Does your company publish an annual report that includes not only financial data but also data on the company’s impact on society? It might be called an integrated report, a sustainability report, or an ESG report.
The answer, increasingly, is yes.
Why are more companies writing and publishing these reports? The answers are similar to why we do anything. Someone told us to, we want the results from doing it, or we are concerned about what will happen if we don’t do it.
I wrote about the various reporting standards in an earlier post in this series. That post discussed the environmental reporting sections of the most common framework, the Global Reporting Initiative (GRI) Standards. It didn’t delve into the “why” behind reporting.
Here are five reasons your company might be writing (or considering) sustainability reports.
1. Because It’s Required
Mandatory reporting requirements make reporting an involuntary decision. Public companies have been required to issue financial reports for a long time. More recently, requirements have been extending into non-financial reporting.
The European Union (EU) is expected to adopt the European Sustainability Reporting Standards (ESRS) in November 2022. The idea is to enforce uniform reporting requirements for environmental, social, and governance (ESG) factors.
The ESRS will affect all European companies that meet at least two of the following: revenue over € 40 million, assets over € 20 million, or over 250 employees. It also covers non-European companies that earn significant income in the EU.
2. Because Customers Expect It
Companies that supply parts, equipment, or materials to larger corporations are subject to more stringent supplier screening processes. Customers are looking beyond performance capabilities and the cost of deliverables. They are evaluating supplier operations with a lens that considers ESG issues.
A report prepared according to the GRI Standards allows customers to find the necessary data. Some reports are formatted better than others for this purpose. It is still important to answer customer questions without requiring customers to wade through the entire report.
3. As a Framework for Self-Audit
Reporting offers benefits beyond meeting legal requirements or securing continued business from customers.
With 37 standards and hundreds of pages of guidelines, the GRI Standards are comprehensive. The structure of GRI reporting forces companies to evaluate all aspects of their business. It serves as a helpful framework to audit current practices related to social and environmental responsibility. The reporting framework identifies what data to collect and how to present it.
Going through the reporting process will help you see where you are doing well and where you can improve. You will see how your business impacts employees, customers, suppliers, local communities, and investors. You will be better able to evaluate the risks of continuing business as usual versus the risks of investing in programs to improve on ESG measures.
4. To Support Greater Transparency
Publishing sustainability reports on a company website make the data public. Doing so can help the company be more transparent about its goals and progress toward them. But there are caveats.
Comprehensive sustainability reports often run 100 pages or more. Most website visitors, even those who download the reports, will not read them cover to cover. While the latest Standard doesn’t allow companies to skip over sections, they can bury unflattering results deep inside a long report where hardly anyone will notice them.
Companies that aim for absolute transparency on social and environmental issues will, ideally, start honest discussions within the company. They will involve many employees in gathering the necessary data and share what they learn from the reporting process widely throughout the company.
5. To Commit to a Long-term View
Reporting takes time and money. The first time a company generates a comprehensive sustainability report can feel especially cumbersome. Looking at the bigger picture of why you are writing the report is helpful. You can see it as part of a commitment to continuous improvement and a perspective that looks beyond short-term financial gain.
When you look at sustainability as both being environmentally responsible and ensuring that your company can be in business long-term, you can see reporting as a valuable tool. You will evaluate your greenhouse gas emissions, water use, hazardous and non-hazardous generation waste, employee working conditions, community involvement, and more. You will also commit to goals for improvement in all those areas while staying profitable.
When the next year rolls around, it will be time to update the report. Hopefully, you will be able to show progress from your baseline values and highlight where you achieved or surpassed your goals.
Then you will see reporting as a way not only to meet requirements and expectations but to drive positive change.
