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What is sustainability reporting and why is it important?

Sustainability reporting - is it just another passing trend linked to the rise of sustainable development ? Far from it. It's not a fleeting fad; in fact, sustainability reporting offers a genuine competitive advantage, and businesses that take the time to learn about and implement sustainability reporting now, will be well-placed to succeed in the long term. 

So, how can sustainability reporting benefit your company? What exactly is it? Why is it important? How can it strengthen your business strategy and drive growth? And most importantly, how can you implement this powerful tool? Don't worry, because Greenly is here to guide you through the process.

👉 In this article, we'll explore what sustainability reporting is, the benefits it brings, and why it's essential for your company.

What is sustainability reporting?

What are esg goals.

Environmental, Social, and Governance ( ESG ) goals are strategic objectives that businesses set to effectively manage their impact on society and the environment. These goals encompass three key categories :

• Environmental - This category focuses on a company's ecological performance and its efforts to minimize its environmental impact.
• Social - The social aspect encompasses relationship management with employees, suppliers, customers, and communities affected by the company's operations.
• Governance - Governance goals revolve around analyzing the company's leadership, internal controls, audits , and overall corporate governance practices.

Importantly, there isn't a single prescribed method for conducting sustainability reporting; multiple frameworks exist to cater to different organizational needs.

Contrary to the perceived rigidity associated with reporting, sustainability reporting offers flexibility in its implementation. However, companies should look to ensure that their report:

• Extends its reach to stakeholders beyond those directly targeted by the integrated report, including financial capital providers
• Provides details about the company's competitive positioning in the evolving sustainability landscape
• Offers a comprehensive overview of the company's initiatives relating to social, human, and environmental capital

By addressing these elements in the sustainability report, companies can effectively communicate their commitment to ESG goals, engage stakeholders , and demonstrate their commitment to creating positive social and environmental impacts.

Sustainability reporting frameworks

When it comes to sustainability reporting, there are various approaches that companies can consider. These include:

• Established sustainability reporting frameworks - Companies can utilize widely recognized sustainability reporting frameworks such as the Global Reporting Initiative ( GRI ) or the Carbon Disclosure Project ( CDP ). These frameworks provide structured guidelines to assess and disclose environmental, social, and governance (ESG) information. 👉 More on these frameworks later.
• Integrating sustainability into overall performance disclosures - Another option is to incorporate sustainability into the company's overall performance disclosures. This involves aligning sustainability metrics and goals with financial reporting and other key performance indicators to provide a comprehensive view of the company's performance.
• International Integrated Reporting Committee ( IIRC ) Guidelines - The IIRC has developed guidelines for integrated reporting, emphasizing the importance of linking financial and non-financial information. Organizations can adopt these guidelines to present a more integrated and balanced view of their performance, including sustainability aspects.
• The Dow Jones Sustainability Index (DJSI) - The DJSI is a prominent benchmark that assesses the sustainability performance of companies across various industries. By meeting the criteria set by the DJSI, companies can enhance their credibility and reputation in terms of sustainability.

👉 It's important to note that companies do not need to report using all of these standards and benchmarks. Each organization should carefully consider its actions, performance, and stakeholder expectations to determine which reporting model is most relevant and aligned with its goals.

By selecting the appropriate reporting framework or guideline, companies can effectively communicate their sustainability efforts, showcase progress, and demonstrate their commitment to responsible business practices.

Why is sustainability reporting important for a company?

Given that social and environmental risks and opportunities have a strong potential to impact the long-term security and success of a company, it's essential that companies dedicate both time and resources towards sustainable solutions. 

Sustainability reporting serves as a strategic cornerstone, enabling organizations to effectively confront and counter these emerging challenges. Viewed through this lens, sustainability reporting transitions from being a simple corporate responsibility tool to a key element in solidifying a company's strategic resilience over the long term.

Sustainability reporting provides an insightful narrative of a company's impact across economic, environmental, and social aspects. Armed with this information, companies will find themselves better equipped to measure, understand, and assess their operational footprint. This understanding supports the formulation of innovative goals and helps companies to implement changes, positioning them more favorably for seamless integration into an increasingly sustainability-centered global economy.

Let's take a closer look at the advantages of sustainability reporting and why your business could benefit from it:

Sustainability reporting advantages

Enhanced risk management.

Sustainability is intrinsically linked to resilience. And in today's world, where climate change deeply impacts business, fostering resilience is key. This calls for a comprehensive review of risk management strategies: understanding potential risks and developing preventive measures to safeguard business interests.

Herein lies the value of sustainability reporting. It's not just a tool for present risk management; it's a guide to shape a company's future operational context, foresee changes, and effectively plan for them.

Optimised costs and savings

Sustainability reporting is also a catalyst for transforming your business model and enhancing operational efficiencies. By prioritizing sustainability, companies can shine a light on existing inefficiencies, paving the way for impactful optimizations.

👉 A well-thought-out sustainability report can help a company re-calibrate its focus on its core mission, enabling a more streamlined approach to achieve objectives and minimize resource dispersion.

The cherry on top? A boost in your financial performance is also attractive to investors. With the increasing popularity of sustainable finance, your company's commitment to sustainability could make it a top choice for investors seeking to support ethical, forward-thinking projects.

Supports decision-making

Leadership roles inherently involve navigating complex decisions, especially in the face of an uncertain and unpredictable future. This is why sustainability reporting serves as an indispensable tool in the decision-making arsenal.

While a sustainability report may not foresee the future, it does provide invaluable insights into potential environmental and societal shifts. Engaging in sustainability reporting helps preempt the hurdles that global warming and other such issues may present, helping a company to be more resilient.

Consider the context of evolving legal frameworks. Legislation is becoming increasingly stringent towards companies that overlook sustainable development. Given the significant societal challenges we currently face, it's reasonable to expect a continued tightening of these regulations and penalties. Companies that conduct effective sustainability reporting will be much better prepared to deal with these increasing regulatory hurdles. 

👉 Undertaking a sustainability report is highly beneficial in business decision-making. It's an essential instrument that could potentially safeguard companies from costly mistakes.

Increased stakeholder engagement

Society has undergone significant shifts recently, including a growing demand for transparency from brands and businesses. This isn't just a passing trend - it's a necessity for those wishing to retain their customers and employees.

Consumers and potential business partners are more discerning than ever, placing great importance on the alignment of their values with the commitments of the brands they support. It's become clear that businesses need to take a stand on ethical, environmental, and social issues.

That's where sustainability reporting comes in. It provides a tangible way to meet this call for transparency. It's no longer sufficient to merely claim sustainability or reliability - companies need to demonstrate it. Their customers, employees, and stakeholders want assurance that the companies they support are not just trustworthy in words, but also in terms of their actions.

How to select a sustainability reporting framework

Whether you're the Chief Sustainability Officer at your company, or a manager responsible for sustainability initiatives, choosing the right framework for your sustainability report is crucial.

As highlighted earlier in this article, the choice of model is less important than the intent and execution. Remember, a sustainability disclosure (an integral component of sustainability reporting) aims to offer a holistic perspective of a company's performance. Often, it's woven into a comprehensive report that showcases value creation across various aspects such as finance, manufacturing, human resources, etc.

In today's corporate landscape, over 90 percent of the world's largest companies report their sustainability impacts. A significant majority of these organizations opt for the GRI Standards, renowned for their comprehensiveness and flexibility, catering to businesses of all sizes.

However, alternative frameworks are also available. Some companies align their reporting with guidelines set by the International Integrated Reporting Committee ( IIRC ), while others adhere to the standards of the Sustainability Accounting Standards Board ( SASB ).

So, how should you determine the best choice for your company? Ultimately, the decision hinges on a company's specific needs and objectives. Let's delve into the nuances of the main sustainability standards to guide your choice:

What are the most common sustainability reporting frameworks?

The Global Reporting Initiative ( GRI ) Standards, renowned for their comprehensive approach, provide direction on economic, environmental, and social aspects, appealing to a wide array of stakeholders, including investors. This framework, followed by thousands of organizations globally and forming the standard for the United Nations Global Compact , is often regarded as the most well-known and extensively used.

Key Features :

• Comprehensive coverage of a broad range of sustainability issues, including human rights, climate change, and governance.
• Emphasis on stakeholder engagement and transparency.
• Regular updates to reflect the latest sustainability challenges and opportunities.

💡 According to GRI, over 90% of the world’s largest 250 corporations report on their sustainability performance using GRI Standards .

The International Integrated Reporting Council 's Integrated Reporting Framework ( IRF ) encourages companies to publish 'concise' integrated reports. These reports combine traditional annual financial information with ESG (Environmental, Social, and Governance) data, detailing value creation over short, medium, and long-term timeframes.

• Integration of ESG information with financial data.
• A concise representation of a company's strategy, governance, performance, and prospects.
• Focus on long-term value creation and sustainable business practices.

💡 The IIRC's Integrated Reporting Framework is used by leading global companies to communicate how they create value in the short, medium, and long term.

Sustainability Accounting Standards Board (SASB)

The US-based Sustainability Accounting Standards Board ( SASB ) provides a unique perspective with its standards, emphasizing an introspective look at how sustainability concerns impact a company's financial performance. One of SASB 's defining features is the creation of over 70 industry-specific standards.

• Industry-specific standards tailored to identify material sustainability issues.
• Focus on the financial impacts of sustainability concerns.
• Useful for benchmarking and providing a standardized reporting framework.

💡 SASB standards are increasingly adopted by US companies to provide clear, comparable, and consistent sustainability information that meets investor needs.

The Task Force on Climate-related Financial Disclosures ( TCFD ) provides recommendations for disclosing clear, comparable, and consistent information about the risks and opportunities presented by climate change. The TCFD framework is widely endorsed by organizations and regulators globally.

• Focus on the financial implications of climate-related risks and opportunities.
• Encourages companies to disclose governance, strategy, risk management, and metrics and targets related to climate change.
• Aligns with investor and regulatory demands for climate-related financial information.

💡 The TCFD recommendations are endorsed by over 1,500 organizations worldwide, including many major financial institutions.

CDP: Carbon Disclosure Project

The Carbon Disclosure Project ( CDP ) is a global disclosure system that enables companies, cities, states, and regions to measure and manage their environmental impacts. CDP focuses primarily on climate change, water security, and deforestation.

• Encourages the disclosure of greenhouse gas emissions and climate-related risks.
• Provides a scoring system to evaluate companies' progress in environmental stewardship.
• Aligns with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

💡 CDP is backed by over 590 investors with assets of over $110 trillion, highlighting the significant investor demand for environmental transparency.

Global Compact Self-Assessment Tool

The United Nations Global Compact provides a self-assessment tool for companies to evaluate their sustainability performance against the Ten Principles of the UN Global Compact in areas of human rights, labor, environment, and anti-corruption.

• Aligns with the Sustainable Development Goals ( SDGs ).
• Provides a structured approach to assess and improve sustainability practices.
• Enhances transparency and accountability.

💡 The UN Global Compact is the world's largest corporate sustainability initiative, with over 12,000 participants in 170 countries.

Carbon Trust Standard

The Carbon Trust Standard certifies organizations that measure, manage, and reduce their carbon emissions and improve their resource management.

• Focuses on carbon, water, and waste management.
• Provides independent verification of sustainability achievements.
• Encourages continuous improvement in environmental performance.

💡 The Carbon Trust is a globally recognized organization that works with businesses, governments, and organizations to accelerate the transition to a sustainable, low-carbon economy.

ISO 26000 is an international standard providing guidelines for social responsibility. While not a certification, it offers guidance on how businesses and organizations can operate in a socially responsible way.

• Provides guidance on concepts, terms, and definitions related to social responsibility.
• Helps organizations integrate social responsibility into their values and practices.
• Covers a wide range of social responsibility topics including human rights, labor practices, the environment, and fair operating practices.

💡 ISO 26000 is developed by the International Organization for Standardization (ISO), a globally recognized body. The standard is used by companies in over 88 countries around the world.

EU Corporate Sustainability Reporting Directive (CSRD)

The EU's Corporate Sustainability Reporting Directive ( CSRD ) aims to standardize and enhance the quality of sustainability information disclosed by companies within the EU. This directive replaces the Non-Financial Reporting Directive (NFRD) and significantly expands the scope of reporting requirements.

• Mandatory sustainability reporting for large companies and listed SMEs.
• Requirements to report on environmental, social, and governance issues.
• Alignment with European Green Deal objectives and the Sustainable Finance Disclosure Regulation ( SFDR ).
• Ensures audited and comparable sustainability information across the EU.

💡 The CSRD is a critical component of the EU’s efforts to direct financial flows towards sustainable investments and achieve the goals of the European Green Deal. Nearly 50,000 companies are required to report under the directive.

Is it possible to use multiple sustainability standards?

You might be asking: Can I create reports using multiple standards?

Indeed, you can. Ideally, one might produce a comprehensive sustainability report using the GRI Standards for a broad audience, an integrated report following the IIRC guidelines for investors, and a detailed, industry-specific report using the SASB Standards. Additionally, aligning with TCFD recommendations can address climate-related financial disclosures, and using CDP can enhance environmental transparency. For companies operating in the EU, compliance with the CSRD is essential.

Remember, even starting with one of these frameworks and shifting your company towards a sustainability-oriented approach is already a significant stride forward.

Sustainability reporting in the United States

In the United States, sustainability reporting is becoming increasingly important, driven by a combination of regulatory requirements, investor expectations, and market trends. Here’s a look at what companies operating in the US need to know about sustainability reporting:

Regulatory landscape

While the US does not yet have a comprehensive federal mandate for sustainability reporting akin to the European Union's Corporate Sustainability Reporting Directive ( CSRD ), several regulations and guidelines encourage or require disclosure of certain sustainability-related information:

• Securities and Exchange Commission (SEC) : The SEC has proposed new rules to enhance and standardize climate-related disclosures for investors. These proposed rules would require publicly traded companies to disclose information about their greenhouse gas emissions, climate-related risks, and governance of climate-related risks.
• Environmental Protection Agency (EPA) : The EPA provides guidelines for reporting on various environmental factors, including greenhouse gas emissions and pollution levels, which many companies include in their sustainability reports.
• State-Level Initiatives : Some states, like California, have enacted more stringent environmental regulations that indirectly affect corporate sustainability reporting. Companies operating in these states must adhere to state-specific requirements that often exceed federal regulations.

Investor expectations

US investors are increasingly factoring sustainability into their decision-making processes. Asset managers and institutional investors are pushing for greater transparency and standardized reporting on ESG factors. Key initiatives include:

• Principles for Responsible Investment (PRI) : Many US-based investors are signatories to the PRI , which encourages the incorporation of ESG issues into investment practice.
• Sustainable Accounting Standards Board ( SASB ) : SASB provides industry-specific standards that guide companies on what sustainability information is most material to investors. Adopting SASB standards can help companies meet investor expectations and improve their attractiveness to sustainability-focused investors.

Market trends

The US market is witnessing a growing demand for sustainable business practices. Consumers, particularly younger demographics, are more likely to support companies with strong sustainability credentials. This trend is pushing companies to adopt and report on sustainable practices to maintain market competitiveness.

Voluntary frameworks and standards

Many US companies voluntarily adopt international sustainability reporting frameworks to align with global best practices and meet stakeholder demands. The most commonly adopted frameworks in the US include:

• Global Reporting Initiative (GRI) : GRI standards are widely used by US companies to report on a broad range of ESG issues.
• Task Force on Climate-related Financial Disclosures (TCFD) : The TCFD framework is gaining traction in the US for its focus on climate-related financial risks and opportunities.
• Carbon Disclosure Project (CDP) : Many US companies report to CDP to disclose their environmental impacts and management strategies.

What about Greenly? 

At Greenly we can help you to assess your company’s carbon footprint, and then give you the tools you need to cut down on emissions. Request a free demo with one of our experts to develop your personalised action plan today!

If reading this article has inspired you to consider your company’s own carbon footprint, Greenly can help. Learn more about Greenly’s carbon management platform here .

More articles

How to Choose a Framework Among All ESG Standards

In this article, we’ll give a brief overview of ESG standards, why they are important, and how your company can pick the ESG framework most suited towards your individual goals.

How to conduct a useful Life Cycle Assessment

In this article, we’ll explore what LCAs actually involve and what companies can do to carry out an effective one.

What is ESG reporting, and should you be doing it?

👉 In this article, we’ll delve into what ESG reporting requires, why it’s important for businesses, and what benefits it can bring.

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Overselling Sustainability Reporting

• Kenneth P. Pucker

For two decades progressive thinkers have argued that a more sustainable form of capitalism would arise if companies regularly measured and reported on their environmental, social, and governance (ESG) performance. But although such reporting has become widespread, and some firms are deriving benefits from it, environmental damage and social inequality are still growing.

This article, by Timberland’s former COO, outlines the problems with both sustainability reporting and sustainable investing. The author discusses nonstandard metrics, insufficient auditing, unreliable ESG ratings, and more. But real progress, he says, requires not just better measurement and reporting practices but also changes in regulations, investment incentives, and mindsets.

We’re confusing output with impact.

Idea in Brief

Over the past two decades, many people bought into the idea that if corporations committed to measuring and reporting on their sustainability performance, the payoffs would be profound. Companies would do less harm to the planet and more good for society. Investors and consumers would reward strong performers. Rigorous metrics would become the norm. Over time, the result would be a more sustainable form of capitalism.

The Reality

It hasn’t worked. Reporting is riddled with problems, and sustainable investing is overhyped. Meanwhile, environmental threats continue to mount, and inequality continues to grow.

A Better Approach

Metrics can and should be improved, and stakeholder pressure will incrementally advance sustainability. However, we also need stronger civic engagement, sharper regulation, different incentives for investment, and a rethinking of what makes a company or society successful.

Over the past 20 years many forward-thinking academics, consultants, executives, and NGO leaders have promoted a theory outlining how businesses can prosper while pursuing a greener and more socially responsible agenda. These people, whom I refer to collectively as “Sustainability Inc.,” believed that if companies committed to measuring and reporting publicly on their sustainability performance, four things would happen:

• Kenneth P. Pucker is a professor of practice at The Fletcher School at Tufts University and was formerly the chief operating officer of Timberland. kpucker31

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How to Write an Impactful Sustainability Report

A growing number of business schools are producing reports that explore how they are integrating sustainability issues into their strategies, curricula, research, and operations. Such documents can be important tools that communicate where schools stand, where they’re going, and why their efforts matter. Reports also can show internal and external stakeholders how they can engage with a school’s ongoing efforts.

“A sustainability report is important because what gets measured gets done—and improved!” says Sukhbir Sandhu, associate professor in sustainability and ethics at the University of South Australia’s Business School (UniSA) in Adelaide. “A report provides a school with a chance to understand and carefully analyze its commitment to the United Nations’ Sustainable Development Goals (SDGs). It opens an opportunity for dialogue and partnerships, and the feedback enables the school to work toward continuous improvement.”

If you’re thinking about creating a sustainability report for your school, view it as a societal impact business card. But keep in mind that producing such a document is a resource-intensive task. Therefore, you should not simply focus on what the final report looks like, but also consider how you will use it after it’s finished. Here are a few things to think about as you plan.

Identify Your Target Audiences

The effectiveness of your report will be shaped well before you put anything on paper. What you choose to include will depend on who your intended audience is, how you approach the topic as a school, and what reporting requirements you may have. Therefore, take time to consider why you are chronicling your sustainability progress and who might want to know about it.

“One of our challenges is to write a document that can be used as input for different types of reporting—for example, voluntary initiatives and accreditations that require we report on sustainability,” notes Kim Ceulemans, associate professor of management control and sustainability at Toulouse Business School in France. “In the future, we would like to find a way to gather all the requirements of the different organizations in one single report.”

In other words, ask yourself, “If I were a student, potential student, staff member, or external stakeholder, would this report provide a good overview of what is happening and make me want to get more involved in the initiatives listed?” Write your report with purpose.

“Reporting does need someone to drive the process,” says Jill Bogie, an adjunct faculty member at the Gordon Institute of Business Science at the University of Pretoria in South Africa. According to Bogie, a meaningful report will accurately reflect “what the organization does, rather than cherry-pick a few good stories.”

To assemble such a comprehensive report, you will need input from every department and function at the school. You could even engage students in the process of researching, designing, and disseminating the report—something few schools currently do.

