ADVANTAGES AND DISADVANTAGES OF SUSTAINABILITY REPORTING
A sustainability reporting is a report of an organization that provides information regarding organization’s economic, social and environmental details. It, therefore, provides an overview of how an organization is governed. Sustainability reporting is a report that is not only collected from various sets of data but it also helps an organization to improve itself that can be revealed through internal as well as external stakeholders. This report speaks about each and ever activity that contributes to the economic, social and environmental effect on the organization itself. It further enables companies to gain knowledge related to the risks and different opportunities they are facing. Sustainability report gives a report of company’s values, governance model and demonstrates an interlinking between company’s strategies and dedication towards the sustainable global economy. It helps a company to take further steps needed for changes within the company. A sustainability report is a medium to represent sustainability performance and its impacts either positive or negative. Sustainability reporting is synonymous with other terms. These terms can be triple bottom line reporting, corporate social responsibility reporting, and integrated reporting. Integrating reporting is a current establishment that further includes the analysis of financial and non-financial reporting. Integrated reporting thus represents company’s performance and help to take decision for company’s long-term growth.
Why is sustainability reporting important?
It is a way to build a relationship between company and government while achieving sustainable world economy. There are a number of stakeholders like labor, financial institutions, society etc. who all are dependent on the decisions are taken by the business organizations and the government. It is highly important to maintain trust of those stakeholders without harming company’s development. To regulate such issues, few decisions are needed to be taken by the company which is purely dependent on financial information. This information further helps to know risks and opportunities while utilizing information based on immediate and future issues. Stakeholders play a vital role for determining company’s risks and opportunities that are non-financial. Therefore, it is highly important to make better decisions while maintaining transparency and trust between the government and business organizations.
Benefits of sustainability reporting:
· Maintains trust: Transparency between businesses and stakeholders, with respect to non-financial performance, helps an organization to seek suggestions from customers and investors while reducing reputational risks. Sustainability reporting, thus, maintains brand image and company’s reputation.
· Helps in improvement of the process and the whole system: By analyzing the issues like material used, waste produced, energy consumption etc. and monitoring internal management and decision making processes, cost of the company can be reduced. Sustainability reporting further makes a company to present that how it can introduce changes with the help of sustainable development.
· Enhancing decision-making strength: sustainability act as a means of introducing innovation for companies and attain competitive advantage in the market. It helps the companies to look after the risks and overcome them. It makes a path to grab different opportunities making companies to initiate new activities, enhancing the limits to enter in new markets and attract investments. Thus, it helps companies to become innovators and leaders.
· Building strategies for improvement: Analysis of strengths and weaknesses with the help of sustainability report provides a greater vision and makes companies to work on weaknesses and regulate strategies for overall development. Furthermore, engagement with stakeholders can make the companies to have wide-ranging visions. Thus sustainability can be made an integral part of the organization for stating strong and competitive name in the market. It enables the customers or other stakeholders to understand the intrinsic values of the organization in the form of tangible and intangible. It enables a company to work on long-term advantageous policies, business plans and strategies.
· Reduce Compliance Cost: Analyzing and measuring sustainability report help the companies to work on the collection of necessary data that is cost-effective, regulate requirements, and avoid breaches while making company to tackle issues in effective and efficient way.
Issues with sustainability reporting
Ø Although there are number of advantages of practicing sustainability report and implementing sustainability development, still concern is needed for standardization. According to Slager, Gond & Moon, 2012, there exists three components that regulate the power of a standard. The first component is related with the design which is further an established set of common practices. The second one is the legitimacy that is dependent on multiple stakeholders. And the third one is monitoring which concerns the rules for monitoring the practices. But there is non-uniformity on just first component and without the first component; the practice cannot be progressed further to other components.
Ø The second major issue is the difference in enforcement for sustainability reporting. If maintaining sustainable reporting is optional, then there is no authority for penalizing an organization for noncompliance. Again, an organization can develop its own frame work for sustainability reporting but in case of any misstatement, no penalizing is there for such organizations.
Ø Sustainability reporting is voluntary or optional for an organization so such organizations do not require any procedure for attestation by any third party. And selective disclosures by organizations practicing sustainability can create potential bias. This further should be prevented to disclose negative and bad news. According to Coram, Monroe & Woodliff, 2009, disclosures assured by external professional accountants can potentially increase the reliability of such disclosure in future.
Ø There are certain limitations regarding the measurement of social responsibilities related with sustainability that is further most challenging to measure and quantify. Furthermore, motivation and requirement of a company for compliance is not clear. For example, US companies are closely analyzed and evaluated by environmental groups that are further US based but this motivation make US companies to develop domestic sustainability rather than international one.
