Unformatted text preview: Running head: SUSTAINABILITY REPORTING Sustainability Reporting: Expanding the Scope of Disclosures
Institutional Affiliation: 1 SUSTAINABILITY REPORTING 2 Sustainability Reporting: Expanding the Scope of Disclosures
Sustainability reporting has developed as a common practice among businesses of the
21st century. A sustainability report is a statement issued by an organization or corporation about
the environmental, economic, and social effects resulting from it daily business operations. It
also reveals a company’s values and governance model and shows the connection between its
strategy and its obligation to a sustainable worldwide economy. Currently, investors,
shareholders, and customers are pushing for data and evidence about organizations’ sustainability
performance; thus, sustainability reports have emerged as an integral part of companies’
disclosures. The Sustainability Accounting Standards Board (SASB) develops the specific
standards and principles for corporate sustainability disclosure with the aim of ensuring that the
disclosure is decision-useful, material, and comparable. Although companies have issued
sustainability reports in the past, the methods that they have used only focused on sustainability
issues. Therefore, with SABS standards, companies will publish a single document that will
comprise all the necessary financial and nonfinancial information.
Business Sense of Integrated Sustainability Report
Integrated sustainability reporting makes good business sense because it adds value to
companies by revealing to the shareholders, clients, employees, and regulators the ESG
(Environmental, Social, and Governance) data. Today, most investors require companies to
present them with this non-financial data. However, it is difficult for the investors to understand
the non-financial data when presented exclusively. Shareholders and investors cannot understand
how the EGS factors add value to the business. Therefore, the integrated sustainability reporting
helps to decode the non-financial information into a manner that the investors and shareholders SUSTAINABILITY REPORTING 3 can easily understand. Consequently, this increases the business’ communication with the
investors about their environmental and social impacts.
Integrated sustainability reporting also enhances a firm’s access to capital. Studies reveal
that financial reports may expose a company to new and affordable financing. By combining its
sustainability reports with its financial reports, a company may succeed in convincing potential
investors that it is a competitive and low-risk investment. Investors are increasingly favoring
businesses that that are transparent; thus, sustainability disclosure provides them with more
information connected to the companies’ cash flow from operations and return on assets.
Additionally, integrated sustainability reporting often indicates a company’s value and assists to
reduce its cost of equity, mainly in competitive markets. Firms in competitive sectors always
tend to incorporate numerous sustainability initiatives; for that reason, integrated sustainability
reporting differentiates a company from its rivals.
Engaging in integrated sustainability reporting also helps businesses to forecast and
manage different threats that may arise from their sustainability-linked scopes of business. For
instance, it allows firms to anticipate and prepare for any challenges that may originate from
their areas of operation. Additionally, it helps companies to increase their swiftness in process
improvement. It also provides organizations with a better understanding of their externalities and
risks, which allows them to lessen the risks and build rigidity in their primary business strategies.
For that reason, integrated sustainability reporting makes a good business sense.
Responsibility for Sustainability and its Reporting to the Outsiders
The Chief Executive Officer (CEO) should have responsibility for sustainability and its
reporting to those outside the company. According to Accenture and UN Global Compact survey,
about 93 percent of chief executive officers perceive sustainability as an essential factor in the SUSTAINABILITY REPORTING 4 success of their businesses (Kanal, 2011). A CEO plays a critical role in ensuring that a business
becomes environmentally responsible. Most employees often do not consider certain changes as
relevant to the company (Kanal, 2011). Thus, the employees may fail to connect the business’s
mission and sustainability if they do see the CEO’s leadership on the matter.
The leadership of a CEO often accelerates the employees’ effort. When the chief
executive officers talk about sustainability as of strategic business importance, they set the tone
for the whole company. Additionally, Priya Haji, the co-founder and CEO of SaveUp, points out
that always, the CEO is the chief sustainability officer in any organization and the absence of
deliberate action towards fostering sustainability may result in inaction by the other employees in
the company (Mangan, 2013). Similarly, Bob Annibale, the City Community Development, and
Microfinance’s global director, explains that the CEOs should take the responsibility and
leadership in investing in projects and business models that entrench the principles of
sustainability (Mangan, 2013). Therefore, they are the best placed to guarantee that sustainability
develops to be part of a firm’s rubric and a primary driver of its business approach.
The CEO should also be responsible for sustainability and its reporting to those outside
the company because he or she often establishes mutual trust and accountability with all the
stakeholders, such as investors, communities, employees, and the society. The CEO also builds a
corporate identity focused on the social issues and the organization’s unique proficiencies. Often
in the sustainability reports, the CEO writes a letter to the outsiders indicating the company’s
sustainability achievement and contributions to the society. Therefore, the CEO should have the
obligation for sustainability and its reporting to the organization’s internal and external
Standardization of Sustainability Reporting SUSTAINABILITY REPORTING 5 Sustainability reporting can be standardized across all businesses and industries. The
disclosure of a firm’s sustainability report to the investors and different stakeholders in now
widely accepted across a wide range of businesses and sectors. Therefore, various governmental
and non-governmental organizations are developing policies, standards, and guidelines for
sustainability reporting (Lydenberg, Rodgers, & Wood, n.d.). In the past, companies have
displayed a wide disparity in the contents of their sustainability reports, which has led to
comparability, continuity, and credibility concerns among the users of the reports. To eliminate
these diversities, the Global Reporting Initiative (GRI), Sustainability Accounting Standard
Board (SASB), and the International Integrated Reporting Council (IIRC) have developed
integrated frameworks and industry-specific standards.
