Chapter 1 Sustainability reporting also has been shown to add great benefit to

SUSTAINABILITY AND SUSTAINABILITY REPORTING companies in providing the frameworks to categorize and evaluate the
various ESG topics, and to identify gaps in their platforms and areas
Globally, many leading organizations have moved beyond Corporate for improvement. The common language
Social Responsibility (CSR). Within a period of fifty (50) years, summarizes information accessible to internal audiences, and
organizations' understanding of sustainability has evolved from no reporting's tenet of identifying and measuring quantifiable indicators
knowledge to the development of new management models which has helped bring the subject of sustainable development to the
integrate sustainability. In fact, stakeholders are increasingly boardrooms and other managerial discussions of mainstream business.
interested in understanding the approaches of organizations in
managing their Environmental, Social and Governance (ESG) risks and Sustainability reporting was mainly confined to large, publicly traded
opportunities. Increasing impacts from sustainability related risks (e.g., companies receiving requests from shareholders and fellow large-
scarcity of resources, changing social expectations and new legislative company customers. However, as the concept and success of reporting
requirements in sustainability-related areas) are driving organizations becomes more well-known and reporting becomes more commonplace,
to embed sustainability considerations in response to these risks and it is beginning to spread beyond the largest, publicly traded
their challenges. Further, early movers are likely to gain a competitive companies, into smaller companies and even small and medium-sized
advantage through developing innovative solutions as they respond to enterprises (SMEs), as well as privately held entities. Reporting will
these risks. Therefore, a holistic approach to business management, vary depending on the type of organization, its sector, its size, its
incorporating ESG alongside financial ones, will serve as a sound location, and its intended audiences. Overall, however, sustainability
business model that supports business continuity and competitiveness reporting as a concept also implies a journey of sustainable
over the long term. development, whereby organizations can and eventually will follow the
best practice path.
Moreover, transparent, public reporting of an organization's approach
and performance toward relevant ESG issues has emerged as one of DEFINING SUSTAINABILITY AND SUSTAINABLE
the common practices of large companies globally across all sectors. DEVELOPMENT
Reports communicating ESG content address the convergence of real The notion of sustainability is rooted in the wider concept of
business risks, government and market regulation, and increased sustainable development. There have been numerous attempts to
stakeholder interest. Investors want to know how a company is define what is meant by sustainability and sustainable development.
managing the risks affecting its business such as climate change, However, the most widely used definition was first developed in 1987
human rights, and resource scarcity. Stock exchanges and governments by the also known as the Brundtland World Commission on
have realized the importance of these disclosures to investors, with Environment and Development Commission - in an UN-sponsored study
dozens now mandating that companies report, or explain why they do entitled Our Common Future, which is used by many governments and
not. Corporate customers request similar information as part of their organizations:
own commitments and evaluation of supply chain risks. Increasingly, "Sustainable development is development that meets the needs of the
and especially with the millennial workforce, employees often seek out present without compromising the ability of future generations to meet
companies with purpose and that demonstrate commitments to their own needs."
environmental protection and human well-being. For companies
seeking to be recognized as leaders in corporate responsibility, public It contains within it two key concepts:
reporting serves as the primary medium for comparison ▪ the concept of 'needs', in particular the essential needs of the world's
poor, to which overriding priority should be given; and
▪ the idea of limitation imposed by the state of technology and social ▪ Social performance reflects an organization's impact on people and
organization on the environment's ability to meet present and future social issues, which include
needs. (a) health, skills, and motivation on the people side, and
This report also implored the present generation to take immediate (b) human relationships and partnerships on the social side.
action to avert the risk of irreversible ecological damage. Although the ▪ Environmental performance relates to the natural resources
definition of sustainable development is broad, the report valuably consumed in delivering products and services.
points out that: ▪ Economic performance continues to include financial performance
but will increasingly reflect an organization's wider impact on the
"Sustainable development is not a fixed state of harmony, but rather a economy. This allows organizations and stakeholders to recognize that
process of change in which the exploitation of resources, the direction profitability, growth, and job creation lead to compensation and
of investments, the orientation of technological development, and benefits for families, and tax generation for governments.
institutional change are made
consistent with future as well as present needs." The term ESG, is also used extensively, particularly by the investment
community, reflecting the view that managing environmental and social
Sustainable development in these terms can be seen as a global topics is a governance issue for organizations, a proxy for the quality of
aspiration. The use of the Brundtland definition by many organizations their management teams, and a process to assess whether they are
in their management and reporting on sustainable development and positioned for long-term success. The combination of these three terms
CSR signals a widespread consensus on the central role organizations also provides a more tangible and easily understood set of concepts
have in sustainable development requires the political will of that does not carry any other connotations currently held for the term
governments, organizations, and ensuring future generations can meet "sustainability" or "corporate responsibility". The terms environmental,
their own needs. It evidences an acceptance that communities. social and governance can be explained as follows:

This definition also requires organizations to consider the wider and

longer-term consequences of decisions. This is the route to achieving
long-term sustainable value for investors and stakeholders and involves
considering the impact of economic activities - investments made,
waste and pollution generated - on the natural and human resources on
which they depend, to avoid irreparable damage to the productive
capacity of these resources. Practically, this requires organizations to
consider the consequences of economic decisions on the natural
environment, on economic development, and on the social conditions in
which people live and work.

The World Business Council for Sustainable Development's three-pillar

model of economic growth, ecological balance, and social progress is
also a useful reference point for understanding sustainability. This
reinforces the message that long-term maximization of shareholder
value for public companies will undoubtedly be intertwined with their
environmental, social, and economic performance, where: SUSTAINABILITY REPORTING
Sustainability reporting is a term commonly used to describe a range of In addition, the reporting landscape is strongly shaped by several
practices where organizations provide information on sustainability reporting frameworks prepared by non-state organizations seeking
matters, in accordance with globally accepted standards. Such both to help organizations prepare their reports and to create a more
disclosures enable organizations to measure, understand and standardized practice.
communicate their ESG performance and then set goals, and manage
change more effectively. Often, they go hand in hand with the setting of Different Names and Forms of Sustainability Reporting
performance targets related to ESG impacts. Sustainability reporting Sustainability reporting is by far still the most common for all
can relate to the reporting to stakeholders of an organization's stakeholders but is not the only name used for this type of reporting.
strategies, priorities, policies and practices concerning sustainability Earlier, it was common for organizations to publish environmental,
issues, the sustainability performance of an organization and how social or EHS-reports (environment, health and safety). There are also
sustainability impacts the operations. Sustainability reporting can also, plenty of ESG reports, triple bottom line reports, corporate citizenship
among other things, discuss how an organization is dependent upon reports, corporate responsibility reports, accountability reports,
and manages the environment, society and governance, the risks and responsible business report, creating shared value report,
opportunities associated with these dependencies, as well as an environmental report, and corporate social responsibility reports out
organization's sustainability related responsibilities and there. More recently, the term "non-financial reporting" has become
accountabilities. increasingly prominent (although often broader in scope than
sustainability issues), perhaps because it provides a contrast to
Sustainability reporting has become a widespread feature across conventional financial reporting (i.e., the annual report). These terms
societies, and it is now a standard practice in many large organizations, will be used interchangeably throughout the discussion.
particularly in the business world. Sustainability reporting practices
are diverse as sustainability reporting remains largely a voluntary Sustainability reports also come in various forms. The traditional
practice. Organizations can choose whether they publish a standalone sustainability report, published on an annual basis in
sustainability report, how they prepare it, what information they addition to the financial report, continues to remain a common form in
include, as well as the form and medium they publish the information. many organizations. Others have turned to producing integrated
Expectedly, sustainability reporting differs substantially from reports, in which various types of social, environmental and broader
traditional financial reporting which is based on strictly and largely economic information is presented alongside the financial information
mandatory frameworks and enforcement mechanisms for non- in a single report. In addition to the reports published with a regular
compliance. cycle, many organizations are reporting sustainability information
though their website or on social media. Such reporting offers an
The sustainability reporting landscape has also gone through organization the possibility to reach different stakeholder groups than
substantial changes and continues to evolve. What started several it would with a regular report, as well as potentially facilitate
decades ago with some pioneering companies preparing inexperienced interaction and dialogue with the stakeholders.
attempts at environmental reports has over the years developed into a
standard practice. Sustainability reporting attracts interest across Purpose of Sustainability Reporting
stakeholder groups, ranging from NGOS to investment bankers. As Sustainability reporting plays a role in accountability relationships as it
sustainability reporting has become more widespread and grown in is a means by which organizations communicate with a range of
prominence, an increasing number of regulatory initiatives have stakeholders. While an organization can produce reports on
emerged in different countries and regions. These initiatives place sustainability related performance for internal purposes (such as those
various expectations on organizations and the reports they published. for internal decision-making purposes), the focus remains to
communicate to a much broader range of stakeholders. While For instance, an organization can measure, and present information
stakeholders to an organization's sustainability reporting are usually related to energy in financial terms referring to expenditure on energy.
external to the organization (e.g., investors, business partners, In non-financial terms it could be about carbon dioxide emissions where
customers, suppliers, local communities, civil society, legislators, the distinction between energy gained from renewable and non-
regulators and policy makers) they can also be stakeholders internal to renewable sources also makes a difference. Some of the environmental
the organization (e.g.,employees). factors are quite easily converted into financial terms. Other indicators,
for example, attention to biodiversity and ecosystem services, might
However, while sustainability reporting has developed into a common have consequences that are less easy to calculate in monetary terms.
practice, the The sa me is often the case with social issues that could range from
credibility of sustainability reports is not always considered to be very employee satisfaction to the number of women or ethnic minorities in
high. As reporting is till to a large extent a voluntary practice, for management positions - issues that are difficult to express as, and often
which there is no formal audit mechanism, stakeholders regularly unnecessary to turn into, financial figures. It doesn't, however, mean
express concerns that sustainability reports could be used for that they would be less important.
"greenwashing". At the same time, in the investment community 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 the information they provide for their stakeholders.

