economics Foundation 2000). There are initial signs in Australia that mandatory

requirements may also drive greater social accounting and reporting here. The Financial

Services Reform Act 2001 requires a Product Disclosure Statement (PDS) for financial

products that have an investment component. This includes superannuation products,

managed investment products and life insurance products. The PDS has to include a

statement on “…the extent to which labour standards or environmental, social or ethical

considerations are taken into account in the selection, retention or realisation of the

investment” (Birch 2001).

Scope of Social Accounting:

Social Accounting and Audit allows a co-operative or social enterprise to build on its existing monitoring, documentation and reporting systems to develop a process whereby it can account fully for its social, environmental and economic impacts, report on its performance

Assignment – Social Accounting

2 | P a g e

and draw up an action plan to improve on that performance. Through the social accounting and audit process an organisation can understand its impact on the surrounding community and on its beneficiaries and build accountability by engaging with its key stakeholders. In this way it can prove its value and improve its performance. Basically, social accounting involves clarifying what a co-operative or social enterprise does, what it is trying to achieve and who it is working with. Then, on the basis of this, it collects quantitative and qualitative information and data which relates to its overall objectives and underlying values. This usually lasts one year and runs concurrent with the financial year. At the end of the social accounting year the organisation brings all the information together in the form of social accounts that are independently audited and after revisions the social accounts form a Social Report.

The Principles

Social accounting models need to share fundamental principles (Pearce 2001).i The

overarching principle is to achieve continual improvement in performance relative to the

organisation’s social impacts, chosen social objectives and stated values. Other principles

include:

• Multi-perspective — Aim to reflect the views of all those involved with or affected by the organisation

• Comprehensive — Aim to (eventually) report on all aspects of the organisation’s issues, impacts and social performance

• Regular — Aim to produce social accounts on a regular basis such that the concept and the practice becomes embedded in the culture of the organisation

• Comparative — Provide a means whereby the organisation can compare its own performance year on year against appropriate external norms and benchmarks; and provide for comparisons to be made between organisations doing similar work and reporting in a similar fashion

• Verified and assured — Ensure that the social accounts are audited by a suitably experienced person or persons with no vested interests in the organisation

• Disclosed — Ensure that the audited accounts are disclosed to stakeholders and the wider community in the interests of accountability and transparency.

Models

Whilst there is a variety of models, tools and information sources we will focus on one particular model, The Scottish Model, used mainly in the not-for-profit sector. Following steps are followed • A comprehensive framework • Based on key principles • Values-driven • Most organisations that use the model report very favourably on how it has benefited

their organisation

Assignment – Social Accounting

3 | P a g e

• It comes with a ‘how to’ manual that is about to be published as a second edition following extensive consultation with users of the first edition.

This model, has up to now, followed a Five Stage approach to Social Accounting. The Five

Stages of Accounting are:

• Introducing Social Accounting • The Foundations • The Nuts and Bolts — Social Book-keeping • Preparing and Using the Social Accounts • The Social Audit and Reporting.

The benefits and dis-nenefits are lited below:

Assignment – Social Accounting

4 | P a g e

Analysis of Social accounts of “ Traidcraft “: Traidcraft is a Christian response to poverty, dedicated to fighting poverty through trade, and best known for its activities in promoting fair trade. Vision: A world freed from the scandal of poverty, where trade is just and people and communities can flourish Mission:We fight poverty through trade, practising and promoting approaches to trade that help poor people in developing countries transform their lives They have a unique structure, comprising both a trading company (Traidcraft plc) and a development charity (Traidcraft Exchange), working in complementary ways to further our overall mission. Their activities can be categorised in three interlocking spheres:

Trade – facilitating market access for poor producers. Support – building the capacity of poor producers to trade effectively, and developing support infrastructures to help them. Influence – challenging injustice, and encouraging changes in government policies, corporate practices and public attitudes to trade, development and poverty. Traidcraft is proud to have been the first public limited company in the UK to publish audited social accounts.

Assignment – Social Accounting

5 | P a g e

SOCIAL ACCOUNTS GOALS

A snapshot of the goals of social accounts of Traidcraft follows:

Assignment – Social Accounting

6 | P a g e

Assignment – Social Accounting

7 | P a g e

The whole impact of Traidcraft can be divided into direct impact and indirect impact.

