Sustainability reporting is on the rise in Australia as elsewhere across the developed world. Whether it is stand-alone sustainability reports, integrated financial and sustainability reports, or sustainability sections on web sites, companies are increasingly reporting their performance against environmental, economic and social indicators – collectively called ‘sustainability’ indicators.

In Australia, 23% (DEH, 2006) of the ASX/SP 100 produced a ‘sustainability’ report, either as a stand-alone report or combined with their annual financial reports. Whilst the reporting trend is increasing, Australia still lags behind other OECD countries where the average across 16 countries is 41% of the top 100 publicly listed companies.

Sustainability reporting is a topical issue for companies and governments alike. In 2006 the Parliamentary Joint Committee on Corporations and Financial Services and the Corporations and Markets Advisory Committee both considered (amongst other issues around corporate social responsibility) whether the Corporations Act should be altered to require mandatory reporting on environmental and social issues. Neither recommended legislated mandatory sustainability reporting for companies. But clearly there is ongoing interest in and scrutiny of the breadth and quality of corporate reporting.

Beyond potential regulatory requirements, companies are choosing to voluntarily report for a variety of reasons. Increasing community expectations around corporate transparency and accountability, a changing perception of the role of the company in society and supply chain pressure are just some of the external drivers for companies to publicly report on sustainability performance. Internally, a desire to manage future environmental, social and governance risks, enhance brand reputation and meet shareholder and employee expectations are also cited as motivations, in addition to monitoring and therefore effectively managing the company’s broader performance.

As more companies are convinced of the value of reporting, and the market becomes more knowledgeable, the quality demanded of reports increases. However, several issues impacting the overall quality of reports have been identified by the Association of Chartered Certified Accountants (ACCA), which judges annual awards for sustainability reporting. These include poor stakeholder identification and communication, the lack of sustainability issue/risk identification or governance disclosure, little performance reporting standardisation and verification.

Sustainability reports are produced for a wide variety of stakeholders, including institutional investors, analysts, governments, employees, customers and the media (Bostock & Pollitt, 2006). However, ACCA (2007) feels that only the best reporters are identifying who their stakeholders are, what their concerns are and how the company is addressing them. Getting the correct balance of narrative and data to meet the needs of such divergent groups of stakeholders is a challenge for reporting companies, but one which must be addressed to improve reporting quality.

The second area where companies have an opportunity to improve report quality is by identifying key sustainability issues facing the organisation, and elaborate on what is being done to address potential risks in their sustainability reports. The Labor members of the Parliamentary Joint Committee on Corporations and Financial Services (Commonwealth of Australia, 2006) recommended that companies above a certain size threshold disclose their top five sustainability risks and their strategies to manage those risks.

In addition to this, report quality and overall accountability can be improved by the provision of more detail on governance structures put in place to manage sustainability risks, impacts and performance. The Global Reporting Initiative (GRI) G3 Guidelines, released in late 2006, repeatedly urge companies to detail the ‘management approach’ and structures put in place to address environmental, social and economic aspects of the company. Financial analysts are also looking to sustainability reports to provide insights as to whether a company is being managed effectively.

Report quality will also be enhanced by standardised reporting of key sustainability performance indicators. At present, it can be difficult to compare environmental, social and economic risks and impacts of companies within the same industry sector, and impossible to compare between different sectors. The G3 Guidelines have attempted to address the issue, by providing guidance on which indicators a company should report on, such as greenhouse gas emissions and lost time injuries, how the indicators should be consistently measured, and how that information should then be reported.  

Finally, there is an increasing call for standardising report verification. DEH (2006) reported that 30% of reports produced by the ASX/SP 500 in 2004 were independently verified, but the ACCA (2007b) is concerned with the variability in verification processes and language used in verification reports. Assurance standards for verification do exist, including the AA1000 AS and ISEA3000. However, for investors relying on information reported in sustainability reports, a higher degree of certainty in the verification process is needed.

As more companies become confident of what is expected in a sustainability report, it is anticipated that these and other issues of reporting quality will be addressed, lifting the overall level of corporate transparency and accountability.

For more information, visit the Global Sustainability Institute at RMIT University.

References

• ACCA, (2007) Disclosures on Stakeholder Engagement: Reporting Trilogy – Research on Sustainability Reporting in Australia – Part 1 http://www.accaglobal.com/documents/sra_part1.pdf , (accessed 24/5/07)
• ACCA (2007b), Report of the Judges: ACCA Australia & New Zealand Awards for Sustainability Reporting 2006
• Bostock & Pollitt, 2006, Corporate Reporting: Seeing the Bigger Picture, Nov 2006
• Commonwealth of Australia (2006), Parliamentary Joint Committee on Corporations and Financial Services: Corporate Responsibility: Managing Risk and Creating Value, June 2006
• Department of Environment and Heritage (2006) The State of Sustainability Reporting in Australia 2005, www.deh.gov.au
• European Sustainability Reporting Association, (2006), Summary of Reporting Developments for each European Country Participating in ESRA Project, http://www.sustainabilityreporting.eu/documents/general_reporting_esra.pdf ,(accessed 24/5/07)
• Global Reporting Initiative (2006), G3 Guidelines, http://www.globalreporting.org/ReportingFramework/G3Online/ ; (accessed 24/5/07)