NATURE OF SUSTAINABILITY INFORMATION

Sustainability information includes both financial and non-financial
information. Financial information has a direct link with the financial
accounting system and is expressed in monetary units. Non-financial
information means that it is not presented in monetary terms and is
not based on an accounting standard. Non-financial information can be
Consequently, for sustainability to be measurable and reportable,
both quantitative, such as tons (or units) of greenhouse gas, or
performance
qualitative, such as governance processes, the reputation of an
indicators need to be chosen. For sustainability reporting to be
organization or the organization's impact on the state of biodiversity.
meaningful, it needs to be connected to the strategy of an organization.
Therefore, the indicators need to be relevant for the organization.
Non-financial information is often more difficult to handle compared
There is a risk that the indicators chosen will not be the best possible
with financial information because there are generally no accepted
ones with reference to sustainability. For example, the amount of
reporting principles, and the data can take many different forms. It is
recycled waste could be less important than whether the organization
often the case that this information is qualitative and can be difficult to
was able to reduce the creation of waste in the first place. In addition,
measure and access. These difficulties should not limit the use of
it is important to remember that sustainability information is not only
nonfinancial information because this kind of information might be very
about minimizing negative effects (e.g., greenhouse gas emissions) and
relevant to information users, whether citizens, investors or society at
preventing negative issues (e.g., accidents having environmental or
large.
social implications). It is also about enhancing positive impacts, such as
using more sustainable products or production methods, innovative
new services, or increasing the well-being of employees.

EXHIBIT 1.2 Differences Between Sustainability Reporting and

Financial Reporting
EXHIBIT 1.3 Development in Sustainability Reporting: From
Single Issue Reports to Holistic Sustainability Reporting

