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Abstract 20%
Explanation of the topic 20%
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Essay Title:

Sustainability Reporting

Authors:
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Abstract

Sustainability reporting has been gaining importance as a tool that businesses

can use to demonstrate accountability to their stakeholders. It helps companies to
communicate their impact and performance, either negative or positive, in ESG
(environmental, social, governance) matters. Businesses are now recognising their
interdependence and the need to redefine what success in the workplace means,
forming organisations that serve both society and shareholders. This has become a
significant source of change in today's society's economic and business life.
Sustainability reporting has considerable capital market advantages and changes a
company's social and environmental effect based on pertinent information from
accounting, finance, management, and economics.

Introduction
The communication and disclosure of ESG goals is sustainability reporting.
Public, private, small, and big businesses report yearly sustainability performance. The
reports often include information on the company's economic, environmental, social,
and ethical performance, its carbon footprint or other environmental effects, community
investment, employee happiness, and other factors. Businesses discuss their
performance and a wide range of sustainability issues through sustainability reporting. It
also includes social, environmental, and governance elements. Concerns like climate
change, human rights, and social equality are increasingly becoming important to
workers and millennials. Most people are likelier to work for an organisation with strict
environmental rules. The company attracts more qualified individuals by releasing
sustainability reports and building a reputation as a socially and ecologically responsible
organisation. There is a chance to energise the workforce and inspire and engage. On
the other hand, it becomes more attractive to investors, and Finance executives are
taking action and demanding that the businesses they engage in follow suit. For
instance, the most significant asset manager in the world, BlackRock, has indicated that
it will demand businesses to declare following the Sustainability Accounting Standards
Board (SASB) and the Task Force on Climate-Related Financial Disclosures.
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Sustainability reporting: Drivers and Stakeholders

Customers and businesses increasingly utilise their purchasing power to support
businesses and goods that share their beliefs. It has also been evaluated that
sustainability reporting influences the willingness of customers to pay. Years of study
have demonstrated that the green premium for most customers decreases dramatically.
However, according to a study, 47% of American consumers would pay more for a
sustainable product, with 35% being prepared to spend an additional 25% (CGS, 2019).
The investors, employees, and customers are all stakeholders of sustainability
reporting, and the reports created by companies help gain the trust of stakeholders.

Employees make up a significant segment of the audience for sustainability

reporting. They are the primary recipients of the reports since doing so helps to maintain
employee loyalty to the business. As a result, this positively impacts every employee,
which might eventually improve corporate performance. A review presented various
drivers of sustainability reporting, including ownership structure, media visibility, and
firm size, as the most important ones in the disclosure of sustainability reports. While
the existence of audit or sustainability committees is the only thing that corporate
governance appears to have an impact on.

Characteristics of sustainability reports

Sustainability tracking and reporting are anticipated increasingly regularly and for
a good cause, regardless of a company's size or range of activities. Risk is reduced,
and firms have an opportunity to demonstrate their commitment to stakeholders like
investors by incorporating sustainability into regular business operations and yearly
reporting. Corporate sustainability reports differ significantly from one another. Some
studies are merely glossy, fact-free marketing pamphlets. Others are so data-driven that
reading them demands a big cup of coffee to stave off the urge to fall asleep out of
boredom. The most acceptable reports mix easily readable text and in-depth, valid data
presented attractively. It is both science and art.
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Steps of creating a good sustainability reporting

Source: (Hatch & Fishman, 2020)

A sustainability report needs to have the quality, which is gained through the five
elements, including transparency, stakeholder engagement, support from networks,
progress and benchmarking, and compelling visuals. Transparency is achieved by
offering reliable, factual evidence to support the company’s claims. Presenting
quantifiable goals and tracking progress in line with a framework is crucial. The data in a
report should illustrate a starting point and any advancement made, regardless of
whether it was made in the direction of a goal or fell short of the purpose. The
information is given more legitimacy when it is reported following a framework, such as
the SASB, Global Reporting Index (GPI), or Task Force on Climate-related Financial
Disclosures (TCFD), among others. However, these standards encompass themes that
apply to any business and may be adapted to the degree of information a firm can or
desires to divulge at that time. The focus areas of sustainability reporting frameworks
differ depending on which one is applied. To emphasise critical bits of information,
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visuals like charts, infographics, and graphs should be used with purpose. Hence,
maintaining all such characteristics in reports enhances their quality and benefits.

