CHAPTER 1: SUSTAINABILITY AND SUSTAINABILITY REPORTING

SUSTAINABILITY DEVELOPMENT
Sustainable development is the kind of development that fulfills the requirements of without endangering the ability of
future generations to satisfy their own demands.

● Needs - especially the basic requirements of the world's struggling, to whom top priority should be accorded.

● Limitations - imposed on the environment's capacity to satisfy current and future needs by the status of
technology and societal organization.

The current generation must act quickly to prevent irreversible ecological harm. Although
the definition is broad; the report valuably points out that:
• Sustainable development is a process of change rather than a static state of harmony, whereby both the present and the
future demands are taken into account when allocating resources, investing, developing new technologies, and changing
institutional structures.
• "Sustainable development can be seen as a global aspiration" - signals a widespread consensus on the central role of
organizations have in ensuring future generations can meet their own needs.
• "Sustainable development requires organizations to consider the wider and longer-term consequences of decisions.
a. achieving long term sustainable value for investors and stakeholders
b. considering the impact of economic activities (things bought, investments made, waste & pollution generated)

3 Pillar Models
• SOCIAL - reflects an organization's impact on people and social issues, which include
(1) health, skills, and motivation on the people side, and (2) human relationships and partnerships on the social side.
• ECONOMIC - relates to the natural resources consumed in delivering products and services.
• ENVIRONMENT - continues to include financial performance but will increasingly reflect an organization's wider
impact on the economy. This allows the organizations and stakeholders to recognize that profitability, growth and job
creation lead to compensation and benefits for families, and tax generation for governments.

SUSTAINABILITY REPORTING
• A term commonly used to describe a range of practices where organizations provide information on sustainability
matters, in accordance with globally accepted standards.
• Enable organizations to measure, understand and communicate their ESG performance.
• They go hand-in-hand with the setting of performance targets related to ESG impacts.
• Can relate to the reporting to stakeholders of an organization strategies, priorities, policies and practices concerning
sustainability issues, sustainability performance of an organization and how sustainability impacts the operations.
• Can also, among other things, discuss how and organization is dependent upon and manages the environment, society
and governance, the risks and opportunities associated with these dependencies, as well as in organization's sustainability
related responsibilities and accountabilities.

SUSTAINABILITY REPORTING - Different Names

• Environmental, Social or EHS reports (environment, health and safety)
• ESG reports (environmental, social and governance)
• Triple Bottom Line Reports
• Corporate citizenship Reports
• Corporate Responsibility Reports
• Accountability Reports
• Responsible Business Report
• Creating Shared Value Report
• Environmental Report
• Corporate Social Responsibility Report
SUSTAINABILITY REPORTING - Different Forms
• traditional stand-alone sustainability report (annually)
• integrated reports (single report, alongside financial)
• reporting through social media or official websites (regular cycle)

SUSTAINABILITY REPORTING - Purpose

• Plays a role in accountability relationships as it is a means by which organizations communicate with a range of
stakeholders.
• There is an increasing awareness of how relevant an organization's sustainability impacts and dependencies can be for
risk levels and long-term success. This serves as a driver compelling organization to focus on the quality of information
they provide for their stakeholders.

SUSTAINABILITY REPORTING - Nature

• FINANCIAL - has a direct link with the financial accounting system and is expressed in monetary units
• NON-FINANCIAL - not presented in monetary terms and is not based on accounting standard; can be both
quantitative (tons/units of greenhouse gas) or qualitative (governance process, reputation of an organization or the
organization's impact on the state of biodiversity)
• For sustainability to be measurable and reportable, performance indicators need to be chosen.
• For sustainability reporting to be meaningful, it needs to be connected to the strategy of the organization.

The difference between the two is that, non-financial information is more difficult to handle than financial information
because there are generally no accepted reporting principles here and data is taken in different forms. This is why it is
often qualitative because of difficulty to have an access and measure.

Additionally, sustainability information does not focus only on preventing negative issues and minimizing negative effects,
but also enhances positive impacts like innovative new services, increasing the well-being of employees and using more
sustainable products.