1. DIRECT IMPACT – THROUGH TRADE AND SUPPORT ACTIVITIES

1.1 Impact on suppliers to Traidcraft plc

a) Volume of purchases from developing world producers

For Traidcraft plc the value of its purchases from suppliers in the developing world has long been one of our key measures of impact. It is an imperfect measure, because the proportion of labour value and the added value of fair trade prices and premium payments will differ for each commodity and producer circumstances. Nevertheless it remains an important overall measure.The figures in the table below include both the direct purchases we have made to sell throughour own channels or to sell to manufacturers, and the indirect purchases made by commercial partners for use in licensed Traidcraft products. Because the timing of purchases can vary we particularly look at our three year rolling average trend.

direct purchases rose by 4.1% to £3.6 million indirect purchases rose by 1.6%to £0.6 million

Assignment – Social Accounting

8 | P a g e

total purchases rose by 3.7%to £4.2 million on a three year rolling basis, purchases rose by 5.7% to £4.1 million

b) Proportion of sales price that was spent in the developing world. In 2009/10: on average, 25%of the price went back to producer organisations, an increase from 22.4%in 2009. the three year rolling average, rose from 21.6%to 23.1%

c) Regional breakdown of purchases Our strategic plan includes the aim to increase the value of purchases from Africa, given the particularly challenging levels of poverty in that continent. Buying from Africa can often be more costly, and logistically more complex than buying from Asia or Latin America.

1. South Asia encompasses Sri Lanka, India, Pakistan, Bangladesh and Nepal.

2. South East Asia encompasses the Philippines, Indonesia, Thailand and Vietnam.

The growth in purchases from Africa is mainly the result of FSC certified charcoal from Namibia coming on-stream. Whilst they have increased African purchases from their 2009 level, purchases from Africa are still lower than the level achieved in 2006 to 2008, owing to a low volume of raisins being available to buy and the sourcing of other raisins from Chile. In 2010/11 they expect to be able to increase the purchases of raisins from South Africa once more and this should assist us in achieving further growth in this indicator. d) Advances to producers

Traidcraft is committed to supporting its suppliers by making interest-free and unsecured advances where these are required, although we also encourage producers to become less

Assignment – Social Accounting

9 | P a g e

dependent on this over time, so they are more commercially sustainable. By making many payments through Shared Interest, our producers are also able to borrow further funds against the security of orders from Traidcraft.

In a year when credit was increasingly difficult to obtain, this growth of 13% in the value of advances made to 35 of our suppliers (2009: 34) was all the more important as a form of support. At 31 March 2010 the total value of outstanding advances was £546,000.

e) Partnership with producers Financial measures are only one dimension of fair trade, and many of the benefits come from other factors that are embedded in our partnership relationships. The regularity and predictability of orders, together with continuing support in building design, production, marketing and management capacity, are of great significance. We particularly set order targetsfor our work with crafts suppliers, as many of our food purchases are sourced through other fair trade organisations, and they are rarely dependent on Traidcraft orders alone.We have sought to estimate how many producers we touch through our direct trading activity – noting that we have do not have the same level of data available for producers selling to us via other fair trade organisations or who sell directly to our license partners. Some of our suppliers are marketing organisations in developing countries who are linked to a large number of smaller producer groups, others are themselves small producer groups. By indicating the significance of our purchases within each organisation’s total turnover we seek to give some indication of the degree to which our trading impacts on their members. In 2009/10: They placed orders worth £1.69 million with 41 craft suppliers, an increase of 32% on 2008/9. Where we had set minimum order targets (for 32 core suppliers), we met these in 30 cases (94%- an increase from 82%in 2008/9). They visited 28 suppliers to carry out fair trade and business evaluations and follow through on support and development activities. Communication of information to suppliers was much improved, following feedback in previous years, although some suppliers’ comments suggest that information is not always reaching the right people within organisations. They made limited progress in securing additional funding for supplier support activities, and did not meet our goal of raising £75,000. (Raised £36,500) However, we were able to carry out a range of activities funded from our trading income and brand license income.

