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What is sustainability reporting and why is it important?

In this article, we'll explore what sustainability reporting is, the benefits it brings, and why it's essential for your company.
Business
2023-10-24T00:00:00.000Z
en-us

Sustainability reporting - is it just another passing trend linked to the rise of sustainable development? Far from it. It's not a fleeting fad; in fact, sustainability reporting offers a genuine competitive advantage, and businesses that take the time to learn about and implement sustainability reporting now, will be well-placed to succeed in the long term. 

So, how can sustainability reporting benefit your company? What exactly is it? Why is it important? How can it strengthen your business strategy and drive growth? And most importantly, how can you implement this powerful tool? Don’t worry, because Greenly is here to guide you through the process.

👉 In this article, we'll explore what sustainability reporting is, the benefits it brings, and why it's essential for your company.

Sustainability reporting: what is this?

Sustainability reporting: definition

Let's begin by understanding the fundamentals: What exactly is sustainability reporting? In essence, sustainability reporting entails the disclosure of environmental, social, and governance (ESG) goals, along with communicating the progress made toward achieving these objectives. It goes beyond merely stating the company's sustainability aspirations by actively assessing the action plan implemented to reach its targets.

Environmental, Social, and Governance (ESG) goals are strategic objectives that businesses set to effectively manage their impact on society and the environment. These goals encompass three key categories:

  • Environmental - This category focuses on a company's ecological performance and its efforts to minimize its environmental impact.
  • Social - The social aspect encompasses relationship management with employees, suppliers, customers, and communities affected by the company's operations.
  • Governance - Governance goals revolve around analyzing the company's leadership, internal controls, audits, and overall corporate governance practices.

👉 To learn more about ESG reporting, why not check out our article on the topic.

Importantly, there isn't a single prescribed method for conducting sustainability reporting; multiple frameworks exist to cater to different organizational needs.

Contrary to the perceived rigidity associated with reporting, sustainability reporting offers flexibility in its implementation. However, companies should look to ensure that their report:

  • Extends its reach to stakeholders beyond those directly targeted by the integrated report, including financial capital providers.
  • Provides details about the company's competitive positioning in the evolving sustainability landscape.
  • Offers a comprehensive overview of the company’s initiatives relating to social, human, and environmental capital.

By addressing these elements in the sustainability report, companies can effectively communicate their commitment to ESG goals, engage stakeholders, and demonstrate their commitment to creating positive social and environmental impacts.

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Sustainability reporting frameworks

When it comes to sustainability reporting, there are various approaches that companies can consider. These include:

  1. Established sustainability reporting frameworks - Companies can utilize widely recognized sustainability reporting frameworks such as the Global Reporting Initiative (GRI) or the Carbon Disclosure Project (CDP). These frameworks provide structured guidelines to assess and disclose environmental, social, and governance (ESG) information.
  2. Integrating sustainability into overall performance disclosures - Another option is to incorporate sustainability into the company’s overall performance disclosures. This involves aligning sustainability metrics and goals with financial reporting and other key performance indicators to provide a comprehensive view of the company’s performance.
  3. International Integrated Reporting Committee (IIRC) Guidelines - The IIRC has developed guidelines for integrated reporting, emphasizing the importance of linking financial and non-financial information. Organizations can adopt these guidelines to present a more integrated and balanced view of their performance, including sustainability aspects.
  4. The Dow Jones Sustainability Index (DJSI) - The DJSI is a prominent benchmark that assesses the sustainability performance of companies across various industries. By meeting the criteria set by the DJSI, companies can enhance their credibility and reputation in terms of sustainability.

👉 It's important to note that companies do not need to report using all of these standards and benchmarks. Each organization should carefully consider its actions, performance, and stakeholder expectations to determine which reporting model is most relevant and aligned with its goals.

By selecting the appropriate reporting framework or guideline, companies can effectively communicate their sustainability efforts, showcase progress, and demonstrate their commitment to responsible business practices.

