In 2023, sustainability will still be in the headlines for corporates considering the global trends that affect the value-creation process of business. Topics such as climate change, carbon trading, human rights, employee development, diversity and inclusion will continue to make relevance when it comes to the private sector. As the list becomes bigger and bigger, the need for proper reporting and disclosure will become paramount if businesses are to benefit from their sustainability efforts. Reporting and disclosure will be a management tool to enable management to make sense of the risks and opportunities associated as a result of embedding or not embedding sustainability. Institutional investors, asset managers, lenders, credit raters and insurers are increasingly relying on companies’ ESG disclosures to make important decisions regarding the allocation of capital.
Based on the above, there is a greater need for companies to enhance the quality, comparability and usefulness of their sustainability reports and disclosures. The global trends will favour and tend to ultimately reward companies that not only successfully balance their natural, social and financial capitals but also report and disclose the same to their relevant stakeholders. Sustainability reports form a mechanism under which companies publicly communicate their environmental and social performance from risks, opportunities, and practices perspectives to their stakeholders. Sustainability reporting and disclosure have become the fastest-growing type of non-financial reporting over the last five years. More than 90% of the top 100 companies globally published their sustainability report in 2021 and the numbers continue growing even at the local stage. GRI reporting standards are the most popular framework for sustainability reporting and should be considered the go-to standard for sustainability reporting.
Environmental and social sustainability-related risks such as climate change, human rights, and changes in demographics are becoming more prominent when it comes to global rankings of business risks. Companies’ leaders need to be prepared to measure and manage environmental & social risks that have significant business implications. This will be useful in helping the organization address possible threats in supply chains, revenue streams and production processes. Reporting and disclosure will provide a platform for informing the leaders on how they are doing when it comes to the management of the risks and hence need to be invested in sustainability reporting to curb these challenges. Sustainability reporting and disclosure as a management tool helps in enhancing operational efficiencies through cost savings and cost reductions. This is due to better management of resources while at the same time minimising on waste generated. with optimisation and cost management companies become more attractive to investors who are always looking for better returns.
Recent studies indicate that stock price performances are correlated in a positive way with good sustainability disclosure practices. All these approaches contribute towards improving the financial performances of the companies which results in more value to the stakeholders, especially the shareholders. Sustainability reporting and disclosure practices tend to intensify brand building as well as customer loyalty. This is a result of the remarkable impact on the consumer’s evaluation that sustainability has when it comes to the company’s products. This enhances the purchasing intent for companies’ products which leads to an increased market share of the products or services.
Sustainability reporting and disclosure is therefore a vessel that can be used to enhance consumers’ confidence in companies’ products and services. This is even more emphasized when consumers tend to consider value beyond price and taste thus influencing their purchasing decisions. Sustainability Reporting and disclosures are a vehicle for stakeholder engagement. Businesses derive their competitiveness through the input of both internal and external stakeholders. Corporates with good relationships with their stakeholders have the tendency of reduced conflicts and increased stakeholder participation and cooperation. This enables the firm’s competitive ability in the market and a great way to achieve this is by providing value-creation progress to the stakeholders. This will be achieved through a structured sustainability reporting and disclosure structure such as stand-alone sustainability reports.
The motivation for launching corporate sustainability reporting strategies is shifting significantly from achieving compliance, risks and operational efficiencies to spurring innovation and market growth opportunities. Companies are increasingly pointing to revenue growth and business opportunities as a primary reason to embrace sustainability reporting and disclosure. Innovative approaches as a result of sustainability are leading to products and solutions that meet the needs of the customers especially those at the bottom of the pyramid. Management of organizations must shift from the prevailing metaphor of “greening”, which merely reduces the bad environmental things to a broader sustainability dimension that is aimed at sustaining the long-term value of the organization.
This will clearly mean that a sustainability strategy is key but even more important is a reporting and disclosure structure which is needed to show the progress towards the achievement of the sustainability strategic goals.
Article by Dr. Edward Mungai