Sustainability Reporting Is Gaining Corporate Traction
Accounting and finance professionals need to know two main factors seem to be driving the rise in sustainability reporting.
By Thomas L. Zeller, Ph.D., CPA, David R. Faust, and Rachel D. Phan |
Environmental, social, and governance (ESG) are the buzzwords
accounting and finance pros need to know as calls for greater
corporate social responsibility and corresponding sustainability
reporting put new demands on companies seeking success in our
increasingly socially conscious society.
Consumers, investors, suppliers, and business partners alike are
demanding both private and public companies participate in and
report on relevant sustainability and social efforts. Two main factors
seem to be driving the rise in sustainability reporting.
First, stakeholders, owners, and employees — either willingly or
due to generational changes and social pressures — want to
participate in sustainability efforts. Companies engaged then
typically measure and report on their ESG sustainability practices,
which helps to bolster corporate consciences and profits while
simultaneously building a better business model.
Second, several business risks and opportunities fall outside the
lens of traditional financial reporting that impact a company’s
value. Studies show only 20 to 40 percent of a company’s value is
tied to tangible assets, meaning financial statements generally fail
to capture and measure ESG-related risks and opportunities —
think risks associated with scarce resources (like clean water or
rare earth materials), geopolitical issues, and labor shortages.
Opportunities associated with labor practices, leadership styles,
and technology also escape the traditional financial reporting lens.
These risks can become dire, and opportunities may be forgone,
without the proper reporting framework to identify and measure
them. Additionally, companies that do not report beyond their
traditional financials will miss out on appealing to a growing class
of socially responsible investors and consumers.
Although the need for sustainability reporting is growing, business
knowledge and understanding of it remains limited. “Too few
managers are familiar with fulfilling financial and social goals
simultaneously and there are few templates for developing
organizational processes and systems to help them do so.
Internally, organizations often struggle to allocate resources toward
these different goals and to deal with the trade-offs that they face,”
writes Julie Battilana, Joseph C. Wilson Professor of Business
Administration at Harvard Business School and Alan L. Gleitsman
Professor of Social Innovation at Harvard Kennedy School, for HBSWorking Knowledge
The pressing question now is how will your company, and how will
you, prepare to answer the call when your stakeholders,
customers, or clients ask about sustainability measures and
reporting? The independent Sustainability Accounting StandardsBoard
(SASB) might have your answer.
The SASB aims to guide public corporations in disclosing
financially material information regarding ESG issues to
investors and the broader public. The SASB’s current reporting
standards cover 11 sectors for 79 industries. Each industry has
unique sustainability topics and related accounting metrics defined
by five sustainability dimensions: Environment, Social Capital,
Human Capital, Business Model and Innovation, and Leadership
The SASB offers two resources to uncover the material topics and
measures pertinent to a business’s sustainability efforts — a
downloadable standard for each respective industry and an
interactive SASB Materiality Map that identifies the relevant topics
and accounting metrics for each dimension of the framework for
a respective industry. All you need to do is match your business
— or your client’s — to one of the sectors and industries.
All in all, the collective trend towards sustainability is clear. Investors
and consumers value companies that express interest and
action in managing their social and environmental impacts. There’s
no question that sustainability accounting is soon to become a
Fortunately, there’s no need to recreate the wheel when it comes
to sustainability reporting; the SASB has done the heavy lifting.
Accounting and finance professionals now just need to do their
part by educating themselves and those they serve about how and
why sustainability reporting matters.