Sustainability Reporting: Earth in the Balance Sheet

Sustainability reports offer plenty of eye candy, but can they actually help managers make better decisions?

And not without reason. Sustainability reporting is in many ways a response to the long-standing push for socially responsible investing. As specialized mutual funds and institutional investors began to ask senior management not only about the size of the bottom line but also the manner in which it was achieved, companies responded by providing more information on a host of environmental and social practices. “But companies have often been pulled in two directions,” says Sean Gilbert, technical director at the GRI. “Some analysts want hard data in an accessible format that allows for uniform comparison, but other investors want a narrative around strategic issues supported by limited data.”

In Search of Value

Companies to date have tended to split the difference. Take Koch Industries Inc., the Wichita-based conglomerate with operations spanning oil, chemicals, cattle ranching, and textiles. Its most recent sustainability report is rife with photos of forests, duck eggs, and kids with butterfly nets, but it also provides graphs that detail its emissions volumes, oil leaks, and other data points.

The trouble with most reports, says Judy Kuszewski, director, client services, with London-based consultancy SustainAbility Ltd., is that “they have no natural audience other than a handful of SRI [socially responsible investing] analysts, most of whom would rather get the information in a meeting than a report.”

But producing sustainability reports is not, Kuszewski adds, a hollow exercise. “They get management focused on these issues,” she says, “and they create a process for gathering and reporting data.” A better process for producing the reports could result in something that not only looks nice, but also provides more information to investors, employees, and other interested parties.

Most reporting efforts historically have been intensely manual, but many experts say a change is under way as companies begin to explore the possibility of automating at least a part of the process. The goal is to not merely speed up the production of such reports and make them more data-rich, but to transform them from a triumph of corporate communications to a useful tool for management.

“For reporting to be of the most value,” says the GRI’s Gilbert, “you need to have no gap between the information you report out and the information you use internally. So we’re seeing a clear shift toward the greater use of IT, with ERP and other software vendors now extending their products to address sustainability reporting.”

The movement is most pronounced in Europe, where regulatory demands regarding carbon trading and other environmental issues are forcing companies to abandon the glossy brochure in favor of more-substantive and -detailed reporting. “We’ve seen a marked change in just the last 6 to 12 months,” says Proventia Solutions’s Valtonen. “Companies are realizing that they must now report on a wide range of nonfinancial indicators, but those same indicators have genuine financial impact, so they want to integrate this sustainability data into their daily operations.”

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