Companies’ Benefits for & Barriers to Preparing a Sustainability Report
With steadily increasing global awareness of sustainability, businesses of all fields have reacted by reporting their impacts on the global economy, the environment, the society, and the organization itself. The increasing awareness on sustainable development is combined with the growing understanding for and the need of holistic disclosures, which have been brought to light not only through transparency failures such as that of Enron in 2001 and WorldCom in 2002 (White, 2006, p. 178). Accordingly, the total number of CSR and sustainability reports (hereafter referred to as sustainability reports) published by organizations has increased. This behavior demonstrates that businesses more and more use sustainability reporting as a powerful tool in their decision-making as well as in their corporate policy and strategy. There seems to be a growing recognition that regular and authentic sustainability reporting is in interest of businesses from any industry.
The Benefits of Sustainability Reports
According to Kitzmueller and Shimshak (2012, p. 58), “CSR may constitute a special form of investment into innovation that may result in negative costs (net benefits) over time”. If a business implements its sustainability report accurately, completely, and timely, it is able to increase its productivity and efficiency through process optimization. Therefore, cost savings are promised, which in turn result in higher economic return and increased firm’s value. Hence, the reporting business might enjoy the benefit of profit maximization or, in more general terms, a better financial performance (Kitzmueller & Shimshak, 2012, p. 58). Process optimization has also a positive effect on improving risk management. Furthermore, the created transparency in business processes also positively influence employees’ behavior and awareness in terms of productivity and efficiency. As employees become more responsible, as they actively participate in sustainability activities and the related process tracking, the level of employees’ motivation is higher than that in businesses, which do not engage in sustainability and its reporting.
Even though sustainability reporting is voluntary, public and institutional pressure rises constantly. Therefore, businesses that report before it becomes mandatory enhance their legal security and, moreover, satisfy the expectations of internal and external stakeholders. Going a step further, this benefit results in a further one, namely creating, maintaining and improving the business relationship to stakeholders, whilst increasing their understanding for respective business activities and strategies. If sustainability activities are implemented accurately and contribute towards a sustainable economy, businesses are most likely to enjoy an improved image as well as a better reputation (Baron, 2008).
The Barriers to Sustainability Reporting
Most often, it is the case that businesses do not know how to address the topic of implementing a sustainability report. This challenge might occur, if businesses have inappropriate staff members, who are not trained and experienced in sustainability reporting. This barrier is closely linked to, or might even result in, a lack of internal knowledge and information. Others argue that missing external consultancy and/ or governmental support further enhances the lack of internal knowledge related to sustainability reporting. According to Worthington et al. (2006, p. 104), the government is criticized because even though it generally highly encourages businesses to report on their economic, environmental and social achievements, it misses to give precise advice and support, such as fiscal incentives. Sustainability reporting is treated in a generic way and both, the government and other consulting institutions fail to adapt to the specific needs of a particular business and its goals (Porter & Kramer, 2009, p. 78). The U.N. Secretary General Kofi Annan phrased this dilemma before the U.N. General Assembly: “Those who seek to bestow legitimacy must themselves embody it, and those who invoke international law must themselves submit to it”. Furthermore, businesses are often irritated due to the high number of sustainability reporting tools, schemes, and guidelines. The fact that the government or any other responsible entity misses to standardize these reporting tools and guidelines is another barrier that businesses have to face. Consequently, the barriers of insufficient internal knowledge, inadequate amount of staff as well as lacking governmental support and external consultancy exist.
Companies that want to report on their sustainability accomplishments have to estimate relatively high implementation and maintenance costs, which present another barrier, businesses have to cope with. The costs are associated to employee wages, measurement systems, and the direct distribution of the report. As most companies strive for the overall goal of maximizing profit and shareholders’ wealth, they face the challenge of whether sustainability reporting aligns with these objectives. In other words, identifying market demand challenges the implementation of sustainability reports, because reporting for internal and external stakeholders who are not interested in such a report would be a non-profitable investment.
The introduction of new corporate guidelines or processes is mostly accompanied by investment costs, training needs, and the reluctance to change. Hence, when a company is considering implementing a sustainability report, a clear cost-benefit analysis should be performed. In the course of this paper, the most important benefits, and barriers associated with sustainability reporting have been determined.
Sources:
Baron, D. P. (2008). Managerial contracting and corporate social responsibility. Journal of Public Economics , 92 (1-2), 268-288.
EU Commission. (2011). The state of play in sustainability reporting in the European Union. European Commission.
Kitzmueller, M., & Shimshak, J. (2012). Economic perspective on corporate social responsibility. Journal of Economic Literature , 50 (1), 51-84.
Porter, M., & Kramer, M. (2009, May). The link between competitive advantage and corporate social responsibility. Harvard Business Review , 78-92.
White, A. (2006). Why we need global standards for corporate disclosure. Law and Contemporary Problems , 69 (167), 167-186.
Worthington, I., Ram, M., & Jones, T. (2006). ‘Giving something back’: a study of corporate social responsibility in UK South Asian small enterprises. Business Ethics: A European Review , 15 (1), 95-108.
Angelina von Kalkstein, MBA Candidate '13
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