Transparency and Reporting
Transparency and CSR reporting are integral parts of corporate social responsibility.
The principle of transparency does not require that company discloses proprietary information or information that would breach legal, commercial, security or personal privacy obligations.
In the context of corporate responsibility, transparency and reporting imply that the company discloses information on its activities and decisions that have an impact on the society and the environment, as well as activities undertaken by the company to mitigate its negative impacts.
Reporting to stakeholders can be done in many different ways, including meetings with stakeholders, letters, press conferences and webpage. However, Sustainability/CSR reporting is one of the most effective instruments for transparency and communication with the public.
Sustainability Report (CSR report) is a document where a company publicly discloses information to the society and the stakeholders about economic, social, and environmental impacts – positive or negative – of its operations, and hence its contributions to the sustainable development. The report also presents the information about organization's values, ethical principles and governance model, communication with stakeholders, sustainability strategy and relevant policies, as well as CSR programs and performance in all three areas of sustainable development.
The term “Sustainability reporting” can be considered as synonymous with other terms for non-financial reporting, such as: CSR reporting, ESG reporting, Social and environmental reporting and more. All these terms refer to the reporting on economic, environmental and social aspects of the company’s activities, as well as its socially responsible activities and programs.
Requirements that the report should satisfy are provided in several international standards (such as, GRI, ISO 26000, AA1000, and others). Information presented in the report should be:
The current practice of sustainability reporting developed in the 1990s. In the last decades, CSR/Sustainability reporting has become a widespread practice - a growing number of companies report to their stakeholders on a periodic basis about their sustainability performance.
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According to survey conducted in 2020, 80% of companies worldwide report on sustainability, this rises to 96% among the world's largest 250 companies by revenue as defined in the Fortune 500 ranking.
The Time Has Come - The KPMG Survey of Sustainability Reporting 2020
Together with growing trend of Responsible/Sustainable Investment (SRI), sustainability reporting has become especially important due to the investors increased interest to consider the company’s ESG factors alongside with its financial performance, and information on ESG factors are easily accessible in sustainability reports.
Sustainability reporting is a voluntary choice of a responsible company, it responds to the expectations of the Stakeholder about company’s accountability and transparency. However, during the last few years, transparency on certain social and environmental aspects of business activity are being regulated by the legislation, and the trend keeps growing. So, Governments around the world, responding chiefly to broader societal awareness around sustainability, have introduced a number of mandatory reporting instruments.
The issue is differently regulated in different countries. In different cases, mandatory disclosure of social and environmental information might be required from companies from some specific sectors, certain size companies, for certain type of information, etc.
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For Example, mandatory Greenhouse Gas (GHG) - aka Mandatory Carbon Reporting - is the law in 40 countries across the World, including UK, many EU member states, North America, Australia, Japan and soon-to-be South Africa.
In 2014, EU adopted Non-Financial Reporting Directive (NFRD). The directive applies to large undertakings which are public-interest entities such as publicly-listed companies, banks and insurers employing more than 500 staff members. In their reports they are expected to disclose information on their strategies in the fields of the environment, social and worker concerns, human rights, the fight against corruption and boardroom diversity. This covers approximately 11 700 large companies and groups across the EU.
In 2021, the Commission adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD), which would amend the existing reporting requirements of the NFRD. In particular, proposal extends the scope to all large companies and all companies listed on regulated markets (except listed micro-enterprises); requires the audit (assurance) of reported information and introduces a requirement to report according to mandatory EU sustainability reporting standards (for more information visit: European Commission webpage, Corporate sustainability reporting)
Clear communication with the public and regular reporting on responsible business activities can translate into direct positive outcomes for companies.
Practice of reporting contributes to better communication with company's customers, partners and society at large. It has positive impact on the image of the company, enhances corporate reputation and loyalty of the employees and consumers. Reporting also helps to better plan and manage responsible activities of the company. There is growing evidence that the fact that a company is reporting on the impact of its practices is seen as an indication that it is well managed, which is particularly important in attracting investments.
IFC also found that firms with a well-established practice of reporting on material sustainability indicators outperform firms with a weak reporting culture (see: IFC, The Business case for sustainability)
There are several forms of non-financial reporting, i.e. reporting on social and environmental issues. This information might be published in the company’s annual report, as a standalone sustainability report (the most widespread approach), or in an integrated report (presenting the company’s activities and outcomes both in creating both financial and non-financial values).
During the last 10-15 years, there is a growing worldwide trend of using sustainability reporting standardized formats.
There are several internationally recognized formats for reporting on social and environmental issues. Each of them serves different reasons, are focused on different issues, and their area of coverage are also different.
The most widespread international standards of reporting are:
Sometimes, companies integrate requirements of several different standards into one report.
The GRI Sustainability Reporting Standards are the most widely used standards for sustainability reporting globally.
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By 2021, there are 34,484 GRI reports from more than 100 countries presented in GRI database
see: GRI Database
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The KPMG survey in 2020 revealed that around two thirds of the large and medium companies globally and three quarters of the world’s 250 largest companies by revenue (based on the Fortune 500 ranking) use GRI standard for sustainability reporting.
The time has come - The KPMG Survey of Sustainability Reporting 2020
At the same time, during the last few years, there is a quite obvious global trend of harmonizing various standards.
Many joint initiatives of global standard setters for sustainability disclosure have been created, aimed at the harmonization of the standards that would enable to meet requirements of several standards within one report. For example:
Information presented by an organization on its social and environmental activities may not be fully trustworthy to the public. That is why, often times, companies perform External Assurance/ Assessment.
External assessment of a sustainability report implies to assessment of the report by an independent third party, and verification that the information presented in the report – both quantitative data, as well as the description of organizational processes and procedures – are precise, trustworthy and real.
External evaluation is not an mandatory element of sustainability reporting, however, it increases the trustworthiness of the report to the Stakeholders. So, majority of companies chose to have such assessments carried out.
Third-party assurance of sustainability information in corporate reporting is now a majority business practice worldwide.
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According to survey in 2019, 97 % of investors said that sustainability disclosures should be audited in some way, and 67 % said that sustainability audits should be as rigorous as financial audits
(More than values: The value-based sustainability reporting that investors want, By Sara Bernow, Jonathan Godsall, Bryce Klempner, and Charlotte Merten, August 7, 2019
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According to the survey conducted in 2020, 51% of large and medium companies globally invest in assurance and 71% of world’s largest 250 companies do so.
The time has come - The KPMG Survey of Sustainability Reporting 2020
Also, more investors require external audit of sustainability reports.
The audit will produce a formal report/conclusion which, as a rule, is attached to the report.
In general, external audit is performed by independent consulting/audit companies with respective expertise. It is important that the assessment is done by a third-party, which stipulates trustworthiness of the assessment.
There are international standards for external assessment of the reports, providing unified principles and procedures to audit companies. For example, AA1000AS and ISAE 3000 standards. It is not mandatory for the external audit to be based on either of these standards, however, it is important to describe assessment methodology and area in the audit technical conclusion part.
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