In today’s world, businesses are under pressure to be more transparent about how they operate. Issues like income inequality, governance failures, and the mismanagement of natural resources are major concerns. Because of this, there are growing demands for companies to disclose more about their practices and take responsibility.
What is Sustainability Reporting?
Many companies now create sustainability reports, which cover their performance in economic, environmental, and social areas. These reports offer investors, customers, and regulators a detailed look at how businesses create value over time. Common metrics include:
- Greenhouse gas emissions
- Board member diversity
- Water usage
The specific benchmarks vary based on the company’s industry and location.
Why Does It Matter?
Recent incidents highlight the importance of these reports:
- Shein’s Proposed IPO Blocked: Social concerns halted their London IPO.
- Evolve Bank Data Breaches: These breaches underline the need for better risk management.
- Waterway Contamination: Ongoing environmental issues show the impact of poor practices.
Some businesses find sustainability reporting useful for improving operations and managing external relationships. However, not all executives see the value. Only 24% of top executives surveyed by Ernst & Young believe sustainability reporting adds value to their firm.
Mandatory Reporting
In some regions, companies must produce sustainability reports. For example:
- Canada: Greenhouse gas emissions must be reported under the Greenhouse Gas Reporting Program.
- United States: The SEC and California have their own reporting requirements.
- European Union: Comprehensive sustainability reporting is mandatory.
Canadian companies operating in Europe must comply with these rules. Many companies also voluntarily follow international frameworks and standards.
The Government of Canada requires reporting of greenhouse gas emissions under the Greenhouse Gas Reporting Program.
Benefits of Reporting
Governments, standard setters, and the business community have invested heavily in credible sustainability reporting. Some experts argue that including non-financial data in reports improves transparency and accountability. This can help businesses progress towards the United Nations Sustainable Development Goals and improve profitability. For example, reducing greenhouse gas emissions can lead to:
- Less waste
- More efficient use of raw materials
- Lower operating costs
Reporting for the Right Reasons
However, if companies report just to satisfy external stakeholders, it won’t drive internal change. Reporting should help businesses identify areas for improvement and benchmark against peers to genuinely enhance sustainability performance.
Emmanuel Faber, Chair of the International Sustainability Standards Board, stated in 2023:
Just as an accounting standard cannot get a company to increase its profit by 10 per cent, a sustainability disclosure standard … cannot get it to reduce its emissions by 10 per cent.
Faber emphasized that political will is crucial for real change. For instance, BP’s decision to slow down renewable energy investments in favor of oil and gas shows the uncertainty about companies’ commitment to sustainability.
Measuring What Matters
The saying goes, “what gets measured, gets managed.” By tracking and reporting sustainability information, companies can naturally improve their performance. But the real question is whether these practices will lead to societal benefits. This is still a topic of much debate.
Where Do We Go From Here?
- For Investors: More information helps make better investment decisions by highlighting risks and opportunities. It’s hard to shift financial resources to sustainable firms without sustainability reporting.
- For Policymakers: Seeing a company’s overall performance can inform regulatory debates. But meaningful change depends on how committed companies are to improving.
Conclusion
The impact of sustainability reporting depends on how seriously companies take it. For it to drive meaningful change, businesses need to go beyond box-checking and use the reports to make real improvements. Whether this will happen on a wide scale remains to be seen.