SUSTAINABILITY REPORTING ( DEFINITION / DIFFERENT NAMES / PURPOSE )

Therefore, a sustainability report is being used to describe a range of different processes that organizations offer
knowledge about sustainability matters in accordance with globally accepted standards. It also enables organizations to
measure, understand and communicate their ESG performance. Sustainability Report consists of organization’s priorities,
strategies, and regulations and procedures concerning sustainability problems, sustainability effectiveness of a company
and how sustainability has an effect on the business operations. This discusses how an organization is reliant on oversees
society, the environment, and governance: the risks and opportunities connected to these reliances, such as well as the
sustainability of the organization's associated responsibilities and accountabilities. There are also common sustainability
reports. We have the “Corporate Social Responsibility” CSR that addresses various issues like human rights, education,
health, and safety and covers corporate governance, working conditions, environmental sustainability, and more. Along
with economic development, CSR also focuses on social and environmental development (the triple bottom line). Next, is
the “ESG Report” that is a component of CSR that considers financial impacts on companies and is best suited for
companies focused on financially material disclosures though many companies now use it interchangeably with
sustainability. Not only the two mentioned above are examples of common sustainability reports, we also have Corporate
citizenship Reports, Corporate Responsibility Reports, Accountability Reports, Responsible Business Report, Creating
Shared Value Report, and Environmental Report. Sustainability reports also come in various forms. The traditional
standalone sustainability report, published on an annual basis in addition to the financial report, continues to remain a
common form in many organizations. In addition to the reports published with a regular cycle, many organizations are
reporting sustainability information through their website or on social media. We also have integrated reports (single
report, alongside financial) and reporting through social media or official websites (regular cycle). Overall, Sustainability
reporting plays a role in accountability relationships as it is a means by which organizations communicate with a range of
stakeholders. While an organization can produce reports on sustainability related performance for internal purposes, the
focus remains to communicate to a much broader range of stakeholders. Stakeholders to an organization’s sustainability
reporting are usually external to the organization and they can be stakeholders internal to the organization.
DEVELOPMENT OF SUSTAINABILITY REPORTING
During the 1980s, the first voluntary reports were published and later on in 1996 the first standard was first launched (ISO
14001). By 2004, the ISO 26000 was launched which gave a growing concern about climate change becoming popular and
now in the PRESENT we have now the International Integrated Reporting which uses the integrated reporting framework.

Market Makers Driving the Practice of Sustainability Reporting

1. COMMITMENT FORMERS (Creating Demand)
A. UN Principles for Responsible Investment PRI (INVESTORS) - they seek appropriate disclosure on ESG
issues by the entities in which they invest, and to “report on (responsible investment) activities in progress
toward implementing the principles”
B. Equator Principles EP (LENDERS) - to manage environmental and social risk in project financing
C. Carbon Principles, The Climate Group, Ceres Coalition and Capital Finance Alliance (LENDERS) -
additional commitments formed by the financial sector
D. UN Principles for Sustainable Insurance (INSURERS) - includes insurance representing approximately
more than 25% of world premium volume and US$14 trillion in assets under management

2. SUSTAINABILITY REPORTING FRAMEWORK PROVIDERS (Creating Structure)

A. Global Reporting Initiative (GRI) - a guideline for sustainability reporting in absence of mandated reporting.
B. Carbon Disclosure Project (CDP) - an independent body that develops and distributes what information
requested.
C. Sustainability Accounting Standards Board (SASB) (USA) - currently developing standards for material
sustainability issues design for disclosure in mandatory files to the Securities and Exchange Commission
D. International Integrated Reporting Council (IIRC) - it enables integrated sustainability reporting to become an
amazing practice in both the public and private sectors.

3. ESG Rankings, Ratings and Indexes (Comparing and Benchmarking)

A. ESG ratings are scores assigned to companies based on their ESG performance. These ratings are usually provided
by third-party providers, such as MSCI, FTSE Russell, and Sustainalytics, who use various methodologies to
assess a company's ESG performance.
B. ESG indexes are designed to track the performance of companies that meet specific ESG criteria. These indexes
can be used as a benchmark for investment portfolios or as a tool for investors to screen companies based on their
ESG performance.
ESG rankings, ratings, and indexes can provide several benefits to investors and companies, including:

● Improved investment decisions: ESG rankings, ratings, and indexes can help investors make informed decisions
by providing a comprehensive view of a company's ESG performance.
● Increased transparency: ESG rankings, ratings, and indexes can increase transparency by providing stakeholders
with a clear view of a company's ESG performance.
● Better risk management: ESG rankings, ratings, and indexes can help investors manage risk by identifying
companies with potential ESG risks.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE

• reflects the view that managing environmental and social topics is a governance issue for organizations, a proxy for the
quality of their management teams, and a process to assess whether they are positioned for long term success.
ENVIRONMENTAL
• Encompasses how a company is exposed to and manages risks and opportunities related to climate, natural resource
scarcity, pollution, waste, and other environmental factors
SOCIAL
• Includes information about the company's values and business relationships. (labor and supply chain standards,
employee health and safety, product quality and safety, privacy and data security, and diversity and inclusion policies and
efforts)
GOVERNANCE
• Incorporates information about a company's corporate governance. (structure and diversity of the Board of Directors;
executive compensation; critical event responsiveness; corporate resiliency; and policies on lobby political contributions
and bribery and corruption).

