Sustainability Reporting: Key Insights for Businesses

Among the growing concerns regarding climate change and corporate responsibility, sustainability reporting has become a valuable tool for businesses to demonstrate their commitment to identifying and managing non-financial risks. While still primarily voluntary in nature, sustainability reports provide additional transparency into a company’s non-financial risks and the measures they take to build resilience into business models and operations.

Given this additional transparency, investors are increasingly factoring this information into their investment risk profiles, making sustainability reporting strategically imperative for organizations positioning themselves for the future. However as with any emerging strategy, adoption of sustainability reports comes with some level of complexity and key considerations.

The initial questions most companies face surround which standards and frameworks they should align their sustainability report with, and which metrics they should disclose. Given that we have a dedicated sustainability practice at Schellman, we’re well positioned to help answer these questions. In this article, we’ll provide key insights into sustainability reporting, including information on why you should invest in it in the first place, what factors these reports cover when you do, and the different standards and frameworks you can choose to align your report with.  

Why Businesses Should Invest in Sustainability Reporting 

Sustainability is quickly becoming a differentiator in the market as consumers and investors are beginning to prioritize supporting organizations whose values align with their own, serving as a significant advantage on its own.  

However, there are additional notable benefits to be gained should you choose to invest in sustainability reporting: 

• Improved Stakeholder Trust: Sustainability reporting and the transparency it provides can also help your organization build trust with current stakeholders, including employees. 
  
  
• Enhanced Risk Management and Long-Term Financial Performance: Sustainability reporting can help you address your organization’s sustainability topics, which in turn mitigates your exposure to reputational and financial risks like regulatory fines, lawsuits, and supply chain disruptions. 
  
  
• Compliance with Regulatory Requirements and Supply Chain Requests: The surge in importance of sustainability data is concurrent with the emergence of related regulatory requirements and industry standards that require compliance, including the California Climate Corporate Accountability Act, which mandates certain companies to disclose sustainability data, including their supply chains. Moreover, companies are also taking it upon themselves to enlist their vendors in addressing their environmental impact by sending requests for sustainability data —if you’re already engaged in reporting your sustainability metrics, answering these will be all the easier. 
  
  
• Attraction and Retention of Talent: Customers and investors aren’t the only ones trying to work with organizations that align with their values—your prospective employees are as well, and sustainability reporting, with its demonstration of your social responsibility, can help you to attract and retain talent. 

What a Sustainability Report Covers 

Sustainability reporting can facilitate these advantages through the information it contains. Though different standards and frameworks may have different focuses or objectives, your sustainability report will disclose specifics regarding your organization’s operations and/or risks in three areas: 

• Environmental impact 
• Social responsibility
• Corporate governance 

Environmental Factors 

When your environmental impact is measured as part of your sustainability report, the following items are typically addressed: 

• Climate change impact: What physical and transition risks does climate change pose to your organization’s operations and supply chain? 
• Carbon footprint: How much greenhouse gas emissions does your organization produce, both directly and indirectly? 
• Energy consumption: Does your organization use renewable and non-renewable energy sources? Do you have energy efficiency measures in place? 
• Waste management: How does your organization manage waste reduction, disposal, and recycling? 

Social Factors 

Also included in your sustainability report is information on how your organization supports workers within the organization, workers in the supply chain, and communities where the business operates: 

• Labor practices: How complex is your workforce (e.g., its size, regional layout, and the intensity of labor)? What is the relationship between management and workers? Does your environment maintain employee health and safety? Do you provide fair wages and working hours? Do you have worker protections and employee engagement efforts, and if so, how strong are those? 
• Human rights: How does your organization—through policies and practices or otherwise— identify, prevent, and mitigate adverse impacts related to human rights, including freedom of association, non-discrimination, and child labor? 
• Diversity and inclusion: Do you have initiatives, such as employee resource groups, in place to help promote diversity and inclusion within your workforce? 
• Community engagement: How is your relationship with your local community? Does your organization perform any philanthropic activities? 

Governance Factors 

And finally, your sustainability report also evaluates your internal corporate governance practices: 

• Board composition: How is your board structured? Is it independent? Is it diverse? 
• Executive compensation: What are your policies and practices related to executive pay? Are there performance-based incentives? 
• Risk management: What’s your organization’s approach to identifying, assessing, and managing risk (including those regarding cyber security and the supply chain)? 
• Ethics and compliance: Do you have policies and procedures in place related to your standards for ethical conduct and regulatory compliance? 