Set the Scene

Use the first few pages to highlight key messages and summarize what has happened since your last report. Include any letters from management and sustainability teams. Avoid vague statements about making commitments; instead, use this section to explain why sustainability is important to the institution and what you are doing about it.

Avoid vague statements about making commitments; instead, use this section to explain why sustainability is important to the institution and what you are doing about it.

Don’t assume your readers know how you define sustainability. Include information on how you approach the topic, how you are embedding it into the school, and who is driving key initiatives. These opening pages will set the tone for the rest of the document.

Dive Into the Details

The bulk of your report will provide specifics about what your institution is doing. School leaders often find that more is happening in their communities than they expected. Therefore, your challenge might not be determining what to include, but deciding what to leave out.

“Be specific about what you have done rather than describe what you should do or will do or are planning to do,” says Bogie. “Certainly, you should set targets, but what you report should be verifiable.”

Your report should include, but is not limited to, updates in these areas:

• Curriculum. How is sustainability integrated into the classroom, not just in electives, but in core courses? How are faculty and students supported in this effort? For example, does the school offer training?
• Research. How are your faculty exploring sustainability in their research? What kind of impact is the research having?
• Partnerships. With whom are you working and on what projects? Why are these collaborations important?
• Dialogue. How do you engage your community in your sustainability initiatives?
• Operations. How do you translate the SDGs into your own operations? How are you walking the talk?

Create an Attractive Package

Producing compelling content is only half the battle. Many readers will first judge the report by its cover, so make sure the whole package is well-designed. It doesn’t have to be fancy to be good, but it does need to be easy to read.

It’s better to highlight a few examples of your sustainability initiatives and provide additional details on those. Readers will remember the stories, not the lists.

Use the formatting to highlight the content rather than overwhelm it. Stay on track and don’t include additional information that distracts the reader—for example, avoid long lists of every sustainability-related activity at the school. If these lists are needed, include them in appendices at the end or provide links for more information.

Get Your Report From Good to Great

Two elements make a report more impactful:

Goals and targets. Include these throughout the report, and also outline the goals and targets you’ve set for the next reporting period. “At UniSA Business, we use stakeholder feedback to develop our goals with clear accountability in terms of when these goals will be achieved, by whom, and how,” says Sandhu. “This ensures that the report becomes a focused plan of action.”

Reflections and challenges. Celebrate your successes, but also reflect on goals that weren’t reached or challenges you are trying to overcome as an institution. Engage the reader by asking thoughtful questions: How can we bring about change as a sector? What would this change mean for the institution? For society?

Make It Unique

While a growing number of organizations provide some guidance for how schools should report on sustainability, there is no generally accepted standard. For that reason, you have the flexibility to create a report that makes sense for your stakeholders and that clearly communicates who you are.

Get inspiration by looking at other reports, because every institution and every region will have its own reporting “culture.” While some reports will focus more on metrics, others will share stories of impact. Assess which approach seems true to your own school’s story.

Ultimately, don’t write the report you think you should be presenting to the world. Write the report that accurately and honestly represents your institution and the work your community is doing.

Bring It to Life

Too often, sustainability reports sit on tables in reception areas and are forgotten. To make sure that doesn’t happen to your project, take the time to think about how you will share it when it’s finished.

Engage stakeholders in communicating different messages from your report to segmented audiences. Create videos for your website, present information at events, share nuggets over social media, and design radio and print ads. Contact the press and highlight specific examples that would be of interest to wider audiences. Create informative one-page press releases that are based on information in the report and aimed at specific audiences. Bring the document to life and live it.

A report provides an excellent opportunity for a school to engage in further sustainability efforts and to discuss its initiatives with the whole community. But a school must put in the time and effort to get the report right.

As Bogie puts it, “A good sustainability report is not created from a big budget and a great design. It comes from teamwork, genuine dedication to integrating the SDGs into organizational activities and processes, and improvement over time.”

For more on how business schools are embedding sustainability, follow  Giselle’s List , a weekly curated list of ideas and resources.

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Sustainability reporting through environmental, social, and governance: a bibliometric review.

1. Introduction

• What is the current trend in ESG and sustainability reporting?
• What are the most influential articles on ESG and sustainability reporting?
• What are the most popular ESG and sustainability reporting topics among academics?
• Who are the most influential authors of ESG and sustainable development reporting?
• What is the status of collaboration on ESG and sustainability reporting?
• What is the intellectual structure of recent ESG research and sustainability reporting?

2. Literature Review

3.1. data collection, 3.2. data extraction, 3.3. data analysis, 4.1. publication trend, 4.2. document and source types, 4.3. languages of documents, 4.4. subject area, 4.5. geographic distribution of publication and affiliation, 4.6. authorship and journal analysis, 4.7. citation analysis, 4.8. keywords analysis, 4.9. page rank analysis, 4.10. co-citation analysis, 5. discussion, 6. conclusions, author contributions, conflicts of interest.

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Authors	Purpose	Theoretical Framework	Findings	Key Limitations/Future Research
Osobajo et al., 2022 [ ]	Conducting a bibliometric literature assessment of peer-reviewed studies on sustainability performance reporting published between 1987 and 2022	Stakeholder and communication theory	There is a need for researchers to consider how businesses in different industries monitor and report sustainability performance, and how many stakeholders are involved in the process.	To include published books and non-reference/peer-reviewed articles to improve search parameters
Khan, 2022 [ ]	Using bibliometric analysis and meta-analysis on ESG performance and its impact on performance (1997–2020)	Stakeholder theory	ESG disclosure impacts firms’ financial and market performance both in normal market conditions and during economic crisis
Nobanee et al., 2021 [ ]	Applying the bibliometric method to analyse related literature on sustainability practices and risk management (1989–2020)	None noted	Sustainability remains a global issue; every individual is socially responsible to mitigate the adverse impact on the economy	Future research requires authors to include key citations from top journals to most cited papers.
Meseguer-Sánchez et al., 2021 [ ]	To examine the relationships between the concepts of sustainability and CSR in order to comprehend the advancements of current scientific production and potential future research directions-bibliometric analysis from 2002–2020.	Stakeholder	In the past five years, a rise in the number of scientific journals, nations, and institutions has been driven by an interest in examining the effects of reaching the Sustainable Development Goals (SDG).	Overly focused on scientific articles from 2001 to 2020, excluding book publications
Gao et al., 2021 [ ]	To analyse the literature related to ESG using publishing metrics in order to provide a research agenda for future studies (1934–2021)	Stakeholder theory	Discover the trends and offer helpful information to academics working on similar topics, uncover the state of scientific output and map the ESG’s intellectual structure.
Ye et al., 2020 [ ]	Employing bibliometric analysis using ‘CiteSpace’ which was downloaded from the WoS/SSCI database to analyse and visualise the knowledge map of CSR-related sustainable development (1997–2019)	Stakeholder theory, institutional and legitimacy theories	Discovered the CSR/SD academic research evolution process and research frontiers, and identified the several development stages
Tseng et al., 2020 [ ]	Conduct a thorough analysis of papers on the triple bottom line (TBL) published between January 1997 and September 2018 in an attempt to provide insightful information and guidance for further discussion.	Stakeholder, Legitimacy, and fuzzy theory	Traditional TBL is insufficient to fully cover the concept of sustainability: other aspects e.g., engineering, technical, and operational considerations should also be considered.	Basic statistics are used in this article to describe the findings, and content analysis for each associated article may be used in future research to acquire more in-depth data to support their theoretical underpinnings.

Keywords	Years	Document Type	Language	Source Type
Environment	1998 to 2022	-	-	-
Social
Governance
Sustainability
Reporting

Document Type	NP	%	Source Type	NP	%	Access Type	NP	%
Article	271	75.7	Journal	290	81.0	All Open Access	137	42.4
Conference Paper	34	9.5	Conference Proceeding	30	8.4	Gold	64	19.8
Review	23	6.4	Book	18	5.0	Hybrid Gold	19	5.9
Book Chapter	21	5.9	Book Series	18	5.0	Bronze	20	6.2
Book	7	2.0	Trade Journal	2	0.6	Green	83	25.7
Conference Review	1	0.3
Editorial	1	0.3

Language	NP	%
English	350	97.8
Portuguese	3	0.8
Spanish	2	0.6
Afrikaans	1	0.3
Chinese	1	0.3
Ukrainian	1	0.3

	Subject Area	NP	%
1	Business, Management, and Accounting	208	29.2
2	Social Sciences	133	18.7
3	Environmental Science	113	15.9
4	Economics, Econometrics, and Finance	89	12.5
5	Energy	71	10.0
6	Engineering	29	4.1
7	Agricultural and Biological Sciences	19	2.7
8	Computer Science	19	2.7
9	Decision Sciences	18	2.5
10	Arts and Humanities	13	1.8

	Country	TP	NCP	TC	C/P	C/CP	h-Index	g-Index
1	United States	58	46	2017	34.8	43.8	16	44
2	United Kingdom	42	39	1891	45.0	48.5	17	42
3	Australia	37	33	833	22.5	25.2	14	28
4	Italy	26	21	7614	292.8	362.6	43	79
5	Spain	21	20	804	38.3	40.2	10	21
6	Czech Republic	18	15	222	12.3	14.8	8	14
7	South Africa	18	16	333	18.5	20.8	7	18
8	Malaysia	16	11	963	60.2	87.5	4	16
9	Canada	15	12	1256	83.7	104.7	9	15
10	India	14	8	345	24.6	43.1	5	14

	Author (Affiliation)	TP	NCP	TC	C/P	C/CP	h-Index	g-Index
1	Buallay, A. (Ahlia University)	11	9	216	19.6	24.0	8	11
2	Rezaee, Z. (University of Memphis)	9	8	221	24.6	27.6	5	9
3	Kocmanová, A. (Brno University of Technology)	9	7	110	12.2	15.7	5	9
4	Trenz, O. (Mendel University)	7	6	74	10.6	12.3	4	5
5	Camilleri, M.A. (University of Malta)	5	5	170	34.0	34.0	3	7

	Journal	TP	%
1	Sustainability	29	29.9
2	Business Strategy and The Environment	12	12.4
3	Sustainability Accounting Management and Policy Journal	12	12.4
4	Journal Of Cleaner Production	11	11.3
5	Acta Universitatis Agriculturae Et Silviculturae Mendelianae Brunensis	6	6.2
6	Corporate Social Responsibility and Environmental Management	6	6.2
7	Meditari Accountancy Research	6	6.2
8	Journal Of Business Ethics	5	5.2
9	Journal Of Sustainable Finance and Investment	5	5.2
10	Sustainable Development	5	5.2

Metrics	Data
Publication years	1998–2022
Citation years	24 (1998–2022)
Papers	358
Authors	162
Citations	7614
Citations/year	317.25
Citations/paper	21.27
Citations/author	47.00
Papers/author	2.21
Authors/paper	2.64
h-Index	43
g-index	79
hI, norm	30
hI, annual	1.25
hA, index	17

Keyword	Total Publications (TP)	%
Sustainability	125	22.1
Sustainable Development	83	14.7
Sustainability Reporting	82	14.5
Corporate Social Responsibility	66	11.7
Corporate Governance	53	9.4
Governance Approach	36	6.4
Stakeholder	26	4.6
Environmental	25	4.4
Integrated Reporting	25	4.4
ESG	22	3.9
Governance	22	3.9

Publications	Page Rank	Total Citation
Frías-Aceituno et al. (2013) [ ]	0.060846	177
Mahmood et al. (2018) [ ]	0.060846	62
Stent and Dowler (2015) [ ]	0.057978	91
Guthrie et al. (2017) [ ]	0.041691	109
Bonsón and Bednárová (2015) [ ]	0.041691	72
Camilleri (2015) [ ]	0.041691	59
Odriozola et al. (2017) [ ]	0.028922	99
Weber (2014a) [ ]	0.028922	76
Maniora (2017) [ ]	0.028922	74
Whitmee et al. (2015) [ ]	0.022537	928

Cluster One	PageRank	Cluster Two	PageRank
Simnett et al. (2009) [ ]	0.038887	Wagner (2010) [ ]	0.076236
Young and Marais (2012) [ ]	0.019797	Simpson and Kohers (2002) [ ]	0.040424
Reverte (2009) [ ]	0.019094	Velte (2017) [ ]	0.029896
Simnett and Huggins (2015) [ ]	0.017388	Renneboog et al. (2008) [ ]	0.016331
Said et al. (2009) [ ]	0.012758	Orlitzky et al. (2003) [ ]	0.016033
Neu et al. (1998) [ ]	0.011914	Porter and Kramer (2006) [ ]	0.014491
Schalteggerand Wagner (2006) [ ]	0.010683	Margolis and Walsh (2003) [ ]	0.008287
Patten (2002) [ ]	0.008790	Lins et al. (2017) [ ]	0.007910
Hahn and Kühnen (2013) [ ]	0.006727	Lopez et al. (2007) [ ]	0.007443
Haniffa and Cooke (2005) [ ]	0.006576	Jo and Harjoto (2011) [ ]	0.007274

Cluster Three	PageRank	Cluster Four	PageRank
Rezaee (2016) [ ]	0.015092	Sharfman and Fernando (2008) [ ]	0.020276
Plumlee et al. (2015) [ ]	0.013408	Nikolaev and van Lent (2005) [ ]	0.010173
Ng and Rezaee (2015) [ ]	0.007789	Mackey et al. (2007) [ ]	0.007875
Li et al. (2018) [ ]	0.007572	Larcker and Rusticus (2010) [ ]	0.006309
Mcwilliams and Siegel (2001) [ ]	0.006771	McWilliams et al. (2006) [ ]	0.005599
Khan et al. (2016) [ ]	0.005703	Gompers et al. (2003) [ ]	0.005595
Jizi et al. (2014) [ ]	0.005572	Galbreath (2013) [ ]	0.00437
Dhaliwal et al. (2011) [ ]	0.004898	Buallay (2019) [ ]	0.004026
Jensen (2002) [ ]	0.004575	Chih et al. (2010) [ ]	0.004014
Cheng et al. (2014) [ ]	0.004294	Eccles et al. (2014) [ ]	0.003987

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Bosi, M.K.; Lajuni, N.; Wellfren, A.C.; Lim, T.S. Sustainability Reporting through Environmental, Social, and Governance: A Bibliometric Review. Sustainability 2022 , 14 , 12071. https://doi.org/10.3390/su141912071

Bosi MK, Lajuni N, Wellfren AC, Lim TS. Sustainability Reporting through Environmental, Social, and Governance: A Bibliometric Review. Sustainability . 2022; 14(19):12071. https://doi.org/10.3390/su141912071

Bosi, Mathew Kevin, Nelson Lajuni, Avnner Chardles Wellfren, and Thien Sang Lim. 2022. "Sustainability Reporting through Environmental, Social, and Governance: A Bibliometric Review" Sustainability 14, no. 19: 12071. https://doi.org/10.3390/su141912071

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More than values: The value-based sustainability reporting that investors want

As evidence mounts that the financial performance of companies corresponds to how well they contend with environmental, social, governance (ESG), and other nonfinancial matters, more investors are seeking to determine whether executives are running their businesses with such issues in mind. When companies report on ESG-related activities, they have largely continued to address the diverse interests of their many stakeholders—a long-standing practice that involves compiling extensive sustainability reports and filling out stacks of questionnaires. Despite all that effort, a recent McKinsey survey uncovered something that should concern corporate executives and board members: investors say they cannot readily use companies’ sustainability disclosures to inform investment decisions and advice accurately. 1 For this research, we conducted a survey of 107 executives and investors, representing 50 companies, 27 asset managers, and 30 asset owners. The survey, carried out in January and February of 2019, covered Asia, Europe, and the United States. We also conducted interviews with 26 representatives of asset managers, asset owners, corporations, standard-setting organizations, nonprofit organizations, and academic institutions.

Investors say they cannot readily use companies’ sustainability disclosures to inform investment decisions and advice accurately.

What’s unusual and challenging about sustainability-focused investment analysis is that companies’ sustainability disclosures needn’t conform to shared standards in the way their financial disclosures must. Years of effort by standard-setting groups have produced nearly a dozen major reporting frameworks and standards, which businesses have discretion to apply as they see fit (see sidebar, “A short glossary of sustainability-reporting terms”). Investors must therefore reconcile corporate sustainability disclosures as best they can before trying to draw comparisons among companies.

A short glossary of sustainability-reporting terms

In this article, we use the following terms for certain elements of sustainability reporting:

• Sustainability disclosure. This disclosure is an item of qualitative or quantitative information about a company’s performance on a topic not addressed by standard financial and operational disclosures. Sustainability disclosures ordinarily relate to environmental, social, and governance matters, including companies’ sustainability impacts and responses to external sustainability trends. These disclosures sometimes encompass other topics, too, such as HR and intellectual property.
• Sustainability report. This report is a document containing a set of sustainability disclosures from an organization for a period of time. It can be a stand-alone document or a component of the annual report.
• Sustainability-reporting requirement. This requirement is a mandate from an authority (such as a regulator, a stock exchange, or a civil-society group) about a sustainability report’s content and nature. Some requirements apply to all companies in a given jurisdiction—for example, Directive 2014/95/EU of the European Parliament and the European Council, requiring some large companies to issue nonfinancial disclosures. Others, such as the UN Global Compact, apply only to companies that have voluntarily pledged to abide by them.
• Sustainability-reporting framework. This framework is a set of guidelines for determining what topics and disclosures a sustainability report should cover. The International Integrated Reporting Framework, published by the International Integrated Reporting Council (IIRC), is one example.
• Sustainability-reporting standard. This standard is a set of specifications for measuring and disseminating sustainability disclosures. Examples include the Global Reporting Initiative’s GRI Standards and the 77 industry-specific standards published by the Sustainability Accounting Standards Board.

Corporate executives and investors alike recognize that sustainability reporting could improve in some respects. One advance that executives and investors strongly support, according to our survey, is reducing the number of standards for sustainability reporting. Many executive respondents said they believe this would aid their efforts to manage sustainability impacts and respond to sustainability-related trends, such as climate change and water scarcity. And many investors said they expect greater standardization of sustainability reports to help them allocate capital and engage companies more effectively. While these findings might not surprise readers involved with sustainable investing or sustainability reporting, it was striking to learn that investors also support legal mandates requiring companies to issue sustainability reports (Exhibit 1). In this article, we offer executives, directors, and investors a look at how sustainability reporting has evolved, what further changes investors say they want, and how investors can bring about those changes.

Reporting today: Externality focused and inconsistent, yet informative

The current practice of sustainability reporting developed in the 1990s as civil-society groups, governments, and other constituencies called on companies to account for their impact on nature and on the communities where they operate. A milestone was passed in 2000, when the Global Reporting Initiative (GRI) published its first sustainability-reporting guidelines. The following year, the World Business Council for Sustainable Development and the World Resources Institute released the Greenhouse Gas Protocol. The same period also saw the creation of voluntary initiatives, such as the UN Global Compact and the Carbon Disclosure Project (now CDP), encouraging corporations to disclose information on sustainability. Since the financial crisis, additional frameworks and standards have emerged to help companies and their investors develop a greater understanding of the risks and benefits of ESG and nonfinancial factors. For example, the International Integrated Reporting Council (IIRC) advocates integration of financial and nonfinancial reports, the Sustainability Accounting Standards Board (SASB) identifies material sustainability factors across industries, and the Embankment Project for Inclusive Capitalism assembles investors and companies to define a pragmatic set of metrics to measure and demonstrate long-term value to financial markets. 

Given the proliferation of reporting frameworks and standards, companies have had to decide for themselves which ones to apply. These frameworks and standards allow businesses considerable freedom to choose their sustainability disclosures. Many companies select their disclosures by consulting members of stakeholder groups—consumers, local communities, employees, governments, and investors, among others—about which externalities, or impacts, matter most to them and then tallying the stakeholders’ interests in some way. More recently, stakeholders have asked for increased disclosure about how companies address opportunities and risks related to sustainability trends, such as climate change and water scarcity, which can meaningfully affect a company’s assets, operations, and reputation.

The scope and depth of these disclosures differ considerably as a result of the subjective choices companies make about their approaches to sustainability reporting: which frameworks and standards to follow, which stakeholders to address, and which information to make public. According to the executives and investors we surveyed, the diversity of these disclosures is a defining feature of sustainability reporting as we know it—and a source of difficulty, as we explain in the following section of this article.

