sr101

Sustainability Reporting 101

Posted on the 10/11/16 by purposeful
Purposeful Blog

In this week’s post Purposeful Intern- Aira Firdaus discusses sustainability reporting and covers its history, purpose, importance and the best way to do it. It’s an opportune time to discuss sustainability reporting given the recent one-year anniversary of the release of the Sustainable Development Goals (SDGs).

What is sustainability reporting?

Sustainability reporting is broadly defined by KPMG as ‘providing a means of communication and engagement between a company and its stakeholders’. The Global Reporting Initiative (GRI) provides a more detailed explanation:

“…the practice of measuring, disclosing, and being accountable to internal and external stakeholders for organisational performance towards the goal of sustainable development.”

Continuous public pressure for companies to behave in a socially and environmentally responsible manner, highlights the growing importance for companies to measure and report the environmental and social impacts of their business. The recent emergence of the Paris Agreement and the SDGs play a big factor in this as well.

A brief history

The SDGs were implemented to continue the momentum generated by the Millennium Development Goals (MDGs) and fit into a global development framework spanning from 2015 to 2030. This is a historically a significant milestone, leading to a more well-defined framework for businesses to track and report on progress and outcomes.

The majority of these initiatives could be observed through the execution of sustainability reporting, which has had an increasing uptake since the Rio Declaration on Environment and Development in 1992.

According to KPMG’s 2015 global survey, reporting on corporate responsibility (CR) is considered ‘business-as-usual’, with nearly

75% of 4,500 global companies (including the largest 250 global companies) already reporting on CR

In Australia, 81 out of the top 100 companies by revenue have produced a CR report in one form or another, indicating that sustainability reporting has been receiving a lot of traction.

Although the statistics seem to convince that companies are progressively more aware of the importance of triple bottom line (TBL) reporting, the motives and intentions in producing these reports remain a contested issue.

1.    What is the purpose of sustainability reporting?

A common criticism of sustainability reporting is that it may actually be window dressing or greenwashing. This call into question the companies true intention in engaging in sustainability reporting. Is it reporting on things it is doing well as a PR exercise to mask misdeeds in a range of other material areas?

This can become obvious to readers when companies start to report on and focus in their reports on ‘what’s trending’, rather than staying true to core organisational values, mission and accountability to stakeholders.

Greenwashing may be a result of sustainability reporting being a voluntary initiative, rather than a regulatory requirement imposed by governments. Therefore, the motivation behind it may likely be skewed to satisfy certain groups of stakeholders rather than genuinely wanting to do good.

This calls for the need to revise the core purpose of sustainability reporting, where economic objectives must strictly align with the ecological and social aspects of business.

2.  What are the advantages for companies?

Similar to the traditional financial reporting in business, the role of a report per se is to effectively communicate an organisation’s exact meaning and intent. The absence of a well written report leaves the knowledge and skills one has acquired to be of little or no value to others.

This, coupled with the increasing realisation that sustainability is a way to gain competitive advantage by many investors, businesses are currently re-thinking their purpose to achieve positive environmental and social outcomes, as well as creating social value and community impact.

Not for profit CDP recently outlined the business case for sustainability action and reporting in a recent report:

“companies that are actively managing and planning for climate change secure an 18% higher return on investment (ROI) than companies that aren’t – and 67% higher than companies who refuse to disclose their emissions”

Sustainability reporting provides an ideal platform in creating value for organisations through highlighting transparency, accountability, and performance. This also benefits the company internally as it helps determine which operations and practices need to be improved.

As the above CDP report puts it- “S&P 500 companies that build sustainability into their core strategies are outperforming those that fail to show leadership”. A 2011 paperfrom Ameer & Othman comparing top global sustainable vs non-sustainable companies similarly revealed that:

“companies which place emphasis on sustainability practices have higher financial performance compared to those without such commitments”

3.  How should we report on sustainability outcomes?

A number of sustainability reporting standards and guidelines have been developed in the last 20 years. These include the Carbon Disclosure Project (CDP), the Greenhouse Gas Protocol, and Australia’s National Greenhouse and Energy Reporting data (NGER).

Further, we have the continuously evolving Global Reporting Initiative (GRI)Sustainability Reporting Guidelines, which, according to KPMG, remain the most frequently referred to guidelines by Australian reporters with 66% utilisation in 2013.

Companies have the option of utilising one of the above as guidance, or a combination of them to produce an integrated report. Guided by the Integrated Reporting (IR) Framework, IR focuses on an organisation’s value creation in the context of its external environment, as opposed to just impact reporting.

It allows companies to take on a holistic approach, extending beyond the financials to include environmental and social impacts. In Australia, only a few companies have produced integrated reports since 2011, including NAB and Bank Australia (formerly MECU).

At present in Australia, it looks like sustainability reporting using the GRI is the most commonly used and best suited reporting mechanism for most companies. Using the GRI allows businesses to track their progress toward positive change in alignment with the UN Global Compact and SDGs.

Helpfully, the GRI also provides sector specific disclosures and guidance, so that businesses are guided as to what should be reported.

Aira Firdaus is a Masters of Environment and Sustainability candidate at Monash University, Melbourne and an intern at Purposeful, a purpose-driven advisory, helping clients and their organisations to improve their social impact, culture, systems and strategic planning.

Purposeful is well placed to provide advice and services including sustainability assessments and reporting under the GRI and other standards. We can also help you to tell your social impact story.

We are a proud B Corp, doing our best to encourage business as a force for good every day. We are also a Foundation Member of SIMNA Ltd (Social Impact Measurement Network Australia).

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