How Sustainability Reporting Protects Against Stakeholder Scrutiny

How Sustainability Reporting Protects Against Stakeholder Scrutiny

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Sustainability reporting allows companies to demonstrate how responsible they are.

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The last five years have brought increased pressure on companies to disclose their social, environmental, and governance (ESG) performance. With stakeholders looking for greater transparency into company activities, there is an increased need for companies to provide assurances that they are accountable to their stakeholders. Sustainability reporting allows companies to demonstrate how responsible they are in all areas of their business. By disclosing information about products, processes, community engagement efforts, innovation management, human resources management, and more, sustainability reports helps companies build trust with stakeholders.

What Is Stakeholder Scrutiny?

Stakeholder scrutiny is a term used to describe the increased pressure stakeholders put on companies to be accountable for what they do and how they do it. This has become an increasingly common issue as more stakeholders expect organizations to be transparent about their activities. Stakeholder scrutiny can originate from any number of places:

Customers

Customers have been the primary group to instigate corporate social responsibility (CSR) changes in companies. As a result, customers can wield a great deal of influence over companies’ actions by boycotting firms that do not meet their expectations. A recent survey found that 56% of consumers would boycott a company they feel is unethical, even if that means buying from a lower-quality competitor.

Would you boycott a brand if you thought it was unethical?

What would make you boycott a brand?
What would make you boycott a brand?

Employees

Employees may also become a source of stakeholder scrutiny if they feel that the organization they work for is not meeting their ethical expectations. In today’s tight job market, employees hold strong negotiating power with companies to ensure that their working environment reflects their values. A recent survey found that 51% of US employees won’t take a job if the employer doesn’t make strong environmental and social commitments. Social media has made assessing organizations’ ESG initiatives easier for all stakeholders.

Competitors

Businesses that compete with one another can also instigate CSR initiatives within other organizations. Firms are often concerned about their competitors’ ethical practices, which can affect the way they do business.

Regulators

Legislators may also put pressure on companies to adhere to social responsibility standards by passing laws or rules related to CSR issues. For example, the U.S. Security and Exchange Commission (SEC) passed a ruling in 2010 requiring publicly traded corporations to disclose whether any conflict minerals are used in their products. Similarly, the UK will require all companies to disclose their environmental impacts by 2025.

Leaders

A company’s leaders can also be a source of stakeholder scrutiny. These individuals can either create CSR initiatives themselves or influence others in their organizations toward enhancing socially responsible practices for greater transparency and accountability when they see a disconnect between operations and company values.

Investors

The last group that can influence the need for increased CSR efforts is investors. Institutional and individual investors alike look unfavourably on companies that do not disclose their ESG performance, seeing this information as a reflection of the company’s character. In addition, investors have recently been flocking to ESG funds at an ever-increasing rate – with ESG investments making up 26% of all money invested in 2020.

Close-up icons and infographics
Close-up icons and infographics

What Do Sustainability Reports Disclose?

A sustainability report is a corporate disclosure about the social, environmental, and governance performance of the organization. In other words, a sustainability report seeks to address a company’s impacts:

Environmental Impacts

The environmental impact of a company’s operations is perhaps one of its most critical disclosures to make. By understanding which environmental initiatives are taking place, stakeholders can weigh their benefits against potential risks down the road while building trust with management teams along the way.

Social Impacts

Organizations must report on how responsibly they manage the social issues that affect their employees, consumers, and other stakeholders. These reports allow organizations to gain trust by demonstrating that they are socially responsible citizens in the communities where they live and work.

When things aren’t sustainable, they eventually have to stop”. @Anders Ankarlid

Government Impacts

While there are no legal requirements to disclose governmental impact, including political donations or lobbying efforts, this information can be very revealing about a company’s philosophy. How organizations manage their relationships with federal, state, and local governments can either support or undermine the public good.

Economic Impacts

Making sure liquidity is available for suppliers, workers, shareholders, owners and others connected to the organization comes with major responsibilities for management teams. Sharing information about the financial performance can help stakeholders gain confidence in a company’s fiscal decisions and performance.

How Sustainability Reporting Limits Stakeholder Scrutiny

One of the biggest issues for any company is underperforming in the eyes of its stakeholders. When a company fails to provide enough information about its ESG practices it risks damage to its public perception. Luckily, sustainability reporting preempts many of the issues that stakeholders raise. Companies use sustainability reporting as a tool to demonstrate that they are committed – both ethically and financially – to the betterment of the community around them. The practice has three main mechanisms for doing this:

1-Transparency

Sustainability reporting is a safeguard against stakeholder scrutiny because it increases the transparency of the business. Providing public access to reports allows for increased scrutiny from various stakeholder groups such as consumers, governments, and regulators.  Increased scrutiny can lead to loss of consumer confidence in a company when they see how it operates day-to-day; therefore, companies must be accountable for their actions by providing sustainability reporting to prevent this underperformance and ensure customer satisfaction and peace of mind concerning brand trustworthiness.

2-Awareness

Socially responsible reporting increases awareness among your customers. Providing information on your company’s social responsibility initiatives allows customers to see how their purchase decisions contribute positively to a particular cause. Customers are more likely to stick with a brand that is socially responsible and accountable for its actions, rather than one that puts profit first without consideration of the potential consequences.

3-Compliance

Sustainability reporting also protects against stakeholders by being able to meet new legal requirements worldwide. Currently, there are over seven hundred sustainability-reporting guidelines across the globe as well as numerous national laws requiring companies to disclose environmental performance information. This trend is especially prevalent in Europe where some countries have been enforcing disclosure laws since the early 2000s.

Bottom Line

Sustainability reporting also protects against stakeholders by being able to meet new legal requirements worldwide. Currently, there are over seven hundred sustainability-reporting guidelines across the globe as well as numerous national laws requiring companies to disclose environmental performance information. This trend is especially prevalent in Europe where some countries have been enforcing disclosure laws since the early 2000s.

About the Author

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Based in Dubai for over 10years, Peter Caush is the founder of Sandpaperme.com and TheSchoolAgency.com.
A trusted authority on digital marketing Peter is passionate about helping SME’s grow their business in the Gulf region. 
When he’s not in the office Peter enjoys playing squash, often more times than his knees can cope.

About Sandpaper

At Sandpaper We have been around long enough to realize the importance of good report writing, research, and design. A thoroughly planned and executed report builds loyalty and trust among stakeholders.
In the 10 years of service, Sandpaper has managed a stay ahead of its competition; by developing and adapting to changes in both the global and local corporate landscape in the United Arab Emirates.

Annual Reports : Sustainability/Environmental, Financial/AGM, Impact and special focus.

Sustainability Reports, Annual Reports 90%
Report planning, research, collating, drafting, copywriting, proofing 50%
Concept creation, layout design, infographics, photography 70%

View the latest work Sandpaper has designed and published.