Top 5 Reasons Why Sustainability Reporting is Relevant to Every Business

Updated on: August 28, 2023

A company’s ability to positively impact social and environmental change has become an increasingly relevant consideration for businesses. Environmental, social, and governance (ESG) factors cover many issues that touch on everything from company culture and employee compensation to climate impact and sourcing standards. Sustainability reporting allows businesses to provide insight into the true impact of a business’s efforts on stakeholders.

While traditionally absent from financial reporting, larger companies recognize ESG’s impact on investor relations, market behavior, and financial success. Almost all Fortune Global 500 companies use a recognized framework to report on sustainability. Nearly 80% of the world’s largest companies use Global Reporting Initiative (GRI) standards, which provide transparency to consumers, investors, and other stakeholders.

While public companies have been reporting on sustainability for decades, it has been historically less accessible to smaller businesses lacking the resources to invest in analysis and reporting initiatives. Luckily, B Lab has a free and widely accessible impact assessment that serves as a framework relevant to both large and small businesses.

While climate change was a catalyst for increased ESG reporting, social and governance factors are becoming increasingly relevant. ESG considerations can influence change faster than governments or nonprofits, and younger generations view their investment dollars as an extension of personal values. In 2018, US SIF Foundation reported that investors held $11.6 trillion in assets associated with ESG criteria, up from $8.1 trillion in 2016. A TD Ameritrade survey revealed that 19% of ESG investors consider human rights the most important factor in their decision-making.

Non-financial performance is often a leading indicator of a company’s long-term success. ESG metrics help businesses recognize when strategies need an overhaul. ESG assessments help identify what practices may be associated with future risk, even if currently working. For example, does the business outsource manufacturing to countries subject to changes in tariffs or inflating labor costs? Does management’s hiring tactics support employee retention? Traditional financial reporting fails to address many fundamentals.

Today’s workforce holds their employers to a much higher standard than decades past, with working conditions, employee morale, health initiatives, and overall culture of the utmost importance. A sustainability report addresses these issues and provides insight into a company’s relative compensation, retention rates, and diversity. This is not only important for attracting customers, it’s imperative for recruiting and maintaining talent.

According to the Harvard Business Review and a decade long study entitled “The Happiness Advantage,” employee happiness raises sales by 37%, productivity by 31% and accuracy on tasks by 19%. The conclusion? Employee happiness is good for financial success.

Harvard’s ESG Global Survey showed that more than a quarter of investors say ESG is central to their investment approach with an emphasis on “acceptance” and “compliance”. Additionally, the Business of Sustainability Index (BOSI) by PDI Technologies reported that more than two-thirds of Americans (68%) are willing to pay more for environmentally sustainable products as opposed to cheaper non-sustainable alternatives.

While sustainability reporting can be financially burdensome, B Lab has changed that paradigm. You don’t need to be a B Corp to use the B Lab assessment, which provides insight into tangible and relevant concepts typically absent from the financial performance conversation. These concepts can be used to benchmark and assess how a business can better align the values of the business with that of its stakeholders.

In addition to market differentiation and meeting consumer demand, consistently reporting on ESG helps businesses improve enterprise value — and it’s more accessible than ever. It can be done using a variety of frameworks or even on your own terms. Consumers care about the mission and purpose of a business, and ESG metrics help share that story with the world.

If you want more guidance on getting started with sustainability reporting, don’t hesitate to contact us.