The truths and myths of sustainability- & non-financial reporting
by Adrian Braun
Do you need non-financial reporting in a business? What does it even mean, non-financial reporting? Is managing a business not complicated enough with accounting, taxation, banking, annual reports and shareholder announcements? Now, diverse people with different positions and backgrounds claim that you need a sustainability report, highlighting your efforts and performances in non-monetary perspectives. Ok fair enough, sustainability is good, it is popular, it is on agendas of governments, and it is protecting the environment. However, is it not rather something for the big global players in business, the big polluters and the companies that have the pocket money to invest into these efforts outside the core business?
I would like to clear up two common prejudices of sustainability strategies in businesses.
Prejudice #1: Sustainability is only for large companies (aka global players)
The first prejudice is that sustainability is only for large-scale companies as they are the ones who create the largest ecological and social impacts and they are the ones who have the human and financial resources to carry out sustainability activities and consequently report about those.
In fact, sustainability is an issue for the entire global community, business related or not. Ecological footprints and social impacts are on everybody´s agenda nowadays and certainly also on the agenda of a few, if not many, small- and medium sized businesses (SME´s). A few examples in this context, customers watch out for eco-labels, investors feel the pressure to invest socially responsible (see….), NGO´s function as watchdogs and publish every sustainability misconduct in their social media channels, websites and blogs, and politicians use sustainability to sharpen their profiles and diversify their political spectrum and achieve a better position. Hence, sustainability is also on governmental agendas and the number of sustainability policies in regional, national and international perspectives is continuously rising. All these external stakeholders interested in your business want more than just the reception of financial statements and figures in the framework of the annual report. Therefore, the question is not if you should or should not report regarding your sustainability performance, the question is only the scale and how extensive you have to report and how much you could invest into sustainability. A good and authentic sustainability strategy must not significantly eaten up the hard-earned profit margin that you generated. A few smart solutions and great commitment among management and staff allows to implement crucial sustainability efforts with high impacts and small-scale investments. In case the implementation of novel technologies (e.g., more eco-friendly technologies) require high investments, it is even normally the case that these investments allow improved cost-efficiencies over the upcoming months and years and decent amortisation in an acceptable time-span. Whatever you do in terms of sustainability, report about it! Keep track on your activities, let the responsible officers of each sustainability activity document what had been done and do not hesitate to get expertise from outside, if you perceive that you do not have the capacities internally. By thinking about sustainability investments, amortisation of eco-friendly technology, and accounting, it is worth to consider the novel approach of integrated reporting. Integrated reporting characterises a combination of annual report and sustainability report, meaning that ecological and social aspects find consideration in the annual report content to cover all three pillars of sustainability (ecology, social, economy) comprehensively in one report. Your key stakeholders, investors, business partners, shareholders, clients and customers will appreciate this kind of action as they can by choosing you (a reliable and sustainable business image) achieve positive recognition among their stakeholders themselves.
Prejudice #2: Sustainability is not linked to the core business
The second prejudice is that sustainability is something dislocated from the core business and as such disturbs the main activities and main path of a business strategy and distracts its employees on their path to succeed.
In the 1970s, it was a common belief (originating amongst others from the “Chicago school of economics”) that the only responsibility of a business is the creation of profits. Everything not directly related to this overall goal is disturbing the business and will put it in danger to persist on the market. The past had taught us with numerous examples that the opposite is much more valid. Unsustainable business practices, companies that were not prepared to tackle their environmental challenges and social conflicts failed to persist on the markets, while their competitors attracted customers and investors and strengthened their market position by diversification. Numerous non-financial aspects are directly linked to your business and may be relevant for success or fail. A few of these business elements that must be taken into account are listed in the following.
- Consideration of health and safety of your workforce and the local community that lives around your business facilities,
- Consideration of energy and water consumption,
- Implementation of a waste management system and separation of hazardous waste,
- Accounting of your greenhouse gas emissions and carbon footprint analysis
These and diverse other non-financial business aspects are linked to your products, services and profits as well and therefore standing by no means aside from the core business. Learn more about how sustainability is a part of a modern business and how to report on non-financial issues and integrated reporting by exploring more insights on the Arctic Values website