Sustainability Reporting

Introduction

 At the World Commission on Environment and Development, Brundtland

(1987) defined ‘Sustainable Development’ as–

“Development that meets the needs of present generation without

compromising the ability of future generations to meet their own needs.”

 The World Business Council for Sustainable Development (WBCSD) defined

‘Corporate Sustainability’ as

“The commitment of business to contribute to sustainable economic

development and to work with employees, their families, the local
community and society at large to improve their quality of life.”

 Corporate sustainability needs to be communicated to public and diverse

stakeholder groups. Sustainability Reporting serves as an important instrument in
fulfilling this need.
 Sustainability Reporting
Sustainability Reporting is also referred to as:
 Corporate/Business Responsibility
Reporting
 Triple Bottom Line (TBL) Reporting
 Environmental, Social, and Governance
(ESG) Reporting

TBL Reporting means - Equitable and Systematic disclosure of impact of

companies on economic prosperity, environmental quality, and social
justice.

Global Reporting Initiative (GRI) defines ‘Sustainability Reporting’ as –

“The practice of measuring, disclosing, and being accountable to
internal and external stakeholders for organizational performance
towards the goal of sustainable development.” 3
 Need for Sustainability Reporting

 Sustainability Reporting gained popularity in 1990s due to:

 Increase in level of Stakeholder Awareness
 Rapid growth in Regulations and Standards on CSR &
Sustainability
 Stakeholders, financial analysts and institutional investors, etc. are
increasingly demanding information on non-financial
performance of companies for taking better investment decisions.
 The Socially Responsible Investment (SRI), Sustainability
Indices (like DJSI, DSI, FTSE4Good Index, etc.), and Sustainable
Stock Exchange (SSE) Initiative are major drivers of
Sustainability Reporting.
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 Benefits of Sustainability Reporting
Better
Legitimacy
Increase in & License to Improved
Sales and Operate Stakeholder
Profitability Engagement
Attracts
Socially
Competitive Responsible
Advantage Investors;
Lower Cost of
Capital

Informed
Greater
Decision Sustainability Demand and
Making;
Reporting Customer
Market
Loyalty
Efficiency

Greater Better ability

Transparency, to attract and
Accountability retain
& Improved employees &
Governance customers
Mechanism
Low Risk of
Enhanced Regulatory
Reputation Improved Interventio
Stakeholder n and Fines
Engagement
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 RELATED TERMS
• CSR is the continuing commitment by business to
contribute to economic development while improving
CSR the quality of life of the workforce and their families as
well as of the community and society at large (World
Business Council for Sustainable Development).

• It means communicating the impacts of organization’s

Environmental
activities on environment, such as water, air, land, and
Reporting
noise pollution

• It means going beyond the economic responsibilities of

business while contributing back to the society in which
Corporate
the firm operates, including philanthropic and charitable
Citizenship
activities, and taking into account the impact on local
community.
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 RELATED TERMS (CONTD.)
• It is a phenomenon which in essence involves
an element of altruism and encompasses
Corporate
voluntary activities of the organization aimed
Philanthropy
at social welfare without expecting any
returns in reciprocation.

• A business approach which leads to long-term

value creation by embracing opportunities
Corporate
and managing risks arising from economic,
Sustainability
environmental, and social developments
(Dow Jones Sustainability Index – DJSI).

• Concise communication about a firm’s

strategy, governance, performance and
Integrated prospects and helps the stakeholders in
Reporting understanding how an enterprise creates and
sustains value over short, medium, and long
term (IIRC).
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 Global Trends on Sustainability Reporting

As per KPMG Survey of 2011, 95% of the 250 largest companies, 69% of the
100 largest companies in the world, and 50% companies in Asia Pacific, carry
out corporate responsibility reporting.

In KPMG Survey of 2015, the respective percentages were found to be 92%,

73%, and 79%.

63% G250 companies seek external assurance of CR disclosures.

Asia Pacific is the leading region with respect to CRR, followed by USA and
Europe.

Four developing countries – India, Indonesia, Malaysia, and South Africa

emerged as the frontrunners on CRR, while Europe was leading earlier in
2011.
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Sustainability Reporting Standards and Guidelines
World Industry Council for the
Social
Pollutant Release Environment (WICE)
Accountability
and Transfer guidelines by International
8000 (SA8000) -
Registers (PRTRs) Chamber of Commerce (ICC) -
1998
1995
AA1000 Series by
AccountAbility: Perform, Achieve
Carbon Disclosure
AA1000APS, and Trade (PAT)
Project (CDP)
AA1000AS, Scheme
AA1000SES

Green House Gas

Protocol (GHG ISO 14063 - 2006 ISO 26000 - 2010
Protocol)

Global Reporting
Initiative (GRI) - UNGC - 2000
1997 9
 Global Reporting Initiative (GRI)

 Standard Disclosures include:

