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Sustainability Reporting or Non-Financial Reporting refers to the process of effectively communicating the social, environmental and governance efforts of a company’s operations to all its stakeholders. Several companies have realized the importance of incorporating the environmental, social and governance parameters in the business strategy of the company. It is a well known fact that the companies that disclose their sustainability efforts are viewed favourably by the market.

As per Global Reporting Initiative (GRI), “A sustainability report is a report published by a company or organization about the economic, environmental and social impacts caused by its everyday activities. A sustainability report also presents the organization’s values and governance model, and demonstrates the link between its strategy and its commitment to a sustainable global economy.”

Lately, the Sustainability Reporting has drawn widespread attention. The factors that can be held responsible for this attention include changes in environment, changes in climate, and the focus on employees, as stakeholders of business. They have been the reason that finally made companies look beyond the financial parameters, and consider sustainability as a requirement, rather than a choice.

It has been noticed that the companies have started to report more frequently on ESG parameters, often voluntarily. These disclosures are often related to environmental factors like waste generation, utilisation of water and energy. They include social factors such as wellbeing of employees and workers, efforts in creating a diverse workforce. Governance related factors that are often disclosed are Board composition, the committees and their composition, and actions taken towards stakeholders, such as vendors, suppliers, contractors and society. Companies are finally acknowledging the need to be responsible for the impact of their actions on the environment and the society at large.

Benefits of Sustainability Reporting include

• Helps in management/mitigation of risks- Most companies face ESG related risks. A structured reporting system enables the companies to recognize and mitigate risks. It may contribute to gaining a competitive edge.
• Better financial performance – It is believed that there is a direct relation between sustainability and financial performance. Experts suggest that markets view companies that make ESG reporting a priority, favourably.
• Strengthen stakeholder relationship and effective communication- It aids the companies when they consider any concerns of stakeholders in the decision-making process, and effectively communicate the efforts undertaken for them.
• Enhanced reputation – ESG reporting makes companies be viewed in a totally different light by the stakeholders.
• Better workforce – Companies that give importance to ESG end up attracting talented professionals to work with them.
• Capture Investors – It is clear that the investors at large would want to prefer the companies that are ranked high on ESG parameters.

According to the Companies Act 2013, all companies are required to indicate their efforts regarding energy conservation in the Directors’ report (in their Annual Report). Additionally, SEBI has also made it mandatory for the top 1000 listed companies to publish the Business Responsibility and Sustainability Report (BRSR), which is a step towards reporting on the efforts on ESG.

Challenges of Sustainability Reporting include

• Ambiguous definition of Sustainability – Sustainability cannot be defined universally. This makes the purview of sustainability too large, and hence difficult for the companies to collate information and present a report on it.
• Diverse reporting standards and frameworks – The reporting standards and frameworks for Sustainability Reporting are not uniform. Some of them include the Carbon Disclosure Project (CDP), the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB). Each of them has their own set of guidelines that are to be followed. This makes the reporting challenging. Interestingly, in September 2020, all the five major reporting standards took notice of this and expressed their intention to consolidate their reporting requirements that would make the Sustainability Reporting uniform and easy to practice.
• Time-Extensive reporting – The data that is expected out of this report is quite extensive and time consuming, especially for smaller companies.
• Confusion within management – The personnel required for such reporting have to be educated about the requirements and well-trained in reporting on them. The standards of the reporting are likely to be compromised if there is any lack of coordination between the different departments. The accuracy of the data determines the authenticity and goodwill of the organization.
• Intangibility of the ROI status of the reporting – It is known that Sustainability Reporting helps the companies and they are rewarded for it. But there is no clear evidence to show that there has been substantial improvement in the financial performance of the organizations that have been following this reporting.

Role of Board

The Board of a company plays a vital role when it comes to Sustainability Reporting. The outlook of the Board about the importance attached to sustainability is directly proportional to the efforts that a company makes towards it. A number of Boards have constituted Board level committees that deal with ESG and Sustainability. In fact in some companies, a part of the variable pay of the senior management personnel is dependent on the sustainability efforts of the company. Reporting under BRSR too requires Boards to view the disclosures.

It is important for each company to have its own priorities set for sustainability efforts. It is also important that the right persons in the company focus on quality and correctness of these disclosures.