Corporate sustainability reporting of companies

When preparing the sustainability report, it is possible to consider the preceding
reporting period. When people are equipped with correct data and insights, they can
achieve their goals and make more reliable plans. Secondly, it ensures regulatory
compliance. Non-compliance can result in monetary penalties and harm to the
company's standing with customers. Sustainability reporting is the best way to ensure
compliance with the myriad of laws and regulations that are constantly changing.
Borkowski et al. (2010) presented a case study on the sustainability reporting of
Johnson & Johnson. Even a cursory glance through any of Johnson & Johnson's
sustainability reports finds frequent mentions of the Credo and the company's
obligations to its four categories of stakeholders. The picture presents a timeline of the
development of the information in Johnson & Johnson's sustainability reports. A third
party does not formally assure the sustainability reports produced by Johnson &
Johnson. The Johnson & Johnson sustainability reporting procedure does not involve
management accountants very much. The image below shows the Johnson & Johnson
sustainability reports from 1993 to 2007.

A genuine need for knowledge led the organisation to begin sustainability

reporting. Some managers may not support or comprehend the need for more
openness since they are not directly involved in sustainability reporting concerns.
Simply put, reporting on sustainability becomes yet another task. Johnson & Johnson
does not use TBL as a tool to achieve its sustainability objectives. Although the 2007
report has many aspects that would be included in a TBL report, Johnson & Johnson
does not create a TBL and does not utilise such nomenclature. The image below shows
the characteristics of the sustainability reports of Johnson & Johnson.

Furthermore, another article analysed the sustainability reporting of an Agri-Food

giant (Cargill) (Jindřichovská et al., 2020). Analysis of Cargill's unique approach to
sustainability reporting, a firm with a 150-year history and global operations. The
analysis utilised reports from the years 2014 and 2018. The study's results supported
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the idea that the leading agri-food corporations have responded to social environment
difficulties by altering their behaviour to keep up with the present stage of social
development. The company's sustainability reporting is thorough and sufficiently covers
all facets of its operations. This approach continued to evolve despite not consistently
being recognised by Cargill's stakeholders. All reports scored higher for analytical
thinking than authenticity, which shows that they are further removed from disclosure,
but authenticity was low across the board. This report covers many essential topics,
such as Cargill's role in protecting the environment, combating child labour, and
promoting environmentally friendly practices. Cargill boosted its sustainability reporting
between 2014 and 2018 (Jindřichovská et al., 2020). The recent EP ruling, which
regulates the reporting of non-financial diversity information by some large firms and
groups, is one of the explanations, in addition to shifting industry practices.

Zizka et al. (2021) presented an explanation of the sustainability reporting of the

Dublin Report. The study assessed the quantity of information present in the
sustainability reports of the airport. It was found that there is no communication on SDG
8 and SDG 5 in the reports. The sustainability report of the airport presented the
explanation of SD 7, 9, 10, 12, and 13. The additional noticeable conclusion is the
virtually complete parity between the number of comments made about the environment
and the economy (Zizka et al., 2021). The outcome is seen as illustrative of the
convergence of the sustainability pillars, which serves as preliminary proof in reporting
progress towards sustainability. Another article sought to identify the critical elements
affecting the production and distribution of sustainability reports by companies engaged
in environmentally fragile sectors using legitimacy theory (Cunha & Moneva, 2018). A
case study was developed using structured interviews with managers of sustainability
departments, or their counterparts, from the chemical and oil sectors in Brazil and
Spain. The results show that the companies surveyed for the study viewed the
sustainability report as a tool for ensuring they were being held responsible to their
stakeholders. The reliability and openness of their business practices are crucial
elements influencing their publication.
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Massa et al. (2015) provided insight into the processes and results of creating a
sustainability report at a small to medium firm. The organisation that was taken as a
case study was Mike. The sustainability reporting aspects of the company were
discussed. According to the authors, the organisation's initial goal of reporting on its
sustainability later went beyond disclosure to include using the information to improve
its sustainable development approach and awareness. The elements taken into account
include long-term planning, support strategy-making based on the concept of
sustainable development and establishing and enhancing its reputation. The image
below shows the limits, consequences, and mechanisms at each stage of the adoption
of sustainability reporting.

