What is Sustainability Reporting?
Sustainability reporting provides an overview of a company’s economic, environmental, and social impacts caused by its daily activities. It is not just about presenting data but demonstrating an organization’s commitment to sustainability transparently. This helps organizations assess, measure, analyze, and present their performance across various parameters, setting challenging targets and goals.
Why is Sustainability Reporting Important?
Investors worldwide now review non-financial data before making investment decisions. Traditionally, businesses focused only on economic growth, considering it separate from social and environmental concerns. However, industries like chemicals and tobacco started publishing non-financial information earlier. A pivotal moment in this movement was the United Nations’ 2004 report, Who Cares Wins, which brought Environmental, Social, and Governance (ESG) issues into mainstream business strategies.
In today’s digital world, organizations cannot claim to be sustainable without providing credible and measurable information. With the influence of social media, information can be easily verified or cross-checked, pushing companies toward greater transparency.
Trends Shaping Sustainability Reporting
Since 2020, global organizations, including the United Nations (UN), have encouraged companies to align ESG data with Sustainable Development Goals (SDGs). The Organisation for Economic Co-operation and Development (OECD) has identified three key trends that will shape the future of sustainability reporting:
Consolidation among standard-setters
Regulations focused on ESG disclosures
Improved ESG data and disclosures in private markets
International Sustainability Standards Board (ISSB)
To streamline ESG reporting, the International Sustainability Standards Board (ISSB) was established in 2021-2022 under the International Financial Reporting Standards (IFRS) Foundation. Its goal is to create sustainability-related financial reporting standards to meet investors’ needs.
Key Objectives of Sustainability Reporting
Sustainability reporting serves multiple stakeholders, including investors, customers, employees, regulatory bodies, and society. Here’s how it benefits businesses:
1. Customer Satisfaction and Retention
Consumers prefer companies committed to environmental and social responsibility. A sustainability report demonstrates an organization’s efforts, helping to attract and retain customers who prioritize ethical business practices.
2. Gaining a Competitive Advantage
Transparency in operations and sourcing differentiates businesses from competitors. Many companies now prefer to partner with suppliers who demonstrate strong ESG commitments.
3. Accountability and Goal Setting
Setting sustainability goals with measurable indicators enhances accountability. Companies seeking financial assistance, technological collaborations, or business expansions benefit from showcasing their ESG commitments.
Example: The Task Force on Climate-related Financial Disclosures (TCFD) was established to improve climate-related financial reporting.
4. Employee Satisfaction and Retention
Employees feel more engaged when working for organizations that align with their values. Companies with strong ESG commitments tend to attract and retain talent more effectively.
5. Avoiding Greenwashing
Some businesses use vague terms like “eco-friendly” or “organic” without substantiating their claims. Sustainability reports provide measurable data, ensuring transparency and avoiding misleading branding.
Example: In 2020, H&M was fined in Germany for misleading sustainability claims, and L’Oréal faced criticism for marketing synthetic products as organic.
6. Demonstrating Progress
Sustainability reports allow companies to showcase their progress in ESG initiatives, boosting investor confidence and strengthening stakeholder trust.
Conclusion
Sustainability reporting is no longer optional—it is a crucial aspect of modern business practices, countries like India has already made Sustainability reporting (BRSR Reporting) compulsory for big listed companies . By providing measurable, transparent, and credible information, companies can build trust, attract investors, and ensure long-term success while contributing positively to society and the environment.