Assignment – Social Accounting

10 | P a g e

1.2 Impact on producers through the activity of Traidcraft Exchange a) Scale of activity

Traidcraft Exchange ran development projects through four overseas .At the end ofMarch 2010 the current portfolio can be summarised in the table below:

The value of projects shown above is the lifetime expenditure expected on each project over its three or four year duration. During 2009/10 Traidcraft’s total charitable expenditure on projects rose from £2.76 million to £3.13 million (13%), indicating continuing growth in the overall scale of our programmes

b) Estimated number of beneficiaries

It is difficult to assess the impact of many Traidcraft projects, as they often involve setting examples of good practices that can be extended to many other workers in the regions and sectors where we work. However, the following measures provide some sense of scale:

Direct beneficiaries Some 370,000 people are directly participating in projects in Kenya, Bangladesh and India that were ongoing at the end ofMarch 2010. Indirect beneficiaries In addition to producers engaged in projects, their work will have indirect impacts on an estimated 1.4 million family members. Some points which reflect this follows: 35 million people are engaged in the jute sector in Bangladesh and India, and will benefit from our policy interventions through two major projects. 0.6 million smallholder tea growers and almost 15 million people are dependent on the tea sector in Kenya, Bangladesh and India. 15 million smallholder cotton growers in Kenya, Bangladesh and India 277 million small producers involved in craft production in Kenya, Bangladesh etc.

Assignment – Social Accounting

11 | P a g e

c) Project outcomes The projects assessed had all been successful, and the review noted that: The projects had all satisfied their donors in delivering agreed goals. Beneficiaries were pleased by the support provided by Traidcraft and its staff in all the projects assessed. Improved technology and agricultural practices had been introduced. Monitoring of projects and evaluations were handled well. There were also areas of learning. Many of these had already been recognised and have been built into projects developed and implemented in more recent years: Evaluating partner capacity more fully at the outset of a project is necessary, especially when working with weaker partners (as is often the case as we aim to build up their skills). Improved assessment of beneficiaries’ needs and baseline data surveys by which to judge success would have been helpful (and is now in place and helped by our establishment of regional offices that better understand the local context). Traidcraft should take care not to over-estimate the capabilities of SMEs (small and medium enterprises) to engage in export business. The involvement of more independent and peer group assessments in mid-term reviews would be useful in providing feedback on how implementation could be improved. Changing business practices needs to be driven from the senior management and Board, not the Corporate Social Responsibility departments of large businesses. Traidcraft should be more prepared to seek agreement from major donors to change targeted outcomes when external circumstances change. More attention should be paid in project design to ensuring the long-term sustainability of project outcomes after Traidcraft’s involvement with a project has ended.

2. INDIRECT IMPACT – THROUGH INFLUENCING Their bigger goal is to act as a catalyst for change through influencing activities, as this has the scope to assist far larger numbers of poor people in the developing world.

2.1 Influencing trade rules They have continued to focus on two aspects of trade rules: Economic Partnership Agreements between the European Union and Africa Caribbean Pacific (ACP) countries, where we are concerned that an undue speed of market liberalisation may adversely affect producer groups in developing countries. The EU-India Free Trade Agreement (FTA) currently under negotiation, where we have concerns that the interests of smaller scale producers may be overlooked. Our activities have included briefing MEPs and their advisers in conjunction with other European NGOS, directly lobbying UK government ministers and civil servants, encouraging

Assignment – Social Accounting

12 | P a g e

Indian civil society and small businesses to engage with the EU-India FTA, and working with the African, Caribbean and Pacific Group of States (ACP) ambassadors and ministers on EPA issues. 2.2 Influencing the behaviour of corporates

There have been three major areas of work during the year, each of which has been successful in having some impact. We recognise that in our influencing work we will rarely have been the only organisation working on these issues, and it is often hard therefore to attribute the impact directly to our work:

Supermarket practices: They are concerned at the negative impact of power imbalances

between large retailers and smaller suppliers (whether based in the UK or in the developing world) leading to undue levels of risk being passed down to smaller and more vulnerable organisations.

Ethical labelling in tea: Their tea campaign to encourage switching of tea brands to

Fairtrade stimulated debate with major tea companies, and may have contributed to the decision of the Ethical Tea Partnership to enter into a recognition agreement with FLO. The tea companies are increasingly adopting ethical standards (if not Fairtrade) and this is likely to provide benefits to tea producers, even if it does not move towards payment of a living wage that we would like to see.

