What is sustainability reporting?

In 2020, a record number of companies disclosed their ESG performance. To be precise, 90% of S&P 500 companies published a sustainability report, compared to 75% in 2015. What defines sustainability reporting, and what is its value? 

What is a sustainability report?

A sustainability report summarizes a company’s initiatives and results related to their corporate social responsibility (“CSR”). CSR reports can be shared internally, as a source of information to guide daily and strategic decisions, but are often made public in order to inform stakeholders (employees, clients, investors, etc) on progress in regards to sustainability. 

Similarly to a financial or annual report which lays out a company’s financial results and overall strategy, a sustainability report provides an update regarding the various ESG (Environment, Social, Governance) dimensions of the business. The organization discloses its performance within each dimension, its objectives and the strategy it will implement to reach its sustainability goals.

Sustainability as a comprehensive understanding of a company’s performance

At its core, reporting corporate social responsibility, sustainability or ESG progress is about analyzing and sharing information regarding a company’s extra financial performance. Going beyond revenues, profits and costs, sustainability reporting is about monitoring all dimensions of a company’s impact. To name but a few examples;

• Environmental performance
  GHG emissions related to production, logistics and any other asset or activity 
  Water 
  Waste and recycling 
  Energy

• Social performance
  Diversity within the workforce (age, sex, race, etc)
  Corporate philanthropy and donations
  Volunteering (number of projects or hours donated by employees)
  Health & Safety incidents (injuries, etc)

• Governance performance
  Governance processes and strategy
  Number of governance certifications received by the company
  Number of employees participating in ethics training
  Number of corruption incidents
  

ESG reporting catalyzes greater positive impact...

As corporate citizens, companies must understand and monitor their sustainability performance. Engaging in sustainability reporting allows them to precisely quantify E,S and G performance and to leverage this data to improve. 

However, sustainability challenges and priorities differ from one industry to another, and even from company to company within the same sector. That is why companies must first define sustainability priorities, their own material ESG Key Performance Indicators. As a simple example, a company offering services will probably not face the same sustainability challenges as a manufacturing business. The service company might make diversity one of its top priorities, while the latter could focus on minimizing GHG emissions during production. 

Monitoring sustainability performance regularly is key to identifying opportunities to improve. With this insightful data, companies can fully focus on areas that will significantly increase positive impact.

…and engages stakeholders on key topics!

By publicly sharing its ESG performance, a company demonstrates its commitment to transparency and corporate social responsibility. With access to ESG KPIs, stakeholders can make informed decisions (investing, buying products, applying for a job, etc) and can therefore encourage companies to pursue their sustainability efforts. 

It is also important to be aware that with sustainability topics becoming increasingly important to secure capital, talent and sales, some organizations are tempted to “advertise” their CSR initiatives with misleading or even false claims. This is referred to as “green” or “social washing”.

Standardizing sustainability reporting

To help make sustainability reporting reliable (and “true”), numerous standardized frameworks have been developed. These frameworks define what KPIs should be monitored and how to measure them. The KPIs they request usually adapt to relevance for different industries. To name but a few; 

• GRI and SASB are the two most used frameworks worldwide. They define E, S and G KPIs and can be used across industries;
• The Sustainable Development Goals are 12 specific topics developed by the United Nations in order to better protect the environment and ensure the global population’s well being. 
• CDP (“Carbon Disclosure Project”) focuses on environmental impact for three topics - Climate Change, Water & Forests; 
• Regional and industry-specific frameworks also exist. Some governments such as the European Union have even begun making sustainability reporting mandatory for large companies. 

Frameworks ensure that a sustainability report is reliable and in harmony with disclosure best practices, making the latter even more valuable to stakeholders. In fact, they make company and industry comparisons possible by creating a common structure to quantify sustainability performance. In the last few years, reporting standardization has helped propel sustainability from a “nice-to-have” business initiative to a core component of corporate strategy, as well as a new way to assess a company’s performance.