The scope and depth of these disclosures differ considerably as a result of the subjective choices companies make about their approaches to sustainability reporting: which frameworks and standards to follow, which stakeholders to address, and which information to make public. According to the executives and investors we surveyed, the diversity of these disclosures is a defining feature of sustainability reporting as we know it—and a source of difficulty.

Nevertheless, 30-odd years of sustainability reporting have produced a trove of useful data. Stakeholders can use this information to track the relative sustainability performance of companies from year to year. By aggregating data from many companies, stakeholders can not only discern patterns and trends in companies’ responses to sustainability issues but compare and rank businesses as well.

Would you like to learn more about our Sustainability Practice ?

Analysts in academia, government, and the private sector have also used these sustainability disclosures to examine the link between sustainability performance and financial performance. A substantial body of research shows that companies that manage sustainability issues well achieve superior financial results. 2 Alexander Bassen, Timo Busch, and Gunnar Friede, “ESG and financial performance: Aggregated evidence from more than 2000 empirical studies,” Journal of Sustainable Finance & Investment , 2015, Volume 5, Issue 4, p. 210–33; Robert G. Eccles, Ioannis Ioannou, and George Serafeim, “The impact of corporate sustainability on organizational processes and performance,” Management Science , 2014, Volume 60, Issue 11, pp. 2835–57; Gordon L. Clark, Andreas Feiner, and Michael Viehs, From the stockholder to the stakeholder: How sustainability can drive financial outperformance , a joint report from Arabesque and University of Oxford, March 2015, insights.arabesque.com; “Sustainability: The future of investing,” BlackRock, February 1, 2019, blackrock.com. (Researchers have shown only that these two phenomena are correlated, not that effective sustainability management leads to better financial outcomes.)

Investors and asset owners appear to be taking note of corporate sustainability disclosures and adapting their investment strategies accordingly. The Global Sustainable Investment Alliance has found that the quantity of global assets managed according to sustainable-investment strategies more than doubled from 2012 to 2018, rising from $13.3 trillion to $30.7 trillion. 3 Global Sustainable Investment Review 2012 and Global Sustainable Investment Review 2018 , Global Sustainable Investment Alliance, gsi-alliance.org. BlackRock reports that assets in sustainable mutual funds and exchange-traded funds in Europe and the United States increased by more than 67 percent from 2013 to 2019 and now amount to $760 billion. 4 “Sustainability: The future of investing,” BlackRock, February 1, 2019, blackrock.com. And research by Morgan Stanley indicates that a majority of large asset owners are integrating sustainability factors into their investment processes. Many of those asset owners started to do so only during the four years before the survey. 5 “Sustainable signals: Asset owners embrace sustainability,” Morgan Stanley, June 18, 2018, morganstanley.com.

What investors want: Financial materiality, consistency, and reliability

With so much capital at stake, investors have begun to question prevailing sustainability-reporting practices. The shortcomings investors now highlight have existed for some time but were mostly acceptable to early sustainable investors and the diverse civil-society stakeholders that used to be the primary readers of sustainability reports. But now that more asset owners and asset managers are making investment and engagement decisions with sustainability in mind, a louder call has gone out for sustainability disclosures that meet the following three criteria.

Financial materiality

Investors acknowledge that their expectations for sustainability disclosures have shifted. As the head of responsible investing at a large global pension fund remarked, “The early days of sustainable investing were values based: How can our investing live up to our values? Now, it is value -based: How does sustainability add value to our investments?”

Investors want companies to provide more sustainability disclosures that are material to financial performance.

From our interviews and survey results, it is apparent that investors want companies to provide more sustainability disclosures that are material to financial performance. According to a senior sustainable-investing officer at one top 20 asset manager, “Corporations do not provide systematic data on one-third of the sustainability factors [that we consider] material.” This could change as more companies issue reports in line with the sector-specific standards that SASB created in consultation with industry experts and investors.

Government authorities and civil-society organizations also appear to be coming around to investors’ views about the material connection between a company’s handling of sustainability factors and its financial performance. The European Union’s 2014 directive on nonfinancial reporting and the Financial Stability Board’s creation of the Task Force on Climate-related Financial Disclosures in 2015 are two signals that financial regulators realize sustainability-related activities can materially affect the financial standing of companies and should be reported accordingly.

Consistency

With so many reporting frameworks and guidelines to choose from, and so many potential stakeholder interests to address, companies rarely make sustainability disclosures that can be compared as neatly as their financial disclosures can. This circumstance makes the job of investors more difficult, as they indicated in response to our survey (Exhibit 2). As the head of sustainable investing at a major asset manager explained, “We have positions in over 4,500 companies. Unless [sustainability information] is comparable, hard data, it is of little use to us.”

Inconsistencies among sustainability disclosures, which arise through no fault of the companies producing them, can also create problems for the many investors that obtain sustainability data from third-party services rather than individual sustainability reports. These services use different methods to estimate missing information, so there are discrepancies among data sets. Some services normalize sustainability information, replacing actual performance data (such as measurements of greenhouse-gas emissions) with performance scores calculated by methods the services don’t reveal. Research shows a low level of correlation among the data providers’ ratings of performance on the same sustainability factor. 6 Gregor Dorfleitner, Gerhard Halbritter, and Mai Nguyen, “Measuring the level and risk of corporate responsibility—an empirical comparison of different ESG rating approaches,” Journal of Asset Management , 2015, Volume 16, Issue 7, pp. 450–66. The correlation between ratings of the same performance factor is typically less than 0.6 and can fall to as low as 0.05. By comparison, credit ratings are highly correlated (0.9).

Similarly, proprietary indexes and rankings of sustainable companies, which some asset managers use to construct index-fund portfolios, can also diverge greatly. It is not unusual for a company to be rated a top sustainability performer by one index and a poor performer by another. 7 James Mackintosh, “Is Tesla or Exxon more sustainable? It depends whom you ask,” Wall Street Journal , September 17, 2018, wsj.com. And some data services fail to include sustainability data companies have disclosed. 8 “Sustainability: The future of investing,” BlackRock, February 1, 2019, blackrock.com.

Reliability

As the head of responsible investing for one of the world’s five largest pension funds put it, “Many companies do not have the systems in place to collect quality data for [sustainability] reporting.” For certain tangible sustainability factors, such as greenhouse-gas emissions, performance-measurement systems are generally well established. For other factors, such as corporate culture, human capital, and diversity and inclusion, clear ways to gauge performance are more elusive.

Investors also harbor doubts about corporate sustainability disclosures because few of them undergo third-party audits. Nearly all the investors we surveyed—97 percent—said that sustainability disclosures should be audited in some way, and 67 percent said that sustainability audits should be as rigorous as financial audits (Exhibit 3).

Refining the practice of sustainability reporting

In our survey and interviews, one priority for improving sustainability reporting stood out: ironing out the differences among reporting frameworks and standards. When we asked survey respondents to assess the challenges of sustainability reporting, executives and investors both rated “inconsistency, incomparability, or lack of alignment in standards” as the most significant challenge. A majority of respondents to our survey—67 percent—said there should be only one standard, and an additional 21 percent said there should be fewer than exist now.

In our survey and interviews, one priority for improving sustainability reporting stood out: ironing out the differences among reporting frameworks and standards.

The investors and executives who participated in our research also described several benefits of making reporting frameworks and standards more uniform. Investors expect greater uniformity to help companies disclose more consistent, financially material data, thereby enabling investors to save time on research and analysis and to arrive at better investment decisions. Some efficiency gains would accrue as third-party data providers begin aggregating sustainability information as consistent as the information they get from corporate financial statements.

Most of the investors we surveyed—63 percent—also said they believe that greater standardization will attract more capital to sustainable-investment strategies. However, about one-fifth of the surveyed investors said that uniform reporting standards would level the playing field, diminishing their opportunities to develop proprietary research insights or investment products (Exhibit 4).

Executives made clear, in our conversations, that they devote excessive effort and expense to answering numerous specialized requests for what is essentially the same information, such as greenhouse-gas emissions data that must be tabulated in different ways to conform to different standards.

This kind of burden would be lessened if the providers of reporting frameworks and standards combined or rationalized their rules and thereby reduced the number of major frameworks and standards to one or two. Companies could then use the same disclosures to fulfill the reporting demands of multiple authorities. (They could still develop additional sustainability disclosures if they chose to address stakeholder queries or concerns that the main mechanism didn’t cover.) Establishing one or two reporting standards would also simplify the task of auditing sustainability disclosures, making it more economical for companies to have their reports independently verified.

How investors can help effect change

Reducing the number of reporting frameworks and standards will probably involve several more years of effort by businesses, investors, and standard-setting organizations—which have begun to identify gaps and redundancies among disclosures—and by other stakeholders, such as civil-society groups and regulators. As it is, many investors avoid participating in standard-setting efforts. Some we interviewed said they distance themselves because they feel that standard setting should address their needs as a matter of course. Yet some standard setters told us they assume that investors can readily obtain the sustainability information they value and therefore focus on the interests of other stakeholders.

Our conversations lead us to believe that there’s some truth to both viewpoints. Yet our survey findings and interviews also suggest that investors could make valuable contributions to standard-setting efforts if they chose to increase their participation. Active investors are likelier to do so, since they pay more attention than index investors to the sustainability disclosures of individual companies. Until investors clarify which sustainability disclosures they want and help to rationalize frameworks and standards, sustainability reports might continue to deliver less material information than they would like.

From ‘why’ to ‘why not’: Sustainable investing as the new normal

Investors can do several other things to make better use of the sustainability-related information companies now make available. First, they can articulate the sustainability disclosures that matter most for their investment decisions and convey these interests to businesses. Going a step further, more investors could engage companies (through direct dialogue and shareholder voting) about their approach to managing sustainability issues.

More investors could also adopt the still-uncommon practice of collecting and analyzing data from sources other than corporate sustainability reports and disclosures. Some investors have developed algorithms that automatically gather nonfinancial data from public sources (such as government databases of health and safety incidents or websites where people post comments about their employers) and scan these data for patterns that relate meaningfully to corporate financial performance.

Until investors clarify which sustainability disclosures they want and help to rationalize frameworks and standards, sustainability reports might continue to deliver less material information than they would like.

As the market for sustainable investments expands, more investors are taking a keen interest in sustainability reports from companies. Yet the information these investors find seldom meets their expectations. From an investor’s standpoint, sustainability disclosures tend to be loosely related to financial performance, difficult to compare from one company to another, and less than reliable. Investors who take part in efforts to improve sustainability-reporting practices could gain an edge over their more detached peers. Executives and board members should stay attuned to these efforts, and even participate in them, to maintain their companies’ standing with shareholders.

Stay current on your favorite topics

Sara Bernow is a partner in McKinsey’s Stockholm office, where Charlotte Merten is a consultant; Jonathan Godsall is a partner in the New York office; and Bryce Klempner is a partner in the Boston office.

The authors wish to thank Lisen Follin, Conor Kehoe, and Taylor Ray for their contributions to this article.

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11 Sustainability Report Examples by Industry Giants

Explore leading sustainability report examples. Uncover top environmental practices and insights to enhance your corporate responsibility strategy.

Hadar Peretz

8 minute read

Short answer

What to include in a sustainability report?

Executive Summary

Climate Solutions

Waste and Packaging

Products and Services

Water Stewardship

Human Rights

Supply Chain Management

Employee Well-being

Inclusive Experiences

Future Goals and Commitments

What makes an effective sustainability report?

An effective sustainability report is transparent, comprehensive, and aligned with stakeholder interests. It should be data-driven, actionable, and showcase both achievements and areas for improvement.

What considerations should guide you when creating a sustainability report

Stakeholder engagement: Understand their concerns and priorities.

Materiality: Focus on issues with the most significant impact.

Transparency: Be open about challenges and progress.

Relevance: Ensure content is pertinent to the business and industry.

Continuous improvement: Regularly update and refine the report. considerations.

Interactive narrative design: Engage readers with a dynamic, immersive storytelling approach using scrollytelling , enhancing user experience and fostering deeper content engagement.

11 effective examples to elevate your sustainability report

Explore 11 standout examples from industry giants to enhance your sustainability report. Gain insights from top practices and set new standards for corporate responsibility .

Amazon Sustainability Report 2022

The 2022 Amazon Sustainability Report showcases Amazon's commitment to building a sustainable future.

It targets a diverse audience, including stakeholders, employees, and the general public, detailing the company's progress in various sustainability initiatives, from carbon reduction to human rights.

The report emphasizes Amazon's ambition to be net-zero carbon by 2040, a decade ahead of the Paris Agreement.

Unique and Effective Approaches

Holistic approach: Amazon's report covers a comprehensive range of topics, from carbon emissions and renewable energy to human rights and product sustainability, providing a 360-degree view of their sustainability efforts.

Quantifiable metrics: The report offers clear, quantifiable metrics, such as a 7% decrease in carbon intensity and 90% of electricity from renewable sources, making their progress measurable and transparent.

Engaging visuals: The structure, combined with visuals like charts and images, makes the report engaging and easy to digest, enhancing its impact on the reader.

Meta Sustainability Report 2023

Meta's 2023 Sustainability Report likely highlights the company's commitment to creating a more sustainable digital realm.

Designed for stakeholders, partners, and the global community, the report probably emphasizes Meta's initiatives in reducing its carbon footprint, promoting responsible tech development, and ensuring community well-being.

Virtual reality for sustainability: Meta might showcase how its VR platforms can promote sustainability by reducing physical travel and fostering virtual collaboration.

Data center efficiency: The report could emphasize Meta's advancements in creating energy-efficient data centers, reducing overall environmental impact.

Community-centric initiatives: Meta might spotlight its programs that focus on digital literacy, online safety, and community engagement, ensuring a sustainable and safe online environment.

Microsoft Sustainability Report 2022

Microsoft's Sustainability Report likely delves into the company's initiatives and commitments to creating a sustainable digital future.

Aimed at partners, customers, and the tech community, the report probably underscores Microsoft's efforts in carbon neutrality, sustainable data centers, and responsible AI.

Carbon negative pledge: Microsoft might emphasize its ambitious pledge to be carbon-negative by 2030, showcasing its leadership in addressing climate change.

AI for earth: The report could highlight Microsoft's "AI for Earth" program, which leverages artificial intelligence to solve environmental challenges.

Digital inclusion: Microsoft might spotlight its initiatives to promote digital inclusion, ensuring that its sustainable tech solutions reach and benefit diverse communities globally.

Apple Sustainability Report 2023

Apple's 2023 Environmental Progress Report likely details the company's strides in reducing its carbon footprint, promoting recycling, and innovating in sustainable product design.

Tailored for consumers, investors, and environmentalists, the report probably underscores Apple's commitment to a greener planet while pushing technological boundaries.

Product lifecycle analysis: Apple might delve deep into the environmental impact of its products, from manufacturing to disposal, offering a transparent view of its sustainability efforts.

Innovative recycling programs: Apple's initiatives, such as the robot "Daisy" that disassembles iPhones for recycling, could be highlighted as a unique approach to waste reduction.

Green energy commitment: The report might emphasize Apple's investments in renewable energy sources for its operations, showcasing a proactive approach to carbon neutrality.

Nestlé Sustainability Report 2022

Nestlé's 2022 Sustainability Report likely underscores the company's dedication to creating shared value for both its stakeholders and society.

Aimed at consumers, investors, and partners, the report probably delves into Nestlé's initiatives in sustainable sourcing, nutrition, and community engagement.

Nutrition-first approach: Nestlé might emphasize its commitment to enhancing the nutritional value of its products, aligning with global health goals.

Sustainable sourcing: The report could highlight Nestlé's partnerships with local farmers and its efforts in promoting sustainable agricultural practices.

Water stewardship: Given Nestlé's significant role in the beverage industry, the report might spotlight its initiatives in water conservation and responsible water management.

Rockwell Sustainability Report 2022

Rockwell Automation's Sustainability Report likely presents the company's commitment to creating a more sustainable and inclusive future through its automation and information solutions.

Tailored for clients, partners, and the industrial community, the report probably emphasizes Rockwell's role in driving sustainable industrial operations and its dedication to corporate responsibility.

Sustainable industrial solutions: Rockwell might highlight its innovative solutions that help industries reduce their carbon footprint, optimize resources, and enhance operational efficiency.

Inclusive workforce: The report could emphasize Rockwell's initiatives to promote diversity, equity, and inclusion within its workforce, showcasing its belief in the power of diverse perspectives.

Community engagement: Rockwell might spotlight its community outreach programs, partnerships with educational institutions, and initiatives that promote STEM education.

Coca-Cola Sustainability Report 2022

Coca-Cola's 2022 Sustainability Report likely showcases their global efforts to reduce environmental impact, promote community welfare, and ensure ethical business practices.

It's intended for a wide range of stakeholders, from consumers to investors, highlighting Coca-Cola's dedication to a sustainable and responsible business model.

Global reach, local impact: Coca-Cola, being a global brand, might emphasize initiatives tailored to local communities, showcasing a balance between global strategies and local actions.

Circular economy emphasis: Coca-Cola's efforts in recycling and promoting a circular economy, especially concerning their packaging, can be a standout feature.

Collaborative partnerships: The brand's collaborations with NGOs, governments, and other corporations to achieve sustainability goals can be a notable approach in their report.

GM Sustainability Report 2022

General Motors (GM) envisions a world with zero crashes, emissions, and congestion.

Their sustainability report is tailored for stakeholders, emphasizing GM's commitment to an all-electric future, carbon neutrality by 2040, and inclusive solutions for societal issues.

Holistic vision: GM's three-pronged vision of zero crashes, emissions, and congestion offers a comprehensive approach to sustainability, addressing safety, environmental, and traffic concerns.

Stakeholder engagement: The report highlights GM's efforts in engaging with stakeholders, from employees to suppliers, ensuring a broad perspective on sustainability.

Innovative spirit: GM's emphasis on research, development, and innovation showcases their proactive approach to sustainability, rather than just reactive measures.

Ford Sustainability Report 2023

Ford's 2023 report likely integrates both financial and sustainability data, reflecting the company's holistic approach to business and responsibility.

Designed for investors, partners, and the global community, the report probably emphasizes Ford's commitment to a sustainable future while maintaining financial robustness.

Integrated reporting: By combining financial and sustainability data, Ford might offer a comprehensive view of its performance, emphasizing the interconnectedness of profitability and responsibility.

Mobility focus: As a leading automobile company, Ford's sustainability efforts could be centered around sustainable mobility solutions, reducing emissions, and promoting electric vehicles.

Community engagement: Ford might highlight its initiatives that focus on community welfare, from educational programs to collaborations with local NGOs, showcasing a commitment beyond business.

DuPont Sustainability Report 2022

DuPont's 2022 Sustainability Report emphasizes the company's foundation in science and engineering.

It targets a wide array of stakeholders, showcasing DuPont's purpose to empower the world with essential innovations, built on three pillars: Innovate, Protect, and Empower.

Alignment with UN goals: DuPont's innovations are aligned with the UN Sustainable Development Goals, ensuring global relevance and impact.

Human impact stories: By highlighting the impact on over 3.5 million lives and showcasing 450 charitable projects across 29 countries, DuPont adds a personal touch to their sustainability narrative.

Collaborative networks: The emphasis on interconnectedness and collaboration, as mentioned by their Chief Technology and Sustainability Officer, showcases DuPont's belief in collective efforts for sustainable progress.

Sustainability report design best practices

Designing a sustainability report is not just about presenting data; it's about telling a story that resonates with stakeholders, from investors to employees to the general public. Here are some best practices to keep in mind:

1. Clarity and simplicity

Prioritize a clean design that emphasizes clarity. Utilize visual aids like charts and infographics to distill complex data, ensuring that readers can quickly grasp the information without feeling overwhelmed.

2. Consistent branding

Your sustainability report is an extension of your brand. Maintain brand consistency by using familiar fonts, colors, and design elements, ensuring that readers instantly recognize the company behind the report.

3. Interactive elements

Elevate the user experience by incorporating interactive features. Embed videos, clickable links, and dynamic charts that allow readers to delve deeper into specific topics or data points.

4. Narrative storytelling

Transform your report from a mere collection of data to a compelling narrative. Share the company's sustainability journey, highlighting both triumphs and challenges, to engage readers on a more personal level.

