What is Sustainability Reporting? Meaning, Types, and Benefits
Sustainable report or reporting is a non-financial reporting on a company's performance and impact regarding several sustainability parameters or topics, such as ESG initiatives, the environment, carbon emissions, corporate social responsibility, energy management, and sustainable communities.
This reporting communicates to stakeholders the risks and opportunities a company faces and how it manages and addresses them.
What Is the Difference Between an ESG Report and a Sustainability Report?
The term Sustainability Reporting is used synonymously with environmental, social and governance (ESG). But they are different. The latter evaluates a company's performance against ESG metrics, while the former looks broadly at the larger business model and methodologies as well as sustainability metrics.
So, sustainability reporting is also known as corporate sustainability reporting, but not exactly ESG reporting. It can help in the preparation of ESG report and add value to ESG markets.
Sustainability and ESG are kindred topics. The main difference lies in the first being motivation-oriented and the second being results-oriented.
Sustainability Reporting
This type of reporting has a broader focus, incorporating scientific inputs. It is more like a communication tool businesses use, including metrics like energy consumption, carbon footprint, water consumption, etc. A drawback is that it cannot be used to measure performance, making it incredibly difficult to quantify the result.
Sustainability reporting is the examination of models or methodologies that encourage a company to act in the best interest of the society it serves.
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ESG Reporting
This form of reporting with a narrow or specific focus helps stakeholders assess a company's performance and risks. It is more useful for businesses and includes more metrics like human rights violations, supply chain management, climate related financial risks, climate related financial disclosures, gender equality, employee benefits, greenwashing, diversity and inclusion, and sustainable investment, among other things.
The environmental, social and governance report is a quantitative approach that measures sustainable development goals and communicates a company's progress in ESG and financial performance to stakeholders, enabling them to make informed decisions regarding their investments.
Corporate Social Responsibility (CSR) Report
This is another type of report which details the efforts of a company to protect the environment and society it serves. This report has taken shape from the concept that every business has a responsibility towards the environment and community. A company's CSR efforts are classified into four categories: environmental, ethical, philanthropic, and economic.
Read more: What is CSR? Corporate Social Responsibility Meaning, Types, and Benefits
Sustainability Report Content
A sustainability report predominantly includes the achievements, progress, and sustainability performance of a company in the following three aspects. Simply put, it is the summary of responsible business practices published by a company every year, similar to how it publishes its other annual reports.
Environmental Sustainability
Environmental sustainability means the choices a company makes to protect the planet’s resources. It is the move away from non-renewable sources like fossil fuels and gas to renewable sources like wind and solar. Using renewable energy is key to reducing our carbon footprint and achieving sustainable development.
Social Equity
Social sustainability is the identification and management of the business impact on employees, local communities, supply chain workers, and customers. It includes diversity and inclusion, women’s empowerment, fair labour laws, education and healthcare, community development, safe working conditions, work-life balance, etc.
Social justice is also about equal access to resources and opportunities. Developing countries have many challenges in achieving social sustainability, especially in education, poverty, and women's rights.
Economic Development
Economic sustainability or development is the process of improving a community's well-being and quality of life. This can contribute to improved standards of living, better education, more jobs, more income, and greater employment opportunities.
Types of Sustainable Reports and How to Select One
There are over 600 different sustainability reporting frameworks, standards, industry initiatives, and guidelines across the world. And, these do not operate with the same consistency, transparency, and interoperability. Since each reporting framework varies, businesses either follow the corporate sustainability reporting directive set forth by local governments or just voluntarily select one.
This is why sustainability reporting is more complex and one of the reasons discouraging many companies from disclosing their sustainability information.
Despite all these challenges, governments are working together in the process of accepting universal standards for sustainability reporting. For instance, in the European Union, countries are mulling over European sustainability reporting standards.
Till then, businesses should take into account a few factors before choosing the right sustainability reporting framework. It is very important to select one or more of the established sustainability reporting frameworks rather than attempting to do everything at once. This strategy helps an organisation set goals and priorities, measure performance and progress, and anticipate and manage climate related risks.
Before choosing a framework, keep in mind whether that global reporting initiative aligns with your sustainable business practices, is widely used, and provides appropriate Key Performance Indicator (KPI) and measurement guidance.
Some of the top sustainability reporting standards are the following:
Task Force on Climate-Related Financial Disclosures (TCFD)
Carbon Disclosure Project
Global Reporting Initiative (GRI)
Sustainability Accounting Standards Board (SASB)
International Sustainability Standards Board (ISSB)
Corporate Sustainability Reporting Directive (CSRD)
ISO 26000
Carbon Trust Standard
Global Compact Self-Assessment Tool
Non Financial Reporting Directive
Check out our ESG Ratings page to learn about sector-wise company ESG scores and access to their sustainability reports.
Benefits of Sustainability Reporting
The following are the top benefits of sustainability reports; let's analyse each of them one by one:
Stakeholder Engagement
The number of people learning about sustainability and ESG is rising, particularly among millennials and Gen Z. As more and more people become aware of climate change and sustainability issues, this figure is expected to spike in the coming years, making sustainability reporting important.
Meanwhile, companies can turn the tables by embedding these factors into their business models, providing real value to their stakeholders.
Sustainability reporting informs investors and other stakeholders about an organisation's sustainability endeavours, building trust, consumer confidence, company's reputation and transparency. When stakeholders feel their goals and values align with the company's, they will engage more and support a positive change.
Inspiration and Benchmarking
Businesses reporting on their ESG progress and achievements set a precedent for others to pursue their own sustainability journeys.
