Companies are increasingly being held accountable for their actions to local communities, the environment, and other societal stakeholders. To fulfill this responsibility, companies need to effectively communicate their performance and activities with all their stakeholders.
Reporting on sustainability performance is one of the primary ways by which a company can assess and manage its impact on sustainable development. Corporate sustainability reporting communicates information that is relevant for understanding a company’s long-term economic value, and its contribution towards a sustainable global economy by taking account of the company’s economic, environmental, social and governance performance and impacts.
Reporting allows a company to measure, track, improve and communicate their sustainability performance. Companies produce sustainability reports in response to the increasing demand to publicly communicate their non-financial information and practices. This is done for a variety of reasons – to comply with mandatory reporting requirements, to respond to stakeholder demands, to improve transparency, and track their progress against their commitments to sustainability.
The Growth of Sustainability Reporting
As of 2011, 95% of the 250 biggest companies in the world issue sustainability reports in order to seek new ways to improve performance, protect reputational assets, and win shareholder and stakeholder trust.
At present, sustainability reporting is voluntary in nature. The value presented by reporting have compelled some companies to undertake and voluntarily report on their performance. Government regulations account for the largest proportion of sustainability reporting requirements worldwide. In many countries, early efforts by companies to measure and report on their corporate sustainability performance were accompanied by government recommended disclosure requirements. For example, in OECD countries, new reporting requirements such as the Companies Acts, accounting regulations, and instruments introduced to address specific themes such as corporate governance or environmental pollutants led to an increase in enhanced sustainability disclosures.
Drivers and Benefits of Sustainability Reporting
Drivers of Sustainability reporting
– Legislation and associated compliance requirements.
– Mandatory stock exchange listing requirements.
– Voluntary stock exchange guidelines.
– Demand for information form stakeholders.
– Requirements for organizations seeking transparency and accountability, or aiming to drive sustainable behavior (UNGC, UN Guiding Principles on Business, Human Rights).
– Availability and widespread use of voluntary guidelines and frameworks.
– Desire to experience benefits of reporting (See Benefits of Sustainability reporting).
– Access to a valuable marketing and communication tool to demonstrate sustainability management to stakeholders.
– Functions as a driver for internal company commitment to sustainability.
– Acts a tool for setting and monitoring targets, evaluating performance against targets, and re-assessing strategy.
– To strengthen the company’s license to operate.
Benefits of Sustainability Reporting
Vision and Strategy
Companies can set direction by placing their purpose, vision, and strategy into the context of global sustainability. The sustainability reporting process helps to make this clear to all stakeholders.
Sustainability management and reporting requires good management systems, which improve data quality. Reporting on sustainability improves that ability of companies to track their actions. Tracking data highlights opportunities for improvement, efficiency and cost savings.
Strengths and Weaknesses
Sustainability reporting can assist with the detection of emerging issues of concern. Early warnings of emerging issues can help management seize opportunities or evaluate potentially damaging developments early, before they can evolve as unwelcome surprises to the business.
Sustainability reporting assists with the communication of the importance of sustainability to rally the workforce towards a common beneficial cause. Engaging the workforce in sustainability efforts reduces absenteeism, attracts new talent and expertise, and increases productivity through a motivated workforce. It also function as a way to upscale efforts.
Reputation and Trust
Proactive and transparent communication about sustainability performance and efforts builds goodwill and reduces reputation risks. It also improves product image, brand name and reputation.
Reducing risk through sustainability management and communication through reporting can help signal quality and good management. This provides an incentive for new sources of investor capital, and lower costs.
Sustainability reporting encourages on-going learning from the outside in. It allows stakeholders to keep up to date on the regulatory requirements of the company, while learning more about the efforts undertaken by the company to address sustainability. Sustainability reporting therefore functions as a powerful tool to build and restore trust amongst and between stakeholders.
Customers are looking for suppliers that minimize environmental harm and social risk within their business operations. By engaging in sustainability reporting, companies can increase customer satisfaction and loyalty leading to greater appeal. It also improves access to their supply chains to improve performance.