Narrative report example made with Storydoc:

5. High-quality imagery

Complement your content with impactful, high-resolution images that resonate with the report's theme. Choose photos that evoke emotion and align with the sustainability narrative.

6. Spotlight on achievements

While comprehensive data is crucial, it's equally important to accentuate key milestones. Create dedicated sections or visual highlights that draw attention to significant sustainability achievements.

7. Guided storytelling design

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The challenges of sustainability reporting and their management: the case of Estra

Meditari Accountancy Research

ISSN : 2049-372X

Article publication date: 30 December 2020

Issue publication date: 23 June 2021

The purpose of this paper is to investigate the challenges that companies could face over time when dealing with sustainability reporting (SR) and focusses on potential mechanisms they may adopt to cope with them.

Design/methodology/approach

The investigation is conducted adopting the theoretical framework proposed by Baret and Helfrich (2018) and using a longitudinal case study.

The authors found that the challenges that gradually arose induced the evolution of SR. Dissemination, employees’ involvement, managerial commitment and routinization/institutionalization of reporting practices appeared to be useful mechanisms to face the related challenges. Conversely, the authors found that stakeholders’ engagement scarcely affected SR. Furthermore, the legislation impacted the extent and quality of disclosed contents and fostered the standardization of the reporting process.

Practical implications

In analysing how Estra faced SR challenges, this paper emphasizes the mechanisms that can be used to properly manage them, in a gradual and holistic way. Hence, this study offers a useful example for companies approaching SR for the first time.

Originality/value

The authors adopt a holistic theoretical perspective providing evidence on how SR development within a company depends on the continuous and integrated management of its multiple challenges, also suggesting that its interdependencies with the definition and execution of sustainability should be exploited.

• Sustainability Reporting
• Directive 2014/95/EU

De Micco, P. , Rinaldi, L. , Vitale, G. , Cupertino, S. and Maraghini, M.P. (2021), "The challenges of sustainability reporting and their management: the case of Estra", Meditari Accountancy Research , Vol. 29 No. 3, pp. 430-448. https://doi.org/10.1108/MEDAR-09-2019-0555

Emerald Publishing Limited

Copyright © 2020, Patrice De Micco, Loredana Rinaldi, Gianluca Vitale, Sebastiano Cupertino and Maria Pia Maraghini.

Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence maybe seen at http://creativecommons.org/licences/by/4.0/legalcode

1. Introduction

Nowadays, it is generally recognized that corporate performance must be assessed not only on the basis of financial results but also considering the impacts generated on the social and environmental context ( Schaltegger and Wagner, 2006 ). This need has been highlighted by scholars ( Manes-Rossi et al. , 2018 ) and practitioners ( Business Roundtable, 2019 ). Therefore, companies are increasingly called to communicate their performance in a holistic and integrated manner to demonstrate if and how sustainability is embedded in their corporate vision and strategy ( Porter and Kramer, 2011 ), also meeting stakeholders’ and institutional claims for an enhanced corporate transparency. Accordingly, sustainability reporting (SR) is becoming a mainstream practice ( Bini and Bellucci, 2020 ) and a tangled process to manage.

Nevertheless, SR involves considerable challenges – in terms of managing and communicating non-financial information ( Brusca et al. , 2018 ) – that can weaken it ( Brand et al. , 2018 ). On the contrary, if properly addressed, challenges can turn into business opportunities ( Schaltegger et al. , 2017 ). Hence, understanding how companies face SR challenges and the related mechanisms they implement can be useful to improve SR. This motivated us to perform the present study and address the following research questions: Which are the main challenges that a firm should face over time when dealing with SR? and Which mechanisms can be adopted to cope with these challenges?

Moreover, most studies tend to use a single theoretical perspective when investigating SR. Nevertheless, according to some authors ( Hahn and Kuhnen, 2013 ; Cho et al. , 2015 ), adopting a single theoretical approach could represent a limit, due to the complexity and the ever-changing nature of sustainability. To overcome such a limit, we adopted a holistic theoretical perspective that, taking into account the multiple dimensions of sustainability, allowed us to provide a wide overview of the possible SR challenges and to highlight how they can be successfully managed.

To fully understand the mechanisms implemented to cope with SR challenges (both formal and informal) and their effects (both tangible and intangible), we carried out an in-depth analysis, developing a five-year longitudinal case study of an Italian multiutility large company. This paper is currently among the few studies present in literature that, through a longitudinal case study, analyses the challenges and the related mechanisms characterizing the implementation of SR since the earliest stages, in a holistic manner.

The paper is structured as follows: Section 2 focuses on the literature review and the theoretical framework. Then, the methodology is described. Sections 4 and 5 present results and discussion, respectively. The paper ends with conclusions, limitations and future research opportunities.

2. Literature review, theoretical framework and research objectives

During the past two decades, SR has increasingly become a common managerial practice among companies ( Higgins et al. , 2020 ) and growing attention has been paid to it by academic literature ( Bini and Bellucci, 2020 ). Accordingly, several research streams arose.

One of such streams focuses on the contents of sustainability reports. Several scholars investigated the degree of non-financial disclosure compliance with reporting standards ( Manes-Rossi et al. , 2018 ; Sierra-Garcia et al. , 2018 ), while others analysed the changes in sustainability reports’ contents over time ( Feng and Ngai, 2020 ; Samkin, 2012 ). Since the enactment of the Directive 2014/95/EU, scholars also focussed on the effects of legislation requirements on the extent, quality and completeness of non-financial statements (NFSs) published by companies of different EU member states ( Carini et al. , 2018 ; Venturelli et al. , 2017 ).

Another important stream of literature deals with non-financial disclosure determinants . In this context, some authors found out that stakeholders’ and institutional pressures are the main factors pushing companies to elaborate or modify sustainability reports ( Duran and Rodrigo, 2018 ). Other scholars motivated the choice to elaborate sustainability reports with the will of avoiding reputational risks ( Reverte, 2009 ) or increasing corporate legitimacy ( De Villiers and Alexander, 2014 ; O’Donovan, 2002 ).

A different research stream takes a more managerial perspective , focussing on how SR has been developed, rather than why . Adams and McNicholas (2007) , through Lewin’s field theory, showed how SR can improve sustainability performance by developing learning processes, dialogue, commitment and assessment tools. In the wake of Adams and McNicholas (2007) , Massa et al. (2015) showed how, initially, the sustainability report tends to have only a disclosure purpose, while, over time, it becomes a tool to foster planning and sustainability strategies.

Thus, prior studies tend to use single theoretical perspectives. Hahn and Kuhnen (2013) found that most of the literature on SR adopts four main theories – legitimacy theory, stakeholder theory, institutional theory and signalling theory – also highlighting that scholars tend to focus on single SR issues or aspects, producing contrasting results. In addition, some recent studies ( Mitchell et al. , 2012 ; Rowbottom and Locke, 2016 ) adopted two alternative theories: Actor–network theory and learning-based theory. Table 1 reports the main SR literature’s studies, dividing them according to the theory adopted and presenting their key findings.

Using a single theoretical approach could represent a limit, as SR is a complex phenomenon due to its multiple dimensions and to the variety of actors involved. For this reason, Hahn and Kuhnen (2013) and Cho et al. (2015) called for the adoption of more holistically theoretical views to investigate SR and to better understand its complexity.

Responding to this call, Baret and Helfrich (2018) proposed a framework (B&H, 2018) that includes the main theoretical approaches traditionally used in literature to analyse SR complexity. They identified three main sets of constraints connected to the different SR dimensions:

The first set of constraints, analysed through network-based theory ( Callon, 1986 ) and stakeholder theory ( Freeman, 1984 ), is related to the intrinsic complexity of sustainability and regards the difficulties stemming from the interaction and balance of different stakeholders and their expectations.

The second set of constraints can be analysed through different theoretical lenses that result in the more traditional approaches of legitimacy theory ( O’Donovan, 2002 ) and signalling theory ( Connelly et al. , 2011 ). It pertains to the stakes of the sustainability report and regards the challenges of reducing information asymmetry and increasing legitimacy of non-financial reports.

The third set of constraints can be analysed through learning-based ( Gond and Herrbach, 2006 ) and institutional theory ( Nelson and Winter, 1982 ; Higgins et al. , 2018 ). It is related to the expectations of the company itself and regards organizational learning and routines. Actually, companies can use SR to spread awareness and knowledge regarding sustainability among employees, triggering a double-loop learning process ( Argyris and Schon, 1978 ). This learning process contributes to create new routines to reconcile the need to stabilize business and reporting practices with the simultaneous adaptation to new regulations (B&H, 2018).

Moreover, for each set of constraints, B&H (2018) highlighted the following three different sources of challenges, namely, company’s internal and external factors that characterize the elaboration of the sustainability report:

Set1 ( Complexity, irreducibility and scalability of CSR ) includes: CSR as a complex socio-cognitive network; the irreducible part of qualitative information; the dynamics of the context.

Set2 ( The inherent stakes of the non-financial reporting process ) includes: the stakes of accountability to stakeholders; coordination problems, reliability, and standardisation; the quest for legitimacy of non-financial reporting.

Set3 ( Company expectations ) includes: contribution of the reporting tool to the CSR learning process; conciliate organisation’s specificities and legislator’s expectations; stabilisation of the indicators and organisational routines of CSR reporting vs the risk of obsolescence of the tool.

Therefore, several challenges arise from SR. Accordingly, other authors underlined how these difficulties are constantly evolving, increasing the complexity of business management ( Herzig and Schaltegger, 2006 ). Companies face challenges and uncertainties that evolve due to business environment’s dynamism ( Bebbington and Larrinaga, 2014 ) and managerial expectations. Moreover, according to Cho et al. (2015) , these difficulties are also reflected in managerial activities, including reporting practices ( Higgins and Coffey, 2016 ).

However, despite the increasing attention in the literature to the difficulties that companies have to deal with when implementing SR ( Brusca et al. , 2018 ; Dumay et al. , 2017 ; McNally et al. , 2017 ), this topic remains under-investigated. Therefore, more research is needed on the new challenges stemming from the evolution of the current social and normative context ( Higgins et al. , 2020 ) and on the possible management solutions that companies can pursue ( Stubbs and Higgins, 2014 ).

Recognizing that, the aim of our study is to investigate the challenges that arise from SR; and the mechanisms that companies can implement to face them. Being aware that such issues are context-specific, we opted for qualitative research. Aiming at explaining SR challenges in a more holistic way, we adopted the theoretical framework proposed by B&H (2018). As they present a wide categorization of the challenges that a firm meets when implementing SR, this framework fits the purpose of this study very well.

3. Research methodology

Given the aims of our study, we adopted a qualitative methodological approach, developing a case study ( Yin, 2011 ). In exploratory and descriptive studies, such as the present one, the case study represents a valid methodology to investigate the existence and peculiarities of a given phenomenon ( Siggelkow, 2007 ). Moreover, a longitudinal approach is fundamental when studying sustainability, as it takes time to integrate it into organizational practices and culture ( Caputo et al. , 2017 ). Recognizing this, we developed a five-year longitudinal case study, focussing on Estra – a large multiutility Italian company – that we could follow since its first approach to SR.

To make our study rigorous, we developed a triangulation process ( Yin, 2011 ), relying on various data sources and corroborating them with each other. Finally, we adopted a deductive analytical approach using the theoretical assumptions to interpret our results.

3.1 Data collection

Data collection was conducted in four months (February–May 2019) and was articulated in the following three main stages.

Firstly, we collected information from corporate documents (e.g. sustainability reports, NFSs, consolidated balance sheets, etc.). This documental analysis provided some primary evidence on the challenges that characterized SR evolution.

Secondly, we interacted directly with employees and managers involved in SR, participating also as auditors in some meetings. This allowed us to benefit from different perspectives.

Thirdly, an online questionnaire was administered to 32 employees who had been involved in SR. It was articulated in two sections: the first four questions asked some general information about the respondent (e.g. qualification, job title), whereas the last eight questions focussed on the possible challenges faced during SR implementation. The survey reported a satisfactory response rate, with half of the respondents answering the questionnaire (i.e. nine employees, four middle-managers, three managers). To gain an internal perception of the possible challenges and to understand the mechanisms implemented to face them, we conducted five one-to-one semi-structured interviews with managers who had a key role in SR, adopting a conversational approach. Questions were in line with the respondent’s tasks and expertise and focussed on some SR general aspects (e.g. corporate motivations, difficulties, stakeholders’ expectations), organizational and technical features and possible impacts of the Directive 2014/95/EU. Table 2 shows the details of the interviews.

Finally, we compared the results of the questionnaire and interviews with the evidence highlighted by the prior documental analysis to ascertain the correspondence between the statements made by respondents and what formally reported in corporate documents.

Data collection and analysis were guided by B&H (2018) framework. The latter determined the content of questionnaires and interviews and affected the choice of the people to be involved. Firstly, questions have been specifically formulated and structured according to the three sets of constraints described above. Secondly, we involved people who faced SR complexity from the very beginning (e.g. sustainability manager and top management). Finally, the insights of the case study were interpreted according to the three pillars of the framework.

The next paragraph presents the case study evidence that allowed us to answer our research questions.

Estra’s SR can be divided into two main phases. The first one started in 2015, when Estra began a voluntary SR “journey”, entrusting it to the communication department and producing the 2014 sustainability summary, containing only some key indicators. This summary and the 2015 sustainability report were elaborated in collaboration with two university departments (i.e. management studies and law and education sciences). Estra’s SR speeded up with the elaboration of sustainability reports in 2016 and 2017.

In 2018, the second phase started when Estra, having more than 500 employees and having issued a bond loan, published its first NFS, in compliance with the Directive 2014/95/EU. Estra began to be engaged in mandatory non-financial disclosure. In 2018 and 2019, Estra produced the sustainability report and the NFS as two separate documents. This is due to two main reasons. Firstly, as the sustainability report is issued on a voluntary basis, it allowed Estra to extend the elaboration and publication timing of SR. Secondly, it also gave the opportunity to widen the disclosed topics and improve corporate transparency, without needing an external assurance on data.

In the light of these premises, we considered Estra a suitable business case to answer our research questions. The two following subsections present our results, analysed using B&H (2018) framework.

4.1 Phase-1: 2015–2017

4.1.1 set1..

The first set of constraints faced by the company was related to the complexity of sustainability. Estra appointed two employees, who belonged to the communication area, as person in charge and coordinator of SR, respectively. Then, it formalized a partnership with two university departments, financing a post-doc fellowship to benefit from external academic and operating skills. The post-doc fellow played a key role in disseminating sustainability principles within the organization, carrying out applied research activities, benchmarking analyses and participating in the elaboration of the first sustainability report. Finally, Estra formed a working group composed of the post-doc fellow, the person in charge and the coordinator of SR. In the following sections, this group is named “sustainability team”. It played an important role in SR development and management. In this regard, the SR coordinator stated that “The role of the sustainability team was crucial in coordinating activities and people, and in promoting, from the very beginning, the adoption of an integrated perspective to manage SR”.

Regarding Set1 , two main challenges arose: the heterogeneity characterizing the topics to be reported and the stakeholders to be involved. As it emerges from the dialogue with managers, the challenge stemming from the heterogeneity of sustainability topics was tackled by identifying and prioritizing them, adopting a shared approach and involving both top managers and employees. This process took place in three steps, as confirmed by the SR coordinator. Firstly, the sustainability team identified Estra’s main non-financial aspects based on the company’s characteristics and selected a pool of indicators. Secondly, several meetings were held with various business units to get employees and managers’ feedback on the relevance and availability of the selected data. Finally, the set of indicators was defined, also considering the middle- and top management’s willingness to disclose non-financial topics. Therefore, the choice of indicators was the result of a compromise among the ones envisaged by the GRI, those company-specific and their availability. The selected data were then assigned to employees according to their competences.

This first constraint concerns also stakeholders’ heterogeneity. In this regard, the first challenge that the company had to face was the definition of a stakeholder map. The person in charge of SR stated:

[…] our sustainability team compiled a list of possible stakeholders, also doing benchmarking analyses, including our competitors and companies of other relevant sectors […] then we discussed that with the top management to define our stakeholders’ map

This activity allowed the company to draw up the stakeholder map, as well as to establish a stakeholder hierarchization. Some stakeholder engagement activities were also implemented but – as confirmed by the interviews – they lacked a well-defined structure and policy.

4.1.2 Set2.

The issues related to the stakeholder engagement described above impact the second set of constraints as well, including the challenge related to the reduction of information asymmetry between the company and its stakeholders. As highlighted by the middle-manager of the QSE of natural gas distribution (NGD), “SR partially helped reduce information asymmetry, however it was not enough because not everyone has the time to read the report […] other communication activities should have been implemented”. In dealing with this challenge, Estra adopted specific communication strategies (e.g. newsletters, events, seminars) targeting several groups of stakeholders. However, the shortcomings that characterized stakeholder engagement activities made substantial information asymmetry endure in phase-1.

The variety of sustainability-oriented topics also determined the challenge of data collection and coordination. The sustainability team was given the task of monitoring data collection and represented a convergence point for all indicators coming from the various business areas. To do this, the sustainability team prepared a proposal of the data to be collected, including GRI and specific indicators, met the different business areas to get their feedback and monitored the collection process organizing regular meetings. Moreover, data heterogeneity and complexity generated the issue of ensuring their reliability. To this aim, the sustainability team performed an ongoing and a final check to guarantee correctness and reliability, also making use of an advanced statistical software package to elaborate more complex indicators. Finally, data were presented to the top management for approval.

A further aspect concerns legitimacy issues connected with sustainability reports. In this case, the challenge is to increase the company’s legitimacy in its operational context. This issue was faced by adopting the GRI guidelines when defining the indicators to be included. The sustainability team aimed to achieve a higher degree of comparability and readability and increase the legitimacy of the document. The person in charge of SR explained: “our finance manager usually presents the sustainability report to banks, because, so doing, they evaluate Estra not only on economic profit but also on non-financial performance”. In phase-1, the challenge of giving the sustainability report the same legitimacy as financial reporting was perceived also within the organization. As stated by the SR coordinator:

[…] considering the resources allocated to traditional financial reporting compared to the non-financial one, the former is perceived as more important […] the two documents do not enjoy the same consideration.

In facing this challenge, Estra adopted two different solutions. On the one hand, the commitment of the sustainability team to communicate sustainability issues was crucial in spreading awareness within the company. On the other, the partnership with the university was important to give rigorousness and internal legitimacy to SR.

4.1.3 Set3.

In phase-1, the main challenge concerning the third set of constraints regarded organizational learning, i.e. how to transmit sustainability and reporting principles throughout the enterprise. The key objective was to prevent employees – who were dealing with sustainability issues for the first time – from perceiving SR as a duty imposed by the top management.

In facing the challenge under consideration, Estra organized specific training activities in partnership with the university, aiming, from the very beginning, at triggering a gradual learning process. The purpose was to introduce SR as a step of a wider and integrated process that “involves identifying, executing, and monitoring business decisions and strategies for long-term value creation” ( Busco et al. , 2017 ). From the very beginning, Estra’s training activities on SR encompassed the concept of Integrated Thinking, understood as a mindset enhancing the connectivity among different organizations’ activities. Actually, the initial intention was to elaborate an integrated report, drafted following the IIRC framework ( Busco et al. , 2013 ). However, the latter was considered too complex to be fully understood and applied and, hence, it was not adopted. Consequently, in these first years, there was a substantial adaptation of corporate actors to the new non-financial reporting context promoted by the sustainability team. It can be said that the involvement in SR activities generated a single-loop learning process under which employees fulfilled their tasks without having full awareness of sustainability principles. “There was not a real organizational learning process but a trend”, specifies the middle-manager of the QSE of NGD, adding “it happens often that people work to fulfil the obligation, while more could have been done to make people feel more involved”.

4.2 Phase-2: 2018–2019

4.2.1 set1..

The constraint linked to complexity, irreducibility and scalability of CSR strengthened in phase-2, as the mandatory requirement forced Estra to enlarge the socio-cognitive network linked to SR. The complexity arising from dealing with different stakeholders and their expectations proved to be particularly significant. The stakeholder map was refined in accordance with the increased complexity of the business environment. Firstly, the categories of possible stakeholder were pinned down, based on past stakeholder maps and on an enlarged benchmarking analysis. Secondly, the relevance of the identified categories was assessed based on the company’s experience and knowledge. Middle-managers, managers and the top management were involved in this activity, leading to a revised stakeholders’ prioritization. However, despite these advances, “there are steps to be made […] we don’t take enough care of our stakeholder. We promote involvement activities, but they are not monitored or structured” (the person in charge of SR, who became sustainability manager in phase-2).