Other organisations, especially small and medium enterprises (SMEs), which constitute a major part of businesses and employment worldwide, can benchmark, get inspired, and contribute tremendously in terms of reducing environmental impact and accelerating positive change.
Benchmarking compares a company's unit-wise or overall performance to that of top or high-performing companies in the same sector. This will help in understanding where to fix and what to fix and taking necessary action to fill performance gaps.
Read more: What is the Dow Jones Sustainability Index?
Decision-Making
Large companies use their sustainability report to shed light on their environmental reporting as well as social and economic aspects. This enables companies to examine their progress, ESG risks and opportunities, what they need to achieve, and where they are lagging.
Sustainability data helps a company in its decision-making, aligns goals, and directs actions of all business units towards the common objective, thereby contributing to value creation.
Employee Retention and Participation
Top-level managers have an increasingly important role in building confidence in teams and guiding them on the right path. They should be flagbearers of a particular cause, in this context, it is sustainability.
This will positively reflect on the behaviour of their teams, build their morale, and help retain them. As already mentioned, millennials and Gen Z want to work with a company whose goals and objectives align with those of theirs. They feel a sense of pride while working for an institution that supports their cause, and, at the same time, have an aversion towards hypocrisy.
When an institution lets its employees participate and contribute to sustainability reporting, they will be more informed about and aware of sustainable practices, which helps in the delegation of this concept and allows everyone to collaborate for the common cause.
Consumers and Trust
Today's consumers want to support mission-driven organisations that change the world for the better. Stakeholder demands are changing, and they expect brands to disclose information regarding financial statements, including publishing C-suite earnings, environmental performance, reporting process, supply value chains and management, diversity, equity, and inclusion (DEI), etc.
At a time when consumer preferences are changing, companies can take this opportunity as a competitive advantage and effectively communicate what they are up to in their sustainability reports, thereby building trust with ethics-driven consumers.
Compliance and Long Term Management Strategy
Governments and policymakers are introducing new regulations after regulations in line with the Paris Agreement to meet climate goals. While this is happening, non-compliance can impact businesses, invoke fines and penalties, and lead to a blow in stakeholder expectations and trust.
Complying with these rules will increase company performance and risk management and create an impression on potential investors. Through sustainability reporting, organisations can set goals, decide whether to meet minimum compliance requirements or set more targets, and collect and monitor data over time to reach them.
Providing Relevant Information
Producing sustainability reporting has external benefits, too. External stakeholders, particularly governments and ESG third-party rating organisations, often look for ESG and environmental data updates to help investors make better decisions. Reliable and trustworthy sustainability-related information is crucial for decision making.
When companies are honest about their sustainability efforts by reflecting them through sustainability reports, they enable themselves to work for the betterment and satisfaction of all types of stakeholders.
Challenges in Sustainability Reports
The following are two common challenges companies face while reporting on sustainability:
Data Collection
Accurate data is essential to providing value to investors. Collecting and curating information from various sources within and outside your organisation is quite a challenge. If important guidance and instructions are not provided on what needs to be done and by what time and date, it will lead to a delay in the data collection process.
Communication plays an integral part in getting relevant data at the right time. Managers at all levels should communicate properly and clearly among their teams to avoid confusion and delay and provide them with the necessary resources to finish their tasks.
Time-Consuming
Sustainability reporting is a time-consuming process, and access to relevant, up-to-date information is limited. Employees often struggle with bandwidth and many times spend a lot of time searching for the right data or information on the internet and elsewhere. That is why businesses like yours, involved in data collection, need a platform like ours, to help speed up the process and meet sustainability reporting deadlines.
We offer sustainability and ESG ratings for over 1,000 companies across various sectors, along with ESG reports, news, data providers, events, and courses.
Summing Up
Sustainable report should reflect your genuine sustainability journey. It serves as evidence of your sustainability efforts and opens the door to various opportunities.
Gone are the days when businesses viewed it as a burden. Now, with environmental and climate-related issues on the rise, reversing the situation to your advantage while showing authenticity and transparency in your operations makes sustainability reports vital.
Sustainability reporting cannot be done overnight; it requires dedication, collaboration, teamwork, and, more importantly, a sense of responsibility and connection to planet Earth.
Frequently Asked Questions (FAQs)
What is a sustainability report?
It is a type of company report that discloses non-financial information about a company's activities. It provides stakeholders, including investors and regulators, with information related to how the company manages sustainability risks and opportunities.
Is sustainability reporting mandatory?
It is not mandatory as of now. However, in certain regions—for instance, in the European Union (EU)—as people are increasingly learning about ESG and sustainability, some companies, particularly those listed on stock exchanges, are making it compulsory. It might become mandatory in the future, as ESG regulations continue to evolve globally.
Is sustainability reporting the same as ESG reporting?
The term sustainability reporting is used synonymously with ESG. But they are different. The latter evaluates a company's performance against ESG metrics, while the former looks more broadly at the overall business model and methodologies. It can help in the preparation of ESG report and add value to ESG markets.
What are the 7 principles of sustainability reporting?
The 7 principles of sustainability reporting are materiality, stakeholder inclusiveness, accuracy, clarity, comparability, timeliness, and reliability. They help build trust with stakeholders, as well as increase compliance, accountability, and transparency.
What should be included in a sustainability report?
The content of a sustainability report depends on the sustainability goals of a company. However, an ideal sustainability report includes all information related to the environmental, social, and economic commitment of a business.
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