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Academic rigour, journalistic flair

There have been growing calls for more corporate disclosure and accountability
in the face of income inequality, governance failures and the mismanagement of
natural resources. (Shutterstock)


WHEN IT COMES TO SUSTAINABILITY REPORTING, IT DEPENDS ON HOW SERIOUS COMPANIES
ARE ABOUT MAKING CHANGE

Published: July 8, 2024 10.47pm CEST
Douglas A. Stuart, University of Victoria, Irene Marie Herremans, University of
Calgary


AUTHORS

 1. Douglas A. Stuart
    
    Assistant Teaching Professor of Accounting, Gustavson School of Business,
    University of Victoria

 2. Irene Marie Herremans
    
    Professor, Haskayne School of Business and School of Public Policy,
    University of Calgary


DISCLOSURE STATEMENT

The authors do not work for, consult, own shares in or receive funding from any
company or organisation that would benefit from this article, and have disclosed
no relevant affiliations beyond their academic appointment.


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Companies are facing pressure to become more open about how they do business.
With income inequality, governance failures and the mismanagement of natural
resource capital threatening both society and the environment, there are growing
calls for more corporate disclosure and accountability.

Many firms now report how they are doing along economic, environmental and
social lines in what is called a sustainability report. These reports give
stakeholders, such as investors, customers and regulators, a comprehensive view
of how businesses create value over time.

Companies may share indicators such as greenhouse gas emissions, board member
composition and water usage. Benchmarks differ depending on a company’s industry
and location.

Recent events, such as the campaign to block Shein’s proposed IPO in London due
to social concerns, data breaches at Evolve Bank and the ongoing contamination
of waterways, all illustrate the importance of managing the risks shown in these
reports.



Some see sustainability reporting as helpful in running their business and
managing key relationships outside the company. That said, not everyone is
convinced they are useful. Only 24 per cent of top executives surveyed by Ernst
& Young understand how sustainability reporting will add value to their firm.


REGULATED REPORTING

Many companies are required to produce sustainability reports. For example, the
Government of Canada requires reporting of greenhouse gas emissions under the
Greenhouse Gas Reporting Program.

Similarly, the Securities and Exchange Commission in the United States and the
state of California have both passed greenhouse gas emissions reporting
requirements.

In the European Union, comprehensive reporting on many aspects of sustainability
is mandated. Canadian companies may also be affected by these regulations if
they do business in European countries.

While the scope of sustainability reporting requirements is growing around the
world, some companies choose to report voluntarily, using frameworks and
standards set by international organizations.


The Government of Canada requires reporting of greenhouse gas emissions under
the Greenhouse Gas Reporting Program. Air emissions from an oil refinery in the
heartland of Alberta. (Shutterstock)


IMPROVING OPERATIONS

Considerable resources have been invested by governments, standard setters and
the business community to support credible sustainability reporting. Whether or
not it causes business practices to become more environmentally friendly and
socially conscious remains a matter of debate.

Some experts suggest including non-financial sustainability data in external
reports improves corporate transparency that, in turn, increases accountability.
This can help firms make progress toward the United Nations Sustainable
Development Goals while supporting their profit-making activities.

For example, by reducing greenhouse gas emissions, companies are likely to
produce less waste, use raw materials more efficiently and lower operating
costs.

But if companies release sustainability reports just to meet the needs of
external stakeholders, including regulators, it’s unlikely to motivate internal
changes to business operations. Through this lens, reporting may be seen as a
box-checking activity.


Tiles depicting the United Nations’ Sustainable Development Goals are displayed
outside the U.N. General Assembly Hall at the United Nations on Sept. 23, 2023.
(AP Photo/Ted Anthony)

If companies use the reporting process to determine what needs improvement
internally and compare themselves to their peers, then sustainability
performance is more likely to improve.

Emmanuel Faber, Chair of the International Sustainability Standards Board, wrote
in 2023:

> “Just as an accounting standard cannot get a company to increase its profit by
> 10 per cent, a sustainability disclosure standard … cannot get it to reduce
> its emissions by 10 per cent.”

Faber remarks that there must be political will for business practices to
change. The recent decision by United Kingdom-based energy company BP to slow
down renewable energy investments in favour of oil and gas assets illustrates
the uncertainty about whether many companies have this political will.


THE STATE OF PLAY

There’s a saying in business: “what gets measured, gets managed.” The idea is
that by collecting, analyzing and reporting sustainability information relevant
to their business, companies will naturally improve their sustainability
performance.

But even if this is so, will these better management practices support real
improvements for society? There is still a lot to explore in this field of
scholarship.

So, where does this leave us? If you are an investor, it’s likely good news for
you. More information can help you make better investment decisions by bringing
to light risks and opportunities companies are facing.

From a capital markets perspective, it is difficult for investors to shift
financial resources to more sustainable firms without the information
sustainability reporting provides.

--------------------------------------------------------------------------------

Read more: Fast fashion is harming our planet — these 4 tips can help you build
a more sustainable wardrobe

--------------------------------------------------------------------------------

On the other hand, concerns about the trustworthiness of corporate reporting
could hinder efforts to direct funds toward addressing social issues. Lululemon
is currently under investigation by Canada’s Competition Bureau following
complaints about greenwashing.

Amendments were recently made to Canada’s Competition Act to crack down on
corporate greenwashing. Some companies, like Cenovus Energy, believe the changes
may disrupt their ability to report environmental initiatives because of
uncertainty surrounding what is now allowed.

If you are a public policymaker, seeing a firm’s overall performance beyond its
financial data can add valuable insights to regulatory debates. But whether
sustainability reporting is likely to make a meaningful change largely depends
on how serious a company is about making changes.

 * Sustainability
 * Greenwash
 * sustainability reporting
 * socially responsible investing
 * Business
 * Environmental, Social and Governance
 * Green accounting
 * ESG






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