Moreover, the challenges related to the irreducible part of the qualitative information and to the ever-changing context emerged. The Directive 2014/95/EU induced more corporate transparency. The Italian Legislative Decree 254/2016 – which transposed the Directive 2014/95/EU – required to report on topics that were not investigated much or at all in the previous sustainability reports, such as anti-corruption policies and suppliers’ social assessments, despite the fact that Estra was already well aware of their relevance. The reporting of these new contents represented a relevant challenge due to their qualitative dimension. Several meetings, involving different company expertise and the auditing firm, were held taking into consideration Estra’s ethical code, GRI indicators and the specific aspects to be measured. As for irreducibility, Estra’s CEO recognized that NFS “highlights data of which otherwise we would still have awareness but not exact measurement. An example is the value added distributed to our stakeholders, which always thrills me”.

4.2.2 Set2.

The Directive 2014/95/EU renewed the challenge of reducing information asymmetry between the company and its stakeholders. Estra reinforced the organization of events to improve stakeholder engagement. These activities helped to identify the materiality aspects to be disclosed. However, the challenge of reducing information asymmetry was mainly addressed thanks to the normative pressure, which required the disclosure of new and more contents. Stakeholder engagement activities kept on lacking a well-defined structure. As confirmed by the sustainability manager, “the NFS included new topics, improved the disclosure quality of some old ones and reinforced the role of SR in reducing the information asymmetry between the company and stakeholders”. However, this challenge is still open, as clearly pointed out by the sustainability manager:

[…] we need to communicate SR contents in a more precise and timely manner. We made public presentations, we gave all employees a summary of the sustainability report, we made press releases, but that is not enough. Every stakeholder should know the data that concerns him/her most, because only in this way the gap can be filled.

As for data reliability, legislation significantly fostered adherence to the GRI standards, whose adoption became more rigorous as it clearly emerges from the analysis of interviews and questionnaires. This process was significantly encouraged also by the interaction with the audit firm that led to remarkable improvements in data processing and quality. In this regard, relevant changes arose. For instance, human resources were described using the methodology of the full-time equivalent, while GHGs produced were distinguished between direct emissions from owned or controlled sources ( Scope1 ) and indirect emissions from the generation of purchased energy ( Scope2 ).

Given the multitude and complexity of the new information required by the legislation, coordination problems in data collection increased when compared to phase-1. The data management solutions already adopted in phase-1 needed the support of a computer-based system, which remains lacking, as noted by all the interviewees. This inefficiency is clearly detected by the middle-manager of the QSE of NGD: “An improvement that is needed is a computer-based system. Data has grown, but the computer support has not grown at the same time”.

The last sub-element of the second constraint relates to the quest of legitimacy. In phase-1, this search for legitimacy was both internal and external. This is true also in phase-2, but with significant changes. Regarding external legitimacy, Estra’s funders began to pay greater attention to sustainability performance. The sustainability manager stated: “Estra has recently undersigned two loans whose interest rates depend on some environmental performance (e.g., energy savings, waste reduced, GHGs avoided, etc.)”. These legitimacy issues influenced the use of non-financial documents and the setting of sustainable goals. A relevant challenge concerned SR legitimacy within the company that speeded up thanks to the normative requirement, strengthening employees’ awareness on sustainability issues. Interestingly, 81.25% of respondents to the questionnaire confirmed that financial reporting and SR did not enjoy the same importance, but they believed that SR was becoming increasingly relevant. The QSE middle-manager confirmed the perception that such an increase of internal legitimacy was due to the legislation. Referring to the period post-Directive 2014/95/EU, he stated: “nowadays only a minority of my colleagues don’t understand the importance of SR and think it is an administrative task”.

4.2.3 Set3.

Regarding the third set of constraints, in phase-2, Estra faced the more advanced challenge to foster a conscious learning process among employees to ensure the integration of sustainability principles and tools in the organization’s daily tasks. During phase-1, Estra presented a single-loop learning process that generated employees’ adaptive response. Differently, in phase-2, a greater proactivity towards sustainability issues began to emerge. The continuous use of SR tools triggered a shared process, involving more employees. The sustainability team played a crucial role in enhancing this process, organizing regular meetings and encouraging training activities. As noted by the middle-manager of the QSE of NGD, “For some colleagues getting involved in something different, having the opportunity to interact with different people is important”. Therefore, communication, collaboration and the daily adoption of SR practices, fostered by the sustainability team, triggered an internal learning and growth process, leading to the development of new skills. In this regard, the sustainability manager provided an interesting example: “The human resources department understood things to which they did not give much weight before (such as gender diversity and training). Their data were read and viewed differently”. Hence, the gradual routinization of SR practices fostered double-loop learning, as they became institutionalized, spontaneously accepted and used within the company’s SR context. Specifically, the ongoing execution of SR practices made employees gain experience in dealing with sustainability issues. The distrust and resistance some of them had in recognizing the relevance of sustainability topics was gradually overcome. In this regard, the CSR manager – the SR coordinator in phase-1 – confirmed that:

At the beginning, some colleagues considered SR practices as additional workload and were reluctant to provide data, share information, meet deadlines[…] Over time, SR tasks became routinized and people improved their skills.

However, in the period analysed, this process was limited to reporting activities, as Estra still struggles to include sustainability issues in its strategic and operational planning due to the persistence of some internal resistance in other company areas. Therefore, the spreading of sustainability within the organization had an impact on non-financial disclosure, while it affected strategic planning less.

The Directive 2014/95/EU led Estra to face some challenges that otherwise would have remained latent. One of the challenges concerns the disclosure of new contents related to anti-corruption policies and supply chain assessment. As discussed above, Estra opportunistically had neglected these qualitative topics, despite their relevance. In this regard, Estra’s CEO confirmed that: “Our sustainability report is enriched with new contents taken from the NFS. The report actually amplifies the sustainability issues present in the NFS […]”. The other challenge induced by legislation concerned the matching between the compliance to the new and strict deadlines set by the normative requirement and employees’ workload. The Sustainability Manager confirmed that “the regulatory requirement increased the commitment to meet the deadlines for data delivery”. Moreover, respondents to the questionnaire highlighted that one of the main difficulties concerned the respect for deadlines, together with the workload and the understanding of the information to be provided.

The routinization of SR practices certainly fostered the learning process within the company, but, at the same time, excessive standardization involves the risk of the obsolescence of the report. This risk regards the inability of the company to adapt SR to the continuous evolution of sustainability issues (B&H, 2018) that pushes companies to introduce new contents. Therefore, the challenge concerning the standardization of reporting routines vs. the risk of obsolescence clearly emerged in phase-2 and mainly regarded data selection and reliability. Moreover, the Directive 2014/95/EU induced the adoption of a formalized timeline to deliver data and the implementation of an active monitoring process. This challenge was faced by creating opportunities to exchange ideas among employees and discuss indicators. Thus, in Estra, standardization mainly concerned reporting practices, while innovation was related to indicators’ disclosure.

5. Discussion

The case of Estra, analysed adopting B&H (2018) framework, produced some interesting insights on SR challenges. Moreover, our results showed how a firm can manage them, pointing out the mechanisms that can be implemented to face them. The analysis showed how all the three sets of constraints proposed by B&H arose in both phases analysed.

1. As for CSR complexity ( Set1 ), the main challenges, for both phases, were related to the heterogeneity of the topics to be disclosed and the stakeholders to be involved. Subsequently, the challenge relating to the irreducibility of qualitative information (phase-2) took over. Specifically, the complex nature of the network in which the company operates emerged. In facing these challenges, several human and non-human actors intervened ( Callon, 1986 ). The partnerships with the university first and with the auditing firm afterwards fostered the definition of topics and stakeholders’ prioritization. Furthermore, the adherence to the GRI guidelines allowed Estra to define the measures and the inscriptions to be included in the reports. In phase-1, there was a partial use of GRI standards and, therefore, sustainability contents resulted from a compromise between them and company specificities, in line with Caron and Turcotte (2009) . Subsequently, due to the Directive 2014/95/EU, that required a stricter adherence to reporting standards, GRI acted as a mediator between company specificities and normative requirements.

2. In Set2 , the challenges mainly concerned the reduction of information asymmetry, data reliability and the quest for legitimacy. These challenges arose in phase-1 and persisted (with a slight increase) in phase-2. Estra tried to face the challenge of information asymmetry through stakeholder engagement activities. However, such activities had a low impact on reducing the knowledge gap between Estra and its stakeholders. A reduction of information asymmetry occurred only because of the Directive 2014/95/EU, which prompted the company to adhere to the GRI more rigorously, leading to the disclosure of previously unreported issues, with positive effects on data reliability. These results partially diverge from the stream of literature based on stakeholder theory. In line with Manetti (2011) and Torelli et al. (2020) , we found that stakeholder engagement affected the materiality analysis and the topics to be disclosed. Conversely, it did not significantly affect the development of sustainability reports, in contrast with prior studies (i.e. De Villiers et al. , 2014a ; Gallego-Alvarez and Ortas, 2017 ). Moreover, the regulatory pressure and the stronger adherence to the GRI led to isomorphism issues increasing the comparability and alignment of Estra’s SR with that of other competitors ( DiMaggio and Powell, 1983 ; Hahn and Kuhnen, 2013 ).

The stronger adherence to the GRI also ensured greater reliability of reports, increasing their external legitimacy to such an extent that they were used not only for communication purposes but also to attract financial capitals. The issue of ensuring internal legitimacy to the sustainability report emerged, as to increase the perception of its usefulness among employees. This happened through the continuous employees’ involvement and communication activities carried out by the sustainability team. On the one hand, these results are in line with O’Donovan (2002) and Kuruppu et al. (2019) since legitimacy issues affected the elaboration and use of sustainability reports. On the other, the case also emphasizes the relevance of internal legitimacy related to employees’ perception of the usefulness of SR.

3. From the above discussion it emerges that in phase-1 Estra mainly focussed on the challenges stemming from complexity ( Set1 ) and technical aspects of SR ( Set2 ). However, this does not mean that the challenges related to organizational learning ( Set3 ) are less relevant, nor that their management can be postponed. Indeed, without adequate awareness of the real value of SR, little effort would have been made to manage the challenges related to complexity and technical aspects. Furthermore, learning is a gradual process. Therefore, great attention must be paid to develop an adequate (immediate, pervasive and continuous) learning process. Recognizing that, from the very beginning, Estra implemented a gradual learning process to turn sustainability principles into shared core-values. The dissemination of sustainability values and the growing managerial commitment fostered the transition from individual to organizational learning ( Popper and Lipshitz, 2000 ) and from single-loop to double-loop learning ( Argyris and Schon, 1978 ). In line with the learning-based theory ( Gond and Herrbach, 2006 ), the regular adoption of new sustainability practices fostered a learning process by which employees internalized sustainability principles, integrating them into their daily tasks. However, in the period analysed, this integration was still partial and limited to the reporting process. The concepts of sustainability still struggle to be included in Estra’s strategic planning. This result in part confirms the findings by Adams and McNicholas (2007) and Massa et al. (2015) , according to which SR, initially, is mainly used for disclosure purposes.

The introduction of the regulatory obligation played a key role in SR evolution. The legislative requirement accelerated the facing of some challenges, which otherwise would have remained latent. However, the legislation mostly generated a rethinking of some contents of the report but did not meaningfully affect corporate values. It mainly induced technical challenges (regarding the disclosure of new information) and led to improvements in the quality and extent of SR contents ( Carini et al. , 2018 ; Venturelli et al. , 2017 ). The main driver in boosting sustainability values was the training activity. In line with the evolutionist perspective of Nelson and Winter (1982) , the success of the organizational learning process led to the progressive routinization of SR practices. In phase-2, this evolution favoured their standardization and institutionalization. In this frame, Estra’s SR practices tended to remain stable during phase-2, while specific indicators were changed or updated to minimize possible obsolescence risks.

Summarizing, the challenges deriving from the different sets of constraints represented relevant drivers for the evolution of Estra’s SR. They prompted the company to implement appropriate managerial mechanisms that gradually made SR evolve. However, not all the mechanisms adopted were equally effective, even if they all contributed to SR development. Dissemination and organizational learning, employees’ involvement, managerial commitment and the routinization and institutionalization of sustainability practices significantly contributed to spread sustainability values and gave stability to the entire SR. Conversely, the mechanisms of stakeholder engagement and data management revealed relevant criticalities. Specifically, stakeholder engagement was effective mainly for the materiality analysis but had a weaker impact on other contents of sustainability reports, while current data management lacks an IT system able to ensure an efficient management of non-financial information.

Finally, the three sets of constraints are not static, but tend to evolve over time, following the evolution of the context ( Bebbington and Larrinaga, 2014 ). They do not occur with the same intensity, but the latter can increase or decrease over time. The case study has demonstrated that Set1 had a strong intensity in phase-1, given the complexity of sustainability issues ( Herzig and Schaltegger, 2006 ). This intensity tended to decrease in phase-2, due to the experience that the company acquired. Set2 intensity, on the other hand, showed a slight increase in phase-2, due to an increase in legitimacy issues ( Kuruppu et al. , 2019 ). The intensity of Set3 is strongly affected by the Directive 2014/95/EU ( Brand et al. , 2018 ) and internal organizational learning ( Argyris and Schon, 1978 ).

6. Conclusions

This study investigated the challenges stemming from SR and the possible mechanisms that can be adopted to cope with them.

Our paper presents the case of Estra using the holistic theoretical lens of B&H (2018), and it theoretically contributes to the existing debate, highlighting the multiple challenges related to each set of constraints identified. It shows how they represented a driver that made SR evolve, pointing out that the three sets identified by B&H’s are not static, but tend to evolve over time, with different intensities, following the evolution of the context ( Bebbington and Larrinaga, 2014 ), institutional pressures ( Brand et al. , 2018 ), company’s experience and managerial expectations. For instance, in this regard, the Directive 2014/95/EU played a key role in bringing out challenges that would otherwise have remained latent. Moreover, it affected the extent and quality of the disclosed contents and fostered SR standardization.

Furthermore, the study focusses on the mechanisms that companies can implement to face SR challenges. In this regard, our results show that some of them worked better than others. The dissemination of sustainability principles, employees’ involvement, routinization and institutionalization of SR practices and management commitment were the most efficient mechanisms used by Estra. Conversely, other mechanisms, which the literature emphasized as powerful, worked only partially, such as stakeholder engagement and data management.

From our analysis, it also can be deduced that SR challenges and the relative mechanisms are interrelated. The mechanisms implemented, besides addressing the challenges they are related to, have also contributed to deal with the other sets of constraints, fostering SR development. For example, organizational learning and routines implemented to address Set3 challenges significantly contributed to the management of issues related to complexity ( Set1 ) and technical aspects ( Set2 ) of SR. Hence, the ways challenges are faced, and their mutual interrelations, should be considered to exploit their beneficial effects while minimizing the negative ones.

From a practical point of view, despite the managerial efforts discussed previously, Estra has not yet achieved a full integration of sustainability principles in its strategic and planning activities, given a business-as-usual mindset in formulating corporate strategies. This could be a future step for Estra. Following B&H (2018) insights, the company, to optimally manage SR challenges, could strengthen the principles of integrated thinking (following up on what Estra experienced since SR journey started), whose spreading depends on how sustainability is defined, executed and reported, and how the mutual interdependencies are managed ( Figure 1 ).

Regarding the managerial implications, this paper sheds light on the possible challenges arising from the different perspectives of SR and on the possible mechanisms that can be applied to address them. This can be useful for other organizations engaged in SR that, from Estra’s experience, can learn that it is necessary to consider and manage the multiple aspects of sustainability to successfully implement SR. Moreover, the case study fosters the integrated management of sustainability issues, possibly encouraging the development of Integrating Thinking. As our analysis covers a period of five years, this can represent a limitation. However, this limit can be a future research opportunity extending the period of analysis. This study can be replicated in other business contexts with no experience in voluntary SR to highlight possible differences in the challenges they face. A comparative case study can also represent a future research opportunity, as it would allow to investigate the common challenges that arise in a specific context.

Integrated thinking and sustainability reporting management

Literature streams on sustainability reporting

Theoretical approach	Theory features	Main findings
	This theory is based on the idea that a contract exists between organizations and society. Hence, organizations need to act according to socially acceptable behaviour ( ). The company’s survival depends on its ability to meet societal expectations and the sustainability report can be used as a tool in this regard ( , 2015). Legitimacy theory helps to explain why companies report non-financial information and what kind of information is disclosed following threats to the company’s legitimacy ( , 2019)	Legitimacy issues affect the production and use of sustainability reports ( ; , 2019). In particular, the perception of managers about the usefulness of SR as a key communication tool increases when the company suffers a loss of legitimacy ( ). In the wake of this, legitimacy theory is also used to explain the decoupling of internal practice from the symbolic and external use of reporting ( )
	This theory highlights that companies need to consider not only the interests of shareholders but also the interests of a wide group of stakeholders ( ). Stakeholder theory and legitimacy theory are not separated but overlap; legitimacy theory is broader because it considers the whole society, while stakeholder theory adopts a micro-level perspective investigating how companies interact with groups of stakeholders ( , 2019). Unlike the legitimacy theory, stakeholder theory helps to clarify managerial behaviour during SR activities ( , 2019)	Stakeholder pressures and engagement decisively influence the development of sustainability reports ( , 2018; , 2014a; ). Some authors have highlighted how stakeholder engagement influences the materiality and relevance of the information to be disclosed ( ; , 2020). On the other hand, the sustainability report has been also considered as a tool that companies use to engage stakeholders ( , 2016)
	This theory suggests that company activities, including the decision to start a SR process, are mostly influenced by institutional pressures ( , 2018; ). Consequently, institutional theory helps to explain the progressive alignment of the adoption, quality and extent of SR across organizations as a result of institutional isomorphisms ( ; )	Institutional theory has been mainly used to explain the determinants of SR ( , 2014b; ). Several scholars confirmed that companies develop sustainability reports primarily for isomorphism issues ( ; , 2015)
	This theory helps to explain the behaviour of two parties in case of information asymmetry. On the one hand, the sender decides whether and how to communicate the information, and on the other, the receiver chooses how to interpret that information ( , 2011). As it may be difficult for subjects outside the company to obtain reliable information on firms’ non-financial aspects, the company itself may proactively engage in the SR process with the aim of reducing information asymmetry and securing its legitimacy ( )	Signalling theory is used to study the motivations lying behind the development of sustainability reports ( , 2014) and the degree of disclosure of non-financial information ( ). According to this theory, firms tend to disclose non-financial information to avoid problems of adverse selection ( , 2011). Furthermore, some scholars found how the disclosure of non-financial information depends on the sustainability performance achieved. The higher the performance, the more companies disclose their outcomes and impacts ( , 2008), while companies with lower sustainability performances tend to only partly disclose their activities ( )
	This theory tries to overcome the dualism between social and natural worlds, between human and non-human actors, claiming that everything is relational, as nothing exists outside the networks of relationships. This means that reality is never fixed or complete ( ; ). ANT can be used to analyse human and non-human actors involved in SR ( )	Scholars have investigated how the sustainability report is placed within the network in which it is inserted. However, this theory has been used little in this field of research. traced the evolution of Integrated Reporting by highlighting the main actors involved in the network, their interests and concerns over reporting complexity. , instead, found that a sustainability report can be considered as an artifact of a compromise between Global Reporting Initiative (GRI) and companies. The latter tends to only partially adopt the GRI guidelines
	This theory identifies learning as a cognitive change and evolution of the system of values, beliefs, ideas and actions ( ). This process is called ‘double-loop learning’ ( ) in case of deep and radical changes in the way of thinking and approaching things	This theoretical approach is used to understand how SR can activate business learning processes. Adopting this theoretical approach, scholars have found that reporting can sometimes lead to relevant changes in terms of new objectives, structures and business values ( , 2007), while sometimes it can fail radically in terms of affecting business organization ( , 2012)

Authors’ elaboration

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Acknowledgements

The authors are deeply grateful to the Estra Group for its collaboration and for having allowed us to conduct this study.