Purchasing practices: Their work on responsible purchasing practices aims to help large

company buyers understand the impact on poor producers of their decisions and practices and indicates win-win opportunities where better practices can help both buyers and poor producers. In 2009/10 this work led to the publication and launch of a best practice guide for buyers with the Chartered Institute of Purchasing and Supply. Some retailers and importers are implementing some of the practices promoted through our work in this area. In 2010/11 we would aim to see the establishment of a supermarkets ombudsman in the UK and progress towards implementation of enhanced company reporting requirements.

2.3 Influencing the Fair Trade movement

Traidcraft continued to be involved in a large range of roles within the Fair Trade movement, seeking to help it develop greater impact, and assisting in the promotion of fair trade in the UK and beyond.

2.4 Building public support for fair trade Consumer and voter support is ultimately one of the most powerful factors in achieving change in trade rules and practices. By building support for fair trade we can demonstrate to policy makers in business and government that there is significant public demand for fairer and more ethical trade, and can incentivise them to take positive steps for change.

Assignment – Social Accounting

13 | P a g e

3 IMPACT ON THE ENVIRONMENT

One of Traidcraft’s Foundation Principles is “to respect all people and the environment”, and as we see the impact that climate change is already having on some of our supplier groups and overseas partners, this underlines the importance both of our minimising our own environmental impact and increasingly finding ways of helping poor producers to adapt to the effects of climate change.

a) Reducing our direct carbon footprint Total carbon emissions are estimated to have remained approximately static. Increased carbon emissions on freight were offset by reduced levels of staff air travel. Freight emissions increased because the mix of our products included more foods from more distant parts of the globe. The proportion of goods imported by air (by mass) was 2.7%, a slight increase on last year’s 2.6%, but higher than the proportion achieved in 2007/8. A key factor in this was a decision to import by air a significant number of craft top-up orders in the autumn of 2009. This provided valuable extra business for our producers, and was good for customer satisfaction in reducing out-of-stock positions, but had we not done so this proportion would have been closer to 1.9%. We imported no food by air. All electricity used at Gateshead sites is from renewable sources, and they reduced usage of gas by installing more efficient heating equipment. They continue to seek ways of reducing paper usage in our marketing activities, but the need for paper catalogues remains if we are to be effective in selling, and as our mail order activity grows we expect this to rise slightly in 2010/11. b) Working to help producers mitigate their impact and adapt to climate change Improving farming practices to reduce vulnerability to crop failure. Encouraging the production of goods for local markets as well as international trade. Improving water management techniques in cotton production Supporting jute workers in developing more environmentally friendly processes Assisting small scale textile producers in India to become less polluting.

Observations

Inclusivity concerns the participation of stakeholders in developing and achieving an accountable and strategic response to sustainability. For both Traidcraft plc and Traidcraft Exchange it has been a difficult year with significant staff redundancies and a continuing pay freeze. This has led to less favourable staff feedback about a number of areas such as internal communications. While staff, customer, speaker and producer feedback has been obtained, there has been relatively little additional stakeholder consultation in the past year. Traidcraft plc has introduced a producer prioritisation framework which provides a far more systematic approach to evaluating producer needs appropriately and in relation to Traidcraft’s objectives. This has led to a clearer account of producer relationships, and indirectly to better performance.They recommend that the prioritisation framework also be

Assignment – Social Accounting

14 | P a g e

used to clarify the most appropriate measures of impact for different categories of producer. Developing World Purchases are particularly relevant to indirect purchases and the measurement of impact on those producers with whomTraidcraft has a more arm’s length relationship, for example, and other measures may need to be developed for those with whom Traidcraft will have a closer relationship. There has been little coverage of the regional offices other than the closure of the Cambodian office. It is encouraging to see a more direct discussion of the relative priorities of environmental and development goals at this stage of the strategic review process. At this stage of the process the positioning of the environment, particularly adaptation to climate change, as a development issue. In the long term the consideration of environmental impact during the product development process for Traidcraft plc will no doubt be significant, but it would also be possible to enhance the consideration given to environmental issues in the interim. The overall environmental impact of Traidcraft Exchange projects and Traidcraft plc activities needs to be considered as part of a wider, and more strategic, environmental accounting. The new report structure, with a focussed main report together with supporting data, provides a much more accessible format for reporting. This will make it easier for all stakeholders to understand Traidcraft’s main impacts. The development of the producer prioritisation framework has also contributed to excellent performance in relation to maintaining order levels for producers. Traidcraft plc has also recorded high levels of positive producer feedback from its evaluation processes.