why what where why who how on a wall, representing sustainability reporting for ESG

What is Sustainability Reporting?

Sustainability reporting is a way for companies to report on matters relating to both environmental, social and ethical factors in the work they do. For example, a company could have a positive impact in terms of reducing CO2 emissions by introducing solar panels, but might be having negative effects in their local area because of pollution from vehicles being used to transport goods. Sustainability reporting allows companies to reflect on this and report in a transparent fashion their positive and negative impacts. Green Reports states that social responsibility and transparent reputability can boost both brand awareness and profits.

What are tips for effective CSR reporting?

The most important thing to do is to be transparent with your stakeholders about your company’s performance against its goals and targets. Secondly, explain what aspects of ESG that you focus on (such as environmental or social). Finally, explain what actions you have taken to improve your company’s CSR performance, where necessary.

wind turbines across a field under a blue sky, representing the sustainability aspects of ESG

CSR Historically

Sustainability reporting is often thought of as the “poor stepchild” in accounting and it is often not given the same prominence that traditional financial reporting receives in company reports and in investor relations materials. However, recent decades have seen all stakeholders realizing the benefit of reporting on sustainability. This can be seen in the increasing number of companies publishing reports, with many actively engaging their stakeholders through corporate responsibility/sustainability websites and linking to these from investor relations material (e.g., via a link to the company website).

Why do companies report their sustainability?

Reporting identifies and uncovers risks and opportunities associated with all aspects of a company’s activities. Reporting is the first step in the cycle of sustainability management, which starts with setting objectives and targets then takes action to improve performance and finally looks back and learns from what has been done.

Benefits of Sustainability Reporting

  • Evidence that decision-making is informed by an understanding of the environmental, social and governance impacts
  • Transparency so stakeholders know what business practices are undertaken to manage these impacts
  • A means for companies to learn about potential areas of improvement by looking at their performance compared to others.
  • The ability to compare results with competitors and peers

Reporting can allow a company to identify potential areas for improvement and measure how it is doing against its peers. The costs of reporting are low in comparison with the benefits that can be gained from being more transparent and learning from what has been done by others.

What are the types of sustainability reporting?

    – CEO/Chairman letters

– Annual report and accounts (financial performance as well as reporting on ESG matters)

– Sustainability reports (sometimes called integrated reports, full reports or full disclosure)

– Corporate responsibility / sustainability websites

– Supplier code of conduct/ethics

There are many different types of reporting depending on the size of the company, they can be one-off reports or regular reports (annual, quarterly) and they may be stand-alone reports or addenda to other company publications such as the annual report or financial statements.

What is the importance of sustainability reporting?

The importance of reporting on sustainability is recognised by both investors and financial markets. The Global Reporting Initiative (GRI) is the world’s leading standard for sustainability reporting, with over 7,500 companies subscribed to it. Recent research shows that GRI-reporting companies are more transparent, open about their activities and have better corporate reputations than non-GRI-reporting companies.

Why is CSR reporting important?  

The benefits associated with reporting also flow through to individual businesses and national economies, including:

– Better understanding of the potential risks and opportunities related to activities in the supply chain and operations

– The ability to identify areas for improvement and monitor progress in improving environmental and social performance

– Opportunities to improve the quality of financial reports by integrating material on sustainability matters

– The ability to identify areas for improvement and monitor progress in improving environmental and social performance

– More sustainable business operations through improved management of eco-efficiency, emission reductions and resource use

– Improved company reputation and increased attractiveness as a place to work for talented employees which can lead to improved recruitment and retention

– Improved company reputation and increased attractiveness as a place to work for talented employees which can lead to improved recruitment and retention

– An enhanced brand reputation which can improve demand for products, increase customer loyalty and benefit the bottom line through additional revenue streams.

What should be included in a sustainability report?

Reports should include:

– The quality and credibility of the information presented and how it has been arrived at

– Mapping of risks and opportunities to highlight areas that present important issues for stakeholders to consider

– Information which is clear and unambiguous, not misleading or deceptive.

It should also include a clear and concise explanation of what sustainability means for the organization and its activities. Ideally this would be objectively measurable, allowing stakeholders to understand the relevance of ESG issues to the company’s business model and how it manages them. You can find more detailed information in our eBook ESG Frameworks.

Is there a cost involved with Sustainability Reporting?