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Sustainability Reporting: A Financial Reporting Perspective

• Cite this article
• https://doi.org/10.1080/17449480.2023.2218398

1. Introduction

2. fundamental objective, 3. no aggregation, 4. no accruals, 5. value chain reporting, 6. ghg reporting, 7. targets reporting, 8. connectivity of sustainability and financial reporting.

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This paper examines incentive effects of sustainability reporting, based on proposals for mandatory sustainability reporting standards in the EU, the US, and the IFRS Foundation, and highlights conceptual differences between sustainability and financial reporting. Sustainability reporting is an instrument of transparency regulation intended to influence management decisions. It requires disclosure of a large set of data points but does not provide aggregate measures. It is production-oriented and does not include accruals. It expands reporting to include disclosure of long-term policies and targets, and of information of firms in the value chain. Consequently, sustainability reporting is not very useful for tracking sustainability performance and for comparisons across firms. Overall, it would benefit from applying more generally accepted accounting concepts.

• sustainability reporting
• reporting incentives
• disclosures
• aggregation
• value chain

Consider the following financial accounting episode. Recently, both the FASB and the IASB undertook reviews of their standards on the accounting of acquired goodwill. Footnote 1 Probably the most contentious issue was, once again, the subsequent measurement of goodwill, annual amortization or impairment-only. In the end, both standard setters settled on retaining the impairment-only approach, but considered ways to make the impairment test simpler and more effective. Ideas included, among others, a so-called headroom approach, which would take into account the unrecognized goodwill of the acquirer’s existing business when testing for impairment of the acquired goodwill in the same accounting unit. As is often the case, if a topic is ‘too difficult,’ Footnote 2 accounting standard setters resort to additional disclosures. Yet, disclosure is not a substitute for the accounting, but is anchored on an accounting item, providing more information to better understand what that item purports and how it contributes to financial performance.

Viewed from a sustainability reporting perspective, discussions like this appear pretty alien. Sustainability reporting, as it is about to be mandated in many countries, rests on fundamentally different concepts from those underlying financial accounting. Discussions about how to account for a sustainability topic are absent in the sustainability reporting domain. Instead, sustainability reporting consists of the disclosure of ‘data points’ without meaningful aggregation and measurement and with little effort to allocate data to time periods, as it is done through accruals in financial accounting. Sustainability reporting also includes data from firms in the whole value chain of the reporting firm, which are outside its boundary and control. Furthermore, it includes data about the firm’s long-term strategies and targets and requires reporting progress against these targets.

This paper examines key features of sustainability reporting that are akin to financial reporting and compares the approaches with emphasis on incentive effects. Footnote 3 Sustainability reporting has recently gained strong momentum in Europe, the US, and internationally. The EU is developing the European Sustainability Reporting Standards (ESRS) as part of the Green Deal that also includes other finance and governance initiatives. The sector-agnostic set includes twelve standards that will be legally enacted in 2023 and become effective in 2024. Two more sets will include sector-specific standards and standards for listed SMEs, which should become effective in subsequent years. In the US, the SEC published a proposal for climate-related disclosures for investors in 2022. And internationally, the IFRS Foundation created the International Sustainability Standards Board (ISSB) alongside the established International Accounting Standards Board (IASB) to develop a global baseline for sustainability reporting, starting with general requirements and climate-related disclosure exposure drafts in 2022.

These standard-setting initiatives take into account earlier sustainability reporting frameworks and standards, for example, those from the Global Reporting Initiative (GRI), Task Force on Climate-related Financial Disclosures (TCFD), Climate Disclosure Standards Board (CDSB), Sustainability Accounting Standards Board (SASB), and International Integrated Reporting Council (IIRC); the latter three are meanwhile consolidated in the IFRS Foundation. Footnote 4 In contrast to these earlier initiatives, which were standards that are voluntarily adopted by firms, the new standards will become mandatory in many countries. In particular, mid-size and closely held firms in Europe will be subject to these disclosure requirements. Sustainability reports will also be subject to assurance.

Currently, the ESRS are the most ambitious and comprehensive general standards, Footnote 5 which is the reason to refer primarily to them as illustrative examples in the analysis. Across this paper, references to ESRS and IFRS Sustainability Disclosure Standards mean their drafts.

The objective of financial reporting is to provide decision useful information to capital providers of the reporting firm. For example, the IFRS Conceptual Framework (para. 1.2) defines it as follows: ‘The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity.’ Implicit in this objective is that financial reporting should be ‘neutral’ (as part of the qualitative characteristic of faithful representation), that is, it should report on the firm’s economic resources and the effectiveness and efficiency of their use over the reporting period.

Despite the intention to report about the outcome of management’s decisions, but not alter them through the reporting, in reality, accounting methods do affect decisions directly or indirectly, creating real effects. Management is likely to anticipate possible effects of a financial report on capital providers’ decisions and on the market price. Provided it has an incentive to influence these decisions or the price, it may engage in accrual-based and in real earnings management (e.g. Kanodia & Sapra, Citation 2015 ). Earnings management has been shown to be prevalent in reality (e.g. Graham et al., Citation 2005 ). Accounting standard setters consider the potential for accrual-based earnings management when drafting the standards, e.g. when evaluating costs and benefits of fair-value and historical-cost measurement.

A similar issue arises in tax legislation, which takes into account firms’ incentive to minimize the net present value of income taxes when drafting income tax laws. Ideally, income taxes should not influence management decisions, but they of course do so as taxes reduce firm value. Yet in some cases, governments also use tax schemes to influence firms’ decisions, for example, to increase investment through investment tax credits.

In contrast, mandatory sustainability reporting is politically intended to influence management behavior to pursue environmental, social, and governance (ESG) goals. This so-called transparency regulation works indirectly through providing stakeholders with information they can use to take action or make decisions that affect the reporting firm’s profitability and value.

Particular examples are the climate-related disclosure standards ESRS E1 and IFRS S2, both of which require firms to report on their climate-related targets, which should be derived from long-term targets in international political agreements on climate change. Footnote 6 For example, by mandating disclosure of CO 2 emissions the regulator aims to arouse awareness of a greater public regarding the reporting firm’s efforts to reduce emissions.

More generally, ESRS 2 requires that firms disclose policies, actions, and resources to manage sustainability matters and disclose targets and metrics used to track the effectiveness of the actions and the progress towards the targets. The difference with other disclosures is the future-oriented content, which creates a self-commitment on the part of managers. If a firm has no such policies and targets, it must explain the reasons for that, which adds to the pressure.

Several empirical studies provide evidence of transparency regulation across various topics, e.g. mine safety (Christensen et al., Citation 2017 ), extraction payments (Rauter, Citation 2020 ), carbon reporting (Downar et al., Citation 2021 ), human rights in the supply chain (She, Citation 2022 ), and on corporate social responsibility activities generally (Fiechter et al., Citation 2022 ). While these studies show that there is an effect (measured against the assumed null hypothesis of no effect), they are less helpful to assess regulatory efficiency as it is a priori unclear how strong a particular effect ‘should’ be.

One may question if transparency regulation is the best policy instrument to induce firms to internalize ESG goals. The underlying economic problem is that the operations of firms produce externalities (in a broad sense) that are not included in their financial performance measures. Other regulatory instruments are pricing or taxing externalities (e.g. a CO 2 emission tax or trading scheme or subsidies for investment in clean technologies), use licenses and prohibitions or bans of particular activities or use of products and technologies. These regulatory instruments differ in their effectiveness, accuracy, and efficiency, and they also depend on the specific legal environment such as litigation rights. Relative to these other instruments, the efficiency of transparency regulation is probably the most difficult to assess empirically, particularly when it is used jointly with other instruments, as for example in the case of CO 2 emissions. Footnote 7

The standards that define the content of a sustainability report and a review of actual sustainability reports reveal similarities with the footnote disclosures section of a financial report and with a management report. It includes both quantitative metrics and qualitative information on various ESG topics. To get a sense of the sheer volume of the disclosures, an EFRAG count of mandatory data points in the draft ESRS from November 2022 reports 250 quantitative metrics within a total of 1,144 data points. Footnote 8

For many stakeholders, except for professional and sophisticated users, it will be difficult to get a more holistic picture of firms’ sustainability performance if they wish so. In fact, as we know from other areas, like fine print in voluminous contracts or package inserts of medications, many people will ignore most of the information contained in a sustainability report.

How can users navigate through this large amount of individual data and digest them? The ESRS and IFRS sustainability disclosure standards require that disclosures be tagged using an XBRL-based taxonomy that is currently developed. XBRL enables users to search through the report and find the data points they are interested in. The focus on disaggregated data is reminiscent of the late 1990s when XBRL was developed. There was euphoria about new opportunities for users of new information technologies. For example, suggestions included that users could customize the contents of financial reports, choose their own assumptions and accounting rules, define the frequency of the report, demand continuous reporting, and the like. Footnote 9

What is missing in a sustainability report is aggregate sustainability information equivalent to the information in a balance sheet, an income statement, and a cash flow statement. Sustainability reports do not include aggregations of data points and do not provide overall ESG outcomes and performance measures. Footnote 10 The lack of aggregates also reflects the (formal) arbitrariness of the selection of data points, which is not tied to an overall concept but is based on the opinion of the respective standard setter of what is important. However, standard setters are currently discussing whether there is a need for a conceptual framework for sustainability reporting and what a conceptual framework should address. And research should help to provide more evidence on relevance.

Probably the closest concept in financial reporting are cash flow statements. They portray real transactions in a period, but even there some measurement is needed, e.g. for foreign currency translation or the definition what is considered cash indeed. Back in the 1960s, debates of accounting theories that would underlie financial accounting standards already included the discussions about more or less aggregation, Footnote 11 and aggregation was generally found useful and is still a key feature of financial reporting.

From a financial accounting perspective, sustainability reporting misses most aspects of what makes financial accounting important, useful, interesting, and also difficult. The core of the financial accounting theories and financial reporting standards include recognition, measurement and classification principles, conservatism, along with how to deal with uncertainty, and the like. These principles are needed to aggregate the raw data into meaningful key performance measures such as period profit, equity, and many others.

For example, many quantitative data points consist of inputs into the productive processes rather than outputs from those processes (Grewal & Serafeim, Citation 2020 ). It is not clear whether these inputs produce the desired outcomes and, importantly, whether these inputs are efficient to achieve the outcomes. This approach is particularly apparent in social and governance topics. For example, disclosures comprise investments in training of employees, targets and intentions, and governance processes.

There are many institutions that produce aggregated information. Management itself must aggregate financial and sustainability data to make investment and operative decisions in the firm. Most management decisions require a tradeoff between the achievements of different objectives, for example, an investment in a cleaner production process, which reduces future profits, but may increase customer demand and decrease environmental risks. The particular aggregation reflects management’s view of the relative importance, and weights, of individual key performance indicators for financial and sustainability issues. The weighting also implies a ‘cost’ of environmental or social objectives and places an inherent ethical dilemma of explicit weighting them on management, for example, when required to trade off workers’ increased health against higher profits.

Sustainability reporting standards require management to disclose the firm’s strategy, including market position, business model, impacts, risks, and opportunities in its sustainability report (e.g. ESRS 2 more generally, IFRS S1 for investors to assess sustainability-related risks and opportunities). These disclosures provide some information about the underlying weights. More explicit information about weights can be obtained from the detailed disclosure of the incentive schemes of management and boards, as required, e.g. in ESRS 2. Incentive schemes are based on a subset of relevant measures to reduce complexity. They include functions of these measures with assumed weights that indicate the relative importance of the respective objectives to users of the sustainability report. However, there are issues with such an interpretation. Some objectives are qualitative in nature, and a quantification suggests a hard measure that does not necessarily exist. The weights are biased if the metrics are not in the same scale and range or not appropriately normalized. Footnote 12 The weights also depend on the size or importance of specific stakeholders that are interested in only few measures. Footnote 13 Optimal weights need not be constant, but may be nonlinear or step functions in particular ranges. Measures are likely correlated, which should be considered when determining the weights. As correlations are not observable by outside users, the weights themselves may be difficult to interpret as their respective importance. Footnote 14

Another important group that aggregates sustainability information and financial performance are investors, when they make investment or disinvestment decisions. Sustainability has become more relevant for many of them, either for assessing risks and opportunities with regard to sustainability or for catering investors’ intrinsic preferences besides financial returns. Information aggregators such as rating agencies and financial analysts are also relevant players. There is an increasing market for ESG ratings, for example those provided by rating agencies like MSCI, Thomson Reuters, and Sustainalytics. Christensen et al. ( Citation 2022 ) analyze agreement across ratings and find, perhaps surprisingly, that with higher amounts of sustainability disclosure available their ratings disagree more. A possible reason is that the rating agencies are more likely to select different metrics and interpret and weigh them differently. ESG ratings are also increasingly used in debt contracts, for example, for sustainability-linked loans. Footnote 15

A different approach to aggregation has been taken by the EU as a regulator in its sustainable finance initiative. The Taxonomy Regulation (EU 2020/852) establishes criteria for economic activities that qualify as environmentally sustainable and, thus, ‘green’. It defines six environmental categories, climate change mitigation and adaption, water and marine resources, circular economy, pollution, and biodiversity and ecosystems. Essentially, an activity is classified as environmentally sustainable when it contributes substantially to one of the six objectives and does not significantly harm the other objectives. Firms must disclose the proportion of their revenue from products and services of their qualifying activities and the proportion of their capital expenditures and operating expenditures. These percentages are used in finance contracts and by financial market participants that create ‘green’ financial products.

There have been several proposals and suggestions how to monetize sustainability data. Externalities that induce legal obligations by firms, such as environmental cleanup costs, are already recorded in the financial statements as provisions or contingent liabilities under IAS 37. For other externalities, the literature developed various forms of social and environmental accounting. Footnote 16 Recent work includes, for example, Barker and Mayer ( Citation 2022 ), who propose using the remediation costs of the firm’s externalities as an opportunity cost that are deducted from financial profit to arrive at a ‘sustainable profit’. Another example are impact-weighted financial accounts (Serafeim et al., Citation 2019 ), which use a variety of non-financial metrics for environmental and social impact. They are more useful for internal decision making but less so for sustainability reporting as they are subjective and, thus, soft information. So far, no approach has proved superior. Indeed, Grewal and Serafeim ( Citation 2020 ) see the measurement of corporate sustainability performance as the single biggest opportunity for researchers.

The reporting period of a sustainability report is usually the same as for financial statements (ESRS 1, IFRS S1), that is, one year. Each quantitative or qualitative data point is reported for this period. This is a strict production-specific input or output measurement and similar to cash flow accounting. A distinction into stocks and flows, as used in financial accounting, is missing. Investments into sustainability improve future ESG metrics but may negatively affect ESG metrics in the short term. For example, building a wind turbine requires cement, which has a high greenhouse gas footprint and increases emissions, but helps to reduce electricity emissions in future years. In an accrual-based system, the emissions associated with building the turbine would be recognized as an ‘asset’ and accrued to the future net emissions. Otherwise, the strong increase in emissions in the year of investment might disincentivize the investment. In financial accounting, there are also some investments that are not recognized and accrued, particularly research and some development expenditures, training of employees, and advertising, which creates similar incentive issues.

The production-based sustainability reporting is not aligned with the sales-based financial performance measurement in financial accounting. For example, reducing production volume (as a ‘real sustainability management’ activity) directly reduces emissions (in scopes 1, 2, and 3) but may not have a financial effect if sales in the same period remain unaffected (e.g. by reducing inventory). Sustainability reporting requires comparison of metrics over time, anchoring on targets and milestones in a base year for reference. With the dependence of the metric on real decisions, firms can influence the reported path towards the targets.

Finally, financial accounting follows a clean surplus relation, whereby (broadly speaking) the sum of profits equals the sum of the cash flows over periods. That is, over- or under-valuation catch up in future periods, as do earlier errors in a later period. There is no such concept in sustainability reporting.

The reporting entity in sustainability reporting is similar to that in financial reporting (ESRS 1, IFRS S1), which is based on the control concept defined in IFRS 10. This implies that associates and joint ventures are not included in the reporting entity, Footnote 17 but are part of the value chain in the firm’s sustainability report.

A key feature of sustainability reporting is an extension of disclosure requirements to the firm’s upstream and downstream value chain if this is necessary to understand impacts, risks and opportunities (see ESRS 1) and, specifically, for reporting on climate- and social-related disclosures. The intentions behind extending the scope to the value chain are twofold. First, disclosures allow for assessing compliance with desired sustainability objectives in the upstream and downstream value chain. This should motivate the reporting firm to put economic pressure on firms in the value chain to avoid undesirable behavior, due to the presumed market power of its business, as the firm has no direct control of firms in the value chain. Second, the disclosures should help users to understand reporting firms’ contribution to sustainability issues and nudge firms to consider reconfiguring their own operations to improve sustainability performance.

For social-related disclosures, the intention is primarily to increase compliance with social standards and regulations in firms in the value chain, regardless of the legal environment and jurisdictions in which they operate. This includes disclosure of processes and mechanisms to monitor compliance. Such social standards include, particularly, the UN Guiding Principles on Business and Human Rights and the International Labour Organization’s Declaration on Fundamental Rights and Principles at Work. An example is ESRS S2, which is explicitly related to workers in the value chain and mandates disclosures, including on the firm’s actions to prevent or remediate negative impacts. Other examples are ESRS S3 for disclosures on affected communities, including communities in the firm’s value chain, and ESRS S4 for disclosures on consumers and end users, particularly possible risks of the firm’s products on their health. Parallel to these sustainability reporting requirements, the EU has proposed a Corporate Sustainability Due Diligence Directive (CSDDD), to improve corporate governance practices and accountability of firms regarding its value chain. Interestingly, the EU uses two complementary regulatory approaches to ensure compliance, direct legal requirements and transparency regulation through sustainability reporting. Footnote 18

The second intention of sustainability reporting along the value chain is to help users understand the firm’s position in the value chain and push for possible reconfiguration of activities to improve sustainability performance. This intention underlies primarily environmental issues, particularly climate change (see below). However, it is also helpful to address social concerns, for example, by substituting suppliers with high negative impact on social matters.

The value chain plays a particularly important role in environmental reporting. All five sector-agnostic ESRS environmental standards comprise the operations and the value chain of the reporting entity. The most common reporting standard is the Greenhouse Gas (GHG) Protocol, consisting of the Corporate Accounting and Reporting Standard (2004) and amended by the Corporate Value Chain (Scope 3) Standard (2011) and the Scope 2 Guidance (2015). The GHG Protocol is the basis of the recommendations by Task Force on Climate-related Financial Disclosures (TCFD), which are embedded in ESRS 1, IFRS S2, and the SEC proposal for climate-related disclosures.

The key concept of the GHG Protocol is the definition of three scopes of emissions, scope 1 with direct emissions by the firm’s production processes, scope 2 with indirect emissions from purchased electricity, and scope 3 with other indirect emissions over the firm’s upstream and downstream value chain. Scope 2 emissions are conceptually similar to scope 3 emissions. A reason to define a special scope is that purchased electricity is often one of the largest sources of emissions (GHG Protocol, Citation 2004 , p. 27). A practical reason is that it is easy to measure these emissions. Footnote 19 In fact, the difficulty to measure scope 3 emissions explains why the GHG Protocol does not mandate reporting of scope 3 emissions, but leaves it optional to the reporting firm. In contrast, the new sustainability reporting standards mandate scope 3 reporting.

The GHG Protocol is designed to provide time-consistent information for internal use by firms to manage their part in the value chain and as a basis for considering a reconfiguration of the value chain. The GHG Protocol ( Citation 2011 , p. 6) explicitly states: ‘Use of this standard is intended to enable comparisons of a company’s GHG emissions over time. It is not designed to support comparisons between companies based on their scope 3 emissions.’ In contrast, the objective of sustainability reporting standards is to provide information for external users, who will make comparisons between firms. This change of the primary use is problematic and creates difficulties for users interpreting the data and compare firms with their peers and within their industry (Jia et al., Citation 2022 ).

