360 Degree Sustainability

What is the use of a sustainability report?

What is the use of a sustainability report?

As a result of international norms gaining functionality across the globe, and particularly of countries making carbon emission commitments, more and more businesses are now preparing higher-quality reports. A comparison [1] between McKinsey’s 2014 and 2010 survey results shows that larger shares of CEOs count sustainability as a top three item on their agenda every year. HBR [2] updated their evaluation methodology in early 2015, adding sustainability variables to their criteria for eligibility for Best-Performing CEOs in the World, which now accounts for 20% of the criteria. As a result of that change Lars Rebien Sorensen, CEO of Novo Nordisk, became the best-performing CEO of the year while last year’s top CEO Jeffrey Bezos dropped to number 76.

Businesses have social and environmental responsibilities in addition to their mission of making profit. Sustainability reporting aims to provide transparent information on (i) how companies balance economic return with social and environmental impact in line with principles of corporate governance and (ii) how they address risks and opportunities from the point of view of sustainability.

Thus, it is possible to argue that the sustainability report offers the following three major advantages:

1- Ensures stakeholder participation

2- Creates internal and external awareness

3- Sets clear and measurable targets.

Let us now have a brief look at what each of these advantages is:

1- Ensuring stakeholder participation: businesses do not consist of management and employees only. A business forms a whole and everything that is within its reach become a part of that whole, including clients, vendors, investors, families of employees, environment, ecosystem, NGOs, the general publics and other stakeholders. Therefore businesses are responsible for looking after the benefits of all stakeholders as well as obtaining their opinions on a number of issues when making strategic decisions.  A sustainability report allows us to clearly see how decisions were made with the contribution of stakeholders and whether the impact on stakeholders was negative or positive. For example, when sustainability efforts first started at our firm we prepared a survey, which we gave to all stakeholders including the employees. This helped us to understand how each party viewed us and what they expected of us. All subsequent steps were taken in light of the results of the initial stakeholder survey.

2- Creating internal and external awareness: this is particularly important to Turkey, where the term “sustainability” is typically used in the contexts of growth and environment. However, sustainability, due to its long-term nature, is more about development than growth, and it covers social impact in addition to environmental impact. Therefore I believe the sustainability report plays a crucial part in (i) understanding and internalizing the concept of sustainability and (ii) creating awareness -both within and outside a business- of our individual responsibility to create a sustainable future. A quick example from our firm: while the choice remains with the relevant employee, we have made carbon emission one of the criteria for selection when purchasing cars at our company. Ever since we have switched to this practice, employees have started to go for hybrid cars.

3- Setting clear and measurable targets: one of the most significant advantages that a sustainability report offers in terms of content is that it presents business targets -set with the contribution of stakeholders- in a simple and measurable manner. It is worth noting that these targets also include non-monetary economic externalities such as greenhouse gas emission; human capital and employee retention. A sustainability report shows where a company stands as of a particular reporting year while indicating what concrete steps will be taken to ensure sustainable development. We should keep in mind that the presentation of targets in writing also helps with feeling obliged to comply with those targets in the future.  I have seen, though, a typically common approach in preparing a sustainability report is stressing areas of strength of a business in the report while avoiding mentioning other weaker aspects. However, all businesses have weaknesses and they all experience problems. The expectation with a sustainability report is that businesses define their problems in a transparent manner and share their short, medium and long-term criteria for solution.

Turkey’s business world is now warming up to the idea. Sustainable reporting is more frequently talked about now that the BIST sustainability index is in use. Certainly increased awareness only in large corporations is not enough. In my opinion, an indispensable requirement for a sustainable future is to give top priority to integrating social and environmental impact into all operations of businesses in light of principles of corporate governance.  In 2012, when I was doing my thesis on sustainability, the number of companies that prepared sustainability reports in Turkey was 60. Currently this number has gone up to approximately 100.[3]  The number of reports that met GRI standards in 2005 was 1 whereas by 2016 that number has reached 54.[4]

Preparing a sustainability report should be seemed as the first stop in a long journey. Being able to integrate sustainability into the operations of a business using 3P (People, Planet, Profit) to create value for all stakeholders is not change. This, above all else, is a matter of philosophy and requires seeking for an answer to the question “why” on every step on the way in the context of “sustainability responsibility.” If the management of a business has not adopted such a philosophy, which will define the strategic focus and trigger a change in culture, you are facing a challenge.

This is why reporting will only serve its real purpose if its philosophy is understood clearly and if it is seen as one of the earlier steps in a long process rather than a stylish marketing tool.