Business Model of AGL Energy Limited

This report is prepared to highlight the sustainable reporting practices of AGL Energy Limited which is one of the leading corporations operating in the energy sector of Australia. AGL Energy is also listed on the Australian Securities Exchange. It is operating its business as the retailer as well as merchant dealer of energy products and services. The business of AGL Energy is of such nature that it has to make use of various natural resources to produce the energy related products and thus it has the responsibility to make the sustainable deployment of such valuable and useful resources. The company is being committed to its sustainability objectives since a long time and it is voluntarily disclosing information about its sustainability practices which are taken up in each year. AGL Energy has been publishing its sustainability report since 2004 for its stakeholders.

AGL Energy Limited is country’s largest privately owned and operated coal fired energy generator and is also the largest owner of energy generation assets across Australia. Further, AGL Energy is also one among those corporations which are undertaking their business by retailing in the Australian market for the energy related products and services.  The company is actively involved its sustainability strategy in its overall business strategy. Through the adoption of emerging technologies, AGL Energy is aiming at becoming personalised retailers from mass retailers by providing better business solutions. Further, AGL Energy is also working towards becoming orchestrator of energy related assets, whether small or large in nature, in place of being the owner of those assets.  This will not only allow the company to produce efficiently but also to store and distribution of energy among different consumers of the company. Moreover, AGL Energy is also moving towards the implementation of those technologies that reduces or prevents the emission of greenhouse gases which are found to be toxic for the health of various constituents of environment.  AGL Energy is undertaking those sustainable business practices to best serve its responsibilities towards its stakeholders. It is also believed that the long term success and strong reputation of business could not be achieved by mere economic performance rather it is also important for the companies to operate in the environmental friendly manner and to effectively carry out the corporate social responsibilities (Morhardt, 2010).  The company has the aim of achieving high growth and success of the business by serving its customers in the best ways, acting in the most ethical manner while operating its business, engaging the stakeholders in its decision making processes, achieving higher economic profits, promoting the health and safety of its employees, promptly adopting the changes in the environment and by various other ways (Manetti, 2011). With the experience of over 180 years in the energy industry of Australia, AGL Energy has gained huge market standing and reputation which has opened up large avenues for its growth and development. The management of the company is of the believe that AGL Energy has the core responsibility of offering sustainable, secured as well as affordable energy products to its customers. Furthermore, AGL Energy is also aimed at shaping the sustainable future of the country by making it carbon-constrained world and by promoting customer advocacy across the country. AGL Energy has the strategy of embracing its transformation processes, driving effective productivity and unlocking the growth opportunities at each phase of the business operated by it.  As a part of its sustainable business strategy, AGL Energy had set certain targets for the FY 2017 in terms of its performance in economic, social, environmental terms. After the completion of 2017, it had carried a comparative study of actual and expected results and on the basis of actual results and future expectations, it has again determined the effective targets for 2018. To integrate its sustainable strategy in the overall business strategy of the business, AGL Energy has formulated strategic goals and targets in various important areas such as corporate governance practices, ethical conduct, development of sustainable market designs and frameworks, legislative compliances, customer experiences, community and employee engagement, environmental management and the economic performance of the business (Lozano & Huisingh, 2011).

Sustainable Business Strategy of AGL Energy Limited

The stakeholders of any entity are those parties whose decision making processes are influenced with the actions and performance of such entity in the market. These are the parties which are directly or indirectly linked to the company in various ways and hence they require information about the company while making sound and informed decision making in relation to the business of the company. The stakeholders of AGL Energy are bifurcated into two main groups i.e. internal stakeholders and the external stakeholders. The internal stakeholders of the company are those user groups which are directly involved in the internal business activities and operations of the company. These parties are its employees, management and its owners. On the other side, external stakeholders are those parties which are not involved in the internal business operations of the company but still they require the information about its overall performance to assess its financial and non-financial standing in the market. The external stakeholders are its investors or shareholders, banks and financial institutions, regulatory bodies, customers, business community and its suppliers (Gray & Milne, 2002).

Employees of the company use the information about company’s performance to ascertain its profitable state so as to as to determine the prospects of wage compensation as well their job security in the future period. The owners of the company are called its stakeholders because they base their investment decisions on the basis of overall business performance and capabilities (Kolk, 2008). The management or AGL’s board is referred to the stakeholder of the company as they require the information about company’s performance to formulate such policies and targets which are desirable for the growth and success of the business.