The GHG Protocol is an accounting and reporting standard, and it refers to accounting concepts on several occasions. One such concept is the allocation of emissions to different products, which is similar to conventional cost accounting methods. Footnote 20 In other cases it violates fundamental accounting concepts. The reporting anchors on the period of production as the cause for past and expected future emissions by the firm itself and along the value chain. Production is a useful measurement base for scope 1 and 2 emissions, but not for scope 3 emissions, which depend on sourcing based on planned production (scope 3 upstream) and on sale of the products (scope 3 downstream), respectively. Hence, as the standard acknowledges, ‘reported emissions may have occurred in previous years’ or ‘emissions are expected to occur in future years’ (p. 32). A related issue is that ESRS E1 requires disclosure of the GHG intensity, defined as GHG emissions per net revenue, which mingles production- and sales-based metrics.

While actual data on scope 2 and many upstream scope 3 emissions can be collected, downstream scope 3 emissions must rely on expectations and rough estimates of the future use of the products, estimated over perhaps many years, which the firm does not control. Footnote 21 To emphasize, this is not a problem if the data are used for internal decision making by the firm. It becomes an issue if the report is addressed to external users and should allow for meaningful interpretation and assurance.

Scope 3 includes emissions that arise from the use of purchased materials and long-term capacity in the production. Albeit they are disclosed separately according to the GHG Protocol, the emissions from the latter are reported in the period of the investment into the capacity and are not allocated (like depreciation or amortization) over the useful life of the asset. The same holds for self-produced capital goods.

Scope 3 emissions raise another concern. Long-lived products are disadvantaged in the reported scope 3 emissions relative to those of shorter-lived products with the same functionality. Suppose one product can be used 6 years and another only 3 years. Then the scope 3 downstream emissions of the first product are twice those of the second product. In fact, taken over 6 years of usage, two products would have to be produced, so that scope 1 and upstream scope 2 emissions of this product double and it performs actually worse.

Perhaps the most salient feature of GHG accounting and reporting is the double, triple and so on, accounting of the same emissions over the value chain. Each firm in the value chain reports its own emissions as scope 1 emissions, and emissions from upstream and downstream firms as scope 2 and scope 3. The GHG Protocol aims to prevent double-counting of scope 1 and 2 emissions between firms but, by design, not of scope 3 emissions. Footnote 22 Scope 1 emissions of a firm will show up as scope 2 or 3 emissions of other firms perhaps multiple times. If users attempted to add up total emissions of firms in a value chain, double-counting arises and may convey a wrong picture.

A peculiar feature of the GHG Protocol from a financial accounting perspective is the reporting by a firm of scope 3 emissions in firms within its downstream value chain. The reporting firm has no control over them. The reported emissions are based on the firm’s expectations of later uses of the products by other firms and consumers over the full expected life cycle of the products. These future emissions may realize many years later or never. The data are very difficult to estimate and to assure by a third party, and they do not catch up with real uses later as they would in an accrual system. As emphasized earlier, this does not matter for the internal use of such a planning tool by the firm to support its decision making, but it is an issue for external reporting.

Kaplan and Ramanna ( Citation 2021 ) propose an accounting for upstream emissions (‘cradle-to-gate’) with an E-liability that accumulates the emissions in each stage in the upstream value chain plus the firm’s own emissions. These are actual prior emissions and not hypothetical future ones. The firm transfers the E-liability with the sale of the associated products or services along the downstream value chain. Allocation to products and services could apply methods from activity-based costing. Reichelstein ( Citation 2022 ) describes a full accounting method for emissions in an accrual accounting system. Such a system would be understandable and auditable.

Another feature of sustainability reporting, which is uncommon in financial reporting, is that firms are required to report on long-term targets related to sustainability topics and to track their future performance towards these targets. Footnote 23 Under ESRS, firms must disclose the metrics and targets for each material sustainability matter and the overall progress towards the targets starting with a base year. ESRS 1 defines three time horizons, a short-term (one year, consistent with financial reporting), a medium-term (generally one to five years), and a long-term (generally over five years) horizon. In climate-related reporting the targets should be emission reductions for scope 1, 2, and 3 for an even longer period of up to 2050. These periods are significantly longer than those for required disclosures in financial reporting, although for measurement of long-term assets and liabilities information over such periods is necessary.

In financial reporting, firms are reluctant to disclose targets, and if they do, these targets are mostly short-term. Footnote 24 Reasons for a reluctance to disclose financial targets is possible commercial sensitivity of such disclosures, for example, to avoid damaging competitor reactions, and shareholder litigation in case they are not met (provided there are no safe harbor rules). Footnote 25 In fact, litigation is a major cost of sustainability reporting according to a study commissioned by the EU. Footnote 26 It remains to be seen how ambitious firms will set their targets and what are the risks not achieving them in the future.

The proposed sustainability reporting standards include requirements related to the connection to financial reporting (ESRS 1, IFRS S1). Sustainability reporting provides information about impacts of environmental, social, and governance topics and thus on financial risks and opportunities, which are often long-term. These impacts need to be considered in financial accounting and disclosure. In particular, financial accounting incorporates many assumptions made about the future, which are aggregated into measurement. The assumptions should be consistent and coherent across sustainability and financial reports.

Relevant accounting themes include impairment of property, plant and equipment, and intangibles, for example, because of expected reductions in the useful life or lower future cash flows and residual values; lower fair values of assets due to higher cost of capital; loss on financial instruments due to increasing risks that counterparties cannot fulfill their contractual duties; higher provisions and contingent liabilities due to expected environmental damages or levies or of missing reported net-zero targets; and measurement of insurance contracts. Footnote 27 Notably, financial reporting is mainly concerned with risks but not with opportunities, whereas sustainability reporting has no such conservatism principle, but reports on positive and negative impacts generally, although negative impacts are presumably in the focus of standard setting.

An interesting issue is how to incorporate endogenous real effects of sustainability reports in financial reporting. Recall the underlying mechanism of mandatory sustainability reporting that is designed to put pressure on firms due to possible adverse reactions by stakeholders or regulatory risk. It will be difficult to assess such potential risks, and the mandatory reporting on those risks may well amplify the risks.

The reverse direction, the influence of financial reporting on sustainability reporting, is less apparent. The reason is the disclosure of data points without aggregation in sustainability reporting, which do generally not depend on financial information. Yet, consistency is required for disclosures that directly contain financial information, for example, training costs or the use of net revenue as a basis for environmental metrics, and financial effects from physical and transition risks over different time horizons (e.g. ESRS E1).

A formal link between sustainability reporting and financial reporting exists through the qualitative characteristics of useful financial information in the IFRS Conceptual Framework (chapter 2), which are also referred to in sustainability reporting standards. IFRS S1 Appendix C lists the same qualitative characteristics as for financial reporting, and ESRS 1 includes quite similar characteristics (also in an Appendix C). They include, among others, comparability and verifiability, both of which are by construction or nature difficult to achieve for many sustainability disclosures. Standard setters, including in particular EFRAG and IASB/ISSB, continue to work on the topic of connectivity between financial and sustainability reporting Footnote 28 and on conceptual frameworks.

Besides these immediate connectivity matters, there have been discussions of a more holistic corporate reporting. According to the CSRD, the sustainability report is a dedicated, and distinct, section of the management report. In the longer run, financial and sustainability reports may be unified in a corporate report, with the same level of assurance. The IFRS Foundation has consolidated the Value Reporting Foundation and with it the International Integrated Reporting Council that issued the International < IR > Framework (IIRC, Citation 2021 ), which is a possible way to integrate financial and sustainability reporting.

This paper compares sustainability reporting, as mandated by upcoming sustainability reporting standards, such as the ESRS, the ISSB Sustainability Disclosure Standards, and SEC regulation, with concepts fundamental to financial reporting. Sustainability reporting standards require firms to produce an enormous amount of data points, whose utility for users is not clear, but imposes high costs on firms. In many areas, the data points comprise of inputs rather than outputs, which should be the ultimate information of interest. Sustainability reports do not aggregate data points and therefore do not measure sustainability performance, effectiveness, and efficiency. In other words, there is no such concept equivalent to profit and equity of a firm, which are the key aggregate financial measures. The reported data points will be aggregated by others outside the firm, such as individual user groups and rating agencies, in different ways, hindering comparability of aggregate evaluations.

Sustainability reporting includes data from firms in the value chain, over which the reporting firm has no control. Such information is mandated to allow users to better monitor compliance with standards, for example, in social and governance topics. The value chain information is useful to firms to reconfigure its place in the value chain, for example, to improve on environmental concerns. However, it is not helpful in comparing firms with respect to their environmental engagements.

Overall, it would be a good idea to resort to generally accepted principles and concepts in financial accounting, which have a long tradition of aggregating data and providing useful financial information to compare firms and also dealing with incentives of firms.

Acknowledgments

The paper has benefited from comments by Gilad Livne (editor), Andrea Sternisko, Theresa Wittreich, and from participants of a presentation in the initiative Business Valuation Accounting & Auditing at the University of Linz.

No potential conflict of interest was reported by the author(s).

1 See FASB ( Citation 2019 ), IASB ( Citation 2020a ).

2 See Schipper ( Citation 2022 ) for reasons of such difficulties.

3 For an overview of distinguishing features between sustainability and financial reporting see also Christensen et al. ( Citation 2021 ) and EFRAG ( Citation 2023 ).

4 For an overview of sustainability reporting standards and frameworks see, e.g. Stolowy and Paugam ( Citation 2023 ).

5 In terms of industry-specific standards, the SASB has published 77 standards.

6 See IFRS S2, para. 23, and ESRS E1, para. 32. In an EFRAG Conference on December 7, 2022, Sven Gentner, Head of Corporate reporting at the European Commission, described the ESRS as ‘not policy-agnostic.’

7 See also Christensen ( Citation 2022 ).

8 While this is a large quantity, it should be noted that IFRS disclosure checklists that are available from big audit firms also comprise 100–200 pages, but these are all disclosures of information underlying the preparation of the financial statements.

9 See, e.g. Lymer et al. ( Citation 1999 ), Xiao et al. ( Citation 2002 ). Many of these analyses would require more granular tagged data than is available in an annual report.

10 An exception is the aggregate measure of CO2 equivalents, which is based on physical properties of six greenhouse gases.

11 See, e.g. Sorter ( Citation 1969 ) with an events approach.

12 El Gibari et al. ( Citation 2019 ) review methods of forming composite measures from individual data.

13 See Bebchuk and Tallarita ( Citation 2022 ).

14 This also holds for a balanced scorecard. See, e.g. Rotaru et al. ( Citation 2020 ).

15 See, e.g. Loumioti and Serafeim ( Citation 2022 ).

16 For surveys see, e.g. Frost and Jones ( Citation 2015 ) and Sellhorn and Wagner ( Citation 2023 ).

17 The GHG Protocol ( Citation 2004 ) offers an option between the control and the equity share and approach.

18 It should be noted that the scope of sustainability reporting is broader than that of the CSDDD, as sustainability reporting is mandated for a larger set of firms.

19 See Kaplan and Ramanna ( Citation 2021 ), p. 123.

20 For examples, see GHG Protocol ( Citation 2011 ), ch. 8.

21 Note that information technologies allow to collect actual data on customer usage of products, these are unhelpful to forecast future usage, particularly for long useful lives of products.

22 The definition of scope 2 emissions has been amended in the revised GHG Protocol ( Citation 2004 ) to exclude emissions from electricity purchased for resale.

23 A firm that has not adopted targets needs to explain the reasons for that and whether it tracks effectiveness otherwise (ESRS 2, para. 79). The implicit assumption is that pressure on firms by stakeholders would induce it to set acceptable targets.

24 For example, in the exposure draft on amending the accounting of business combinations mentioned in the Introduction (IASB, Citation 2020a ) there was strong opposition by preparers to require disclosure of targets and their achievements for business combinations.

25 For example, the SEC ( Citation 2022 ) climate-related disclosure proposal includes a safe harbor for scope 3 emissions disclosure. Article 19a (3) of the CSRD offers a limited member state option for not disclosing information that is seriously prejudicial to the firm’s commercial position.

26 CEPS and Milieu ( Citation 2022 ), pp. 55-57. Litigation is also mentioned as a major risk in GHG reporting (GHG Protocol, Citation 2015 , p. 12).

27 See, for example, IASB ( Citation 2020b ). In March 2023, the IASB added a narrow-scope project on climate-related risks in the financial statements.

28 See, e.g. EFRAG ( Citation 2023 ).

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Thirty years of sustainability reporting research: a scientometric analysis

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• Volume 30 , pages 102047–102082, ( 2023 )

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• Gurmani Chadha   ORCID: orcid.org/0000-0001-8593-0992 1  

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The growing relevance of sustainability reporting (SR) has dramatically surged advocacy and interest among both academicians and practitioners. However, few studies have attempted to holistically encapsulate global research on sustainability reporting. The present study employed scientometric analysis on sustainability reporting based 1434 articles extracted from the Web of Science database, published between 1992 and 2022, to comprehensively map the intellectual structure of this field. Domain visualizations were constructed using CiteSpace software to identify networks of co-authorship, keywords, subject categories, institutions, and countries engaged in publishing on SR along with co-citation and cluster analysis. The findings revealed that significant contributions in SR research have originated primarily from developed countries, underscoring the necessity for more research in the context of developing and emerging countries. SR field was found characterized by cohesive research sub-communities but lacked global cooperation. Existing studies in the SR research domain focused mainly on subject categories of business, management, environmental studies, green and sustainable science technology, environmental sciences, and business finance. Analysis of most co-cited authors and content analysis of highly co-cited articles were performed, detailing pioneer works in the field. The principal topics in the body of literature were identified via clusters of co-citations between documents and keywords. Future research focus areas include exploring the link between circular economy and SR, the role of social media, blockchain, artificial intelligence, and other digital technologies in SR, attention on the MSME sector, mandatory reporting, assessment of real impact of SR on investor sentiments and financial analysts’ valuations, assurance, standardization, financial-sector inclusive research, materiality issues, and understanding niche themes of SR, inclusive of monothematic reporting. Implications of the study for policymakers, companies, society, and academia were examined.

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Singhania, M., Chadha, G. Thirty years of sustainability reporting research: a scientometric analysis. Environ Sci Pollut Res 30 , 102047–102082 (2023). https://doi.org/10.1007/s11356-023-29452-2

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2022 was the year that generative artificial intelligence (AI) exploded into the public consciousness, and 2023 was the year it began to take root in the business world. 2024 thus stands to be a pivotal year for the future of AI, as researchers and enterprises seek to establish how this evolutionary leap in technology can be most practically integrated into our everyday lives.

The evolution of generative AI has mirrored that of computers, albeit on a dramatically accelerated timeline. Massive, centrally operated mainframe computers from a few players gave way to smaller, more efficient machines accessible to enterprises and research institutions. In the decades that followed, incremental advances yielded home computers that hobbyists could tinker with. In time, powerful personal computers with intuitive no-code interfaces became ubiquitous.

Generative AI has already reached its “hobbyist” phase—and as with computers, further progress aims to attain greater performance in smaller packages. 2023 saw an explosion of increasingly efficient foundation models with open licenses, beginning with the launch of Meta’s LlaMa family of large language models (LLMs) and followed by the likes of StableLM, Falcon, Mistral, and Llama 2 . DeepFloyd and Stable Diffusion have achieved relative parity with leading proprietary models. Enhanced with fine-tuning techniques and datasets developed by the open source community, many open models can now outperform all but the most powerful closed-source models on most benchmarks, despite far smaller parameter counts.

As the pace of progress accelerates, the ever-expanding capabilities of state-of-the-art models will garner the most media attention. But the most impactful developments may be those focused on governance, middleware, training techniques and data pipelines that make generative AI more trustworthy , sustainable and accessible, for enterprises and end users alike.

Here are some important current AI trends to look out for in the coming year.

Reality check: more realistic expectations

• Multimodal AI

Small(er) language models and open source advancements

Gpu shortages and cloud costs, model optimization is getting more accessible, customized local models and data pipelines, more powerful virtual agents, regulation, copyright and ethical ai concerns, shadow ai (and corporate ai policies).

When generative AI first hit mass awareness, a typical business leader’s knowledge came mostly from marketing materials and breathless news coverage. Tangible experience (if any) was limited to messing around with ChatGPT and DALL-E. Now that the dust has settled, the business community now has a more refined understanding of AI-powered solutions.

The Gartner Hype Cycle positions Generative AI squarely at “Peak of Inflated Expectations,” on the cusp of a slide into the “Trough of Disillusionment” [1] —in other words, about to enter a (relatively) underwhelming transition period—while Deloitte’s “State of Generated AI in the Enterprise “ report from Q1 2024 indicated that many leaders “expect substantial transformative impacts in the short term.” [2] The reality will likely fall in between: generative AI offers unique opportunities and solutions, but it will not be everything to everyone.

How real-world results compare to the hype is partially a matter of perspective. Standalone tools like ChatGPT typically take center stage in the popular imagination, but smooth integration into established services often yields more staying power. Prior to the current hype cycle, generative machine learning tools like the “Smart Compose” feature rolled out by Google in 2018 weren’t heralded as a paradigm shift, despite being harbingers of today’s text generating services. Similarly, many high-impact generative AI tools are being implemented as integrated elements of enterprise environments that enhance and complement, rather than revolutionize or replace, existing tools: for example, “Copilot” features in Microsoft Office, “Generative Fill” features in Adobe Photoshop or virtual agents in productivity and collaboration apps .

Where generative AI first builds momentum in everyday workflows will have more influence on the future of AI tools than the hypothetical upside of any specific AI capabilities. According to a recent IBM survey of over 1,000 employees at enterprise-scale companies , the top three factors driving AI adoption were advances in AI tools that make them more accessible, the need to reduce costs and automate key processes and the increasing amount of AI embedded into standard off-the-shelf business applications.

Multimodal AI (and video)

That being said, the ambition of state-of-the-art generative AI is growing. The next wave of advancements will focus not only on enhancing performance within a specific domain, but on multimodal models that can take multiple types of data as input. While models that operate across different data modalities are not a strictly new phenomenon—text-to-image models like CLIP and speech-to-text models like Wave2Vec have been around for years now—they’ve typically only operated in one direction, and were trained to accomplish a specific task.

The incoming generation of interdisciplinary models, comprising proprietary models like OpenAI’s GPT-4V or Google’s Gemini, as well as open source models like LLaVa, Adept or Qwen-VL, can move freely between natural language processing (NLP) and computer vision tasks. New models are also bringing video into the fold: in late January, Google announced Lumiere, a text-to-video diffusion model that can also perform image-to-video tasks or use images for style reference.

The most immediate benefit of multimodal AI is more intuitive, versatile AI applications and virtual assistants. Users can, for example, ask about an image and receive a natural language answer, or ask out loud for instructions to repair something and receive visual aids alongside step-by-step text instructions.

On a higher level, multimodal AI allows for a model to process more diverse data inputs, enriching and expanding the information available for training and inference. Video, in particular, offers great potential for holistic learning. “There are cameras that are on 24/7 and they’re capturing what happens just as it happens without any filtering, without any intentionality,” says Peter Norvig, Distinguished Education Fellow at the Stanford Institute for Human-Centered Artificial Intelligence (HAI). [3] “AI models haven’t had that kind of data before. Those models will just have a better understanding of everything.”

In domain-specific models—particularly LLMs—we’ve likely reached the point of diminishing returns from larger parameter counts. Sam Altman, CEO of OpenAI (whose GPT-4 model is rumored to have around 1.76 trillion parameters), suggested as much at MIT’s Imagination in Action event last April: “I think we’re at the end of the era where it’s going to be these giant models, and we’ll make them better in other ways,” he predicted. “I think there’s been way too much focus on parameter count.”

Massive models jumpstarted this ongoing AI golden age, but they’re not without drawbacks. Only the very largest companies have the funds and server space to train and maintain energy-hungry models with hundreds of billions of parameters. According to one estimate from the University of Washington, training a single GPT-3-sized model requires the yearly electricity consumption of over 1,000 households; a standard day of ChatGPT queries rivals the daily energy consumption of 33,000 U.S. households. [4]

Smaller models, meanwhile, are far less resource-intensive. An influential March 2022 paper from Deepmind demonstrated that training smaller models on more data yields better performance than training larger models on fewer data. Much of the ongoing innovation in LLMs has thus focused on yielding greater output from fewer parameters. As demonstrated by recent progress of models in the 3–70 billion parameter range, particularly those built upon LLaMa, Llama 2 and Mistral foundation models in 2023, models can be downsized without much performance sacrifice.

