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What is sustainability reporting and why is it important?
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Blog...What is sustainability reporting and why is it important?

What is sustainability reporting and why is it important?

Business
ESG
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In this article, we'll explore what sustainability reporting is, the benefits it brings, and why it's essential for your company.
Business
2024-06-07T00:00:00.000Z
en-us
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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.

What 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.

What are ESG goals?

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.

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. 👉 More on these frameworks later.
  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 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 aspects. Armed with this information, 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 changes, positioning them more favorably for seamless integration into an increasingly sustainability-centered global economy.

Let's take a closer look at the advantages of sustainability reporting and why your business could benefit from it:

Sustainability reporting advantages

Enhanced 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.

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Optimised costs and savings

Sustainability reporting is 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 re-calibrate its focus on its core mission, enabling a more streamlined approach to achieve objectives and minimize 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 is also attractive to investors. With the increasing popularity of sustainable finance, your company's commitment to sustainability could make it a top choice for investors seeking to support ethical, forward-thinking projects.

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Supports decision-making

Leadership roles inherently involve 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 does provide 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, helping a company to be more resilient.

Consider the context of evolving legal frameworks. Legislation is becoming increasingly 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.

Increased 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 clear 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 terms of their actions.

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How to select a sustainability reporting framework

Whether you're the Chief Sustainability Officer at your company, or a manager responsible for sustainability initiatives, choosing the right framework for your sustainability report is crucial.

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 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 main sustainability standards to guide your choice:

What are the most common sustainability reporting frameworks?

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.

Key Features:

  • Comprehensive coverage of a broad range of sustainability issues, including human rights, climate change, and governance.
  • Emphasis on stakeholder engagement and transparency.
  • Regular updates to reflect the latest sustainability challenges and opportunities.

💡 According to GRI, over 90% of the world’s largest 250 corporations report on their sustainability performance using GRI Standards.

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IIRC

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.

Key Features:

  • Integration of ESG information with financial data.
  • A concise representation of a company's strategy, governance, performance, and prospects.
  • Focus on long-term value creation and sustainable business practices.

💡 The IIRC's Integrated Reporting Framework is used by leading global companies to communicate how they create value in the short, medium, and long term.

Sustainability Accounting Standards Board (SASB)

The US-based 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.

Key Features:

  • Industry-specific standards tailored to identify material sustainability issues.
  • Focus on the financial impacts of sustainability concerns.
  • Useful for benchmarking and providing a standardized reporting framework.

💡 SASB standards are increasingly adopted by US companies to provide clear, comparable, and consistent sustainability information that meets investor needs.

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TCFD

The Task Force on Climate-related Financial Disclosures (TCFD) provides recommendations for disclosing clear, comparable, and consistent information about the risks and opportunities presented by climate change. The TCFD framework is widely endorsed by organizations and regulators globally.

Key Features:

  • Focus on the financial implications of climate-related risks and opportunities.
  • Encourages companies to disclose governance, strategy, risk management, and metrics and targets related to climate change.
  • Aligns with investor and regulatory demands for climate-related financial information.

💡 The TCFD recommendations are endorsed by over 1,500 organizations worldwide, including many major financial institutions.

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CDP: Carbon Disclosure Project

The Carbon Disclosure Project (CDP) is a global disclosure system that enables companies, cities, states, and regions to measure and manage their environmental impacts. CDP focuses primarily on climate change, water security, and deforestation.

Key Features:

  • Encourages the disclosure of greenhouse gas emissions and climate-related risks.
  • Provides a scoring system to evaluate companies' progress in environmental stewardship.
  • Aligns with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

💡 CDP is backed by over 590 investors with assets of over $110 trillion, highlighting the significant investor demand for environmental transparency.

Global Compact Self-Assessment Tool

The United Nations Global Compact provides a self-assessment tool for companies to evaluate their sustainability performance against the Ten Principles of the UN Global Compact in areas of human rights, labor, environment, and anti-corruption.

Key Features:

  • Aligns with the Sustainable Development Goals (SDGs).
  • Provides a structured approach to assess and improve sustainability practices.
  • Enhances transparency and accountability.

💡 The UN Global Compact is the world's largest corporate sustainability initiative, with over 12,000 participants in 170 countries.

Carbon Trust Standard

The Carbon Trust Standard certifies organizations that measure, manage, and reduce their carbon emissions and improve their resource management.

Key Features:

  • Focuses on carbon, water, and waste management.
  • Provides independent verification of sustainability achievements.
  • Encourages continuous improvement in environmental performance.

