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What is sustainability reporting and why is it important?
Sustainability reporting ? What is this ? A new fad, coming from sustainable development trend? Well, no. It’s not a fad. But a real competitive advantage, which we encourage you to discover without further delay - thanks to this amazing article. Just kidding. However, we wouldn’t write an article about this, if we were thinking it was irrelevant to you. And we know how important to you is the sustainability of your business model. For this reason, we just propose to help. How? What is sustainability reporting? Why is it important? How can it help your company to consolidate its business strategy and even develop it ? How can you implement this new tool ? Follow the guide !
Sustainability reporting: what is this?
Sustainability reporting: definition
Let’s start with the basics: what is sustainability reporting? To keep it simple, sustainability reporting is the disclosure of environmental, social and governance (ESG) goals. It also includes the communication of a progress state towards these objectives.
In other words, beyond simply communicating about the company’s sustainability ambitions, the organization takes stock of the action plan implemented to reach its targets.
What Are Environmental, Social, and Governance (ESG) goals? Environmental, Social, and Governance goals are defined according to specific criteria, which are also called ESG criteria. Environmental, social, and governance criteria refer to a set of standards that investors can use to screen potential investments. The idea is to allow them to differentiate projects, in order to invest their money in those which turn out to be socially and environmentally conscious.
To be more specific:
- the environmental part considers how a company performs in an ecological way;
- the social part pays attention to relationships management with employees, suppliers, customers, as well as all the communities concerned with companies’ operations;
- the governance part analyzes the company's leadership, internal controls, audits, etc.
The reasons for conducting this analysis are numerous (we will come back to this in a moment). In fact, there is no one way to realize this report, but several.
Unlike what we might think ― given the apparent rigidity associated with the term "reporting" ― you can choose the way to achieve your sustainability reporting. Indeed, different frameworks exist.
Concretely, just be sure that your report:
- addresses to stakeholders beyond those directly targeted by the integrated report (in other words, financial capital providers);
- includes details concerning the company’s competitive positioning in the emerging sustainability space;
- presents a wild overview of your initiatives related to social, human and environmental capital.
Reporting frameworks
As we just said, there are many ways to elaborate sustainability reporting, whether by:
- using established sustainability reporting frameworks (such as GRI or CDP),
- including sustainability as part of your overall performance disclosures;
- following other guidelines, like those created by the International Integrated Reporting Committee (IIRC);
- making use of the Dow Jones Sustainability Index (DJSI).
No panic: you don’t need to report considering all these standards and benchmarks. The idea is that each organization defines which model is relevant, considering its actions and performances.
Why is sustainability reporting important and useful for a company?
Briefly? The benefits of sustainability reporting include better risk management, costs and savings optimization, decision-making facilitation, and improved corporate confidence and reputation ― toward customers as investors.
Anyway, this seems logical: as social and environmental concerns imply future business threats, investing time and resources into sustainability solutions may allow any company to meet challenges. In other words, sustainability reporting is a way to strengthen its long-term strategy.
In fact, sustainability reporting gives an overview of a company’s economic, environmental and social impacts. Considering this statement, an organization is able to measure, understand and assess its performances. By the way, it becomes able to set new goals and manage changes needed, in order to be integrated in a new sustainable global economy.
Help to manage risk
Maybe we should remember that sustainability doesn’t only deal with ethics. Sustainability also deals with resilience. Yes: most of the time, this word sounds bad. But in a world where climate change is taking more and more importance in companies’ daily lives, these last ones have to organize business resilience.
Concretely, this means that organizations must think about risk management. First of all, which risks are their companies facing? Second, how to prevent these risks from impacting their business?
You get the point? Conducting your sustainability reporting will allow you to do the job. More: it will allow you to shape the borders of your future operating environment, to anticipate changes and to organize them. Briefly, it will allow you to be efficient.
Optimize costs and savings
By developing adaptive strategies, you’re also going to improve your business model. What does that mean? You can’t develop a flexible business model, if you’re still tangled up in useless expenses. Thinking about sustainability will highlight all the key points which can be optimized.
In this context, your organization is going to cut costs and make savings. Conducting a sustainability report will allow your company to refocus on the essential and the way to achieve its goals, without scattering.
A few examples? Companies now create value through sustainability by reducing operating costs, optimizing their value chains, developing sustainable products or services, decreasing their carbon footprint, improving natural resources management… Or by improving employee retention or motivation through sustainability activities! Yes: sustainable also means social.
