Week 7 Flashcards
Sustainability reporting
to provide relevant information to investors in order to allow them to make informed economic decisions.
Limitations to reporting
- Complexity (information overload)
- Short-termism (provides information mainly useful in predicting the short-term performance of a company)
- Backward-looking (past financial performances)
- Lack of non-financial information (focused on physical and financial assets, expressed in financial terms)
Drivers for sustainable reporting
- Global context – increasing awareness of environmental and social challenges
- Stakeholder pressure
- Increasing demands from investors
- Improve business performances
How to report
- GRI, TCFD and SDGs form the most commonly used anchors for SR
- GRI remains the most dominant standard used around the world, though some regions have a clear preference for SASB or local stock exchange guidelines
Limitations and criticisms of sustainable reporting
- Lack of mandates and auditing (ESG assurance)
- Specious targets
- Opaque supply chains
- Complexity
- Confusing information
- Inattention to developing countries
Key principles in reporting
- Stakeholder inclusiveness
- Sustainability context
- Materiality
- Completeness
- Balance
- Comparability
- Accuracy
- Timeliness
- Clarity
- Reliability
What does effective reporting do?
creates trust, supports value creation and can motivate internal changes.
It has become an strategic tool to support sustainable decision making, stimulate OD, engage stakeholders, drive better performance and attract investment.
Included in report, sometimes with external assurance for credibility
How they meet baseline responsibilities.
How it addresses adverse impacts.
How it utilized its core competencies.
Technologies and solution to further contribute to their goals.
Materiality matrix.
4 things they thought would happen due to reporting
- Individual companies’ social, environmental, and governance (ESG) performance would improve (because what gets measured gets managed).
- A link tying companies with better sustainability records to better equity returns would emerge.
- Investors and consumers would reward companies with strong sustainability performance—and put pressure on those that lagged.
- Ways to measure social and environmental impact would become more rigorous, accurate, and widely accepted.
Problems with measurement
if often nonstandard, incomplete, imprecise and misleading. The big headlines in the news lead to greenwishing: hoping to fix itself.
Changing the rules in a competitive industry is difficult and it is not yet established what the exact impact of sustainability is on profits.
Problems in reporting
- Lack of mandates and auditing
- Superficial targets
- Non transparent supply chains
- Complexity: scope 3 emissions are almost unmeasurable
- Confusing information
- Inattention to developing countries
Problems in sustainable investments
- Investors do not really care about ESG investments
- Unhelpful definitions of sustainable: many ESG funds still invest in oil and gas
- Unreliable ratings: voluntarily shared, largely unaudited and incomplete reporting
- Increasing transparency: can lead to flood of unsorted information and misinformation
- Lack of comparability
- Challenges in assessing the success of socially responsible investing
- Difficulty of scaling up truly effective impact investing
Suggestions to begin
- Measure less, better (have an independent referee)
- Mobilize
- Spend government funds on the right things
- Change the system (parameters are the lowest of system thinking, think bigger)
Shareholder primacy
put interest of shareholders above all others. Has a big strong negative impact on coporate sustainability. However, they could change the world.