Reporting on sustainability may require a larger amount of resources due to the need for more in-depth analysis and an increased number of stakeholders’ consultations. In order to make this reporting process as efficient as possible, companies should aim at identifying which matters are most relevant from an investor perspective, rather than reporting on all matters equally. In order to contribute valuable information about sustainability, reporting should be performed with a perspective to continuous improvement.

Is sustainability reporting mandatory?

No, sustainability reporting is not mandatory, but rather voluntary – which means that companies are encouraged to report on their ESG performance. There are potential benefits of reporting on sustainability matters to organizations, markets and society at large. However, the International Integrated Reporting Council (IIRC) recently published a paper that suggests that financial statement auditors should be assessing companies’ sustainability reporting frameworks to ensure that they are not misleading investors.

Why do investors expect companies to report on ESG issues?      

Investors want transparency about how companies are managing environmental, social and governance (ESG) performance so that they can assess the risks and opportunities related to their investment. They also want the companies’ management to give them information about how they manage these risks and opportunities so that they can understand whether their strategy is aligned with ESG issues – and importantly, if it is not, why this might be the case.

How do I find a company’s sustainability report?

To find a company’s sustainability report, you can look it up on their website. Another source is the CDP (formerly the Carbon Disclosure Project) which is an international non-profit that holds information on environmental performance. You can also research via business media or watch dog groups, if there are any active in your area. To have comprehensive knowledge on what to expect from CSR reports, it is advisable to read up on the subject or take an online course.

What are company examples which are doing this in their businesses?

Walmart has developed a process of environmental management which focuses on customers, associates, shareholders and communities. They have set goals to reduce greenhouse gas emissions by 20% in their own operations as well as the coming decade. Other company examples include Nestle, Coca-Cola Enterprises and Nielsen.

What are some recent trends in CSR reporting?

There has been a trend recently of companies being proactive in reporting on their ESG performance even without investors requesting these reports. However, more investors are becoming aware of how important it is to understand a company’s ESG performance when making investment decisions.

Another trend is for companies to provide a more in-depth analysis of their risks and opportunities, not only in financial terms but also from a non-financial perspective – which can be seen in the example of Suez who reported about water related issues in their sustainability report.

What are examples of areas where companies should be reporting?

There are many areas where companies should be reporting on their ESG performance, but here is a list of examples:

·          Reduce greenhouse gas emissions

·          Waste management and minimising the use of natural resources in production process

·          Improve employee working conditions e.g. salaries, work hours etc.

·          Improve animal welfare

·          Transparency of suppliers and other business partners.

·          Improve diversity in the workforce i.e. gender balance, age range, accessibility, inclusion, etc.

·          Promote the use of recyclable materials in business processes

·          Reduce any negative impacts on the environment caused by transportation of goods

·          Transparency about lobbying and political activities.

What are the contents of CSR reports?

The main parts of a CSR report may include: A high-level statement on how the company is managing its ESG performance (i.e. if it has policies in place or not); A description of what its ESG program is about, including any external verification it undertakes; Involvement in initiatives which promote sustainable development (e.g. membership of industry bodies or organizations, involvement in training) and their impact; The company’s performance against targets e.g. greenhouse gas emissions reduction; Employee engagement in the ESG program, compliance/action plans etc.

Sustainability Report Insights

A company rating is divided across five risk levels: negligible, low, medium, high and severe. Material ESG issues (MEIs) are identified and scored using an approach that looks at the severity of the issue and the company’s ability to manage it. Rather than focusing on finding potential risks or issues, our approach is about identifying management systems, processes and practices which companies use to identify, assess and manage risk. This ensures companies are rewarded for making efforts in this area – rather than penalized for not doing so.

Caveats and Disclaimers

We have covered many topics in this article and want to be clear that any reference to, or mention of corporate social responsibility, sustainable practices, sustainable economy, environmental challenges, corporate world, non-financial reporting, external stakeholders, corporate citizenship, employee retention, external benefits, CSR reporting, CSR reports, many companies, sustainability issues, social performance, environmental and social, positive impact, long reports, non-financial, companies choose, report, reports, reporting, sustainability, human rights, good news, standard setters, transparency, organizations, environmental, business, organization, company, society, economy, account, access, definition, risks, managers, commitment, progress, data, executives, consumers, news, examples, accountability, world, group, respect, governance, efforts, risk, industries, firms, reported, governments, sign, focused, costs, monitoring, guidelines, investigation or governments in the content of this article is purely for informational purposes and not to be misconstrued with investment advice or personal opinion. Thank you for reading.