Companies are facing pressure to become more open about how they do business. With income inequality, governance failures and the mismanagement of threatening both society and the environment, .
Authors
Douglas A. Stuart
Assistant Teaching Professor of Accounting, Gustavson School of Business, University of Victoria
Irene Marie Herremans
Professor, Haskayne School of Business and School of Public Policy, University of Calgary
Many firms now report how they are doing along economic, environmental and social lines . These reports give stakeholders, such as investors, customers and regulators, a comprehensive view of how businesses create value over time.
Companies may share . Benchmarks differ depending on a company’s industry and location.
Recent events, such as , and the ongoing , all illustrate the importance of managing the risks shown in these reports.
Some see sustainability reporting as helpful in That said, not everyone is convinced they are useful. Only .
Regulated reporting
Many companies are required to produce sustainability reports. For example, the under the .
Similarly, the and have both passed greenhouse gas emissions reporting requirements.
In the European Union, comprehensive reporting on many aspects of sustainability is mandated. Canadian companies may also be affected by these regulations if they do business in European countries.
While the scope of sustainability reporting requirements is growing around the world, some companies choose to report voluntarily, using frameworks and .
Improving operations
Considerable resources have been invested by governments, standard setters and the . Whether or not it causes business practices to become more environmentally friendly and socially conscious remains a matter of debate.
Some experts suggest including non-financial sustainability data in external reports . This can help firms make progress toward the United Nations Sustainable Development Goals while supporting their profit-making activities.
For example, by reducing greenhouse gas emissions, companies are likely to produce less waste, .
But if companies release sustainability reports just to meet the needs of external stakeholders, including regulators, it’s unlikely to motivate internal changes to business operations. Through this lens, .
If companies use the reporting process to determine what needs improvement internally and compare themselves to their peers, then sustainability performance is more likely to improve.
Emmanuel Faber, Chair of the International Sustainability Standards Board, :
“Just as an accounting standard cannot get a company to increase its profit by 10 per cent, a sustainability disclosure standard … cannot get it to reduce its emissions by 10 per cent.”
Faber remarks that there must be political will for business practices to change. The recent decision by United Kingdom-based energy company BP to illustrates the uncertainty about whether many companies have this political will.
The state of play
There’s a saying in business: .” The idea is that by collecting, analyzing and reporting sustainability information relevant to their business, companies will
But even if this is so, ? There is still a lot to explore in this field of scholarship.
So, where does this leave us? If you are an investor, it’s likely good news for you. More information can help you make better investment decisions by
From a capital markets perspective, it is difficult for investors to shift financial resources to more sustainable firms .
On the other hand, concerns about the trustworthiness of corporate reporting could hinder efforts to direct funds toward addressing social issues. following .
to crack down on corporate greenwashing. Some companies, like because of uncertainty surrounding what is now allowed.
If you are a public policymaker, seeing a firm’s overall performance beyond its financial data can add valuable insights to regulatory debates. But whether sustainability reporting is likely to make a meaningful change largely depends on how serious a company is about making changes.
The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.
