Executive summary
Sustainability reporting is a key aspect of running organizations in the modern world. This approach aims at determining the potential value of a business, achieved through intensified stakeholder reporting and communication. This report explores this issue and presents a workable guide for managers and other executives.
To achieve its purpose, this report focused on several aspects of sustainability reporting. These included the features of and reasons for sustainability reporting and the relevant implementation stages.
Varying reasons for sustainability reporting were discovered during this research activity, most notably determining the financial value of an organization and enhancing its management systems and decision-making. A comprehensive study into the GRI guidelines revealed the basic sustainability reporting principles, namely: defining content and quality, and boundary setting. The steps of implementation of sustainable reporting identified through this research include preparation, connection, definition, monitoring, and communication.
This research effectively analyses the topic of sustainability reporting, adequately identifying the various goals and how to achieve them. As per the findings, a firm must apply the identified solutions effectively to survive in the current business field and meet the expectations of its owners, other stakeholders, and the general public as a whole.
Introduction
Australian organizations must adopt sustainability reporting, owing to the many benefits derived from it, and stay relevant and competitive in the modern 21st-century business field. To achieve this, a broad understanding of this topic is necessary. According to Global Reporting Initiative (GRI) guidelines, sustainability reporting is the activity of measuring and divulging an organization’s performance compared to its goal of sustainable development, and standing accountable to its internal and external stakeholders for the same (2006). During the G8 summit in Germany in 2007, attendants passed the “Growth and Responsibility in the World Economy” declaration, which requires companies to assess how they comply with the CSR standards and principles (Growth and Responsibility in the World Economy, 2007). It is of ultimate importance that a company’s sustainability report aligns with its overall operation strategy. It should also reflect a definite understanding between its goals and the expectations of the target audience. As such, this report explores the necessary technical approach to be employed in achieving this. This is presented by defining the reasons for sustainability reporting, followed by its features and implementation strategy.
Reasons for sustainability reporting
A report by World Business Council for Sustainable Development (WBCSD) identified stakeholders of a company as its investors, employees, regulators, customers, suppliers, and other interested groups (2002). In the modern world, a firm should effectively communicate its performance and activities to its key stakeholders to have a positive influence on its long-term growth, viability, and success (Geraghty, 2010). For instance, in 2008, 66 percent of ASX 200 companies in Australia produced sustainability reports (Ernst and Young, 2009; Australian Council of Super Investors, 2009). An organization is achieving the following via sustainability reporting:
Creating financial value
Major activities carried out during sustainability reporting include data collection, collation, and analysis regarding resource allocation and usage. It also involves the assessment of the business process. These activities enable the firm to identify the most profitable processes; that is, the ones that represent the most efficient use of resources. This promotes profit maximization.
Enhancing management systems and decision making
Through sustainability reporting, firms achieve more robust decision-making processes and management systems. Consequently, they can determine and manage environmental, economic, and social impacts and opportunities effectively; thereby posting a more sustainable performance.
Attracting long term capital and favorable financial conditions
A firm can attract more investors by issuing its sustainability reports. This is because such reports enable investment analysts to assess the firm, especially its environmental, social, and governance (ESG) considerations.
Maintaining license to operate
Stakeholders are more supportive of organizations that communicate openly about their management and performance regarding environmental, social, and economic factors. As such, issuing sustainability reports is a necessity in maintaining a strong link between the firm and its stakeholders.
Strengthening risk awareness and management
A firm demonstrates its commitment to effective risk management via sustainability reporting. It also enables the firm to communicate its risk performance.
Sustainability reporting features based on The Global Reporting Initiative
According to KPMG (2008), GRI guidelines emphasize the necessity of handling topics that reflect a company’s ESG impacts and those influencing a company’s assessment by its stakeholders. The GRI Sustainability Reporting Guidelines (2006) identifies three reporting principles, namely content definition, quality definition, and setting boundaries.
Defining content
This refers to determining the content which the report should cover. The reported information should cover indicators of economic, social, and environmental impacts or those that influence the decisions of stakeholders in a firm, known as materiality. The report should identify a company’s stakeholders and explain how it responds to their interests. The report should ensure sufficient coverage of the presented topics and indicators, such that stakeholders can effectively assess the firm’s performance.
Defining quality
The report should present both positive and negative aspects of the firm’s performance. The reported data should be consistent and should enable easy comparison and analysis. Reports should be regular and accurate. In addition, the presented information should be accurate and reliable.
Setting boundaries
Sustainability report boundaries should include all entities over which the reporting firm has control and its upstream and downstream relationships with these entities.
Sustainability report implementation stages according to the GRI
The GRI identifies five steps to be followed by a firm when implementing a sustainability reporting process effectively:
Prepare
This stage allows time for internal discussion, specifically at the management level. It is during this stage that positive and negative environmental, economic and social impacts are discovered.
Connect
During this stage, the firm seeks the contributions of other stakeholders regarding what aspects should be added to the final report. As such, this is a particularly vital step of the report implementation.
Define
This refers to the determination of the focus of the report. It involves checking whether the positive and negative aspects identified in Step 1 by the management match those identified in Step 2 by other stakeholders.
Monitor
This stage involves compiling the data which is to form the final report. GRI guidelines enable firms to know what to monitor. To this effect, the GRI multi-stakeholder approach identified the preferable reporting principles, which assist firms in checking their monitoring processes. This enables the firm to compile high-quality information thereby producing better reports.
Communicate
This involves the preparation and writing of the final report from the data compiled in Step 4. It is also during this step that vital decisions regarding how to communicate the report are made in the best way possible. In addition, this step marks the start of the next reporting cycle.
Recommendation
Considering all the aspects focused on in this article, the main reason why firms should adopt sustainability reporting is to maintain a strong link with their stakeholders. Whereas varying reasons are presented for sustainability reporting, they all revolve around creating a positive image of the firm to its stakeholders. For instance, by posting its sustainability reports, a firm attracts more investors, who are a part of its stakeholders. Producing these reports complies with government regulations in many countries, thereby enabling a firm to maintain a healthy relationship with the government, which is also a part of the firm’s stakeholders. Further, better management and decision-making skills are an improvement to one of the stakeholders of the organization – the employees. In addition, the creation of financial value, especially increased profits, betters the firm’s relationship with its owners. To sum it all, recall that sustainability reporting makes a firm acceptable to communities and other stakeholders such as consumers and suppliers (KPMG, 2008; WBCSD, 2002).
References
Australian Council of Super Investors, 2009. Sustainability Reporting Practices of the S&P/ASX 200. Web.
Ernst and Young, 2009. Non-financial Reporting. Web.
G8 Summit, 2007. Heiligendamm Declaration. Growth And Responsibility In The World Economy.
Geraghty, L., 2010. Sustainability reporting: measure to manage, manage to change. Keeping Good Companies, 3, pp.141‐145.
Global Reporting Initiative (GRI), 2006. Sustainability Reporting Guidelines.
KPMG International, 2008. KPMG International Survey of Corporate Responsibility Reporting. Web.
World Business Council for Sustainable Development (WBCSD), 2002. Sustainable Development.
Sherry, N., 2009. Closing keynote address to Australian Centre for Corporate Social Responsibility, 3rd Annual Conference, Sydney, 2009.