What is the sustainability report?
The Sustainability Report (or Non-Financial Statement) is a document through which a company discloses information about its commitment to sustainability. It includes all corporate activities related to the company’s behaviour towards the environment, its employees, and the community. It is a transparency and responsibility-based document.
Whom does it address?
Through a Sustainability Report the company informs all its stakeholders, that is, everyone interested in the company’s activities, such as its clients, employees, shareholders, and potential investors.
In brief, it includes information about the company’s economic, environmental, and social impact. Thus, it also represents an instrument to understand the true value of the company. As a matter of fact, nowadays company value is not measured only in terms of economic performance, but according to the Triple Bottom Line framework - the so-called 3 Ps - i.e., People, Planet, and Profit. Furthermore, through the document the firm might develop a deeper self-knowledge, discovering its own critical points and where improvement is needed to be successful in a more sustainable world.
Is the sustainability report mandatory? Is every company doing it?
Within the European Union, sustainability reporting is regulated by the Non-Financial Reporting Directive (Directive 2014/95/EU). According to EU law, the document is compulsory only for large public-interest entities with over 500 employees, that is, listed companies, banks, and insurance companies. Its publication is mandatory also for other businesses designated by national authorities as public-interest companies. Conversely, its publication is voluntary for all the other businesses.
However, SMEs are relying on their sustainability report as a means to declare their impact and communicate about their CSR activities, making its publishing a common best practice. This is due to the rise of environmental concerns among all the social actors, including companies themselves. In particular, they know that unfair behaviours are not allowed anymore, and they are increasingly developing awareness of the multiple benefits derived from a sustainable way of doing business.
How is a sustainability report structured?
For what concerns its structure, there does not exist a standard framework for writing a Sustainability Report. However, in 2017 the European Commission published non-binding guidelines, providing companies with a principle-based methodology to help them disclose relevant, useful and comparable non-financial information. In 2019, the document was implemented with a supplementary set of guidelines on reporting climate-related information.
Also, its structure might be generally based on the Global Reporting Initiative Standards, a global framework touching upon different sustainability-related topics. It provides best practices helping companies to organise their report contents, also taking into consideration their performance and indicators, that is, the achieved objectives. The framework includes some general and universal principles – which are always applied, regardless of the corporate typology – as well as GRI Standards, specific for high-impact industries, such as energy (fossil fuels, i.e., oil, gas, and charcoal), agriculture, and fishing.
The information to be included in the sustainability report - regardless of the applied structure - includes relevant non-financial fields, i.e., environment, local community, employees, human rights, fight against active and passive corruption.
In particular, under Directive 2014/95/EU, large public interest companies have to disclose information in relation to environmental matters, social matters and treatment of employees, respect for human rights, anti-corruption and bribery, and diversity on company boards (in terms of age, gender, educational and professional background).
In this regard, the company has to account for the adopted corporate strategies and related performances, paying attention to the impacts generated against all stakeholders. Also, businesses have to conduct a materiality assessment, that is, the evaluation of all information that is useful to understand the company's activity, performance, results, and impact.
The Non-Financial Statement might be included within the company’s Management Report, or constitute a separate report. It is up to EU’s Member States to put in place national procedures for the disclosure of non-financial information.
As an example, according to the Italian legislation (d.lgs. n. 254/2016), the Sustainability Report must be approved and disclosed as it occurs for the Financial and Economic Report. The document must be lodged with the Company Register and adequately promoted through the institutional channels, such as the corporate website, to reach the majority of stakeholders. Also, it might be promoted in the format of a video. See some examples:
Heineken: https://youtu.be/8FJyKYK74DM
Huawei: https://youtu.be/DLFfsYfOnDc
H&M: https://youtu.be/hTcznFogMa8
The EU regards sustainability reporting as a very important instrument of corporate transparency. Claiming that “disclosure of non-financial information is vital for managing change towards a sustainable global economy by combining long-term profitability with social justice and environmental protection”.
Furthermore, on 21 April 2021, the EU Commission adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD), which would amend the existing reporting requirements of the Non-Financial Reporting Directive. The new Directive goal would be to extend the sustainability reporting scope and introduce more detailed reporting requirements, such as mandatory EU sustainability reporting standards.
Translated and adapted from The Good In Town. https://www.thegoodintown.it/cose-il-bilancio-di-sostenibilita-in-poche-parole/
Photo by Ricardo Arce on Unsplash
