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Incentives Of Sustainability Reporting

During the last decade, the reporting of non-financial information has become widespread. While only 44 firms followed the Global Reporting Initiative‘s (GRI) guidelines to report sustainability information in 2000, the number grew to 1,973 by 2010. National governments and stock exchanges have promoted sustainability reporting by adopting laws and regulations that specifically mandate this form of disclosure.

There are many underlying benefits a company can derive from Sustainability Reporting other than mere Regulatory Compliance. A full 95% of the Global 250 issue sustainability reports. Firms continuously seek new ways to improve performance, protect reputational assets, and win shareholder and stakeholder trust. In a study conducted by the Boston College Center for Corporate Citizenship and Ernst & Young entitled “Value of Sustainability Reporting”, more than 50% of companies said they believe sustainability reporting leads to higher cash flows and improved firm reputation.

GRI

The GRI currently provides the global standard for comparability. As part of the aforementioned study, two-thirds of survey respondents indicated that their organization employs the GRI or a GRI-referenced framework in the preparation of their sustainability report.

Though issuing a sustainability report in accordance with the GRI Framework or another standard requires a lot of work. Value of Sustainability Reporting finds strong evidence that transparency gives companies a number of financial and social advantages that outweigh its costs.

Challenges to Sustainability Reporting

External parties such as Customers, Investors and NGOs are pushing for information about companies’ sustainability performance and it has become a real challenge for companies to respond efficiently and effectively. For multinational companies, it is also a challenge to report information that is based on consistent data from across the organization. The 2 major challenges of initiating non-financial reporting are – 

  1. Availability of data
  2. Accuracy or completeness of data

For large enterprises, sustainability may not be an entirely internal activity. Some organizations need to work with subsidiaries and suppliers, which may not be large enough to support this type of robust reporting or are yet to adopt the practice of sustainability reporting.

Motivation for Reporting

Focusing on sustainability reporting helps organizations manage their social and environmental impacts thus improving operating efficiency and natural resource stewardship. It is a vital component in visualizing the organizational posture by providing – 

  1. Higher Standards
  2. Greater Employee engagement
  3. Increased Cash flow from investors
  4. Increased Efficiency / Decreased Waste

Sustainability reporting requires companies to gather information about processes and their impacts for the first time. This new data, in addition to creating greater transparency regarding performance, can provide firms with the knowledge necessary to reduce the consumption of natural resources and increase efficiency by improving operational performance.

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