Corporate activities are based on Corporate Social Responsibility (CSR), which states that companies should fulfill their social responsibilities towards all stakeholders involved in their business partners, employees, suppliers, shareholders, local communities and the planet.
The sustainability report is disclosed to widely disseminate these activities to society from an environmental, social and governance perspective.
Through sustainability reports, companies can not only explain their activities and demonstrate their commitment to social responsibility but also explain to their stakeholders the direction they aim to take in the future. These allow companies to be more transparent about the risks and opportunities they face and give stakeholders more significant insight into the company’s performance and the impact it may have on them.
In this way, companies make decisions about trust in all their stakeholders daily.
These decisions are no longer solely based on financial information but increasingly consider the risks and opportunities associated with this non-financial information, such as environmental, social and governance.
It drastically increases that both information is integrated into the decision-making processes of sustainability topics.
Sustainability reporting guidelines
As companies worldwide increasingly adopt sustainability report, many standards (guidelines) have emerged to enable a wide range of stakeholders to more effectively evaluate and compare sustainability reports.
One of the most widely adopted guidelines is the Global Reporting Initiative (GRI). It adopts a ‘Triple bottom line’ approach to guidelines, which assesses corporate activities from environmental, social and economic aspects. In particular, the requirement for the participation of various stakeholders in the decision-making process has the advantage of building trust in the company and transparency.
Corporate sustainability reporting guidelines (NFRD, CSRD)
The legal framework for sustainability reporting in Europe is based on the Non-Financial Reporting Directive (NFRD). This framework applies to organisations with more than 500 employees, both single undertaking and consolidated groups, on average during the financial year. Companies falling within the scope of the Directive must also have a balance sheet total exceeding EUR 20 million and/or a turnover exceeding EUR 40 million, where applicable, on a consolidated basis.
In April 2021, the European Parliament revised the NFRD by introducing the Corporate Sustainability Reporting Directive (CSRD), a disclosure directive on how companies operate and manage their social and environmental activities.
Within five years, it will integrate the financial and non-financial information based on this CSRD. It will be essential to integrate both perspectives in the decision-making process, as we mentioned before.
We will post this topic separately with more details shortly.
Sustainability report’s target readers
So, who exactly could be readers of the sustainability report? Companies can consider all stakeholders as readers because companies disclose non-financial information to all stakeholders, as mentioned before.
But who are all stakeholders?
While it depends on companies, for example, employees, investors & shareholders, customers, suppliers, local people etc.
Recently, investors have been focusing on this sustainability report as one of the factors in their investment decisions. The latest sustainability investments amounted to USD 35 trillion in five major markets (USD, CAD, JPY, AUD and EUR) and have increased by 15% over the past two years (2018-2020).
It means that we could say they would not invest in a company that does not publish a sustainability report.
Various types of sustainability reports
There are some types of the sustainability report.
CSR report: Corporate Sustainability Report
Sustainability reports mainly report on initiatives from the company’s perspective, but CSR reports are from society’s perspective on the company.
In other words, CSR reports determine the extent to which a company fulfils its social responsibilities.
In recent years, CSR reports have become increasingly important as the first step for SMEs, not only listed companies, as their perspective on whether they are fulfilling their social responsibilities has been growing stronger.
Many CSR reports adopt GRI guidelines with mainly environmental and social activities perspectives.
Integrated reports have adopted a framework that integrates financial and non-financial information from the International Integrated Reporting Council (IIRC).
Integrated thinking leads to integrated decision making and actions that consider value creation, preservation or erosion over the short, medium and long term.
It includes such things as the interrelationships between capitals, responding to stakeholder needs and interests, the construction of business strategies and the performance of activities related to capital.
Case study of Sustainability Reports
Here is a case study of the sustainability reports of companies and organisations across various sectors, industries, and countries.
Stora Enso (Finland)
Novo Nordisk (Denmark)
Air France KLM Group (France)
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