 Strategy and Analysis
• GRI is a multi-
 Organizational Profile
stakeholder, network-
 Report Parameters
based organization,
founded in 1997.  Governance

 Stakeholder Engagement
•First Version of
 Key Performance Indicators:
Guidelines – June, 2000
 Economic
•Third Version G3.1 -
2011  Environmental

 Social - (Community,
•Latest Fourth Version
G4 – May, 2013. Employees, Product
Responsibility, Human 10

Rights)
Multiple Reporting Frameworks for Top 100 Indian
Companies
Progression of Non-Financial Reporting in India

Online CSR Exchange "SAMMAN" Initiative - (2015)

Revised Guidelines on CSR & Sustainability for CPSEs -
(2014)
BSE-IICA MoU to develop CSR Index - (2013)

CSR under New Companies Act, 2013 – (2013)

BSE Carbonex Index Launched - (November, 2012)

BSE Joined SSE Initiative - (October, 2012)

SEBI Circular Mandating Business Responsibility
Reporting – (August, 2012)
BSE Greenex Index Launched - (February, 2012)

Mandatory XBRL Filing – (October, 2011)

National Voluntary Guidelines on Social, Environmental
and Economic Responsibilities of Business – (July, 2011)
CSR Guidelines for CPSEs – (2010)

Reserve Bank of India Circular – (2007)

Report on Corporate Governance (SEBI Clause 49) – (2004)

Environmental Audit Report - (1992)

Conservation of Energy Disclosure in Directors’ Report -
(1988)

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 Theoretical Framework

• Social contract exists between organization and social system

(Lindblom, 1993).
• Asserts organizational compliance with societal norms and
expectations.
Legitimacy • Sustainability Reporting reduces risk of regulatory actions and
Theory boycotts by stakeholders and strengthens firm’s license to operate.

• Organizations have accountability towards broad range of stakeholders

(Freeman, 1984).
• All stakeholders have right to be treated fairly by an organization.
Stakeholder • Sustainability Reporting helps in strengthening stakeholder relations.
Theory

• Based on principal (shareholders) – agent (managers) relationship.

• Generally, Information asymmetry exists between management
(insiders) and stakeholders (outsiders).
• Sustainability Reporting reduces information asymmetry, reduces risk
Agency & uncertainty perceived by investors, improves decision-making,
Theory increases market efficiency and enhances financial performance.

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 STAKEHOLDER THEORY

CSR & Sustainability

Reporting

Better Stakeholder
Engagement &
Stakeholder Relations

Better Corporate
Financial Performance
(CFP)

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SLACK RESOURCES THEORY

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AGENCY THEORY

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FINANCE THEORY

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VIRTUOUS CYCLE THEORY
(POSITIVE)

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VIRTUOUS CYCLE THEORY
(NEGATIVE)

(-)

(-)

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Literature Review

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 Relationship Between Sustainability Reporting and Financial Performance
Measure of Sustainability Measure of Financial
S.No. Study & Country Relationship
Reporting Performance
Market adjusted Mixed Results
returns; other financial with different
Jones (2005) GRI Sustainability Reporting
1 ratios; and financial measures of
- Australia Index Score
distress probability company
scores. performance
Vigeo Sustainability Scores on
- Human Resources,
Van de Velde et al.
Environment, Customers & Average Monthly Positive, but not
2 (2005)
Suppliers, Community & Returns on portfolio significant
- Europe
Society, and Corporate
Governance
Brammer et al. Composite/Aggregate
3 (2006) Sustainability Score from Stock Returns Negative
- UK EIRIS database
Moneva and Ortas
Disclosures in GRI
4 (2008) Share Price Returns Not Significant
Sustainability Report
– Europe
Slightly positive,
Buys et al. (2011) Submission of Sustainability ROA, ROE, EVA and
5 but not
- South Africa reports to GRI MVA
significant

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 Relationship Between Sustainability Reporting and Financial Performance
Measure of Sustainability Measure of Financial
S.No. Study & Country Relationship
Reporting Performance
Dhaliwal et al. (2011)
6 KLD Ratings Cost of Equity Capital Negative
– US
Ameer and Othman Scores on 4 Indices – Sales revenue growth Positive & bi-
7 (2012) Environment, Diversity, (SRG), ROA, PBT and directional
- Developed Countries Community and Ethics CFO relationship
Disclosure of Environmental,
Bayoud et al. (2012) Consumer, Community
8 ROA, Revenue, ROI Positive
- Libya Involvement, Employee
Performance
ESG disclosure scores from
Eccles et al. (2012) Stock returns, ROA,
9 Asset4, Bloomberg and SAM Positive
- US ROE
database
N. Burhan and
GRI based Disclosure Index
10 Rahmanti (2012) ROA Positive
Score
- Indonesia
Social ratings on community,
corporate governance,
Venanzi (2012)
11 customers, employees, ROE, ROA, ROS. Not Significant
- Europe
environment, suppliers, business
ethics, & controversies.

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