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Why is sustainability reporting important and useful for a company?

Sustainability reporting creates numerous advantages, including the enhancement of risk management strategies, the optimization of costs and savings, the streamlining of decision-making processes, and the bolstering of corporate trustworthiness and reputation. These effects resonate with both customers and investors alike.

Given that social and environmental risks and opportunities have a strong potential to impact the long-term security and success of a company, it’s essential that companies dedicate both time and resources towards sustainable solutions. 

Sustainability reporting serves as a strategic cornerstone, enabling organizations to effectively confront and counter these emerging challenges. Viewed through this lens, sustainability reporting transitions from being a simple corporate responsibility tool to a key element in solidifying a company's strategic resilience over the long term.

Sustainability reporting provides an insightful narrative of a company's impact across economic, environmental, and social realms. Armed with this comprehensive outlook, companies will find themselves better equipped to measure, understand, and assess their operational footprint. This understanding supports the formulation of innovative goals and helps companies to implement pivotal changes, positioning them favorably for seamless integration into an increasingly sustainability-centered global economy.

Risk management

Sustainability is intrinsically linked to resilience. And in today's world, where climate change deeply impacts business, fostering resilience is key. This calls for a comprehensive review of risk management strategies: understanding potential risks and developing preventive measures to safeguard business interests.

Herein lies the value of sustainability reporting. It's not just a tool for present risk management; it's a guide to shape a company’s future operational context, foresee changes, and effectively plan for them, thereby enhancing their overall efficiency.

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Optimize costs and savings

Sustainability reporting is far more than a business resilience tool - it’s also a catalyst for transforming your business model and enhancing operational efficiencies. By prioritizing sustainability, companies can shine a light on existing inefficiencies, paving the way for impactful optimizations.

👉 A well-thought-out sustainability report can help a company recalibrate its focus on its core mission, enabling a more streamlined approach to achieving objectives and minimizing resource dispersion.

Today's companies are harnessing sustainability to drive value by trimming operational expenses, refining their value chains, innovating sustainable products or services, reducing their carbon footprint, and promoting efficient natural resource management. Not to mention, sustainability efforts can also enhance social aspects such as employee retention and motivation, fostering a more productive work environment and reducing expenditures linked to employee turnover.

The cherry on top? A boost in your financial performance could serve as a beacon for investors. And with the increasing prominence of sustainable finance, your company's commitment to sustainability can make it a prime choice for investors seeking to support ethical, forward-thinking projects.

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Supports decision-making

Assuming a leadership role inherently involves navigating complex decisions, especially in the face of an uncertain and unpredictable future. This is why sustainability reporting serves as an indispensable tool in the decision-making arsenal.

While a sustainability report may not foresee the future, it nonetheless provides invaluable insights into potential environmental and societal shifts. Engaging in sustainability reporting helps preempt the hurdles that global warming and other such issues may present, fostering an environment of readiness and resilience.

Consider the context of evolving legal frameworks. Legislation is becoming progressively stringent towards companies that overlook sustainable development. Given the significant societal challenges we currently face, it's reasonable to expect a continued tightening of these regulations and penalties. Companies that conduct effective sustainability reporting will be much better prepared to deal with these increasing regulatory hurdles. 

👉 Undertaking a sustainability report is highly beneficial in business decision-making. It’s an essential instrument that could potentially safeguard companies from costly mistakes.

Increases stakeholder engagement

Society has undergone significant shifts recently, including a growing demand for transparency from brands and businesses. This isn't just a passing trend - it's a necessity for those wishing to retain their customers and employees.

Consumers and potential business partners are more discerning than ever, placing great importance on the alignment of their values with the commitments of the brands they support. It's become evident that businesses need to take a stand on ethical, environmental, and social issues.

That's where sustainability reporting comes in. It provides a tangible way to meet this call for transparency. It's no longer sufficient to merely claim sustainability or reliability - companies need to demonstrate it. Their customers, employees, and stakeholders want assurance that the companies they support are not just trustworthy in words, but also in actions.

