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ACCA Strategic Professional · Strategic Business Leader · Reporting to stakeholders

Dravik plc has a large supply chain in a country with weak labour regulation. A report by an NGO alleges child labour at a supplier. Dravik's sustainability report reports only its own direct emissions and employee turnover figures, which are both favourable, and omits supply chain labour matters. Investors, regulators and community groups all use the report. Which assessment is most appropriate?

The report is incomplete: a sound materiality assessment considers stakeholder expectations and business risk, and the alleged child labour in the supply chain is likely material. Reporting only favourable own-operation data is selective, lacks balance and cannot be offset by good results on other topics.

  1. AThe report is incomplete, because under a materiality assessment that considers stakeholder expectations and risk to the business, supply chain labour practices are likely to be material and should be disclosedCorrect
  2. BThe omission is acceptable because only matters within the legal boundary of the company's own operations can ever be reported
  3. CThe omission is acceptable because favourable data on other topics offsets the risk
  4. DThe report should be replaced by a financial statement note since sustainability matters cannot be reported outside the financial statements

Explanation

Materiality assessment should consider stakeholder concerns and the risks (reputational, legal, financial) to the business, and the value chain is commonly in scope. Selective reporting of favourable items undermines completeness and balance. Favourable data elsewhere does not offset omission of a significant issue.

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