Many of us are pretty familiar with the concept of “financial reporting” – which is the process by which an organization compiles and communicates information on its financial situation (such as its profits and losses) over a specific period of time (Cambridge Dictionary, n.d.). On the other hand, the concept of “Sustainability Reporting” which has recently gained great momentum in the world, particularly among global big organizations, might still be foreign or confusing to many. In this article, we will be answering four key questions on the evolution of sustainability reporting, as well as how to get it right.
What is Sustainability Reporting?
While there is no standard definition, sustainability reporting is generally considered as the process by which an organization publicly communicates its strategy and performance on different sustainability issues (ecological and human issues) to its stakeholders. Sustainability reporting should go beyond simply collecting and analysing data on sustainability issues, but should also clearly demonstrate to stakeholders how the data collected and analysed is used to inform and improve the organization’s commitment to sustainable development (United Nations Environment Program (UNEP), 2019).
The outcome of this process is the generation of a sustainability report. Organizations use different terms to refer to this report including: Environmental, Social and Governance (ESG) report, Corporate Social Responsibility (CSR) report, non-financial report, responsible business report, creating shared value response, environmental report, etc. Some organizations produce formal reports yearly or quarterly, while other organizations opt for a more informal approach to report on their sustainability performance to their stakeholders such as social media posts at a more frequent rate.
What’s the Origin of Sustainability Reporting?
The root of sustainability reporting can be traced back to the 1960s when awareness on social-environmental issues was strongly sparked through the release of Rachel Carson’s book “Silent Spring” where she highlighted the negative impacts of chemical agriculture on living organisms (Gokten, Ozerhan, & Gokten, 2020). This awareness led to the development of theories which established the link between the economy and nature, as well as the general acceptance of the concept of sustainable development in the 1980s (Gokten, Ozerhan, & Gokten, 2020). Given this context and following from the Exxon Valdez oil spill in 1989, chemical companies actively started to perform environmental reporting to communicate their impacts on the environment to their stakeholders, with the hope of improving their image.
The concept of sustainability reporting eventually grew out of environmental reporting under the initiation of the Global Reporting Initiative (GRI) steering committee (Gokten, Ozerhan, & Gokten, 2020). In the late 1990s the GRI steering committee emphasized the need for a reporting framework which included environmental, economic, and social impacts; and in 2016, the GRI published the first set of global standards for sustainability reporting (Gokten, Ozerhan, & Gokten, 2020). Fast forward to today, it is estimated that there are over 600 sustainability reporting standards and frameworks in the world. This abundance of sustainability reporting standards/frameworks inevitably leads us to the following question.
What’s the Right Sustainability Reporting Standard/Framework for an Organization?
With so many different options of sustainability reporting standards/frameworks available today, sustainability reporting can be viewed by many executives as a difficult task. If not properly done, companies might end up investing resources into reporting on their sustainability performance while still not meeting the expectations of their stakeholders. Here are 5 questions which could assist an organization in choosing the right sustainability reporting standard/framework to follow:
- What is your organization’s sustainability strategy? In order words, what are your organization’s aims and intentions relating to sustainability issues? An organization’s sustainability report should be aligned with its sustainability strategy. Consequently, before reporting on your organization’s sustainability performance, it is vital to first ensure that your strategy is clear, and then choose a standard/framework that will enable your report to be in alignment with your strategy.
- What are your drivers for sustainability reporting? The main drivers for many companies to produce sustainability reports include (UNEP, 2019):
- Global context of environmental and social challenges
- Stakeholder pressure
- Increasing demands from investors
- Improved business performance
- Government regulations
Identifying the relevant drivers will guide an organization’s decision towards choosing the most suitable standard/framework. For example, choosing one which is more globally recognized, or one which is highly considered by their local government, or one which is more industry specific, etc.
3. Which social and environmental issues are relevant to your business (issues that can affect your business, or can be affected by your business)? An organization’s sustainability report should be relevant to its activities. Different sustainability standards/frameworks cover varying environmental and social issues, it is vital to choose a standard/framework which is relevant to your organization’s activities.
4. What will be the scope of your sustainability report? Are you seeking to report only a few environmental factors, or a broad range of social and environmental issues? Sustainability reporting standards/frameworks cover varying scopes, therefore identifying the scope of your organization’s report will guide your choice of framework/standard.
5. Who is your target audience? Is your sustainability report aimed towards investors only or multiple stakeholders? Identifying the right audience will guide an organization’s choice for the right standard/framework, as different standards/frameworks are geared towards varying audiences. For example, if your target audience is investors, then a standard/framework which will show the risks of environmental/social issues on the company’s financial results might be more adequate. On the other hand, if your target audience is a broader range of stakeholders, then a framework/standard that shows how an organization’s activities impacts the environment and society might be more suitable.
Common sustainability reporting standards and frameworks include:
- Carbon Disclosure Project (CDP)
- Climate Disclosure Standards Board (CDSB)
- International Integrated Reporting Council (IIRC)
- Taskforce on Climate Related Financial Disclosures (TCFD)
- World Economic Forum International Business Council (WEF IBC)
The Harvard Business Review features an article by Rogmans and El-Jisr, which compares these seven common sustainability reporting standards/frameworks, in order to help organizations with the design of their sustainability reports.
What is Next for Sustainability Reporting?
While sustainability reporting has greatly gained momentum in the last decades, one of the key challenges to it, is the lack of comparability which results from organizations using different standards/frameworks to report their sustainability performance, making comparison difficult. Consequently, many stakeholders especially investors have been demanding for a more uniform, transparent, and reliable process. This has led to two main developments which are currently underway, and which are shaping the future of sustainability reporting (GRI, 2022):
- The development of the Sustainability Disclosure Standards by the recently established International Sustainability Standards Board (ISSB). This standard will act as a global baseline which local jurisdictions can build on, and will be aimed at an investor audience only.
- The development of the European Sustainability Reporting Standards (ESRS) through the co-joined efforts of the European Financial Reporting Advisory Group (EFRAG) and GRI. This standard will be aimed at a multi-stakeholder audience.
Call to Action
The team of experts in EnvironFocus can assist your organization in choosing the sustainability reporting standard/framework which best suits your needs. Do not hesitate to contact us via email at email@example.com, and we will be delighted to assist you.
Cambridge Dictionary. (n.d.). Financial reporting. Retrieved from Cambridge Business English Dictionary: https://dictionary.cambridge.org/dictionary/english/financial-reporting
Gokten, S., Ozerhan, Y., & Gokten, P. O. (2020). The historical development of sustainability reporting: A periodic approach. Zeszyty Teoretyczne Rachunkowosci, 99-118. doi:10.5604/01.3001.0014.2466
GRI. (2022, March 10). ESG standards, frameworks and everything in between. The GRI Perspective, 1-4. Retrieved from https://www.globalreporting.org/media/jxkgrggd/gri-perspective-esg-standards-frameworks.pdf
United Nations Environment Programme (UNEP). (2019). Background to sustainability reporting. Retrieved from https://wedocs.unep.org/20.500.11822/30663
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