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Sustainability reporting: how to select a framework

Now, let’s come to the ultimate question: how to choose your framework, in order to carry out your sustainability report?

Now, we arrive at the crucial question: how do you select the appropriate framework for conducting your sustainability report?

As highlighted earlier in this article, the choice of model is less important than the intent and execution. Remember, a sustainability disclosure (an integral component of sustainability reporting) aims to offer a holistic perspective of a company's performance. Often, it's woven into a comprehensive report that showcases value creation across various aspects such as finance, manufacturing, human resources, etc.

In today's corporate landscape, over 90 percent of the world's largest companies report their sustainability impacts. A significant majority of these organizations opt for the GRI Standards, renowned for their comprehensiveness and flexibility, catering to businesses of all sizes.

However, alternative frameworks are also available. Some companies align their reporting with guidelines set by the International Integrated Reporting Committee (IIRC), while others adhere to the standards of the US-based Sustainability Accounting Standards Board (SASB).

So, how should you determine the best choice for your company? Ultimately, the decision hinges on a company’s specific needs and objectives. Let's delve into the nuances of the GRI, IIRC, and SASB standards to guide your choice:

GRI 

The Global Reporting Initiative (GRI) Standards, renowned for their comprehensive approach, provide direction on economic, environmental, and social aspects, appealing to a wide array of stakeholders, including investors. This framework, followed by thousands of organizations globally and forming the standard for the United Nations Global Compact, is often regarded as the most well-known and extensively used. GRI is generally the preferred choice for those seeking to encompass the broadest range of sustainability activities, allowing for narratives that resonate with various stakeholders, including customers, employees, and NGOs.

👉 To learn more about the Global Reporting Initiative, why not check out our article on the topic.

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IIRC

On the other hand, the International Integrated Reporting Council's Integrated Reporting Framework (IRF) encourages companies to publish "concise" integrated reports. These reports combine traditional annual financial information with ESG (Environmental, Social, and Governance) data, detailing value creation over short, medium, and long-term timeframes. This framework primarily targets international investors, lenders, and insurers. Companies adopting the integrated reporting approach are more likely to regard sustainability information as significant for investment decisions. This makes it easier for investors to incorporate such information into their regular research processes.

SASB: US-based Sustainability Accounting Standards Board

The Sustainability Accounting Standards Board (SASB) provides a unique perspective with its standards, emphasizing an introspective look at how sustainability concerns impact a company's financial performance. One of SASB's defining features is the creation of over 70 industry-specific standards. These, in conjunction with SASB's materiality maps, can be immensely beneficial for companies just beginning their reporting journey, aiding them in identifying material elements for reporting and offering a more standardized framework for benchmarking.

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Summary

Confused? Don't worry. Let's break it down.

GRI, IIRC, and SASB Standards all serve different audiences and have different goals. GRI Standards aim to inform a diverse range of stakeholders and cover an extensive array of topics. IIRC, meanwhile, encourages integrated reporting of financial and non-financial data, appealing primarily to global investors and lenders.

SASB Standards, on the other hand, target a narrower audience – mainly investors. They focus specifically on sustainability issues that could potentially have financial impacts, providing valuable, industry-specific standards.

You might be asking: Can I create reports using all three standards?

Indeed, you can. Ideally, one might produce a comprehensive sustainability report using the GRI Standards for a broad audience, an integrated report following the IIRC guidelines for investors, and a detailed, industry-specific report using the SASB Standards. But remember, even starting with one of these standards and shifting your company towards a sustainability-oriented approach is already a significant stride forward.

👉 To learn more about sustainability ratings, why not check out our article on the topic.

What about Greenly? 

At Greenly we can help you to assess your company’s carbon footprint, and then give you the tools you need to cut down on emissions. Why not request a free demo with one of our experts - no obligation or commitment required. 

If reading this article has inspired you to consider your company’s own carbon footprint, Greenly can help. Learn more about Greenly’s carbon management platform here.

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