The rise and rise of sustainability reporting

It can sometimes seem as if we live in a throwaway world. We all want the latest gadget, the newest model, and the old one is discarded. Anything that breaks is simply replaced. Unlike our grandparents, we don’t take things to be repaired, because it is not economically viable.

But at the same time, there is a growing interest around the world in sustainability. We might loosely define this as an understanding that maybe we need to leave a lighter footprint on the world: use fewer resources, reuse where possible, recycle more. It is backed by the recognition that many of the earth’s resources are finite, and we are in danger of having nothing left. The collaborative consumption and ‘freecycling’ movements are both part of this trend, driven by the idea that someone else could get value from something we have but no longer use.

As well as a personal issue, however, sustainability and its reporting has also become big business.

Sustainability reporting has its roots in environmental reporting back in the 1980s, when chemical companies felt the need to improve their image in the eyes of the world. Since then the rise of ‘ethical investment’ has meant that businesses have found it is worth their while to adopt sustainable practices, and also make sure that they report on them publicly.

These practices include, for example, sourcing energy from renewable sources. Another recent initiative is Sainsbury’s bid to reduce packaging wherever possible. This enables the company to deliver more with the same fuel, because items take up less room on vans. It also, however, reduces the amount of plastic and non-biodegradable waste generated.

Towards becoming a ‘must-have’

Sustainability reporting has now become a major issue for companies large and small around the world. Far from being the preserve of an elite few who either wish to improve their image, or polish their environmental haloes, it has developed into an essential. Last June, for example, the Singapore Exchange introduced mandatory sustainability reporting for all companies listed on the exchange.

But what is included in a sustainability report?

Sustainability, and by extension, sustainability reporting, is now considered to encompass economic, environmental, social and governance performance. It therefore effectively reports on the ongoing ability of the organisation or company to continue to operate in the same or a similar way, over the foreseeable future. It is a vital way of communicating with stakeholders about the company’s performance against its objectives.

The sustainability report will therefore include some financial information, to reassure investors that the company is operating within its means, and will continue to be able to do so. If it does not actually encompass the financial reports for the year, it is likely to be linked to those. The report may also include information about how the company operates within legal requirements such as regulations about emissions, or more specific regulatory regimes applying to the sector or industry. It may cover corporate social responsibility, such as supporting communities or creating jobs. It can also report on resourcing issues including energy sources, or reducing waste and packaging.

In governance terms, the UN Global Compact identifies three key areas: anti-corruption, peace, and the rule of law. It states that companies can improve their governance by including corporate sustainability principles in their operations. The key, perhaps, is increasing transparency and accountability. More information, it seems, is likely to be better in sustainability reporting.

A sustainability report is therefore a useful tool for a wide range of internal and external stakeholders. These include shareholders and potential investors, non-governmental organisations operating in the area, and customers.

Looking at the ‘flip side’

There is, of course, a ‘flip side’ to increased transparency. Sharing more information can help investors to make more informed decisions, and therefore increase a company’s desirability to them. It can also, however, provide useful information to a company’s competitors. This disincentive to disclose information probably explains why it has been necessary for governments and other authorities like the Singapore Exchange to mandate reporting on some issues.

Ultimately, however, despite its potential drawbacks in competition terms, sustainability reporting is here to stay. It is part of a growing recognition that a company’s performance is not simply financial. Ongoing ability to operate relies on a whole range of other issues, including ability to communicate effectively with stakeholders.

Reporting seems likely to become either mandatory, or simply expected. Under those conditions, not reporting will look like having something to hide. Few will be able to afford that assumption.

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