Sustainability reporting is the practice of publicly disclosing a company’s environmental, social, and governance (ESG) performance and impacts. The primary purpose of sustainability reporting is to communicate a company’s sustainability efforts and performance to stakeholders such as investors, customers, employees, and regulators.
Sustainability reporting typically includes information on a company’s sustainability strategy, targets, and progress, as well as its environmental impacts such as greenhouse gas emissions, water usage, waste generation, and biodiversity. It also includes information on a company’s social impacts, such as labour practices, human rights, community engagement, and product responsibility. Governance information typically includes information on a company’s board composition, executive compensation, and risk management.
Sustainability reporting is necessary because it helps to create transparency and accountability around a company’s sustainability performance. It allows stakeholders to understand how a company is addressing its environmental and social impacts and how it is managing risks and opportunities related to sustainability issues. Sustainability reporting also helps companies to identify areas for improvement and to benchmark their performance against peers and industry best practices.
Moreover, sustainability reporting has become increasingly important in recent years as investors, customers, and other stakeholders are placing greater emphasis on sustainability performance. Sustainability reporting can help companies to attract and retain investors and customers who are looking for companies that are committed to sustainable practices. It can also help to mitigate reputational risks and legal risks associated with environmental and social impacts.
According to Diligent, this type of reporting is important since it might have serious financial consequences. About half of investors opted not to invest in a firm because it did not have a clear stance on social and environmental concerns, while another 38% sold shares for the same reason.
Diligent stated, “Sustainability reporting is a chance to reassure customers and shareholders and create a course forward that accounts for environment-related risks and possibilities. Businesses that report on their sustainability on a regular basis may proactively eliminate ESG risks, decrease expenses, and ultimately boost performance.”
ESG, particularly the E (environmental) component, is a critical connection in this type of reporting. According to Diligent, ESG sustainability reports are an essential tool for businesses to meet ESG obligations. Companies should indicate how their development compares to whatever benchmarks or targets they already have in place.
Another strong driver for this type of reporting is CSR, or corporate social responsibility. 70% of American customers want businesses to make the world a better place, while 73% of investors think a company’s environmental initiatives influence their investment decisions.
“Although CSR isn’t the only reason to report on sustainability,” Diligent added, “it’s a significant reason why firms should be upfront about their environmental effect and encouraged to improve year over year.”
Among the most relevant factors in Diligent’s opinion are the firm’s ESG objectives, progress towards those goals, risks the company may face, opportunities the company may have, and financial specifics, such as possible expenses connected with the goals, risks, and opportunities.
Despite the fact that many governments and businesses are attempting to standardise their reporting, there are over 600 distinct reporting standards in use today.
There are many different sorts of reports, but they all adhere to a certain standard that the organisation determines. The EU Corporate Sustainability Reporting Directive, the Task Force on Climate-Related Financial Disclosures, the Global Reporting Initiative, the CDP, and the IFRS Sustainability Disclosure Standards are a few examples.
“ESG targets set the framework for sustainable reporting,” Diligent concluded. They serve as the starting point for all measurements, risks, and opportunities included in a sustainability report. If ESG targets are designed strategically, they will make a company’s sustainability initiatives shine. If adopted incorrectly, ESG goals can result in significant financial and reputational consequences for a corporation.”