AGL Energy presently holds around 3.6 million accounts of its customers which is quite a wide base of customers. The existing customers of the company and potential customers are considered as its stakeholders because they are keen to know about the quality of the products and services offered by the company. Further, the shareholders are the investors who invest their surplus monies in the company in return of some voting rights or dividend income. The shareholders of AGL Energy are entitled to the dividend which is the part of company’s overall profits. Hence, these use the financial information of the company to assess the financial health of its business before keeping their investments intact and even before making any further investments (Lozano, 2006). Further, the governmental bodies such as tax regulators, accounting regulators, environmental bodies which regulate the business of AGL Energy are its prime stakeholders as they assess the overall performance of its business towards the compliance with all necessary and relevant laws and regulations. The tax regulators are keen to know about how AGL Energy is fulfilling its tax obligations. The environmental regulators are keen to know about how effectively company is adhering to the environmental protection laws and regulations (Lozano & Huisingh, 2011). Further, the banks and other financial bodies which are providing AGL Energy a financial assistance are its key stakeholders as they are also keen to know about the financial standing of the company before and after sanctioning the loans. If the company is facing high financial risk, these stakeholders will take their lending decisions accordingly. The business community constitutes various other firms operating in the same community (often called as competitors) are also the key stakeholders of the company as their economic decisions are highly influenced by the AGL Energy actions and performance. The society in which AGL Energy is operating its business is the major stakeholder as it is using the resources of the society for its business operations and hence its success and growth is totally dependent on the support it obtains from the society. A society only supports those corporations which are actively participating in the fulfilment of their corporate social responsibilities (Hahn & Kühnen, 2013).

Stakeholders of AGL Energy Limited

Areas	Policy	Target for FY 2017	Actual performance FY 2017
Energy market evolution	AGL Energy had an aim of contributing to the development of electricity market design so as to support the safety and reliability of the electricity supply using different sources	It had a target of publishing of two thought leadership documents which could support the electricity market design.	More than two papers have been published by AGL in 2017 which is a clear sign of its effective business strategy implementation towards sustainability.
Public policy engagement	AGL had a policy of actively and transparently involving in the designing of government’s public policy.	It was aimed that all the material submissions which support the overall policy statement will be made on time to the governmental bodies.	All the material submissions were made on time and in the transparent manner.
Corporate governance	To adopt best and appropriate governance practices	The company had the aim to report effectively on its corporate governance practices to its stakeholders.	A corporate governance statement has been issued by AGL which shows the adequacy of Corporate governance practices of the company (AGL Energy a, 2017).
Legislative compliance	AGL had a policy of strictly complying with all the laws and regulations applicable on it.	It was aimed that there must not be a single court proceedings case with respect to Australian Consumer Law and also there must not be any case of penalties and fines in regards to licensing requirements. Further, the Environmental Regulatory Reportable Frequency Rate (ERRFR) was targeted at lower than 1.5 level	No case of adverse proceedings against the company under Australian Consumer Law was reported neither did the company bear any penalty or fine for breach of any law. The actual ERRFR was merely 1.
Customer satisfaction	The policy was to provide maximum support to the customers.	Net Promoter Score was targeted to be improved from that of 2016.	The NPS in FY 2016 was -19.8 and now it is -18.7 in 2017
Community engagement	To actively participate in the mutual development of energy projects those are beneficial for society.	It was targeted that at-least 4 events must be held in respect of such development projects.	At least 4 events were organised at each particular site.
Employee engagement	To retain the cream workforce.	Key talent retention: ≥ 80%	Key talent retention: 93%
Environmental protection	To protect the environment from various pollution types.	In relation to waste management Environmental Regulatory Reportable Frequency Rate (ERRFR)5: <1.5	Environmental Regulatory Reportable Frequency Rate (ERRFR): 1 (AGL Energy b, 2017)
Economic performance	To enhance the profitability of business.	To improve profitability state as compared to 2016	It was actually improved in 2017 as compared to 2016. (AGL Energy c, 2017)

Its ethical conduct of business: AGL Energy has failed to achieve its target standards in terms of number of sustained issues in relation to the unacceptable behaviour at the AGL’s workplaces. It was targeted that no issues must be reported during the entire year regarding ethical concern but in real, there were total of 8 issues which are recognised in respect of ethical concern.

Its community investment:  AGL Energy had a policy of contributing positively to the communities which are significant for its employees as well as its customers and hence it had targeted the Employee Volunteering participation rate of35%. However, the actual participation rate was quite lower than the targeted performance as the company only achieved the rate of 16% in respect of such participation.

