“Business reporting is not dealing with objects; it is dealing with the relationships between objects.”
— Hasso Plattner, German businessman and co-founder of SAP SE software company.
Businesses might think, why does it matter? However, reporting on CSR and Sustainability is serious business. And these days it’s more important than ever. Success in the business world requires a wide range of practices, disciplines and adapting to different situations. Still, the one discipline that is central to all business tasks and operations is reporting.
CSR and Sustainability reporting has been with us for a while, but businesses are just beginning to understand its potential and importance. Companies have realised that if they are going to succeed in this rapidly changing world of the global economy, they need to have a solid grasp of CSR and Sustainability reporting in every possible context.
The cornerstone of CSR and Sustainability reporting confirms businesses’ commitment to their impacts on sustainability issues and their obligation to pursue achievable and long-term goals. So long has the time passed, when companies made wild claims about their level of sustainability. Instead, businesses need to provide tangible, credible proof and records by following applicable CSR and Sustainability reporting guidelines. This way, organisations build trust among clients, employees and stakeholders – directly affecting the bottom lines. Remember the old business maxims – we can’t manage what we can’t measure, and transparency is a currency that builds trust.
CSR and Sustainability Reporting – two sides of the same coin?
So when did CSR and Sustainability become a thing? In the 1980s, voluntary and obligatory social and environmental reports began to be prepared by companies. Thus, it was believed that the global market needed these reports that included financial and non-financial information. But before that, business’ economic and technological contributions have been criticised for causing social and environmental problems over time. Meanwhile, the necessity of establishing a sustainability culture in the corporations was born. CSR and sustainability have become essential corporate governance principles.
The concept of sustainability has gradually replaced the idea of corporate social responsibility. That’s why many companies publish sustainability reports instead of CSR reports. In this sense of sustainability, business activities need to be reported with social, economic and environmental consequences.
This is crucial, as corporate sustainability deals with economic, environmental, social and managerial issues. Recently, sustainability reporting has become a crucial part of Integrated Reporting – which combines financial and non-financial parametres. To that end, the other general term synonymous with sustainability reporting is triple bottom-line reporting.
Why are CSR and Sustainability Reporting important?
The value of CSR and sustainability reporting is that it ensures businesses take cognisance of their impacts on sustainability matters and allows them to be transparent about the risks and opportunities they face.
Furthermore, the Global Reporting Initiative (GRI) describes sustainability reporting as an outline of an organisation’s environmental, economic and social impacts produced by its everyday business activities. This way, a company can demonstrate its commitment to a sustainable global economy. This can help organisations measure, understand, predict and communicate their economic, environmental, social and governance performance. As a result, companies can now set goals and manage change more effectively.
Fluctuating from business to business, the explicit purpose of a sustainability report might contain:
- addressing stakeholders outside those targeted by the integrated reporting information (financial capital providers);
- details on the organisation’s competitive positioning in the emerging sustainability space;
- a more detailed overview of organisational initiatives relating to social, human and natural capital.
So what are the benefits of sustainability reporting? There are four significant benefits for businesses. First, it is a valuable risk management tool. Second, it can help generate savings. Then it aids in better decision-making, and finally, it supports increasing stakeholder trust.
Moreover, sustainability reporting has become an essential tool in better risk management with modern businesses. In addition to the traditional risks, increasing social and environmental risks, which manifest themselves over a longer-term are primarily outside the organisation’s control and often affect the business in many dimensions. Managing such risks requires making investment decisions today, for a long-term capacity building and developing adaptive strategies. In this regard, good sustainability reporting helps.
Reporting framework of Sustainability Reporting
In 1997, Global Reporting Initiative (GRI) established the first corporate sustainability reporting framework. Nowadays, GRI’s standards are used by most companies reporting sustainability information and providing information to various global stakeholders, ranging from civil society to investors. So naturally, companies use the GRI standards to develop and design their sustainability or corporate responsibility reports, including a vast disclosure scope.
On the other hand, the Sustainability Accounting Standards Board (SASB) was established in 2011 and developed standards for the disclosure of material sustainability information to investors in mandatory filings (financial disclosures). SASB standards focus on 79 industries and identify material sustainability factors likely to impact financial performance. So mainly, SASB standards are targeted towards investors.
Investors need and demand consistent and similar sustainability information with solid links to financial performance. Focused on this need, SASB standards identify the subset of sustainability issues reasonably likely to be material to investors. Thus, to preserve a focus on financial materiality and attain comparability among peers, SASB standards are industry-specific.
Concisely, GRI and SASB are intended to meet the unique needs of different stakeholders. The GRI standards are planned to provide information to various stakeholders and include a vast array of aspects and issues from this perspective. In turn, SASBs are designed to provide information to investors and, consequently, focus on the subset of financially material sustainability issues.
Sustainability disclosure is a part of sustainability reporting and provides a broader view of a company’s performance than financial disclosure alone. Integrated reporting involves value creation across six capitals: financial, manufactured, intellectual, human, social and relationship, and natural.
A study revealed that 90 percent of the world’s largest companies are already reporting on their sustainability impacts, with smaller companies following suit. While majority decide to report using the GRI Standards, which provides a comprehensive, flexible and adaptable framework for companies of any size to report on their economic, environmental and social impacts; some have chosen to follow the methodology recommended by the International Integrated Reporting Committee (IIRC) and the US-based Sustainability Accounting Standards Board (SASB). In fact, choosing GRI, IIRC or SASB standards, depends on the organisation’s definitive goal.
Businesses can struggle to navigate the sometimes-confusing sustainability disclosure landscape, whereby several frameworks and standards exist. To untangle this, GRI and the IIRC recently announced a collaboration that will clarify how companies can utilise both the GRI Standards and the IIRC frameworks in their integrated reporting. Furthermore, the new cooperation offers insights into value creation across the six capitals (financial, manufactured, intellectual, human, social and relationship, and natural) and drives transparency.
So which framework to choose? Truly sustainable companies should do both. The bottom line here is that these standards are not mutually exclusive but mutually supportive.
Transparent, credible and comprehensive reporting is vital to avoid being accused of greenwashing. Thus, disclosing all CSR and sustainability matters is important and it is the ultimate goal in the long run. However, if companies start with their reporting process and don’t have the resources to focus on all parts simultaneously, they should prioritise sustainability challenges linked to their business impact. Start small, think big! So, should African countries follow the European Union (EU) Commission’s adoption in 2021 of the new Corporate Sustainability Reporting Directive proposal (CSRD), which is meant to set standard European reporting rules, requiring more than 50,000 companies to report sustainability information according to mandatory EU sustainability reporting standards?
For businesses to survive these uncertain times, they’ll need their leaders to take control, empower their teams and be decisive and steadfast in the face of overwhelming challenges. But, we all know actions speak louder than words.
How did sustainability reporting start? https://www.sidmartinbio.org/how-did-sustainability-reporting-start/
The challenges of sustainability reporting.
About the Writers:
Romein is a (self-confessed) Pan-Africanist by heart. Romein is a multi-disciplinary professional with experience in various sectors. Contact him via ([email protected])
Ebenezer is a Development Communication Specialist, MSME & SDG Enthusiast, Finance & Investment Nomad, and a WriterPreneur. He`s Country Director (Ag) of PIRON Global Development GmbH, Ghana (www.piron.global). Contact him via ([email protected])