Find out everything about sustainability reporting: definition, legal requirements, standards, practical examples and their benefits for companies.
Introduction and relevance
The European Union’s Corporate Sustainability Reporting Directive (CSRD) sets new requirements for corporate sustainability reporting. It aims to increase the transparency and comparability of sustainability information, which in turn gives investors, customers and other stakeholders important insights into a company’s sustainability performance. By complying with this European legislation, companies can not only meet legal requirements, but also strengthen their market position, better manage risks and contribute to the global sustainability agenda through initiatives like scope 3 reduction.
What is sustainability reporting?
Sustainability reporting is becoming increasingly important for companies worldwide. This reporting enables companies to communicate their environmental and social responsibility transparently. It is not only a tool for complying with legal requirements, but also a means of increasing trust among stakeholders. As the importance of sustainability and social responsibility grows, so does the need for detailed and structured reporting. Companies that report comprehensively on their sustainable activities can gain long-term competitive advantages and strengthen their reputation.
Definition
Sustainability reporting refers to the systematic and regular communication of companies about their environmental, social and economic performance and impacts. These reports contain both qualitative and quantitative information that enable stakeholders to evaluate a company’s sustainability strategy and performance.
Etymology and origin
The term “sustainability” originates from 18th century forestry and referred to the management of forests to ensure long-term use. Its coverage has expanded over time to include different sectors.
Importance of sustainability reporting
Sustainability reporting is crucial for the transparency and credibility of a company. It makes it possible to understand the impact of corporate activities on the environment and society and to develop measures to improve sustainability and promote a better future.
Extended definitions and variants
Sustainability reports can take different forms, including integrated reports that contain both financial and non-financial information and stand-alone sustainability reports that focus exclusively on sustainability aspects.
Areas of application of sustainability reporting
Sustainability reporting is used in a wide range of areas and helps promote transparency, responsibility and long-term success. Companies from different sectors use this reporting to present their sustainability strategies and communicate their performance in terms of ecological, social and economic aspects. Four key areas of application are explained below, each with a practical example.
Corporate management and strategy
Companies integrate sustainability reporting into their business strategy to promote sustainable practices and set long-term goals.
Example: A multinational company publishes an annual sustainability report that documents progress in the areas of energy saving and CO2 reduction.
Investors and financial markets
Sustainability reporting is crucial for investors as it provides information about a company’s long-term value creation and risks.
Example: An investment fund takes companies’ sustainability reports into account when making decisions to invest in environmentally friendly and socially responsible companies.
Customers and consumers
Consumers are increasingly placing value on sustainability and preferring companies that make their social and environmental responsibilities transparent.
Example: A clothing manufacturer publishes details about its sustainable production methods to gain the trust of environmentally conscious customers.
Legal requirements and regulation
In many countries, companies are legally obliged to prepare and disclose sustainability reports.
Example: An energy supplier prepares a sustainability report to demonstrate compliance with national environmental laws and regulations.
Related concepts and terms
Sustainability reporting is closely related to various concepts and terms, all of which help to provide a more comprehensive perspective on corporate responsibility and sustainable development. These related concepts help to better understand the meaning and implementation of sustainability reporting.
Corporate Social Responsibility (CSR)
CSR refers to the responsibility of companies towards society and the environment. It includes initiatives that go beyond legal requirements to achieve social and environmental goals.
Example: A company implements voluntary environmental programs and supports charitable projects in the community.
Environmental management systems (EMS)
EMS are structures and processes that companies implement to manage and continuously improve their environmental impacts.
Example: ISO 14001 is an internationally recognized standard for environmental management systems that many companies implement.
Integrated reporting
This combines financial and non-financial information in a single report to provide a holistic picture of company performance.
Example: A company publishes an integrated report that includes both financial results and sustainability performance.
Sustainable Development Goals (SDGs)
The SDGs are 17 global goals defined by the United Nations to promote sustainable development worldwide.
Example: Companies align their sustainability strategies with the SDGs to address global challenges such as poverty, inequality and climate change.
ESG criteria
Environmental, Social, and Governance (ESG) criteria are standards for a company’s environmental, social, and governance activities.
Example: Investors use ESG criteria to evaluate the sustainability performance and ethical responsibility of companies.
Examples and case studies
In practice, sustainability reporting is implemented in a variety of ways, depending on the industry and company size. Below, four specific examples and case studies are presented that illustrate the diversity and benefits of sustainability reporting.
Production
A large manufacturing company publishes a comprehensive sustainability report annually. The report covers initiatives to reduce carbon emissions, sustainable procurement and social responsibility in the supply chain. Through targeted measures, the company has been able to significantly reduce carbon emissions per unit produced and actively promotes sustainable practices among its suppliers.
Telecommunications
A telecommunications provider has been producing sustainability reports for years that focus on the three pillars of environment, society and economy. One example from the report is the introduction of energy-efficient technologies that significantly reduced energy consumption. It also reports on social projects such as supporting digital education for disadvantaged groups.
FAQs on sustainability reporting
Sustainability reporting often raises many questions, particularly regarding its implementation, benefits and legal requirements. The following answers the ten most frequently asked questions about sustainability reporting to enable a better understanding.
What is sustainability reporting?
Sustainability reporting includes the systematic disclosure of a company’s environmental, social and governance performance.
Who has to prepare sustainability reports?
In many countries, large companies and listed companies are legally required to prepare such reports.
How often should sustainability reports be published?
Sustainability reports are usually published annually.
How can companies benefit from sustainability reports?
Companies can thereby improve their reputation, gain the trust of investors and minimize long-term risks.
What role do stakeholders play in sustainability reporting?
Stakeholders such as customers, investors and employees are important recipients of the reports and influence their content and direction.
How can small and medium-sized enterprises (SMEs) prepare sustainability reports?
SMEs can produce customized, less extensive reports and focus on indicators relevant to their industry.
Why is sustainability reporting important?
It increases transparency, promotes trust among stakeholders and supports companies in sustainable development.
What standards are there for sustainability reporting?
The best-known standards include the GRI (Global Reporting Initiative) and the SASB (Sustainability Accounting Standards Board).
What are the main components of a sustainability report?
A typical report includes environmental, social and economic indicators, corporate strategies and performance metrics.
What are the challenges in preparing sustainability reports?
Challenges include data collection, selection of appropriate indicators and compliance with reporting standards.
Conclusions
Summary of the most important points:
Sustainability reporting enables companies to present their environmental, social and governance performance transparently. It includes the disclosure of ecological, social and economic indicators and is often required by law. Well-known standards include GRI and SASB. Companies benefit from improved reputation, increased trust among investors and long-term risk minimization.
Meaning of the term in the larger scientific context:
In the scientific context, sustainability reporting plays a central role in promoting sustainable development and implementing measures to address global challenges such as climate change and social inequalities. It supports the integration of sustainability aspects into corporate strategy and provides a basis for scientific analyses and comparisons.