The article presented the development of sustainability reporting through an AR

lens. The three stages include the implementation process and consequences. The fact
that there was no consensus over the metrics to disclose alarmed some managers
when the sustainability reporting process was being developed. In this case, the
organisation's owner was crucial since he pushed for and facilitated the improvements.
The standard was determined to be the GRI G3.1 template Level C, which includes a
minimum of 10 metrics. Following the GRI conference and reaching an understanding of
the sustainability reporting planning process, the two managers decided to screen all
G3.1 framework indicators. Early in 2014, the third stage of the creation of the
sustainability reporting process began, and it is still underway today. It is distinguished
by the process of sustainability being improved and integrated. For instance, managers
must gradually increase disclosures at this point to include the goals that the study has
revealed. Additionally, the number of metrics will rise. Finally, managers must more
thoroughly integrate the organisation's strategy while considering the organisation's
sustainable growth.

Harymawan et al. (2020) discussed the trend and pattern of companies'

sustainability reports in the construction industry from 2010 to 2018, listed on the
Indonesian Stock Exchange. Sustainability reports of 152 companies were analysed.
The positive and negative words in the reports were examined. This research aids in
understanding business plans and concerns regarding economic, social, and
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environmental issues for those who utilise sustainability reports, such as communities,
governments, and investors. It is reasonable that reporting on sustainable performance
may have fallen off many boards' agendas, considering today's challenging trading
conditions. But it may make a difference, especially by aiding in developing and
maintaining trust among several parties. Businesses do well when it comes to disclosing
their sustainability plans. However, reporting risks and opportunities, materiality, and
performance remains difficult. The article suggested an integrated reporting model for
taking reporting forward.

Various steps that need to be incorporated while creating a sustainability report

have been presented. Firstly, it is essential to describe the sustainability strategy over
the long, medium, and short term. Its integration into the core strategy of the company
has to be presented. For example, as shown below in the NHS Business Services
Authority report. Secondly, the KPIs that are directly related to the sustainability strategy
need to be identified. The company's performance needs to be set and reviewed gains
challenging targets (PwC, 2022). Thirdly, the information in the report needs to be
presented in an orderly and balanced fashion, as shown below in the report of Marks &
Spencer Plc. Hence, the article provided complete information on the creation of
sustainability reports.

Scholars from developed and developing economies have primarily recognised

the significance of firms producing sustainability reporting to foster accountability and
transparency. According to the currently available research, businesses that offer
sustainability reporting benefit from a sustained competitive advantage, enhance
employee engagement, and boost profitability, credibility, and cost savings (Ikpor et al.,
2022). Reporting on sustainability may also help the organisation achieve other goals,
such as enhancing reputation, which may boost competitive advantage, and profit
margins, draw investors, and expand sales opportunities.

As enterprises all around the globe utilise sustainability reporting increasingly

successfully, standards have emerged that allow a wide range of stakeholders to
assess and compare sustainability reports. The framework that is utilised the most is the
Global Reporting Initiative Standards. It is related to corporate social responsibility
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(CSR) reporting and other non-financial reporting techniques, such as triple-bottom-line

reporting. An article investigated how companies with high and low institutional
ownership differ in their profitability regarding sustainability reporting. Where there is a
lack of significant institutional ownership, it may be pretty helpful as a replacement in
boosting corporate profitability. According to the data, enterprises with less institutional
ownership exhibit notable increases in financial performance the year after they
participate in sustainability reporting.

Effects of sustainability reports on financial performance

Sustainability reporting can enhance the transparency of firm activity. It has been
possible due to the external accountability auditors who overview the reports of the
company. After it, they give their view on it, which holds importance in society. CSR has
increasingly impacted the internal activities of firms. Due to these reports, people have
been able to see the correct information through the reporters and readers, which
eventually becomes a reason for assurance of quality as the reports are accessible to
all people in society, so the company must be aware of the quality of their products.
CSR has become a source of accountability in society. It is required to submit the
report; because of this, the business community has to change many things as they are
public now. How a company is governed should influence its profitability since corporate
governance is crucial to its overall health. It has been discovered that well-governed
companies with fewer agency issues participate more in CSR. Their findings indicate a
correlation between CSR and value that is positive, indicating that CSR activities may
be a way to increase investor returns.

Additionally, by sharing information about their non-financial operations,

businesses have the chance to participate actively in discovering methods to improve
their firm's accountability, openness, and reputation. Businesses are increasingly
reporting on matters other than their financial performance, and one of them is the
profile of the economy, society, and environment. After disclosure, companies that
reported their pollution management costs had a brief but significant boost in stock
performance. Most importantly, as the companies are being honest to the public, the
checks and balances through the reports have become a significant reason for their
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increased sales. The impact of CSR is that the report is beneficial to not only society but
the companies too.

