According to the Governance and Accountability (G&A) Institute, 92 percent of S&P 500 companies and 70 percent of the Russell 1000 companies published sustainability reports in 2020. These statistics show that sustainability reporting is increasingly becoming an integral part of the business reporting framework.
In the Philippines, sustainability reporting uptake is on the rise, especially after the Securities and Exchange Commission (SEC) issued sustainability reporting guidelines for publicly listed companies in 2019. SEC Philippines commissioner Kelvin Lester K.Lee reported a 90.4 percent compliance rate in the 2019 sustainability reports released in 2020 and a 91.07 percent compliance rate in the 2021 sustainability reports. The (SEC) plans to make sustainability reporting mandatory for all PLCs in the Philippines by 2023.
As more companies release sustainability reports alongside their financial statements each year, influential stakeholders are keen on the reports. Thus, organizations need to adopt comprehensive sustainability reporting frameworks and find ways to track their sustainability growth. This article explores the sustainability reporting process and why companies need to engage in sustainability reporting.
The Sustainability Reporting Process
If you are just starting your sustainability reporting process, you may be unsure what to include in your sustainability report. So let us begin with the fundamentals. A sustainability report discloses an organization’s progress in attaining its environmental, social, and governance (ESG) goals.
On the environmental front, the report covers the environmental impact of your business operations. This may include your business’s carbon and water footprint. The social sustainability part covers your business’s relationship with employees, customers, stakeholders, and the local community. You may include information on any social initiatives your business contributes to. Finally, the governance section reports on your business’s leadership and internal controls.
Sustainability reporting (SR) is a guided process. There are multiple sustainability reporting frameworks. So, you must choose one that aligns with your organization’s goals and stakeholders’ interests. Common SR frameworks and guidelines include:
- The Global Reporting Initiative (GRI) standards
- The International Integrated Reporting Council (IIRC) integrated reporting framework
- The Sustainability Accounting Standards Board (SASB) framework
- The UN Sustainable Development Goals (SDG) framework
- The Taskforce on Climate-related Financial Disclosures (TCFD) framework, and
- The Carbon Disclosure Project (CDP) framework
- International Sustainability Standards Board (ISSB) framework
Parties that may be interested in your sustainability report include:
- Financial institutions
- Insurance providers
- Management boards
- Local communities
- Government institutions, and
- Non-governmental organizations
The Connection Between Sustainable Reporting and Organizational Sustainability
Sustainability reporting is an effective way to give interested stakeholders an overview of your sustainability performance. More importantly, it promotes organizational sustainability as it keeps you accountable for the impact of your business operations.
Preparing your company’s sustainability report gives you a clear picture of the sustainability of the operations. You can identify sustainability risks, strengths, weaknesses, and opportunities in your company structure. This information helps you know whether your current operational model will keep your business sustainable in the long term. You can leverage this knowledge to improve your sustainability practices.
Your commitment to sustainability will likely increase when you start reporting your sustainability performance. This is because, with important stakeholders comparing your sustainability performance indices with competitors, you feel compelled to improve your performance.
Reasons Why Companies Engage in Sustainability Reporting
- For Effective Risk Management
Sustainability reporting is not only a measure of impact but also of resilience. Thus, it is a vital informational tool in risk management. Sustainability reporting provides a framework for monitoring business impact risks and opportunities. Thus, an organization’s future business environment depends on its present sustainability.
Companies build business resilience and promote operational efficiency by engaging in sustainability reporting. Furthermore, long-term sustainability issues such as climate change pose a financial risk for the business world. Sustainability reporting practices such as climate disclosure provide comprehensive information on the financial risks of climate change, making it easier for organizations to develop risk mitigation measures.
- For Operational Efficiency
Before sustainability reporting gained traction, most people believed it was impossible for businesses to increase their profits sustainably. Today more organizations have realized that sustainability reporting yields operational efficiencies that cut costs and increase profitability.
Creating a sustainability report helps you to identify areas of wastage. Thus, you can adjust your business model to optimize your value chains, eliminate unnecessary expenses, and reduce operating costs.
Ultimately, operational efficiency improves your company’s financial performance. You also increase your market share with sustainable products and services.
- To Create a Competitive Advantage
Today, consumers are interested in sustainability, and most will not buy from a company whose operations have negative social and environmental impacts. A 2021 sustainability study by Simon Kutcher shows that 50 percent of consumers rank sustainability as an essential purchase criterion. Thus, many companies engage in sustainability reporting to create a competitive advantage.
Sustainability reporting ensures your company will remain relevant in the future as sustainability becomes the expectation rather than the exception among consumers. As consumer preferences shift to sustainable products, transparency on ESG issues will create more trust with customers.
- To Enhance Investor and Stakeholder Confidence
Investors and stakeholders now demand transparency on sustainability issues from companies they associate with. Additionally, more players in the investment community consider companies’ ESG performance when making investment decisions.
Sustainability reporting increases investor and stakeholder engagement. It proves to individuals interested in your business that you are trustworthy. You affirm your company’s values, which creates opportunities for you to collaborate with stakeholders who share them.
- To Ensure Regulatory Compliance
Climate change is a problem that threatens sustainability on a global scale. No nation worldwide is exempt from the unfortunate consequences of climate change. As a result, many governments have regulations to monitor business operations’ environmental impact.
Some countries have limitations on carbon emissions and have regulations on waste management to reduce pollution. Non-compliance with environmental sustainability regulations may attract fines and penalties.
Sustainability reporting allows companies to monitor regulatory compliance. You can set your sustainability goals in line with minimum compliance requirements to enhance sustainability performance.
What’s Next in Your Sustainability Reporting Journey?
Sustainability reporting is an essential element in business reporting practices. Lenders, investors, consumers, and other stakeholders in the business world care about the impact of business activities. So companies must adopt sustainability reporting if they are to remain relevant.
Your peers in the industry and several leading organizations in their own sector are implementing measures to improve their sustainability performance. If sustainability reporting is new to you, getting started may feel daunting – but now is a great time to get started or benchmark and improve your game. Luckily, we have all the information you need to take you to the next level in your sustainability journey.
If you found this article informative, feel free to share it, and comment on what you would like us to cover next. Learn how to track and improve sustainability reporting in the next article.