Executive Summary
With the increasing popularity of sustainability reporting becoming the norm rather than the exception among companies involved in the globalized economy, this report provides the main reasons for which world’s organizations adopt the practice of documenting and disclosing data on their social and environmental impact upon their stakeholders. The main reasons for which companies adopt sustainability reporting include internal reasons, such as the development of corporate strategy, balanced assessment of the company’s performance, and improved communication with stakeholders, including the investors and external drivers, including the national and international policies and society’s pressure.
The main features of GRI as the most widely-used framework include materiality, stakeholder inclusiveness, and completeness. The main steps of sustainability reporting implementation include the stages of preparation, connection, definition, monitoring, and communication. The strongest reason for Australian organizations to adopt sustainability reporting in the 21st century is to improve communication with stakeholders and improve chances for long-term survival and success.
Introduction
The topic of this report is the importance of adopting sustainability reporting by Australian companies in the 21st century. The task is to overview the historical development of sustainability reporting frameworks and the recent changes in the companies’ reporting practices that currently include documenting and disclosing non-financial information dealing with environmental and social impacts of the company’s performance.
This report will start from the analysis of the main 5 reasons for which companies implement sustainability reporting, then proceed to a discussion of the main 3 features of GRI as the world’s most widely-used sustainability reporting framework, then outline 5 main steps that should be taken in sustainability reporting implementation and draw a conclusion on what reason is the strongest for Australian organizations to adopt sustainability reporting.
Sustainability reporting reasons
Sustainability reporting gradually becomes the norm among the companies engaged in the globalized economy under the influence of a number of internal and external drivers. The first reason for adopting sustainability reporting practices is internal and deals with the company’s objective to develop a corporate strategy (Geraghty, 2010, p. 142). Vormedal and Ruud (2009, p. 208) stated that sustainability reporting can be a tool enabling the firms to communicate effectively with their stakeholders. Strategic relationships between the company and stakeholders can contribute to the long-term survival and success of the company (Perrini & Tencati, 2006, p. 297).
Additionally, sustainability reporting fosters a properly balanced assessment of the company’s performance that is the second internal reason for adopting this practice (Hubbard, 2011, p. 844; Perego, 2009, p. 413). The third reason is internal and deals with warning the current and potential investors of the potential risks posed by global warming. The fourth reason is external and focuses on national and international policies.
For example, in France, Denmark, Sweden, and China, the sustainability reporting requirements are legislated (Geraghty, 2010, p. 142; Isenmann, Bey & Welter, 2007, p. 489). The fifth reason is the pressure from the wider community encouraging companies to make public their sustainability performance. Society’s expectations of organizations change and put pressure on companies to disclose information on their non-financial performance that is strategically important.
Sustainability reporting features based on the GRI
The Global Reporting Initiative (GRI) is the most widely-used framework for sustainability reporting in the world. One of the main strengths of GRI is the diversity of its structure comprised of people with different cultural and educational backgrounds, diverse skills, and life experiences. This multi-stakeholder representation is an important principle adopted by GRI to retain the credibility of the established framework and guidance. To apply the framework into practice, the organizations should determine the content that should be covered in the report. Three main features of GRI framework which should be considered in the process of decision-making include the following:
- Materiality. The information included in the reports should deal with significant social and environmental impacts of the company’s performance that can influence the decisions of the main stakeholders;
- Stakeholder inclusiveness. An organization should define its main stakeholders and include an explanation of how the company tried to comply with their actual interests and needs into the report.
- Completeness. Developing the material topics, an organization should cover the economic, environmental and social impacts of the company’s performance to the extent that would enable stakeholders to assess its performance within the reporting period.
Sustainability reporting implementation based on the GRI
In implementing a sustainability reporting process based on GRI, an organization should take five main steps:
- Prepare. At this stage, an organization should initiate an internal discussion of the main positive and negative impacts of the organization performance upon the interests of its stakeholders. The definition of stakeholders should include not only shareholders, but the society in general (Kolk, 2008, p. 4).
- Connect. At this stage, an organization should look for the input of the stakeholders on what aspects need to be covered in report.
- Define. At this stage, the analysis of the aspects indicated by the management team in step 1 and stakeholder input from the step 2 would enable organization to define whether the indicated aspects are significant and substantial.
- Monitor. At this stage, the data that will be included into the final report is gathered. Additionally, GRI framework offers indicators that were developed to assist the companies in sustainability reporting implementation so that they know what to monitor (Geraghty, 2010, p. 145).
- Communicate. The fifth step involves not only preparation and writing of the final report, but also selection of the best way to communicate the results to the society.
Recommendation
The main reason for which Australian organizations should adopt sustainability reporting is an opportunity to develop corporate strategy and improve communication with main stakeholders. In contrast to external factors of national and international policies, legislation and society pressure, this internal driver for implementing sustainability reporting can be the best motivation for the companies. According to Perrini and Tencati (2006, p. 297), the improved communication between the companies and their stakeholders can be valuable for the long-term survival and success of organizations.
Therefore, the practice of sustainability reporting of non-financial data of the company can be helpful for improving the performance of organisation. Taking into account the fact that materiality, stakeholder inclusiveness and completeness are the main features of GRI framework, it can be stated that the importance of social and environmental responsibility of companies and their communication with stakeholders are put at the basis of this framework.
References
Geraghty, L 2010, ‘Sustainability reporting – measure to manage, manage to change’, Keeping Good Companies, no. 3, pp. 141-145.
Hubbard, G 2011, ‘The quality of the sustainability reports of large international companies: An analysis’, International Journal of Management, vol. 28, no. 3, pp. 824-846.
Isenmann, R, Bey, C & Welter, M 2007, ‘Online reporting for sustainability issues’, Business Strategy and the Environment, no. 16, pp. 487-501.
Kolk, A 2008, ‘Sustainability, accountability and corporate governance: Exploring multinationals’ reporting practices’, Business Strategy and the Environment, no. 18, pp. 1-15.
Perego, P 2009, ‘Causes and consequences of choosing different assurance providers: An international study of sustainability reporting’, International Journal of Management, vol. 26, no. 3, pp. 412 – 425.
Perrini, F & Tencati, A 2006, ‘Sustainability and stakeholder management: The need for new corporate performance evaluation and reporting systems’, Business Strategy and the Environment, no. 15, pp. 296 – 308.
Vormedal, I & Ruud, A 2009, ‘Sustainability reporting in Norway – an assessment of performance in the context of legal demands and socio-political drivers’, Business Strategy and the Environment, no. 18, pp. 207 – 222.