The Top 7 Benefits of Transparent, Accurate Sustainability Reporting

What is Sustainability Reporting?

Governments, companies, investors, and NGOs use sustainability reporting (and reports) to share their performance and impacts on a wide range of sustainability topics, including their environmental footprint, greenhouse gas (GHG) emissions, materials and resource use, and supply chain sustainability. Sustainability reports are the primary way organizations publicly communicate their environmental risks, opportunities, and practices to stakeholder groups like investors, government regulators, partners, employees, and customers, so each one can make informed decisions.

For anyone working in sustainability, ESG, and, increasingly, corporate finance, sustainability disclosure has become the fastest-growing type of non-financial reporting over the last ten years. 90% of the largest 500 companies by market cap published a sustainability report in 2019, up from 86% in 2018. And many more companies have adopted sustainability reporting in the past few years, including startups and medium enterprises.

Voluntary GRI Sustainability Reporting Growth (1999-2021)

Last Updated: 2021

Source: GRI (Global Reporting Initiative)

However, unlike traditional financial disclosure, sustainability reporting can be new, complex, research-heavy, and challenging from a data collection standpoint. So why invest the time and effort to do it?

The reason is sustainability reporting carries major organizational benefits and advantages. Specifically, benefits like:

Let's walk through each of the main benefits and advantages of sustainability reporting.

Benefit #1 - Sustainability Reporting Prepares You for Regulatory Compliance and Reduces Risk

In most countries, sustainability reporting is voluntary, not mandatory. However, recent 2022 legal changes, announcements, and impending mandates in the United States, Canada, European Union (EU), United Kingdom, Singapore, and other regions are creating stricter disclosure obligations for many types or organizations - particularly publicly-listed companies - to measure, report, and disclose their sustainability performance.

By beginning your organization's sustainability reporting now, while it's voluntary and regulations are new, you give yourself the time to build the right data, reporting, and disclosure processes and capabilities to meet upcoming compliance obligations. Governments around the world are under pressure to enact laws to mitigate the effects of climate change; as a reporting entity you want stay ahead of those demands and trends, not react to them at the last minute.

Benefit #2 - Sustainability Reporting Helps Focus Sustainability Targets and Progress

Logically, once your organization measures a baseline and starts reporting its sustainability performance, you'll want to improve and do better in future reporting periods. While the goal of sustainability shouldn't be to create reports, the report creation process is a strong incentive to set targets, define KPIs, and measure improvements over time.

An ESG sustainability reporting scorecard example from TD Bank. Source: TD Bank

Did we meet our forecast and reduce our emissions year-over-year? Have we become more energy efficient with our sites and buildings? What are our nature and biodiversity impacts? What do we expect to be able to report on next year? These types of actions, interventions, and metrics define the core narrative structure within a report.

Benefit #3 - Sustainability Reporting Creates Internal Accountability

One of the best parts of creating a sustainability report is it requires a lot of fact-finding and asking important internal questions. Who's tracking electricity or water usage? Do we have a renewable energy strategy? Is anyone engaging with suppliers on sustainability? Are our internal sustainability measurement processes, systems, and controls meeting our needs for real-time decision-making and ongoing reporting?

Asking these questions often highlights important operational or data gaps in your company's sustainability strategy, while also exposing opportunities to improve internal communication and alignment around sustainability initiatives. Sustainability requires cross-organizational awareness, education, and collaboration, which gains accountability and exposure momentum from your reporting process, particularly the more you can engage senior leadership in the process.

Benefit #4 - Sustainability Reporting De-Risks Access to Capital

From institutional ESG investors like BlackRock and State Street to private equity and banking lenders, more capital providers are using ESG indices, sustainability scores, and ratings signals to assess the risk-return profile of their allocation decisions. Emerging evidence suggests better ESG and sustainability performance translates to a lower cost of capital for companies, plus broader liquidity access. If nothing else, strong sustainability performance certainly de-risks access to capital vs. the alternative.

In total, Fortune 500 companies alone carry an estimated $2 trillion+ in financial risk from climate impacts, based on outside-in analysis and corporate sustainability reporting. Across the global economy, sustainability risks range from supply chain shocks and severe weather to energy price inflation and business model transformation. Companies that understand, act on, and transparently disclose their sustainability and climate-related risks and opportunities stand on much stronger footing that companies that score poorly with ESG rating firms and analysts.