Intended Users of Sustainability Reporting

Corporate Customers
• of particular interest to corporate customers are the environmental reviews of products and services, and mechanisms to
ensure responsible labor and human rights practices within the supply chain.
Investors and Lenders
• INVESTORS - particularly interested in governance practices, value creation opportunities, and quality of management
approaches.
• LENDERS - increasingly interested in ESG factors, particularly for project financing,
Employees
• sustainability is also now leading topic among the newest generation of employees entering the workforce wherein they
look for employers that are environmentally aware, and employees who are proud of their organizations socially
responsible activities are more engaged, confident, and likely to stay with the company
Communities
• Community audiences are generally interested in knowing an organization is responsible and strives to make a positive
impact in communities while also mitigating any potential negative impacts to communities.
Advocacy Groups and Media
• including non-governmental organizations, are also important audiences because their assessments of organizations can
create a multiplier effect that influences guest and other stakeholder perceptions and over all the reputation; generally
seek to easily find information on management approaches to the economic, environmental and social topics about which
they care most.
Regulators and Government Agencies
1) A company's sustainability report provides the opportunity to demonstrate their commitment to compliance with laws
and responsible business practices, and to describe their management approach in addition to key actions and/or
investments to comply with laws and regulations;
2) A sustainability report can be shared with local and national regulators to demonstrate a company's social license to
operate;
3) The sustainability report can explain an organization's economic, social, and environmental practices to assist in
addressing any potential concerns and/or differentiate an organization from other potential entrants in the market.
Suppliers and Business Partners
• Through sustainability reporting, organizations can communicate their expectations of suppliers and business partners,
and in numerous instances, where shared values and focus areas exist.
Industry Peers and Influencers
• will view the information for competitive benchmarking purposes. Through sustainability reporting, organizations can
highlight leading edge practices and innovative approaches to challenges to industry.

Benefits of Sustainability Reporting

INTERNAL
1. Effective management of sustainability risks and opportunities - allows companies to know better and understand their
sustainability risks and opportunities.
a. reducing exposures to sustainability-related risks - if an organization proactively.
b. recognizes and manages sustainability-related risk - it can be better placed to avoid and reduce cost impacts resulting
from this risk.
c. staying ahead of emerging sustainability risks and disclosure regulations - an organization would already have factor
this into its risk considerations and will be ready to respond.
d. reducing the cost of capital so a lower risk profile - can enhance corporate value and diminish risk, resulting in a lower
cost of capital. This is because investors add risk premiums to the cost of capital for firms with questionable
environmental and social practices.
2. Sustainable vision, strategy and business plans - sustainability reporting encourages companies to assess, and if
necessary to update, their visions, strategies and business plans to ensure that sustainability is embedded in their
organizations; it gives companies the opportunity to determine the necessary changes in their vision strategies and
performance goals/targets for more sustainable operations.
3. Improved Management systems
- sustainability reporting involves tracking and gathering data which when evaluated can identify the areas that need
improvement; motivates companies to improve in succeeding reporting periods, thus resulting to improvement in
management systems
4. Motivated workforce - knowing that the company is environmentally and socially conscious increases morale and
motivates the workforce to work hard for the company.

Benefits of Sustainability Reporting

EXTERNAL
1. Investor Attractiveness - institutional investors are now looking at the ESG practices of companies and make this a key
element in their investment analysis and decisions.
2. Improved company reputation and brand value - having a sustainability report indicates that the company's
commitment to full transparency and accurate and complete reporting on both positive and negative news. It shows the
company's efforts towards sustainability. This improves the company's image and builds trust and respect for the
company. Thereby, improving company reputation and brand value.
3. Stakeholder engagement - the process of sustainability reporting provides companies with opportunities for stronger
engagement with their stakeholders, which in turn can result in better relationships with them. Stakeholders will feel
empowered while the companies can gain valuable insights beneficial to their sustainability journey and decisions
4. Competitive advantage - awareness of sustainability reporting is still quite low for most Philippine companies. As such,
having a sustainability report may provide companies with a competitive advantage. This competitive advantage maybe in
any of the above-mentioned internal and external benefits.