The benefit and the future of Sustainability Reporting Featured

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The benefits of sustainability reporting go beyond relating firm financial risk and opportunity to performance along the Environment Social, and Green dimensions and establishing license to operate. Sustainability disclosure can serve as a differentiator in competitive industries and foster investor confidence, trust and employee loyalty.
Analysts often consider a company’s sustainability disclosures in their assessment of management quality and efficiency, and reporting may provide firms better access to capital. In a review of more than 7,000 sustainability reports from around the globe, researchers found that sustainability disclosures are being used to help analysts determine firm values and that sustainability disclosures may reduce forecast inaccuracy by roughly 10%.1
Beyond the Global 250, thousands of companies around the world issue sustainability reports, and the number of companies reporting grows every year.2 In 2011, more than 2,200 firms filed reports with the Global Reporting Initiative (GRI), and hundreds more filed GRI-referenced reports.3 These firms exemplify the principle that reporting is expected of the top companies in our modern business world. We now live in “the age of transparency,” where companies that do not own up
Companies are motivated to report for different reasons. Large companies are more likely to report than small companies, and they appear to be influenced more than small companies by
to their responsibilities will find themselves in “the worst of all worlds,” where they will “be made responsible and still not be considered responsible.”4

Figure 1. Ways of sustainable reporting adds value

Source: Boston College Center for Corporate Citizenship and EY 2013 survey
expectations of transparency with stakeholders and competitive differentiation.

What drives a company to issue a sustainability report in 2013? Many corporations, after all, engage
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in sustainability activities without issuing reports. In general, those companies that report appear on sustainability rankings and obtain higher places within those rankings than do non-reporters. Though improved reputations are reported to be a significant positive outcome of sustainability reporting, it was not found to be a primary reason that companies prepare reports (see Figure 2).
A variety of internal and external drivers may also influence whether a firm reports:
 Rating agencies factoring sustainability information into broader analysis(S&P, 2013)
 Executives, shareholders and investors seeking assurance that sustainability risks have been managed
 Communities seeking information regarding how the company is managing the environmental and social impacts of its operations
 Regulations related to environmental and social matters
 Current and potential employees seeking information about company sustainability
One part of the move towards standardization is the push for annual reports that include and connect information on both financial and non-financial aspects of business. Some advocates of sustainability reporting believe that integrated reporting is the way forward. In 2010, the GRI cofounded the International Integrated Reporting Council (IIRC) to help promote the disclosure of sustainability performance data.6 In March 2013, the GRI and IIRC announced a Memorandum of Understanding declaring the two organizations’ continued commitment to collaboration. 7
Assurance and harmonization
As more companies issue sustainability reports, analysts expect that public and investor demand for external assurance of sustainability reports will grow. Independent assurance of sustainability disclosures can help make a persuasive case for the reporter’s seriousness and reliability. The GRI encourages external assurance, and there is strong evidence that investing in assurance is a wise decision since it enhances the credibility surrounding positive disclosures. For example, a recent study found that readers are more likely to believe negative disclosures than positive practice 5

Figure 2. What motives the organizations to report

Source: Boston College Center for Corporate Citizenship and EY 2013 survey
disclosures in reports. In order for disclosures of positive performance to have the same weight and credibility as negative disclosures, the positive disclosures had to be assured—even if the negative disclosureswere not assured.
Because analysts, investors and other stakeholders are paying attention to sustainability reporting, many firms have come to understand that the credibility offered by assurance is important. Among those report-issuing companies in the Boston College and EY survey, 35% have some level of assurance conducted on their sustainability reports. Of those reporting assurance, 55% have their full reports assured and 45% have some indicators assured.
A survey commissioned by Accounting for Sustainability indicated that investors and analysts tend to consider external assurance a vital part of a company’s sustainability reporting process, with 77% of the sample labeling it either “important” or “very important.”9
Indicators show that the number of assurance statements in sustainability reports is increasing
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year over year. There is evidence that firms with more visible industrial impacts such as mining, power and finance are more likely to seek assurance and that assurance conducted by large accounting firms may be considered superior in quality due to the firms’ economies of scale, professional codes of ethics, and the reputational capital that they bring to their engagements.10
Though assurance is not yet mandatory for sustainability reports, it is an important risk management exercise. As more andmore companies issue reports and seek assurance services, there is likely to be an increased demand for comparability and alignment across reports. Today there is already a movement towards harmonization of reporting guidelines and standards; the GRI Framework, for example, aligns with ISO 26000, the UN Global Compact and the Carbon Disclosure Project.

Figure 3: Assured reports by provider type, and Scope of Assurance, 2012

Source: Data from GRI Sustainability Database
Last modified on Tuesday, 16 October 2018 08:13

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