Benefit #5 - Sustainability Reporting Makes Your Products and Services More Attractive to Customers

While the average household may not be reading sustainability reports right before making purchasing decisions, more and more customers are putting their money where their morals are - both in B2C and B2B. Between 2013 and 2018, 50% of CPG category sales growth came from sustainable and sustainably-marketed products.

Today, roughly 75% of U.S. and U.K. consumers prefer environmentally responsible and sustainable products to alternatives. Consumers are also getting much wiser when it comes to spotting greenwashing.

From a procurement perspective, governments and large retailers like Walmart and Target are also applying more ESG and sustainability scrutiny to their suppliers and purchasing decisions. To win - or at the very least de-risk - order volumes with ESG-conscious buyers, make sure your organization's sustainability disclosures meet or even exceed peer benchmarks and industry standards.

Sustainability reporting example from Walmart. Source: Walmart

Benefit #6 - Sustainability Reporting Inspires Employees and Attracts Talent

Data consistently shows sustainability also wins hearts and minds among employees and job-seekers, particularly younger generations in the workforce. According to research by LinkedIn and YouGov, 66-75% of employees age 34 and younger say they want to work at a company that matches their personal values and does good in the world. Another study by Censuswide in the U.K. found that 83% of workers feel like their employers aren't doing enough about climate change.

Sincere sustainability commitments and strong brand purpose are a clear way organizations can differentiate themselves as employers and win top talent. Not only that, research from brands like Starbucks, Campbell's, and Glassdoor also indicate sustainability and corporate social responsibility programs reduce employee turnover, saving organizations valuable institutional knowledge, cultural cohesiveness, and costs finding replacements.

Benefit #7 - Sustainability Reporting Improves Brand Reputation

Sustainability, brand reptutation, and resilience go hand-in-hand, both in good times and periods of turmoil. Analysis of brand favorability across news articles published between 2000 and 2019 finds that sustainability reporting generally enhance stakeholders' acceptance and perceptions on companies' activities, independent of other factors.

While media coverage doesn't always reflect what companies are really doing, research from the University of Cambridge find that long-term investment in ESG and sustainability reporting creates a positive reinforcement cycle where a brand's strong reputation supports its sustainability initiatives, and its sustainability initiatives enhance its reputation.

However, reputation also cuts both ways. Most companies who received extensive public criticism (defined as over 20 negative media stories per year) saw their ESG performance fall by approximately 20% over the next 2 years, which led to more media and analyst criticism and reputational damage.

Your Next Steps With Sustainability Reporting

Whether you see sustainability reporting as a compliance obligation, a risk management exercise, or a catalyst for competitive differentiation, it's clear investment in sustainability reporting and action carries multiple benefits and advantages. For organizations in the early stages of their sustainability reporting journey, we have a few general recommendations, additional reading, and suggested next steps:

Materiality assessment - Before picking standards or writing your first report, it’s often beneficial to conduct a "Materiality Assessment” to help determine what your sustainability goals, targets, KPIs, and reporting objectives should be. A materiality assessment is a project which determines and ranks the most material themes for your business based on stakeholder interviews and surveys. For example, a healthcare company might focus on healthcare access, affordability, innovation, and sustainability in its supply chain. A technology company could focus on data privacy, cybersecurity, STEM education access, and more sustainable data center usage. Pick and rank the right sustainability themes depending on your organization’s mission, makeup, goals, and ESG maturity.

Sustainability data systems and process - While this might go without saying, in order to report your organization's sustainability performance, you need to know what it is - with a high degree of accuracy. Your materiality process can help guide you toward the main sustainability themes you may need to focus on and collect data around. Is employee travel a big source of your organization's carbon footprint? Facilities? Manufacturing sites? Where does that data exist today, and how will you access or collect it? Many organizations start their sustainability reporting with relatively simple spreadsheets, surveys, and documents, but things can get complex fast - particularly for larger organizations. If you're an organization with a medium-to-large or complex environmental footprint, you likely need dedicated sustainability reporting and data management software, like the kind we design here at Brightest. Ongoing report archiving and governance is also important to think about, since you'll be reporting every year.

Further reading - Our free guides to sustainability measurement and ESG reporting provide additional, detailed guidance and insights on how to measure and report your sustainability performance.