💡 The Carbon Trust is a globally recognized organization that works with businesses, governments, and organizations to accelerate the transition to a sustainable, low-carbon economy.

ISO 26000

ISO 26000 is an international standard providing guidelines for social responsibility. While not a certification, it offers guidance on how businesses and organizations can operate in a socially responsible way.

Key Features:

  • Provides guidance on concepts, terms, and definitions related to social responsibility.
  • Helps organizations integrate social responsibility into their values and practices.
  • Covers a wide range of social responsibility topics including human rights, labor practices, the environment, and fair operating practices.

💡 ISO 26000 is developed by the International Organization for Standardization (ISO), a globally recognized body. The standard is used by companies in over 88 countries around the world.

EU Corporate Sustainability Reporting Directive (CSRD)

The EU's Corporate Sustainability Reporting Directive (CSRD) aims to standardize and enhance the quality of sustainability information disclosed by companies within the EU. This directive replaces the Non-Financial Reporting Directive (NFRD) and significantly expands the scope of reporting requirements.

Key Features:

  • Mandatory sustainability reporting for large companies and listed SMEs.
  • Requirements to report on environmental, social, and governance issues.
  • Alignment with European Green Deal objectives and the Sustainable Finance Disclosure Regulation (SFDR).
  • Ensures audited and comparable sustainability information across the EU.

💡 The CSRD is a critical component of the EU’s efforts to direct financial flows towards sustainable investments and achieve the goals of the European Green Deal. Nearly 50,000 companies are required to report under the directive.

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Is it possible to use multiple sustainability standards?

You might be asking: Can I create reports using multiple 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. Additionally, aligning with TCFD recommendations can address climate-related financial disclosures, and using CDP can enhance environmental transparency. For companies operating in the EU, compliance with the CSRD is essential.

Remember, even starting with one of these frameworks and shifting your company towards a sustainability-oriented approach is already a significant stride forward.

Sustainability reporting in the United States

In the United States, sustainability reporting is becoming increasingly important, driven by a combination of regulatory requirements, investor expectations, and market trends. Here’s a look at what companies operating in the US need to know about sustainability reporting:

Regulatory landscape

While the US does not yet have a comprehensive federal mandate for sustainability reporting akin to the European Union's Corporate Sustainability Reporting Directive (CSRD), several regulations and guidelines encourage or require disclosure of certain sustainability-related information:

  • Securities and Exchange Commission (SEC): The SEC has proposed new rules to enhance and standardize climate-related disclosures for investors. These proposed rules would require publicly traded companies to disclose information about their greenhouse gas emissions, climate-related risks, and governance of climate-related risks.
  • Environmental Protection Agency (EPA): The EPA provides guidelines for reporting on various environmental factors, including greenhouse gas emissions and pollution levels, which many companies include in their sustainability reports.
  • State-Level Initiatives: Some states, like California, have enacted more stringent environmental regulations that indirectly affect corporate sustainability reporting. Companies operating in these states must adhere to state-specific requirements that often exceed federal regulations.

Investor expectations

US investors are increasingly factoring sustainability into their decision-making processes. Asset managers and institutional investors are pushing for greater transparency and standardized reporting on ESG factors. Key initiatives include:

  • Principles for Responsible Investment (PRI): Many US-based investors are signatories to the PRI, which encourages the incorporation of ESG issues into investment practice.
  • Sustainable Accounting Standards Board (SASB): SASB provides industry-specific standards that guide companies on what sustainability information is most material to investors. Adopting SASB standards can help companies meet investor expectations and improve their attractiveness to sustainability-focused investors.

Market trends

The US market is witnessing a growing demand for sustainable business practices. Consumers, particularly younger demographics, are more likely to support companies with strong sustainability credentials. This trend is pushing companies to adopt and report on sustainable practices to maintain market competitiveness.

Voluntary frameworks and standards

Many US companies voluntarily adopt international sustainability reporting frameworks to align with global best practices and meet stakeholder demands. The most commonly adopted frameworks in the US include:

  • Global Reporting Initiative (GRI): GRI standards are widely used by US companies to report on a broad range of ESG issues.
  • Task Force on Climate-related Financial Disclosures (TCFD): The TCFD framework is gaining traction in the US for its focus on climate-related financial risks and opportunities.
  • Carbon Disclosure Project (CDP): Many US companies report to CDP to disclose their environmental impacts and management strategies.

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. Request a free demo with one of our experts to develop your personalised action plan today!

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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