Sustainability Reporting: A Corporate Tool for Communicating Sustainability Performance and Impacts

Shirley FORONDA

Financial Management Specialist

 

Sustainability reporting is a relatively new concept that has rapidly evolved due to increased expectations for public disclosure about the role of business in society. Indeed, there is a growing need for greater transparency, sustainability and responsibility in business coming from different stakeholders – be they investors, customers, employees, civil society or other business partners. Sustainability reporting draws together in a single focused report all aspects of a company’s economic, social and environmental operations, its values, governance model, and commitment to a sustainable global economy. Thus, sustainability reporting gives the stakeholders a holistic and non-financial view of a company’s sustainability performance and impact.

What is Sustainability Reporting?

According to the Global Reporting Initiative (GRI)1, “sustainability reporting is the practice of measuring, disclosing, and being accountable to internal and external stakeholders for organizational performance toward sustainable development.2 Sustainable development involves meeting the needs of the present without compromising the ability of future generations to meet their own needs. Through a sustainability report, “…a company or organization reports on the economic, environmental and social impacts caused by its everyday activities3. Although this is not a mandatory report, companies are increasingly opting for disclosing non-financial information through a sustainability report mainly because of the wide range of benefits that it offers. Sustainability reporting has external as well as internal benefits for a company.  Externally, it has the potential to help organizations improve financial performance and access to capital, build or restore company reputation and consumer trust, and promote stakeholder engagement and communications. Internally, it may help firms in driving innovation, efficiency and waste reduction through a more efficient decision-making process, as well as a more informed assessment of emerging risks and opportunities emanating from sustainability-related dimensions of business. Finally, internally communicating on sustainability matters may have a positive impact with regard to employee loyalty, recruitment and retention. While the benefits of sustainability reporting are evident, there remain some barriers that need to be addressed in order to ensure increased sustainability disclosure worldwide.  In this regard, the wide range of reporting frameworks along with the rapidly evolving reporting standards and guidelines may constitute one of the main challenges companies face when collecting sustainability data because it makes the information gathering process quite complex.  Therefore, the harmonization and standardization of approaches in the quality, quantity, timeliness and relevance of information to be disclosed will be key to increasing acceptance of sustainability reporting.  At present, the Global Reporting Initiative has led the sustainability reporting agenda and has developed a comprehensive Sustainability Reporting Framework that is widely used. The Framework consists of guidelines and sector advice that set out the principles and indicators that organizations should use to measure, report and disclose regarding its sustainability performance. The framework prompts companies to cover key sustainability issues that most stakeholders are concerned with, and to use globally-accepted performance indicators and methods for calculating performance and reporting in a way that it can be compared with peer organizations.

What is the future of Sustainability Reporting?

Sustainability reports are stand-alone reports — currently disconnected from the financials. However, as economic, environmental and social issues have an impact on a company’s ability to operate and generate profit, it appears necessary to ensure an alignment of business reporting with business strategy. This helps to show the linkage between sustainability performance and business value. To reach this point, sustainability reporting needs to move from a view that essentially shows the relationship between a business, society, the economy and environment to a more integrated vision that can help stakeholders understand how this relationship is being managed, as well as the impact that this may have on the creation of value and sustainability of a business. Some advocates of sustainability reporting believe that the next step for sustainability reporting is for this information to be combined into an ‘Integrated Report.’  As defined by the International Integrated Reporting Council (IIRC), “integrated reporting or IR is a process founded on integrated thinking that results in a periodic integrated report by an organization about value creation over time and related communications regarding aspects of value creation.4 This IR report provides concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, leads to the creation of value in the short, medium and long term.5 Regardless of the next steps that Sustainability Reporting takes, what is sure is the positive impact that this form of reporting has had and will likely have on increasing the knowledge and understanding of the sustainability practices and impacts of businesses around the world.

The World Bank’s current initiatives in the field of integrated reporting aims to bring together the principles of Sustainability Reporting with traditional financial reporting principles and thereby present a comprehensive picture of an organization’s activities.

 

1 The GRI is a leading organization in the sustainability field that promotes the use of sustainable reporting as a way for organizations to become more sustainable and contribute to sustainable development.

2 “Sustainability Reporting Guidelines,” Global Reporting Initiative.

3 GRI Reporting Guidelines V3.1

4 The International Integrated Reporting Council (IIRC), About IR. See: http://www.theiirc.org/the-iirc/about/

5 The International Integrated Reporting Council (IIRC) is a global coalition of regulators, investors, companies, standard setters, the accounting profession and NGOs. Together, this coalition shares the view that communication about value creation should be the next step in the evolution of corporate reporting. http://www.theiirc.org/