5 Business Benefits of Sustainability Reporting and Why It's Important?
Let’s start with a little activity: can you count the number of times you came across the word ‘sustainable’ in the past week? It could be anywhere- when reading a post on LinkedIn, while shopping over the weekend, while discussing a report at work. We bet it's more than you can count on your fingertips.
While the word ‘sustainability’ is increasingly over-used, but at the same time has a growing need to be used and embodied constantly. And while everyday consumers are becoming more conscious of their products’ sustainability factor, it really comes to organizations to adapt, embody, and exhibit their drive to be more sustainable. An important step in this process is reporting your company’s sustainability performance transparently and accurately on what it considers to be its ‘sustainability goals’, how aligned are your activities to these goals, and how you will be working towards it. Complicated? Yes. Useful? Also yes. And so we’re here to break it down for you — benefits of sustainability reporting for companies.
Let’s start with answering all related questions in your mind:
- What exactly is sustainability reporting?
- What are the benefits of sustainability reporting?
- What are the challenges of sustainability reporting?
What exactly is sustainability reporting?
To put it simply, sustainability reporting refers to the disclosing of non-financial indicators related to an organization’s environmental, social, economic and governance indicators, and the results of which can be tied to financial KPIs. These indicators may include GHG performance, due diligence policy etc.
Sustainability reporting has both absolute and relative indicators, for eg: total units of waste produced in a year v/s waste produced per tonne product.
There are numerous advantages of sustainability reporting for businesses of all kinds, as we discuss further, the biggest bottomline is that sustainability reports help companies build the confidence of both their consumers and their corporate relations, like investors, board of directors, management etc. From the European Union’s perspective, it is paving the way to make organizations more transparent, responsible and avoid “greenwashing”.
There are some main components (and a lot of abbreviations!) that are central to sustainability reporting: SFDR, NFRD, CSRD, ESG, PAI, and the EU Taxonomy including the EU Social Taxonomy.
To explain them briefly:
- NRFD: Non-Financial Reporting Directive: The NFRD lays down rules for reporting of non financial and diversity information by large public interest companies with more than 500 employees. Across the EU, these include listed companies, banks, insurance companies and companies designated by national authorities as public-interest entities.
- SFDR: Sustainable Finance Disclosure Regulation: This regulation aims to increase the accountability and transparency amongst financial institutions like banks, investment funds, asset managers- institutions that make a financial product available.
- CSRD: Corporate Sustainable Reporting Directive: Under this directive, the EU will require large organizations to regularly publish reports on the impact that their activities have, socially and environmentally. Read our blog here.
- ESG: Environmental, Social & Governance: A set of non-financial factors used by investors for evaluating material risks and growth opportunities for their investments. These disclosures are often a part of the sustainability report to stakeholders that is generated in recurring periods of time.
- PAI: Principal Adverse Impacts: Within the SFDR, companies are required to publish information on PAI indicators in relation to the company and its value chain, including strategy, targets, and the role of its board. This includes past and future data, both qualitatively and quantitatively. At the entity level, SFDR requires financial market participants to report on PAIs of their investments of certain environmental and sustainability factors. For investment firms over 500 employees, it is mandatory to report at the entity level. PAI disclosures may also be required on some level for Article 8 and Article 9 funds.
- EU Taxonomy: The EU taxonomy is a classification system that sets out a list of environmentally sustainable economic activities. The taxonomy forms part of the EU’s plan to scale up sustainable investment and implement the European green deal. Read more about it in this EU Taxonomy summary.
Now, coming back to our big question.
What are the benefits of sustainability reporting for companies?
The exact role that sustainability reporting plays for your business can be different depending on factors like company size, business vertical, activities undertaken, KPIs, turnovers, and many others. But the bottom line remains: there are some costs and benefits of sustainability reporting for your business that will remain consistent.
Here are 5 business benefits of sustainability reporting:
1. Avoid greenwashing.
Clients, employees, stakeholders, media, competitors alike - everyone is wary of greenwashing, as they should be. With increasing awareness and conscious steps being taken around the world, more and more people are seeing through the facade of greenwashing. There is an increased interest from all sides in associating with businesses that are publicly declaring their work towards sustainability efforts and practicing transparent goal setting, with a direct output on how reliable your business is perceived. This was only one of the sustainability reporting benefits.
2. Prioritise, focus and evaluate
What's working and what is not. It is important to evaluate all your current initiatives and activities, and align them to your KPIs. Once that is done, a view of what is working and what can be improved is presented with a clear way forward, with better resource and capital management both in the short and the long term. Reporting periodically will also help become ready for climate related risks, like preparing for legislative changes, future proofing, and adapting your business to climate risk.
3. Commitment to transparency
Commitment to transparency is a big benefit of sustainability reporting to consumers. Transparency is a highly sought after currency for any organization in today’s world, from the point of view of acquiring new clients, retaining old ones, and maintaining stakeholder confidence and trust. A commitment to be transparent with your propositions as well as look into areas of improvement can help build credibility, both of which are extremely important for any successful business venture.
4. Ensuring compliance
Ensuring compliance of your business’ activities. Having a current and up-to-date overview can help ensure that your organization is staying compliant with sustainability regulations and directives that are taking shape in a fast paced way. Non-compliance can lead to an economic loss for the business, a bad reputation in the market with both clients and stakeholders, and in certain cases may even lead to disinvestment of funds and resources.
5. Sustainability reporting to stakeholders.
The importance of your relationship with your business’ stakeholders cannot be understated and thus there are critical benefits of sustainability reporting to stakeholders. Setting up realistic goals and having a clear strategy in place to achieve alignment, along with a dedication to ensure that work is progressing in the right direction, can really help instate a good confidence in all stakeholders and decision makers. The added benefit of seeing the value in investing in a sustainable business with a work path to ensure the said sustainability, can make your organization a good prospect for future investment.
But of course, the external benefits of sustainability reporting to consumers and investors come along with some challenges in the reporting process itself.
Challenges with sustainability reporting
1. The ecosystem of sustainability reporting is constantly changing. There are developments in each and every component of sustainability reporting on a regular basis. This makes it extremely difficult and laborious to stay up to date with each change with all its depth and understanding.
2. Since sustainability reporting spans over a number of activities, businesses, and indicators, it requires a large amount of very meticulous data collection for accuracy. This is a labor intensive task, and requires dedicated resources both in terms of human and financial capital. This is also an ongoing task and thus requires continuous investment, in turn needing a lot of planning and management.
3. The accuracy of information collected for creating a sustainability report is of utmost importance. The amount of data that has to be collected for accurate reporting is usually spread over a long period of time and consists of vast amounts of information. This, of course, makes a lot of room for error, as there is a lot of manual extraction of data involved from multiple sources which opens it up to mistakes.
Consider Celsia your trusted partner
Overwhelming, isn’t it? We agree, and are here to help you through your journey of sustainability reporting. At Celsia, our aim is to help make sustainability assessment fast, simple, and effective with our EU taxonomy reporting solution. Regardless of the size of your organization, you can start your sustainability reporting journey now.
Celsia offers a high tech platform to make sustainability assessments for commercial organizations, investment firms, and banks. And this, without involving any third party company to evaluate!
Drop us a line at email@example.com and start your sustainability reporting journey.