Relevancy of sustainability reporting to all businesses

Businesses are paying more and more attention to a company's capacity to
influence social and environmental change for the better. ESG elements span a wide
variety of topics, from sourcing practices and employee remuneration to organisational
and corporate culture. Businesses may give stakeholders insight into the natural effect
of their efforts by engaging in sustainability reporting. Furthermore, compared to
previous generations, employees now hold their companies to a considerably higher
standard, placing great weight on things like working conditions, staff morale, health
programs, and corporate culture. These problems are addressed by sustainability
reporting, which also offers information on a company's diversity, retention rates, and
comparable pay. This is crucial for retaining and attracting talent as well as for drawing
in clients. Employee happiness increases sales by 37%, productivity by 31%, and job
accuracy by 19%, according to the Harvard Business Review and ten-year research
"The Happiness Advantage. Financial performance is correlated with employee
happiness. Virtually all of the Fortune Global 500 corporations report on sustainability
using a recognised methodology. The Global Reporting Initiative standards, which offer
openness to customers, investors, and other stakeholders, are used by about 80% of
the top corporations in the world. While publicly traded firms have been reporting on
sustainability for decades, smaller businesses without the funding to engage in research
and reporting programs have historically had less access to it.

Issues with sustainability reporting

Even though using sustainability reports and implementing sustainable
development have many benefits, standardisation still needs attention. Three factors
control the power of a standard. The first element design, which is also a collection of
established customs. The second is legitimacy, which depends on several different
parties. The third one is monitoring, which deals with the guidelines for keeping an eye
on the actions. However, the first component is the only one that is inconsistent, and
without the first component, the practice cannot advance to the other components.
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Certain restrictions exist on how social obligations connected to sustainability should be

measured, making them further harder to quantify. For instance, US-based
environmental organisations extensively scrutinise and assess US businesses, yet this
pressure encourages US businesses to focus on local sustainability rather than global
sustainability. The disparity in enforcement for sustainability reporting is the second
significant problem. An organisation's participation in sustainability reporting is optional
or voluntary. Hence these organisations are exempt from formal third-party attestation
procedures. Additionally, firms that practice sustainability may introduce bias through
selective disclosure. Hence, it should also be avoided revealing bad and negative news.

Conclusion
To conclude, stakeholders' requirements for financial and non-financial
information for investments and other decision-making have grown. While the primary
goals of sustainability reporting are maximising shareholder value, maintaining
organisational legitimacy, and managing threats to corporate reputations, this is driven
by corporate/internal or broad contextual considerations. Good performance on a
company's material challenges is both benefited by and enabled by sustainability
reporting. Reporting is a tool that, when used as part of a company's strategy for
recognising and resolving the sustainability challenges that affect its business and
stakeholders, can foster a sense of purpose and unity inside the organisation and
encourage change within and between industries.
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References
Borkowski, S., Welsh, M. J., & Wentzel, K. (2010). Johnson & Johnson: A Case Study
on Sustainability Reporting. In SAGE Business Cases. Institute of Management
Accountants.

CGS. (2022). Sustainability Reporting in 2020: Drivers and Stakeholders. WatchWire.

Retrieved 16 October 2022, from https://watchwire.ai/sustainability-reporting-in-
2020-drivers-and-stakeholders/.

Cunha, D. R., & Moneva, J. M. (2018). The elaboration process of the sustainability
report: A case study. Revista Brasileira de Gestão de Negócios, 20, 533-549.

Harymawan, I., Soeprajitno, N., Widya, R. R., Ratri, M. C., & Paramitasari, Y. I. (2020).
TEXT MINING ON SUSTAINABILITY REPORTING: A CASE STUDY. Journal of
Security & Sustainability Issues, 9.

Hatch, N. and Fishman, A. (2020) Five steps to sustainability reporting in an evolving

landscape: Blog, BSR. Available at: https://www.bsr.org/en/our-insights/blog-
view/five-steps-to-sustainability-reporting-in-an-evolving-landscape (Accessed:
October 20, 2022).

Jindřichovská, I., Kubíčková, D., & Mocanu, M. (2020). Case study analysis of
sustainability reporting of an agri-food giant. Sustainability, 12(11), 4491.

Massa, L., Farneti, F., & Scappini, B. (2015). Developing a sustainability report in a
small to medium enterprise: process and consequences. Meditari Accountancy
Research.

Zizka, L., McGunagle, D., & Clark, P. (2021). Sustainability Reporting on Dublin Airport:
A Case Study.