The quality of the report prepared and presented by AGL Energy in respect of its sustainable business practices depends on the relevance and reliability of the information contained in the report (Dilling, 2010). As the information that is contained in the sustainable report of the company is of high importance for company’s stakeholders for their assessment about company’s overall performance, it is important to ascertain whether the company has transparently disclosed all the relevant information which could affect the reader’s decision. The company has followed a logical pattern while incorporating the information in the sustainable reports and also the use of diagrams and flow charts has made it easier for the users of the report to understand the results of overall performance of AGL Energy in all the areas such as compliance with the code of corporate governance, ethical conduct, corporate social responsibilities, economic and environmental performance. Moreover, the company has made use of a scorecard to summarise its policies and aims in different areas and the results of targeted and actual performance in such particular areas so as to enable the users of the report to interpret the results more clearly by making a comparative analysis of the company’s performance (Butler, Henderson & Raiborn, 2011). The company has also engaged an external independent professional party to authenticate its sustainability report in order to raise the credibility of the information contained in such report.  The report has been approved by Deloitte Touche Tohmastu (Deloitte) to provide a reasonable assurance to the readers that all the information contained in the report is true and fair. After incorporating the detailed section on how AGL is integrating its sustainable strategies in the overall business strategies, the company has included a concise section on how it operates its business. Apart from the qualitative information, the sustainability report of AGL Energy is also covering the quantitative information which makes interesting for the users to understand the performance results (Jensen & Berg, 2012).  The said report also discusses about the risk management strategies of the company in various areas such as credit risk, exchange risk, IT risk, legal risk and environmental risk.

Targets achieved by AGL Energy Limited in FY 2017

The use of global reporting initiatives are introduced with the aim of providing guidance to the companies to report about their impact on the overall economy of the country and its environment (Guthrie & Farneti, 2008). The GRI principles has also enhanced the quality of the report as it has encouraged the company to follow the basic principles of global reporting such as accountability, reliability, accuracy, timeliness, comparability and transparency (Boiral, 2013). The inclusion of targeted and actual performance for FY 2017 and 2018 has allowed the readers to compare the information and understand the significant changes in the actual and targeted performance for 2017 so as to identify the root causes of such variations. Also, the inclusion of the areas where the company has successfully achieved the targeted goals and also those areas where it had failed to achieve the desired performance, in the report is reflecting the transparency of the information about the actual business activities of AGL Marketing.

Conclusion:

From the above report on the sustainability practices of AGL Energy which are taken up in the financial year 2017, it can be concluded that company has effectively communicated with all its stakeholders about its overall performance of the business. The content of the report published by the company is highly relevant for the readers to understand its social, economic and environmental performance. Further, the authentication of such report by an independent professional party i.e. Deloitte has also raised the credibility of the information content of AGL’s sustainability report.

References:

AGL Energy, 2017 a. Corporate Governance Statement: 2017. Available at: https://www.agl.com.au/about-agl/who-we-are/our-company/corporate-governance Accessed: 07.10.2018

AGL Energy, 2017 b. Sustainability Report. Available at: https://agl2017.reportonline.com.au/sites/agl2017.reportonline.com.au/files/sustainability_report_full_report_0.pdf Accessed: 07.10.2018

AGL Energy, 2017c. Annual Report. Available at: https://agl2017.reportonline.com.au/sites/agl2017.reportonline.com.au/files/full_financial_annual_report.pdf Accessed: 07.10.2018

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Gray, R. and Milne, M., 2002. Sustainability reporting: who’s kidding whom?. Chartered Accountants Journal of New Zealand, 81(6), pp.66-70.

Guthrie, J. and Farneti, F., 2008. GRI sustainability reporting by Australian public sector organizations. Public Money and management, 28(6), pp.361-366.

Hahn, R. and Kühnen, M., 2013. Determinants of sustainability reporting: a review of results, trends, theory, and opportunities in an expanding field of research. Journal of cleaner production, 59, pp.5-21.

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Kolk, A., 2008. Sustainability, accountability and corporate governance: exploring multinationals’ reporting practices. Business strategy and the environment, 17(1), pp.1-15.

Lozano, R. and Huisingh, D., 2011. Inter-linking issues and dimensions in sustainability reporting. Journal of cleaner production, 19(2), pp.99-107.

Lozano, R., 2006. A tool for a Graphical Assessment of Sustainability in Universities (GASU). Journal of cleaner production, 14(9-11), pp.963-972.

Manetti, G., 2011. The quality of stakeholder engagement in sustainability reporting: empirical evidence and critical points. Corporate Social Responsibility and Environmental Management, 18(2), pp.110-122.

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