Resources on Sustainability Reporting and Communications

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SUSTAINABILITY REPORTING AND COMMUNICATIONS

In order to know whether or not the corporate social responsibility (CSR) initiative and its related commitments are actually improving the company’s performance, it is necessary to have in place procedures for reporting and verification, each of which are important tools for measuring change and communicating those changes to the company’s stakeholders. Sustainability reporting should be broadly construed and has been described as communicating with stakeholders about a firm’s economic, environmental and social management and performance. Verification, often referred to as “assurance”, is a related concept that involves measurement made through on-site inspections and reviews of management systems to determine levels of conformity to particular criteria set out in sustainability codes and standards to which the company may have agreed to adhere.

The scope and sophistication of CSR reporting has come a long way since the idea first came up in the mid-1990s, when only a handful of companies reported on social responsibility issues and activities in addition to their regular financial reports. Today almost all of the largest global companies produce reports on their environmental policies and activities, often providing interested parties with a whole range of documents that can be accessed in a separate yet highly visible section of the company website. Other international standards, such as the UN Global Compact, explicitly incorporate reporting as a fundamental requirement for demonstrating a commitment to sustainability. Sustainability reporting is tightly connected with efforts to achieve global sustainability goals and targets such as the Sustainable Development Goals (SDGs) in the 2030 Agenda for Sustainable Development and the aspirations in other international agreements such as the Paris Agreement on climate change action because without reporting it is impossible to measure progress that has been made and what still needs to be done. In fact, the SDGs include a specific goal (Goal 12.6) to encourage companies to integrate sustainability information into their reporting cycles.

While certain CSR and corporate sustainability disclosures have now become minimum legal requirements in some jurisdictions, in general such disclosures are still a voluntary matter and companies have some leeway as to the scope of their disclosures and how they are presented to investors and other stakeholders. Some companies continue to limit their disclosures to those are specifically required by regulators; however, most companies have realized that they need to pay attention to the issues raised by institutional investors and other key stakeholders and make sure that they are covered in the disclosure program. At the other extreme, there are companies that have embraced sustainability as integral to their brands and have elected to demonstrate their commitment by preparing and disseminating additional disclosures that illustrate how they have woven sustainability into their long-term strategies and day-to-day operational activities.

The scope of the company’s reporting and verification efforts will depend on various factors including the size of the company, the stage of development and focus of its CSR commitments, legal requirements, the financial and human resources available for investment in those activities and the degree to which companies want and are able to integrate sustainability indicators into their traditional reporting of financial results. When reporting is mandatory the applicable disclosure standards and guidelines promulgated by regulatory bodies such as the Securities and Exchange Commission should be followed; however, when reporting is voluntary companies and their professional advisors must consider the standards and expectations of the audience, practices by other companies engaged in comparable business activities and the legal risks of disclosing “too much”. When engaging in voluntary reporting, companies can turn to a variety of sustainability reporting frameworks developed by multi-stakeholder expert groups such as the Global Reporting Initiative, the International Integrated Reporting Council or the Sustainability Accounting Standards Board. Reporting standards are also emerging for specific topics within the broader universe of CSR and stakeholder engagement, such as the framework for reporting on corporate community investment promoted by the London Benchmarking Group. Companies have taken different approaches to formatting and presenting the information in their sustainability reports and CSR communications strategies have evolved beyond reports to include certifications and rating systems and other means of describing and assessing organizational performance with respect to CSR.

One basic reason for sustainability reporting and verification is to make sure that the CSR initiative is properly managed and that persons involved understand they will be accountable for their actions. CSR reporting also provides companies with an opportunity to communicate their CSR efforts to the company’s stakeholders, discuss certain successes and challenges with respect to the company on a wide array of CSR issues, demonstrate transparency which can ultimately help to improve the company’s reputation with certain stakeholders, provide existing and potential investors with CSR information to assist in analyzing investment decisions and improve the effectiveness of ongoing shareholder relations campaigns such that activist shareholders are deterred from submitting CSR-related shareholder proposals or pursuing or threatening litigation. However, in order to achieve the greatest benefits from reporting and verification companies need to carry out those activities in a rigorous and professional manner using tools and standards that are widely recognized and accepted among those interested in the results. In addition, regardless of the particular standard applied to a specific sustainability-related report, companies must ensure that disclosures are accurate and complete and this means creating an effective sustainability reporting and communication management system with disclosure controls and procedures, internal education and training, external review of proposed disclosures by legal counsel and other professional advisors and continuous assessment to improve the reporting process.