The power of open models will continue to grow. In December of 2023, Mistral released “Mixtral,” a mixture of experts (MoE) model integrating 8 neural networks, each with 7 billion parameters. Mistral claims that Mixtral not only outperforms the 70B parameter variant of Llama 2 on most benchmarks at 6 times faster inference speeds, but that it even matches or outperforms OpenAI’s far larger GPT-3.5 on most standard benchmarks. Shortly thereafter, Meta announced in January that it has already begun training of Llama 3 models, and confirmed that they will be open sourced. Though details (like model size) have not been confirmed, it’s reasonable to expect Llama 3 to follow the framework established in the two generations prior.

These advances in smaller models have three important benefits:

• They help democratize AI: smaller models that can be run at lower cost on more attainable hardware empower more amateurs and institutions to study, train and improve existing models.
• They can be run locally on smaller devices: this allows more sophisticated AI in scenarios like edge computing and the internet of things (IoT). Furthermore, running models locally—like on a user’s smartphone—helps to sidestep many privacy and cybersecurity concerns that arise from interaction with sensitive personal or proprietary data.
• They make AI more explainable: the larger the model, the more difficult it is to pinpoint how and where it makes important decisions. Explainable AI is essential to understanding, improving and trusting the output of AI systems.

The trend toward smaller models will be driven as much by necessity as by entrepreneurial vigor, as cloud computing costs increase as the availability of hardware decrease.

“The big companies (and more of them) are all trying to bring AI capabilities in-house, and there is a bit of a run on GPUs,” says James Landay, Vice-Director and Faculty Director of Research, Stanford HAI. “This will create a huge pressure not only for increased GPU production, but for innovators to come up with hardware solutions that are cheaper and easier to make and use.” 1

As a late 2023 O’Reilly report explains, cloud providers currently bear much of the computing burden: relatively few AI adopters maintain their own infrastructure, and hardware shortages will only elevate the hurdles and costs of setting up on-premise servers. In the long term, this may put upward pressure on cloud costs as providers update and optimize their own infrastructure to effectively meet demand from generative AI. [5]

For enterprises, navigating this uncertain landscape requires flexibility, in terms of both models–leaning on smaller, more efficient models where necessary or larger, more performant models when practical–and deployment environment. “We don’t want to constrain where people deploy [a model],” said IBM CEO Arvind Krishna in a December 2023 interview with CNBC , in reference to IBM’s watsonx platform. “So [if] they want to deploy it on a large public cloud, we’ll do it there. If they want to deploy it at IBM, we’ll do it at IBM. If they want to do it on their own, and they happen to have enough infrastructure, we’ll do it there.”

The trend towards maximizing the performance of more compact models is well served by the recent output of the open source community. 

Many key advancements have been (and will continue to be) driven not just by new foundation models, but by new techniques and resources (like open source datasets) for training, tweaking, fine-tuning or aligning pre-trained models. Notable model-agnostic techniques that took hold in 2023 include:

• Low Rank Adaptation (LoRA): Rather than directly fine-tuning billions of model parameters, LoRA entails freezing pre-trained model weights and injecting trainable layers—which represent the matrix of changes to model weights as 2 smaller ( lower rank ) matrices—in each transformer block. This dramatically reduces the number of parameters that need to be updated, which, in turn, dramatically speeds up fine-tuning and reduces memory needed to store model updates.
• Quantization: Like lowering the bitrate of audio or video to reduce file size and latency, quantization lowers the precision used to represent model data points—for example, from 16-bit floating point to 8-bit integer—to reduce memory usage and speed up inference. QLoRA techniques combine quantization with LoRA.
• Direct Preference Optimization (DPO): Chat models typically use reinforcement learning from human feedback (RLHF) to align model outputs to human preferences. Though powerful, RLHF is complex and unstable. DPO promises similar benefits while being computationally lightweight and substantially simpler.

Alongside parallel advances in open source models in the 3–70 billion parameter space, these evolving techniques could shift the dynamics of the AI landscape by providing smaller players, like startups and amateurs, with sophisticated AI capabilities that were previously out of reach.

Enterprises in 2024 can thus pursue differentiation through bespoke model development, rather than building wrappers around repackaged services from “Big AI.” With the right data and development framework , existing open source AI models and tools can be tailored to almost any real-world scenario, from customer support uses to supply chain management to complex document analysis.

Open source models afford organizations the opportunity to develop powerful custom AI models—trained on their proprietary data and fine-tuned for their specific needs—quickly, without prohibitively expensive infrastructure investments. This is especially relevant in domains like legal, healthcare or finance, where highly specialized vocabulary and concepts may not have been learned by foundation models in pre-training.

Legal, finance and healthcare are also prime examples of industries that can benefit from models small enough to be run locally on modest hardware. Keeping AI training, inference and retrieval augmented generation (RAG) local avoids the risk of proprietary data or sensitive personal information being used to train closed-source models or otherwise pass through the hands of third parties. And using RAG to access relevant information rather than storing all knowledge directly within the LLM itself helps reduce model size, further increasing speed and reducing costs.

As 2024 continues to level the model playing field, competitive advantage will increasingly be driven by proprietary data pipelines that enable industry-best fine-tuning.

With more sophisticated, efficient tools and a year’s worth of market feedback at their disposal, businesses are primed to expand the use cases for virtual agents beyond just straightforward customer experience chatbots .

As AI systems speed up and incorporate new streams and formats of information, they expand the possibilities for not just communication and instruction following, but also task automation. “2023 was the year of being able to chat with an AI. Multiple companies launched something, but the interaction was always you type something in and it types something back,” says Stanford’s Norvig. “In 2024, we’ll see the ability for agents to get stuff done for you . Make reservations, plan a trip, connect to other services.”

Multimodal AI, in particular, significantly increases opportunities for seamless interaction with virtual agents. For example, rather than simply asking a bot for recipes, a user can point a camera at an open fridge and request recipes that can be made with available ingredients. Be My Eyes, a mobile app that connects blind and low vision individuals with volunteers to help with quick tasks, is piloting AI tools that help users directly interact with their surroundings through multimodal AI in lieu of awaiting a human volunteer.

Explore IBM watsonx™ Assistant: market-leading conversational AI with seamless integration for the tools that power your business →

Elevated multimodal capabilities and lowered barriers to entry also open up new doors for abuse: deepfakes, privacy issues, perpetuation of bias and even evasion of CAPTCHA safeguards may become increasingly easy for bad actors. In January of 2024, a wave of explicit celebrity deepfakes hit social media; research from May 2023 indicated that there had been 8 times as many voice deepfakes posted online compared to the same period in 2022. [6]

Ambiguity in the regulatory environment may slow adoption, or at least more aggressive implementation, in the short to medium term. There is inherent risk to any major, irreversible investment in an emerging technology or practice that might require significant retooling—or even become illegal—following new legislation or changing political headwinds in the coming years.

In December 2023, the European Union (EU) reached provisional agreement on the Artificial Intelligence Act . Among other measures, it prohibits indiscriminate scraping of images to create facial recognition databases, biometric categorization systems with potential for discriminatory bias, “social scoring” systems and the use of AI for social or economic manipulation. It also seeks to define a category of “high-risk” AI systems, with potential to threaten safety, fundamental rights or rule of law, that will be subject to additional oversight. Likewise, it sets transparency requirements for what it calls “general-purpose AI (GPAI)” systems—foundation models—including technical documentation and systemic adversarial testing.

But while some key players, like Mistral, reside in the EU, the majority of groundbreaking AI development is happening in America, where substantive legislation of AI in the private sector will require action from Congress—which may be unlikely in an election year. On October 30, the Biden administration issued a comprehensive executive order detailing 150 requirements for use of AI technologies by federal agencies; months prior, the administration secured voluntary commitments from prominent AI developers to adhere to certain guardrails for trust and security. Notably, both California and Colorado are actively pursuing their own legislation regarding individuals’ data privacy rights with regard to artificial intelligence.

China has moved more proactively toward formal AI restrictions, banning price discrimination by recommendation algorithms on social media and mandating the clear labeling of AI-generated content. Prospective regulations on generative AI seek to require the training data used to train LLMs and the content subsequently generated by models must be “true and accurate,” which experts have taken to indicate measures to censor LLM output.

Meanwhile, the role of copyrighted material in the training of AI models used for content generation, from language models to image generators and video models, remains a hotly contested issue. The outcome of the high-profile lawsuit filed by the New York Times against OpenAI may significantly affect the trajectory of AI legislation. Adversarial tools, like Glaze and Nightshade —both developed at the University of Chicago—have arisen in what may become an arms race of sorts between creators and model developers.

  Learn how IBM® watsonx.governance™ accelerates responsible, transparent and explainable AI workflows →

For businesses, this escalating potential for legal, regulatory, economic or reputational consequences is compounded by how popular and accessible generative AI tools have become. Organizations must not only have a careful, coherent and clearly articulated corporate policy around generative AI, but also be wary of shadow AI: the “unofficial” personal use of AI in the workplace by employees.

Also dubbed “shadow IT” or “BYOAI,” shadow AI arises when impatient employees seeking quick solutions (or simply wanting to explore new tech faster than a cautious company policy allows) implement generative AI in the workplace without going through IT for approval or oversight. Many consumer-facing services, some free of charge, allow even nontechnical individuals to improvise the use of generative AI tools. In one study from Ernst & Young, 90% of respondents said they use AI at work. [7]

That enterprising spirit can be great, in a vacuum—but eager employees may lack relevant information or perspective regarding security, privacy or compliance. This can expose businesses to a great deal of risk. For example, an employee might unknowingly feed trade secrets to a public-facing AI model that continually trains on user input, or use copyright-protected material to train a proprietary model for content generation and expose their company to legal action.

Like many ongoing developments, this underscores how the dangers of generative AI rise almost linearly with its capabilities. With great power comes great responsibility.

Moving forward

As we proceed through a pivotal year in artificial intelligence, understanding and adapting to emerging trends is essential to maximizing potential, minimizing risk and responsibly scaling generative AI adoption.

1 “Gartner Places Generative AI on the Peak of Inflated Expectations on the 2023 Hype Cycle for Emerging Technologies,” Gartner, 16 August 2023

2 ”Deloitte’s State of Generative AI in the Enteprrise Quarter one report,” Deloitte, January 2024

3 ”What to Expect in AI in 2024,” Stanford University, 8 December 2023

4 ”Q&A: UW researcher discusses just how much energy ChatGPT uses,” University of Washington, 27 July 2023

5 “Generative AI in the Enterprise,” O’Reilly, 28 November 2023

6 ”Deepfaking it: America’s 2024 election coincides with AI boom,” Reuters, 30 May 2023

7 ”How organizations can stop skyrocketing AI use from fueling anxiety,” Ernst & Young, December 2023

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Ethics and Sustainability Reporting Essay

• To find inspiration for your paper and overcome writer’s block
• As a source of information (ensure proper referencing)
• As a template for you assignment

Introduction

The purpose of cooperate social responsibility (csr), true sustainability in the corporate sector, multinational corporations in sustainable development, reference list.

The assertion that the global corporate social responsibility (CSR) activities of many Multinational Corporations (MNCs) are failing to make a sufficient contribution towards Sustainable Development (SD) is true. Some people argue that the above statement is true because businesses’ social and environmental activities are often not connecting legitimately with the societies they operate in. ISO 26000:2010 was developed to help MNCs achieve sustainable development through a multi-tier reporting channel (United Nations, 2015; Hahn, 2013).

Financial performance and overall success in corporate institutions are among the most influential factors for investors seeking to pump their money into new opportunities (Whiteman et al., 2015, p. 307; WCED, 1987). Over the years, corporate have registered groundbreaking profits and losses, which depend on their management practices and policies. The performance of business cooperation is influenced by several factors, including leadership, research, and development, monopoly practices, community engagement, social responsibility, and strategic planning, to mention a few.

Today, global warming and climate change are big challenges facing the world. Experts agree that human activities mainly cause climate change, mainly focused on energy and transportation (Banerjee, 2008, p. 1541). Most companies depend on national power grids or fossil fuels to run their operations which contributes immensely to the emission of greenhouse gases. The companies contribute to national development and environmental conservation through the payment of taxes and social activities. However, it does not tally with the impact of their activities on the environment (Browne & Nuttall, 2013). The social contribution of MNCs begins with the ways they handle their employees, customers, and the host community. Communication and reporting among employees and management are key driving factors to the positive performance of an organization. Also, the nature of working conditions determines whether employees feel motivated or demotivated and significantly affects their output at the personal, team, and cooperate levels. Corporations have adopted multi-tier reporting strategies to assess their sustainability in different ways ( GRI, 2013; GRI, 2017). Financial reporting is the conventional way of measuring business performance and presents its pros and cons.

CSR was proposed several decades down the line and used to improve the company’s image before the general public. Due to the dynamic landscape of the current competitive markets, companies need to take approaches to improve their grip on their market share (Browne et al., 2015). As a result, companies adapt to work in a manner that adds value acceptable to the community ethics and environment preservation standards (ISO 2011; ISO 2013; ISO 2016). Thus, the company pays close attention to community needs and culture, human rights, and its immediate environment. Ethical practices give companies an upper hand over their rivals, helping them gain a more significant share of particular market segments. An ethical company performs better, grows more prominent, and gains more profits to achieve its business goals.

Scholars and market experts disagree on a single definition of suitability. However, they agree on the impact of corporate organizations on natural resources such as forests, wetlands, soil, water, and air. Usually, all companies rely on natural resources to produce their products. The dependence on natural resources is either direct or indirect but affects the ecological balance in one way or another. Mason and Simmons (2017, p. 77) note that sustainability is heavily cussed on environmental balance. Since the global population grows faster than regulators can put rehabilitative measures, natural resource acquisition and exploitation are significant challenges. Williams et al. (2017) argue that true sustainability is achievable but at a high cost. For instance, most technology companies own millions of computers that consume vast amounts of power generated from fossil fuels. The companies contribute to climate change by relying on fossil fuels to generate electric power for their operations (Bravo, 2014).

Multinational corporations are not compatible with sustainable development, although the United Nations have provided international guidelines to achieve the latter. Usually, corporates are not designed to commit themselves to a place or community but rather the target financial and market gains. Although most MNCs have declared their commitment to reverse the environmental damage resulting from their actions, it is not achievable on most occasions. Even in cases where the damage is reversible, the corporations do not invest proportionate resources, time, incentives, or commitment to compensate affected communities. Cooperates make tough decisions such as downsizing or adopting new technologies without consulting with their employees or evaluating environmental impact (Carrel, 2016). Such decisions have a devastating impact on the environmental and economic stability of the given community.

MNCs have short-term goals that span across a few leadership cycles at the expense of future generations (Milne & Gray, 2013, p. 13). It implies the corporations’ plan and investment in individuals who see the investors’ vision and not sustainable development. However much harm the corporations pose to the environment and society in the future, they consider themselves sustainable as long as they are financially stable to lobby for laws and regulations (Polman, 2014).

The concept of demography in multinational corporations is democracy. Usually, the organizations create specific communities that respond to the company. Simplex communication is mistaken for real dialogue between the company, its workers, and host communities, discouraging the participation of stakeholders in company operations (Scherer & Palazzo, 2010). Minority groups are highly segregated and incorporate dialogues, if they happen at all, limiting the chances for sustainable development (Schwartz & Tiling, 2009, p. 289; Summit, 1992). It becomes difficult for minorities to air their grievances or report on any issues affecting or associated with its operations.

Financial equity is an essential part of sustainable development, but it is not embraced in most multinational corporations. There is a huge and consonantly growing gap between employee and CEO salaries. For instance, in 1980, CEOs of the largest environmentally polluting companies were paid 41 times an average employee’s salary. The figure grew to 149 by 1993, while the toxic levels produced or caused by corporations grew 230 times (Leung et al., 2009,p. 85). By any definition, MNCs do not sufficiently contribute to sustainable development. The financial policies and disparities challenge sustainability in all dimensions (Unruh, 2014). Most plants emit toxic waste in their neighborhoods, affecting the ecological balance (Kanagaraj et al., 2015, p. 5). Corporations that do not dump their waste in their surroundings, like technology companies, consume much energy generated from fossil fuels.

It is unfortunate to note that MNCs are not dedicated to fighting poverty. Experts argue that poverty will fade away with economic growth but do not explain how (Dicken, 2015). Since the end of the second world war, there has been positive economic growth, accompanied by an increase in poverty levels. At the same time, the MNCs have automated their processes, killing millions of jobs worldwide (Shehu & Abba, 2019). The employees who previously helped the jobs can no longer provide for their families, resulting in increased poverty (Vermeulen et al., 2018, p. 16). Although automation increases productivity, it does not embrace true sustainability, inducing poverty among the masses (Carbonero et al., 2020). There is no substantive argument on whether the positive impacts of automation outweigh its disadvantages.

Most MNCs are dominant market players and engage in non-competitive behavior, inhibiting the growth and development of startups. They compete unfairly in market control, acquisition of raw materials, and the supply chain at large. Most of the MNCs do not focus on necessities but rather acquire excessive resources. The behavior among the already established organizations is contrary to social and environmental sustainability. Although it propels the companies to achieve their financial goals and obligations, the social and environmental impacts are devastating, inhibiting their ability to achieve true sustainability.

There is a significant conflict between community and markets which demands that MNCs must focus on one. Markets call for zealous investors and a dynamic workforce targeting work incentives, competition, redundancies, and money (Adkins, 1999, p. 119). on the other hand, community economies are focused on the welfare of all, job security, corporation, and common goal. MNCs prefer market economies that have more cons than community economies (Marglin, 2008). The desires of corporations are contrary to the ideal standards for truly sustainable development, which is primarily fueled by their activities.

Most greedy MNCs do not benefit local communities are they ship away all the profits. Although the corporations invest in infrastructural development such as schools, roads, bridges, hospitals, and electricity, the end profits are spent in other areas (Meadows et al.,1992).On most occasions, there is the little or negative net impact of MNC investments on the local communities. It implies that the resourcefulness of the given area does not benefit the host community, contrary to sustainable development.

in conclusion, the global corporate social responsibility (CSR) activities of many Multinational Corporations (MNCs) are failing to make sufficient contributions toward Sustainable Development (SD). As discussed, the corporate structure, goals, activities, and practices focus more on their finances than social and environmental sustainability. Even in cases where the corporate is determined to cancel out the environmental impacts of its activities, the commitment or investment can not match the damage already done. The greed for money makes most organizations design demographic communities which respond to the organization, killing the need and room for dialogue. Lastly, MNCs leave little or no profit for the local communities after importing skilled labor, promoting poverty.

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Schwartz, B. and Tilling, K., 2009. ‘ISO‐lating’corporate social responsibility in the organizational context: a dissenting interpretation of ISO 26000. Corporate Social Responsibility and Environmental Management , 16 (5), pp.289-299.

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Vermeulen, B., Kesselhut, J., Pyka, A. and Saviotti, P.P., 2018. The impact of automation on employment: just the usual structural change?. Sustainability , 10 (5), p.16-61.

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• Multiculturalism at the Air New Zealand Workplace
• Kant’s Duty-Based Ethics at the Workplace
• IGOs, NGOs, MNCs, and International Law
• MNC Adidas Group: International Accounting
• Multinational Corporations and Investment
• Social & Cultural Diversity and Code of Ethics
• Analysis of Finance Fundamentals
• Business Ethics: Etihad Airways Case Study
• Ethical Case: Falsifying Advertisement
• The Corporate Social Responsibilities in Walmart, Amazon, and Apple Inc.
• Chicago (A-D)
• Chicago (N-B)

IvyPanda. (2023, January 21). Ethics and Sustainability Reporting. https://ivypanda.com/essays/ethics-and-sustainability-reporting/

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IvyPanda . 2023. "Ethics and Sustainability Reporting." January 21, 2023. https://ivypanda.com/essays/ethics-and-sustainability-reporting/.

1. IvyPanda . "Ethics and Sustainability Reporting." January 21, 2023. https://ivypanda.com/essays/ethics-and-sustainability-reporting/.

Bibliography

IvyPanda . "Ethics and Sustainability Reporting." January 21, 2023. https://ivypanda.com/essays/ethics-and-sustainability-reporting/.