Question

You are the chief financial officer of Superior Paint Company, a company that manufactures paint and paint products in a large township. Chemicals used in the production process are disposed off in compliance with environmental regulations but some of the components of the products such as solvents, monomers and softening agents still present serious ecological risks. The company provides regional employment. The chief executive officer has asked you to prepare a report on whether the company should engage in social and environmental reporting.

(a) Recommend to the chief executive officer whether Superior Paint Company should engage in social and environmental reporting and provide two supporting reasons with reference to the GRI Framework.

Answer 1

Hi there,

Here's my anseea to the question asked.

According to the Global Reporting Initiative (GRI), Sustainability Reporting is an overview of a company’s economic, environmental and social impacts, caused by its everyday activities. This kind of reporting – presenting the company’s commitment to a sustainable global economy – can help organizations measure, understand and communicate their economic, environmental, social and governance performance, and then set goals, and manage change more effectively.

In recent years, sustainability reporting, has become a very important part of Integrated Reporting, which combines financial and non-financial parameters. General terms synonymous with sustainability reporting including triple bottom line reporting, and corporate social responsibility.

Varying from company to company, the specific purpose of a sustainability report might include:

• addressing stakeholders beyond those targeted by the integrated report (financial capital providers);
• details on the organisation’s competitive positioning in the emerging sustainability space;
• a more detailed overview of organisational initiatives relating to social, human and natural capital.

In the present case., Social and environmental is very important to report to stakeholders because Chemicals used in the production process are disposed off in compliance with environmental regulations but some of the components of the products such as solvents, monomers and softening agents still present serious ecological risks. The company provides regional employment.

Why is Sustainability Reporting important

The value of sustainability reporting is that it ensures organizations consider their impacts on sustainability issues, and enables them to be transparent about the risks and opportunities they face. In today’s world it’s not good enough to simply make claims about your level of sustainability. Now, organizations need to provide tangible, credible demonstrations of their level of sustainability, by following proper guidelines for sustainability reporting.

This way organizations build trust among customers and all stakeholders, which in turn directly impacts the bottom lines. As per the business axiom – you can’t manage what you can’t measure; transparency is a currency that builds trust, which build businesses.

So in a nutshell, sustainability reporting can have four major benefits to any organisation:

• It is a useful risk management tool.
• It can help generate savings.
• It helps in better decision-making.
• It helps in increasing stakeholder trust.

(A) Sustainability Reporting as a tool for better risk management

Some have argued that sustainability reporting and risk management are actually ‘two sides of the same coin’. Considering risk and sustainability together is noteworthy, as sustainability, in grand, strategic terms, is about realizing business resilience, and an opportunity to enhance transparency and partnership. Sustainability shapes a business’ future operating environment, its corporate perception, while at the same time bringing resilience and efficiency into the business.

In simpler terms, both enterprise risk management (ERM), and sustainability reporting are functions primarily focused on the identification and prioritization of risk, with primacy on internal reporting, external disclosure and transparency. In fact, sustainability reporting can be thought of as a first among equals in terms of the mitigation strategy.

Moreover, sustainability reporting has become important tool in better risk management with modern businesses – in addition to the traditional risks – increasingly facing social and environmental risks, which manifest themselves over a longer term, are largely outside the organization’s control, and often affect the business on many dimensions.

Managing such risks require making investment decisions today for longer-term capacity building and developing adaptive strategies; and a good sustainability report helps in that.

(B) Sustainability Reporting improves operational efficiency too

Few decades back it was still believed that profits and sustainability are mutually exclusive. That conventional wisdom has now reversed, with companies realizing significant cost savings through environmental sustainability-related operational efficiencies.

Investors too are increasingly correlating better financial performance with better ESG (environmental, social and governance factors) performance. This so as evidence is mounting showing that sustainable companies deliver significant positive financial performance.

Thus, nowadays, most companies creating value through sustainability, look first to improving returns on capital, which often means reducing operating costs through improved natural-resource management (such as energy use and waste). Companies are also driving down costs by systematically managing their value chains. Moreover, companies are adding value by improving employee retention or motivation through sustainability activities or by raising prices or achieving higher market share with new or existing sustainable products.
All this means improved operational efficiencies

Reporting framework of Sustainability Reporting :

Sustainability disclosure – a part of sustainability reporting – provides a broader view of a company’s performance than financial disclosure alone. When used in integrated reporting, it can reveal value creation across six capitals: financial, manufactured, intellectual, human, social and relationship and natural.
Over 90 percent of the world’s largest companies are already reporting on their sustainability impacts, with smaller companies following suit. While the majority decide to report using the GRI Standards, which provides a comprehensive, flexible and adaptable framework for companies of any size to report on their economic, environmental and social impacts; some have chosen to follow the methodology recommended by the International Integrated Reporting Committee (IIRC), and US-based Sustainability Accounting Standards Board (SASB).

In effect, whether to choose GRI, IIRC, or SASB standards, depends on the organisation’s ultimate goal.