Sustainability reporting is stalled — here's how to add value

Sustainability reporting is stalled — here's how to add value

The transparency and accountability engendered by corporate reporting are good things. But more can be done to help businesses reap the benefits of those efforts.

Corporate sustainability reporting is stalled.

Companies are wasting time and money creating lengthy reports that few people read. Consequently, businesses are failing to tap into the potential value of reporting and transparency — value that could provide vital information to more directly inform decisions that drive better financial and social outcomes.

That's all according to research released today by strategic management consultancy and think-tank SustainAbility. The report, "See Change: How Transparency Drives Performance," concludes that although non-financial reporting and transparency efforts have benefited companies over the past two decades, there is a serious opportunity to gain more strategic value and better reap the benefits of managing, collecting and sharing sustainability data and stories.

“It is time to create more value from all the hard work, expertise and desire for a better world that goes into sustainability reporting,” said Lorraine Smith, SustainAbility’s senior director and co-author of the new report. “No one wants to create a report for the sake of another report; everyone wants to solve complex societal issues. Transparency can — and must — play an important role.”

Informed by over 60 interviews and a survey of nearly 500 sustainability practitioners, the report features three key elements of transparency, six case studies and a practical tool. The goal is to leverage those suggestions to maximize the value of the thousands of sustainability reports released by companies and organizations of all types, sizes and sectors around the world.

The ultimate goal is promoting transparency and accountability to help improve internal processes while also engaging stakeholders and persuading investors of the market value of sustainability measures.

Three elements of transparency 

Companies looking to improve the impact of their reporting should focus on three important and interconnected transparency elements, the report stated: materiality; valuation of externalities; and integration.

Emphasizing these three elements also will help sustainability professionals gather the most critical information and use it to make more informed, strategic decisions that lead to improved business performance. That includes creating value when it comes to the environment, society and the economy.

1. Materiality

Companies should focus on gathering and providing information on the most material issues. This enables them to refine their sustainability strategy, integrate material issues into their larger corporate strategy and tighten reporting efforts to better communicate to stakeholders on the most critical issues.

2. Externalities

After identifying the most material issues, firms can begin to measure externalities relevant to these issues. This data empowers companies to fully understand and communicate their role in creating value in the environment, society and the economy.

3. Integration

Armed with a prioritization of the most strategic material issues and knowledge for the externalities related to them, companies can use this information to better integrate sustainability into corporate strategy. True integration enables companies to leverage their business model for sustainable value creation.

To help guide companies to effectively prioritize material issues, account for externalities and integrate sustainability and corporate strategies, SustainAbility is offering what it calls a “transparency advancement tool."

The tool can be used for high-level assessment to identify strengths and weaknesses in existing practice and to benchmark where gaps remain. It also serves as a map to guide companies through the steps within each priority element: materiality; externalities; and integration. Finally, the tool provides guidance for companies to take practical steps towards advancing in each element of transparency.

New rules on the horizon?

Companies willing to apply more rigorous standards to their transparency efforts — to meaningfully engage on material issues, including taking externalities into account in a way that drives integrated strategies — are likely to be well-positioned to thrive in a sustainable future.

One major outside driver for refined reporting could be new government oversight or enforcement. Although sustainability reporting remains voluntary in the U.S. for now, it may not be for long.

Europe is already leading the way. In September, the European Council voted to adopt a directive — which holds the force of law — requiring certain companies to begin publicly reporting on environmental and social strategies, actions, policies and programs. The European Parliament adopted the directive in April and will become enforceable after being published in the EU Official Journal. Member states will have two years to transpose the directive into national legislation, with companies expected to begin reporting as of financial year 2017.

The directive applies to all companies listed on EU regulated exchanges, and U.S. firms are no exception. Forward-thinking firms that already report on their sustainability efforts are ahead of the game, but the implications of SustainAbility’s report suggests even these companies should take it a step further.

The spirit of sustainability is vested in constantly striving for self-improvement, and this pertains as much to what we say as to how we say it.