Sustainability reporting has become a buzz-word that companies, ranging from SMEs to large companies as well as multinationals are adopting. Sustainability reporting or "non-financial reporting" is when a company creates a report detailing its environmental, social, governance, and economic goals, as well as its progress towards achieving them.
It is instrumental in helping companies to communicate their relevant information on the company’s long-term economic value and contribution towards a sustainable economy, taking account of the company’s economic, environmental, social and governance performance and impacts.
The main purpose of a sustainability report is, therefore, to communicate on how the flows of material, resources and services between corporations, capital markets, society, the economy and the environment affect the mutual ability of those systems to continue and flourish.
Businesses are using their sustainability reports to frame their sustainability stories to the world. However, to use them as an effective communication tool, organisations need to assess and understand the expectations of their stakeholders, establish credible measures on their impacts and adapt their messages to the needs of target audiences.
Other than considering the sustainability report as a communication tool, businesses should also see it as a business development tool.
More players in the supply chains are looking for sustainable suppliers, which means they will always ask for evidence that shows or demonstrates sustainability at the highest level. A proper report will be a good tool to demonstrate organisation commitment to sustainability.
Financiers are also interested in assessing the level of sustainability of their customers and in most cases, they are willing to provide a couple of basis points discount on the lending rates to sustainable companies.
This is more in the era of sustainable finance where plain vanilla financing is no longer attractive and profits or financial return is no longer the only driver for transactions. Impact is taking the centre stage meaning that financers are also interested in nature and level of impact that their lending is contributing to.
A sustainability report is not just about telling people that a business is sustainable; Nowadays, companies must also demonstrate what, how and why sustainability which means that there is need for reporting entities to communicate in an appropriate way to the desired audience.
To be able to report in the right manner firms will need to follow established reporting protocols as provided by leading frameworks such as global reporting initiative (GRI) and UN Global Compact among others. GRI is the most popular protocol and represent a possibility for small and large companies.
There is a lot of improvement that need to be done by companies as they report their sustainability journeys. These improvements can be enhanced through capacity building as well as having experts guiding in reporting.
Corporates seem to be in competition on who issues a sustainability report and how well the report is designed without consideration of the content. As a minimum, the reports should aspire to ensure that the information provided is factual and relevant.
Generally, sustainability knowledge and skills and reporting skills are missing in many organisations, yet there are so many demands to have such skills in an organisation. In the short term, there is a need for companies to use consultants but at the same time using the same to build internal capacity which is much-needed.
Other considerations for corporates looking to initiate sustainability reporting, there is need to link sustainability targets to the corporate strategy hence enabling the business to align resources with their current efforts with the aim of improving their chances on achievement of sustainability goals.
There will also be a need to consider best practices in sustainability and how your peers are reporting. Sustainability issues come in many shapes and sizes and are different across industries and regions and hence benchmarking will become a powerful tool that can be utilised to understand how a company reporting compares to industry peers.
Another challenge posed to companies wanting to undertake sustainability reporting is the fact that many companies often have an information overload and are not sure what will go into their sustainability report.
It is, therefore, vital to bring various functions in the business to work on the sustainability reports to ensure all the relevant information is captured. Unfortunately, in many cases, the sustainability teams are the ones that are left to work on the reports and hence end up not capturing all the available information.
To avert the above challenges, there is need to set up a proper reporting mechanism in an organisation. The reporting should be based on relevant sustainability framework and should be well coordinated within the organisation.