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Is It Time to Join the “Sustainability” Bandwagon?

December 06, 2016

Does your business employ environmental and sustainable practices in the workplace? It might be the key to satisfying investors.

Last year, more than 80% of S&P 500 companies issued sustainability (or corporate responsibility) reports, according to a recent study by the Governance & Accountability Institute. Rewind just four years and the ratio was reversed: In 2011, more than 80% of S&P 500 companies did not bother to issue a formal report on sustainability matters.

Investors and other stakeholders expect public companies to provide detailed information about environmental, social and governance (ESG) issues. But do they really want private companies to compile such detailed information? While it’s not mandatory, a growing number of private companies are opting to issue sustainability reports and expand their sustainability disclosures. Here’s why.

Working toward a Global Standard

Sustainability reporting is a relatively new concept, but it’s rapidly gaining momentum. The Global Reporting Initiative (GRI) is currently working on a uniform set of reporting standards for companies to follow worldwide. Over the last few years, the GRI has been collaborating with the Sustainability Accounting Standards Board (SASB) and International Integrated Reporting Council (IIRC) to converge their reporting initiatives.

The GRI defines a sustainability report as “a report published by a company or organization about the economic, environmental and social impacts caused by its everyday activities.” The report also “presents the organization’s values and governance model, and demonstrates the link between its strategy and its commitment to a sustainable global economy.”

Satisfying Investors

There are numerous upsides to issuing sustainability reports. From environmental risks (such as carbon emissions and energy consumption) to social concerns (such as workplace safety, the use of conflict minerals and human rights violations), issues covered in sustainability reports can affect a company’s financial performance. These reports give shareholders critical insight into a company’s strengths and weaknesses.

Looking Beyond Investor Relations

But sustainability reports do more than appease investors. They can demonstrate responsible corporate citizenship, which builds goodwill with customers, employees and even lenders. Moreover, sustainability reports link nonfinancial issues with financial results, which can sometimes be a wake-up call for management.

Tracking sustainability can help a company’s management team, for example, reduce energy consumption, streamline supply chains, eliminate waste and operate more efficiently. The same ESG concerns shouldn’t reappear year after year. In most cases, management can take steps to lower the company’s risks and become a better corporate citizen. A sustainability report can serve as an annual reminder of areas of improvement and provide a trail of accountability if management doesn’t follow through with improvements throughout the year.

Decision Time

It’s almost audit season, so calendar-year entities will soon need to decide whether to issue a sustainability report — or to beef up their sustainability disclosures. Contact our accounting and assurance services team to discuss your company’s sustainability initiatives.

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