Is It Time for Your Organization to Publish a Corporate Sustainability Report?

Years before the US Securities and Exchange Commission updated its annual reporting requirements for public companies to include disclosures on human capital issues considered material to business, or the recent passage of the EU Corporate Sustainability Reporting Directive that will require detailed disclosures on the management of all stakeholders starting next year, many large US companies began to publish annual reports on their practices related to people and the environment. Because these reports will be subject to audits in the coming years; because many of the companies subject to the law will require reporting from their supply chains and distribution partners, and most of all because of increasing demands from investors, consumers, employees, and communities, now is the time for at least some companies to consider the publication of Corporate Sustainability Reports.

This is the first in a multi-part series on the creation of Corporate Sustainability Reports for all sizes and types of organizations.

By Bruce Bolger

The Economics of Corporate Sustainability Reports
The Competitive Benefits of Trust
Whether or Not to Publish a Corporate Sustainability Report

The new era of Corporate Sustainability Reporting is upon us—one in which organizations confident in the value they create for stakeholders produce annual reports that explain their purpose as an organization; the methods by which they address the needs of their employees; the workforce management practices of their supply chain and distribution partners; and the manner in which they keep their commitments to customers and their communities, measure their progress, and continually improve.

In an era when consumer trust is in decline, audited or “assured” Corporate Sustainability Reports will become a valuable marketing tool for talent, customers, supply chain and distribution partners, and communities, for those companies focused on enhancing returns for investors by creating value for customers, employees, supply chain and distribution partners, communities, and the environment.

The Economics of Corporate Sustainability Reports

The logic for publishing a Corporate Sustainability Report is simple: many organizations spend considerable sums making promises to stakeholders in their marketing. Corporate Sustainability Reports detail how they keep those promises using a process whose cost is a small percentage of their marketing budget. Moreover, clarifying an organization’s purpose, goals, and objectives to its stakeholders helps align the activities of all employees and business partners toward common goals. Having the report independently audited adds further credibility.

As an example, click here for Corporate Sustainability Report published by the German multi-national Allianz that was independently audited for conformity with the ISO 30414 human capital standard. Click here for a Corporate Sustainability Report by a SME (small- to medium-size enterprise) that was audited for conformity with the ISO 30414 format of the International Center for Enterprise Engagement. (The ICEE version of the standard includes customers, supply chain and distribution partners, and communities consistent with the new European Union Corporate Sustainability Directive. The new law is likely to affect 60,000 or more companies worldwide, including at least 3,000 in the US along with their supply chain and distribution partners.)

The economic justification is compelling. According to a study by Glow published recently in Container Store News, about half “of consumers have changed food and grocery brands based on ESG considerations, while approximately 70% of millennials have done the same.” It finds that 20% rank sustainability as a top-three criteria in buying decisions.

The PWC 2021 ESG Consumer Intelligence Series found that 83% of consumers think companies should be actively shaping ESG (Environmental, Social, Governance) best practices; 91% of business leaders believe their company has a responsibility to act on ESG issues; 86% of employees prefer to support or work for companies that care about the same issues they do.”

The Competitive Benefits of Trust

At the same time, trust in traditional advertising is low, according to a review of several surveys. A study published by Statista conducted in 2021 of GenZ consumers found only 46% of respondents thought TV and print ads were somewhat or very trustworthy, and 41% said the same about radio advertising. A study to determine the key factors affecting the impact of advertising finds that “willingness to rely on”, or trust, is one of four critical predictors of higher return on investment.

Before considering whether to publish a Corporate Sustainability Report, it’s important to keep in mind that the new European Corporate Sustainability Reporting Directive will require audited reports that cover specific subjects related to all stakeholders, including environmental impact on communities. The days of assigning the job to a marketing or public relations firm reporting mostly on community contributions and volunteer activities are gone. In fact, such reports risk the appearance of greenwashing in an era of heightened skepticism of business and will not stand up to the clear stakeholder-oriented framework of the EU law which requires reporting on all stakeholder engagement activities, including metrics and actions taken to continuously improve.

The purpose of Corporate Sustainability Reports is to explain the purpose of the organization, the value it creates, whom it serves, the promises it makes to those stakeholders, and how the promises are kept—not simply to report on organizational donations or volunteer activities, as covered in what are frequently called Corporate Social Responsibility Reports.

Consistent with the EU Corporate Sustainability Reporting Directive, a Corporate Sustainability Report should address the critical issue of double materiality—how sustainability issues (both people and planet) affect the organization, and how the organization in turn affects society and the environment.

Whether or Not to Publish a Corporate Sustainability Report

So why and when should a company consider publishing a Corporate Sustainability Report?

Your management is confident that its commitment to a clear purpose and a strategic and systematic approach to engaging employees, working with distribution and supply chain partners committed to the same principles, and to fulfilling the promises made to customers and communities can be clearly documented, and that the process of doing so in a written form is a practical way to build continuous improvement into the organization. Such an organization is ready to begin the process now of creating a report. Click here for a detailed blueprint on how to proceed.
Your organization has a considerable marketing budget making claims to customers, employees, communities, or other stakeholders and seeks a means of substantiating those claims to build greater trust. In this case, the organization is ready to get started if it can articulate its purpose, goals, and objectives and how it creates value for stakeholders and can explain how it consistently delivers its promises to its stakeholders, measures progress, and continuously improves.
Your company does business with European Union companies that will have to comply with the law and which will likely ask your organization for information similar to what they have to supply to the European Union, but in most cases based on company assurances rather than a formal audit—unless your company has more than 250 employees.
Your management sees the new Corporate Sustainability Reporting framework as an opportunity to apply to stakeholder management the same principles that helped transform quality in manufacturing. In this case, it first must begin the process of implementing a stakeholder approach to management into its business operating system before it can report on it. In this case, the company will need at least one year before it can consider publishing a formal report. If properly implemented, the fruits of the shift to a stakeholder management process will be easy to document when the time is right, because metrics and reporting are built into the organization’s operating system to keep all stakeholders focused on the same goals and metrics.

As with total quality management, or any other systematic and auditable business process, reporting can be viewed as a business opportunity to enhance performance and experiences through greater efficiencies and transparency to enhance trust. Or reporting can be viewed as a compliance issue to duck regulators and criticism. Unless forced to by the EU CSRD law or customers subject to it, companies that do not have a strategic and systematic approach to enhancing returns for investors by engaging all their stakeholders probably should not publish Corporate Sustainability Reports.

Coming Next: Size Matters When it Comes to Corporate Sustainability Reporting. Even small organizations can benefit from publication of such reports as a means of engaging customers, talent, and other stakeholders, but the information disclosed varies between those companies that will have to comply with the EU CSRD law and all others. Given that the intent of the new law is to level the playing field by requiring disclosures from all qualifying organizations public or private, those that do not fall under the direct purview of the law cannot be expected to disclose information that might benefit competitors who choose not to make disclosures.

For More Information
Bruce Bolger, Founder
Enterprise Engagement Alliance
914-591-7600, ext. 230
Bolger@TheEEA.org

Subscribe to ESM's weekly newsletter.

Click here to learn about the EEA’s bi-partisan Change.org petition to keep politicians out of business management.