The Sustainability Accounting Standard Board indicates that the sustainability reporting
can be standardized across all industries by evaluating the financial risks, regulatory drivers,
competitive issues, stakeholder concerns, and opportunity for innovation (Lydenberg, Rodgers,
& Wood, n.d.). The financial risks should be assessed because they often affect the long-term and
short-term activities of the company. Moreover, the analysis of the legal and regulatory drivers
can enable the standardization of the sustainability reporting in all the industries (Lydenberg,
Rodgers, & Wood, n.d.). The government policies often shape the operations businesses in
different sectors. Therefore, the sustainability reporting can be standardized across all industries
because the financial risks and regulatory policies affect all sectors.
Competitive issues and industry norms should also be evaluated when considering the
standardization of the sustainability reporting. Additionally, all businesses consider the societal
trends and stakeholder concerns as critical to their success (Lydenberg, Rodgers, & Wood, n.d.).
According to SASB, an assessment of these factors helps in the development of a standardized SUSTAINABILITY REPORTING 6 framework for sustainability reporting across different businesses and sectors (Lydenberg,
Rodgers, & Wood, n.d.).
Accommodation of a Single Reporting Framework that Includes Nonfinancial
Information on Sustainability Issues
The traditional audit and assurance services help to fulfill the shareholder’s demand for
executive accountability. Moreover, the services help the reporting entities to enhance their
operational performance. However, the audit and assurance of the nonfinancial information on
sustainability issues is a challenging task for most auditors. Contrary to the financial statements,
the data in sustainability reports are less measurable and more qualitative in nature. Thus,
companies that publish the nonfinancial reports find it difficult to assign independent audit and
assurance services that stimulate the same level of reliability, consistency, and trust as do
auditors’ reports of the financial reports.
Altering the traditional audit and assurance services to accommodate a single reporting
framework that includes nonfinancial information on sustainability issues can improve the
credibility of the reports and help the shareholders and boards of directors in accomplishing their
monitoring responsibilities. This can be achieved by developing a set of policies and guidelines
that identify the parts of the reports that should be the focus of the audit engagement and provide
a foundation for describing how assurance is delivered over the material elements of the reports
(Jones, 2010). The auditors and the individuals responsible for governance may help to develop
the guidelines and policies.
Since the traditional audit and assurance services focused more on the financial reports;
accommodating a single reporting framework that includes nonfinancial information on
sustainability will force auditors to consider the stakeholder relationships, materiality, reliability SUSTAINABILITY REPORTING 7 and completeness, and connectivity of information among others (Jones, 2010). Additionally, in
their audit and assurance work, the auditors should ensure that integrated report of the financial
and nonfinancial reports does not contain information that contradicts the company’s financial
statements. Similarly, auditors need to alter their traditional audit and assurance services to focus
more on the objective elements in the financial statements. However, the International Auditing
and Assurance Board (IAASB) have not come up with the standards and guidelines for mixed
reports that include information on sustainability issues (Jones, 2010).
Incorporating Sustainability Reports into the Traditional Financial Reporting
Sustainability reporting cannot be successfully integrated into a more traditional financial
reporting framework. Currently, companies are under pressure from investors and shareholders
to disclose to be transparent and accountable by disclosing all the information about their
operations, including sustainability. The International Integrated Reporting Council (IIRC) has
proposed various changes in the manner that companies report their activities by combing the
sustainability reports with the traditional financial reports to form the integrated reports.
Although there is no accepted format of an integrated report; it is clear that the sustainability
reports cannot be incorporated successfully into the traditional financial reporting framework.
While the introduction of the integrated reports is a remarkable advancement, it is
unlikely that they will lead to a single report that substitutes the current financial statements with
the same level of reporting and audit standards. The sustainability and financial reports have
some differences that make it difficult to integrate the two reports into a single publication that is
accepted by all the users as is the case with the financial statements (Soderstrom, 2013). For
instance, the Financial Accounting Standards allows a particular level of complexity of the SUSTAINABILITY REPORTING 8 financial statements to the users, which helps to reduce the amount of explanation required in the
reports. Additionally, the financial reports are compulsory, adhere to the prescribed accounting
standards, and must be audited (Soderstrom, 2013). These features of financial statements
improve their reliability and interpretability. However, the sustainability reports do not have
Incorporating sustainability reporting into a more traditional financial reporting
framework is also difficult because of the nature of the social and environmental performance.