Sustainability Reporting Standards vs. Sustainability Reporting Guidance 

Information within sustainability reports can be presented or featured in a number of ways, depending on the standards and frameworks the company chooses to align with. 

Sustainability Reporting Standards 

There are several different standards and frameworks you can choose from: 

• Global Reporting Initiative (GRI): GRI standards are the most widely used globally and are applicable to all organizations. As such, these sustainability reporting standards pull principles from different governing bodies such as the UN, OECD, and ICGN to reflect the broad and comprehensive expectations for responsible economic, environmental, and social impact. 
  
  
• Sustainability Accounting Standards Board (SASB) — Now the International Sustainability Standards Board (ISSB): Though also internationally recognized, the SASB standards are unlike the more holistic GRI in that they focus more on a subset of sector-specific, financially material issues—meaning, you’re able to dive in deeper to identify your sustainability-related risks most likely to affect your financial performance. 
  
  
• Task Force on Climate-Related Financial Disclosures (TCFD): The four pillars of the widely adopted TCFD standard— Governance, Strategy, Risk management, Metrics, and Targets—are specific to your climate-related disclosures as driven by the idea that if you understand and report your climate-related risks and opportunities it will help lead to a more stable and sustainable economy. 

Many of these standards are complementary or aligned in some way—it’s up to each organization to decide which would be best for their own needs and to assist their stakeholders in comparing and evaluating your sustainability performance. 

Sustainability Corporate Commitments 

Aside from these established frameworks, you can also choose to report your efforts to align your organization with different global sustainability guidance to demonstrate your contribution to sustainable development: 

• United Nations (UN) Global Compact: Together with reporting requirements called the Communication on Progress, the UNGC contains a set of 10 corporate principles upon which companies are expected to enshrine in their direct and indirect spheres of influence. 
  
  
• UN Sustainable Development Goals (UN SDGs): A set of 17 goals for sustainable development, the UN SDGs address issues such as poverty, education, and climate action, and you can coordinate your sustainability initiatives with these and report this demonstration of your contributions to global sustainability. 
  
  
• UN Principles for Responsible Investment (PRI): The PRI is a set of six principles that guide the integration of sustainability factors into investment decisions and can be used to demonstrate your commitment to responsible investment practices. 

Frequently Asked Questions Regarding Sustainability Reports 

How Do I Choose the Right Framework for my Sustainability Report? 

A great starting point is to first determine what sustainability topics are material to the business and then consider the framework that is most appropriate for reporting. 

While the SASB industry supplements can serve as a foundation for understanding what others in your industry are reporting on, make sure you also take ownership of your materiality assessment to ensure that sustainability reporting is consistently evolving with topics deemed to be material. 

What is the Difference Between a Sustainability Report and a CSR Report? 

There’s no fundamental difference— Corporate Social Responsibility (CSR) was the preferred term between the 1970s and the 2000s. Other overlapping phrases include, but are not limited to: 

• Sustainability 
• Corporate Responsibility 
• Corporate Citizenship 
• Social Impact 
• Impact

Though these terms are all broadly the same, depending on the approach. 

Can Small Businesses and Startups Benefit from a Sustainability Report? 

Organizations of all sizes can benefit from some kind of sustainability reporting and its demonstration of a commitment to transparency and sustainability, as a company that is well positioned in sustainability is well positioned to respond to market, investor, and employee expectations. 

How Often Should Your Organization Produce a Sustainability Report? 

Though this really depends—mostly on your organization, complexity, and industry—producing a sustainability report annually is generally accepted as best practice. Some major brands provide quarterly sustainability updates, but this is still the exception rather than the “rule”.

Lead by Example: Invest in Sustainability Reporting 

As the globe continues to come together to create a more sustainable economy, doing so requires a greater understanding of individual organizations’ environmental impact, social responsibility, and corporate governance, which sustainability reporting can provide. Investing in these reports can also aid you in improving your brand reputation, managing risks, complying with regulations, and attracting talent, and you have a number of framework and guidance options to choose from to measure your impact. 

Should you need further assistance in deciding your next steps forward regarding your sustainability reporting, our team at Schellman is ready to help. Contact us today to speak to one of our experienced professionals who can point you in the right direction and provide even more context on what you can expect when getting started in disclosing your sustainability metrics. In the meantime, discover additional sustainability insights in more of Schellman's helpful resources.