The icing on the cake? Improving your financial performance may enhance your reputation toward investors. Moreover, as sustainable finance is emerging, a lot of them are now usually looking for sustainable projects…
Support decision-making
Let’s be clear: decision-making as business leaders is not easy. In fact, you cannot always anticipate everything. That’s why sustainability reporting is a great way to help you with this puzzle.
Well: a sustainability report is not a crystal ball. No overstatement. Nevertheless, conducting such an analysis may allow you not to be surprised by the main obstacles suggested by global warming.
One example? Legal evolutions. In fact, the law is increasingly intransigent towards companies which totally refuse to be part of a global sustainable development strategy. However, regarding the issues our societies are facing, it is likely that this strengthening of penalties will be confirmed.
Conclusion? Realizing a sustainability report is very useful in decision-making. View it as a real tool. At least, it might save you from making some very ill-advised choices.
Increase employees, customers and other stakeholders engagement
You may be aware that our society has recently undergone major changes. Major developments, including the transparency that brands and companies are now required to comply with... If they want to retain their customers and employees, of course.
In short, individuals ― as potential business partners ― have never been more attentive to the brands they consume and the companies they trust. In the same way, more and more people now want their own values to coincide with the commitments of these brands.
Yes: companies are now required to commit themselves to ethical, environmental or social causes. So, you may easily understand that sustainability reporting is a real opportunity to answer this need of transparency. Indeed, it is not good enough today to claim you are sustainable or reliable. You have to prove it. Customers, employees and stakeholders want you to prove that you are trustworthy.
Sustainability reporting: how to choose your framework
Now, let’s come to the ultimate question: how to choose your framework, in order to carry out your sustainability report?
As we said in the introduction of this article, there is no matter with the model you decide to follow. Besides, please note that a sustainability disclosure (which is a part of sustainability reporting) aims at providing a broader view of a company’s performance. Often, it is integrated in an overall reporting, revealing value creation across other dimensions: finance, manufacture, human, social, etc.
Today, more than 90 percent of the world’s largest companies report on their sustainability impacts. In practice, most of them have decided to proceed using the GRI Standards, reputed to provide a comprehensive and flexible framework for companies - independently of their size.
However, some organizations have chosen to follow another methodology recommended by the International Integrated Reporting Committee (IIRC). Others, again, decide to turn to the US-based Sustainability Accounting Standards Board (SASB).
So: how to make your own choice? In fact, it really depends on your needs and goals. Let’s have a look at GRI, IIRC, or SASB standards.
GRI and IIRC: two names, one standard
Concerning this wide range of standards, many organizations struggled in navigating through this confusing landscape of sustainability disclosure. In this context, GRI and IIRC finally announced their collaboration, with the aim of helping companies to see how they could use both GRI Standards and IIRC frameworks in their sustainability reporting.
Now, we mainly talk about GRI Standards only. Established in 1997, GRI has developed the first corporate sustainability reporting framework. Nowadays, GRI’s standards are prefered by most of the companies which report sustainability information, providing in this way information to a large panel of global stakeholders - from individuals to investors.
For example, many companies use the GRI Standards to design their sustainability reports, as these so-called standards include a wide range of disclosure.
SASB: US-based Sustainability Accounting Standards Board
Established in 2011, SASB developed standards for the disclosure of material sustainability information to investors in mandatory filings (or financial disclosures).
In this context, SASB Standards are available for 79 industries. They aim at identifying material sustainability factors, which are likely to impact financial performance.
Considering this, SASB Standards obviously target investors, who have really specific needs compared with customers or suppliers for example. In fact, investors are mainly demanding reliable and comparable sustainability information linked to financial performance.
SASB Standards focus on this special need.
Key to decision
Are you lost ? Don’t worry. This is pretty easy, we promise.
Briefly, GRI Standards and SASB Standards are intended to meet the needs of different audiences. The GRI Standards target a large audience, whereas SASB Standards prefer a specific audience.
The GRI Standards are dedicated to provide information to as many stakeholders as possible. In fact, they cover a wide array of topics.
Whereas the SASB Standards are aiming at providing information to investors. So, they focus on the subset of sustainability problems that are financially material.
Maybe one question is currently going through your mind: can you do both reports?
Well, the answer is yes. In reality, if we were living in a perfect world, the best attitude to adopt would certainly be this: to realize sustainability reporting that may concern a wide range of individuals. Then realize a second sustainability reporting, especially dedicated to investors.
But, let’s be clear: if you carry out just one of these two analyses and begin to drive your company with a sustainable approach, it will already be a great effort.
Starting step on the way to sustainability? Ask our teams for your carbon footprint !
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