These environmental and social performances differ significantly between sectors and
businesses; thus, it is hard to integrate them into a single reporting framework that can be
compared easily across different industries and companies. According to the U.S. standardsetters, corporate lawyers, and industry lobbyists, a resulting report from the combination of the
financial and sustainability reporting should be basic (Soderstrom, 2013). Thus, the integrated
report is unlikely to disclose the kinds of sustainability information that shareholders require
because it is hard for companies to report their unique approaches to sustainability and data of
financial performance in a single report.
The Reporting Frameworks Currently Used for Sustainability Reporting
Some of the reporting framework that is currently being used or sustainability reporting
include the CDP, Dow Jones Sustainability Indexes, Global Reporting Initiative, Sustainability
Accounting Standards Board, and GRESB (Measurabl, 2014). CDP is a non-profit organization
that runs the worldwide disclosure system for shareholders and investors that help organizations,
states, cities, and companies to measure and manage their environmental impacts. It focuses
mainly on the GHG emissions. The organization is the largest holder of GHG production and SUSTAINABILITY REPORTING 9 energy use data in the world. More than 800 institutional investors support CDP (Measurabl,
The Dow Jones Sustainability Index (DJSI) was the first sustainability benchmark in the
world. It is provided by S & P Dow Jones Indices and RobecoSAM. It is an industry-specific
reporting framework that is important to investors (Measurabl, 2014). Additionally, its
framework is one of the most refined ESG reporting index solutions for companies. Conversely,
the Global Reporting Initiative is a worldwide independent organization that assists companies
and businesses to understand and communicate their sustainability issues to their shareholders
and potential investors. The UN Global Compact declared it as the official sustainability
standard; thus, it is the default reporting framework for most organizations (Measurabl, 2014). It
boasts of approximately 5,800 related companies (Measurabl, 2014).
GRESB, on the other hand, is an investor-driven entity that centers on evaluating the
environmental, social, and governance performance of real assets worldwide. This reporting
framework focuses primarily on the real estate sector only (Measurabl, 2014). Equally, the
Sustainability Accounting Standards Board provides a reporting framework for the public
companies in the United States only. It develops and publishes sustainability accounting
standards that assist corporations to reveal relevant sustainability data to shareholders and
investors. The standards set by SASB allow investors to link peer performance and
benchmarking within a particular industry (Measurabl, 2014).
SASB focuses primarily on providing the information that the investor need to enable
them to increase their earnings. However, the Global Reporting Initiative aims at revealing what
firms are doing to the world to make it less or more sustainable. The GRI reporting framework
was developed to help companies provide their stakeholders with transparent information about SUSTAINABILITY REPORTING 10 their operations and sustainability issues. SASB, founded in 2011, sets standards and policies for
sustainability reporting for companies with the aim of helping investors to make more money.
What it will take for Students to learn the “Language of Sustainability
The student will be forced to undergo an additional study to enable them to learn the
“language of sustainability accounting” since it is a new concept that does not relate much with
the traditional financial reporting. Students will have to learn the fundamental concepts of
sustainability accounting and the effects of sustainability issues on a firm’s financial reporting
and bookkeeping practices. Additionally, students need to learn the different frameworks that
companies are currently using in their sustainability reporting. However, more emphasis should
be put on the Global Reporting Initiative and SASB’s frameworks. The students should also have
a brief overview of a business’ sustainability report to enable them to understand what a
sustainability report entails.
Minimizing the traditional “language of accounting” as the focus of reporting shifts to a
more general structure will not help the students understand the concept of sustainability
reporting. The two reporting systems have different concentrations. Therefore, the students need
to understand them exclusively. A thorough understanding of the traditional financial reporting
framework and the current sustainability reporting framework will provide the students with
comprehensive knowledge about the “language of sustainability accounting.” For that reason, the
student will need additional study.
The concept of sustainability reporting has developed as a common practice among
businesses of the 21st century making it a critical factor in the success of any company. The
integrated sustainability reporting makes a good business sense because it enhances a firm’s
access to capital. Thus, the CEO should be responsible for sustainability and its reporting to SUSTAINABILITY REPORTING 11 those outside the organization. Various organisations, such as GRI and SASB have proved that
sustainability reporting can be standardized across all industries and businesses. For that reason,
it will take students additional study to learn the “language of sustainability reporting.” SUSTAINABILITY REPORTING 12
References Jones, H. (2010). Sustainability reporting matters: what are national governments doing about it?
Kanal, V. (2011). Just How Important is the CEO to Sustainability? Greeb Biz. Retrieved from
Lydenberg, S., Rogers, J., & Wood, D. (n.d). From Transparency to Performance: Industry-based
sustainability reporting on key issues. SASB.
Mangan, B. (2013). Should CEOs act as Chief Sustainability Officers? LinkedIn. Retrieved from
Measurabl. (2014). The Top 5 Sustainability Reporting Frameworks you should Know. Retrieved
Soderstrom, N. (2013). Sustainability Reporting: Past, present, and trends for the future.
View Full Document
- Spring '16