Since the mid-1990s, sustainability reporting has developed in various

directions. Companies with socially sensitive operations started to
develop corporate social responsibility (CSR) reporting, which had
some roosts in earlier philanthropic movements. The European Union,
for instance, currently defines CSR simply as "the responsibility of
enterprises for their impacts on society". One of the drivers of CSR
DEVELOPMENT OF SUSTAINABILITY REPORTING reporting was concerns about labor conditions in supply chains that
Sustainability reporting can be put into a continuum of developments were becoming more complex while human rights and particularly the
since the 1980s. In the late 1980s, the first voluntary environmental use of child labor had become concerns for consumers. Sustainability
reports were published. Companies with environmentally sensitive reporting developments have taken different forms, one of them being
operations, especially large polluters, started to develop sustainability triple bottom line (TBL) reporting, where the three dimensions are
reporting. This was done partly as a response to pressure from social, economic and environmental, or people, planet and profit. At the
nongovernmental organizations that criticized the power of same time, global organizations supporting sustainability reporting
multinational companies. This indicates the importance of sustainability were founded. One of them is the Global Reporting Initiative (GRI),
reporting as a tool in communicating with stakeholders and managing which has developed a voluntary sustainability reporting framework. In
business reputation. At the same time, the development of voluntary addition, there are country-specific initiatives, such as Connected
codes of environmental conduct and eco-auditing led to the Reporting, developed in the United Kingdom, which aims to provide a
development of environmental management systems (EMS) and the new approach to corporate reporting and improve annual reports and
creation of standards, such as the ISO14000 standard series. The ISO accounts.
14001 standard, which provides requirements for environmental
management systems, was first launched in 1996. The European Union The social emphasis of sustainability is visible in the UN's Global
soon launched its own Eco-Management and Audit Scheme, EMAS. Compact, which was launched at the turn of the millennium. It
encourages businesses worldwide to adopt sustainable and socially for this was partly the high priority given to environmental concerns
responsible policies and to report on their implementation. It and partly the difficulty in grasping the multidimensional concept of
concentrates on the areas of human rights, labor, environment, and sustainability. Since the turn of the millennium, the number of more
anti-corruption. The OECD also has Guidelines for Multinational holistic sustainability reports has increased while the share of
Enterprises that are recommendations by governments, aimed at environmental reports has decreased. Even so, in many cases
providing voluntary principles for responsible business conduct. One sustainability reporting practices have focused largely on
example of changing concerns is that the 2000 update of these environmental issues and eco- efficiency. So far, sustainability
Guidelines added recommendations on the elimination of child labor reporting has taken many different forms. There are stand-alone
and forced labor, and new chapters on combating corruption and reports that can be published annually or biannually. Alternatively,
consumer protection, whereas the 2011 update contained sustainability reporting can happen via a suite of reports that are also
a new chapter on human rights. Also, the attention paid to climate published online. Although currently it is most common for
change issues is now more pronounced. organizations to publish environmental or social information in
separate reports, there are also approaches that combine them with the
Another development was the launch of the ISO 26000 guidance for annual financial report. This is reflected in the most recent and forceful
social in 2004. It is voluntary guidance and is not used as a certification development in the reporting field, the initiative of the International
standard unlike other ISO standards. According to the ISO 26000 Integrated Reporting Council (IIRC), which is promoting the
guidance, the objective of social development and use of an integrated reporting framework. On the one
responsibility is to contribute to sustainable development. Social hand, various developments indicate that there is a demand for
responsibility has the organization as its focus and concerns its sustainability reporting. This need has been expressed through many
responsibilities to society and the stakeholders who are developing sustainability reporting frameworks.
environment. According to ISO 26000, the core subjects of social On the other hand, the variety of concepts, frameworks and actors has
responsibility are caused some confusion about concepts and even competition between
issues related to organizational governance, human rights, labor developers of reporting frameworks.
practices, the
environment, fair operating practices, consumer issues, and community WHO ARE THE MARKET MAKERS DRIVING THE PRACTICE OF
involvement and development. ISO 26000, however, notes that as SUSTAINABILITY REPORTING?
society's concerns change, its expectations of organizations also Sustainability reporting has myriad players involved that play different
change, and therefore the elements of social responsibility are liable to roles, some of them wearing multiple hats within the market. To better
change. understand the landscape, sustainability reporting can be viewed as a
series of market makers who influence what is reported and elevate its
In addition to wider social and environmental reporting, the growing importance. Reporting regulations, including the EU NonFinancial
concern about climate change has made carbon reporting more Reporting Directive update in 2014, further spur demand and reference
popular. One example is the Carbon Disclosure Project, which has and/or align with the standards that have been established prior to this
encouraged companies and cities around the world to measure and by these ESG market makers.
disclose their greenhouse gas emissions, climate change risks and
water strategies. Commitment Formers (Creating Demand)
Sustainability reporting is driven in large part by entities that set forth
The first reports labeled as "sustainability reports" were mostly single- a series of commitments for which organizations become members and
issue reports that focused on environmental performance. The reason signatories. Within these commitments, self- reporting on sustainability
and requesting sustainability reporting from entities within your value for two leading ESG investor indexes: Dow Jones Sustainability Indices
chain is often included. A leading set of commitments among investors (DJSI) and FTSE4Good. UNGC participants commit to "enact within the
is the UN Principles for Responsible Investment (PRI) with more than sphere of their influence" for each of ten principles. As a result, UNGC
3,800 global signatories from over 60 countries. UN PRI signatories participants often set forth supplier standards and request data from
collectively manage more than US$121.3 trillion in assets in suppliers, including corporate travel providers, on ESG topics and
management. PRI signatories include some of the largest pension funds performance.
in the United States, Europe, South America, and Australasia. Two of
the six Principles are to "seek appropriate disclosure on ESG issues by As part of its long-term strategy, the UNGC aim to "drive business
the entities" in which they invest, and to "report on [responsible awareness and
investment] activities and progress toward implementing the action in support of" the UN Sustainable Development Goals (SDGs) for
Principles". 2030. Although having no formal commitment or signatory structure,
the UN SDGs have gained a lot of traction among companies. A 2016
For lenders, financial institutions commit to the Equator Principles survey conducted by the UNGC found that 87% of Chief Executive
(EPs) to manage environmental and social risks in project financing. As Officers believe the SDGS "provide an opportunity to rethink
of 2021, 124 financial institutions across 37 countries, including Bank approaches to sustainable value creation". Companies across sectors
of America, Citigroup, HSBC, and J.P. Morgan, have officially adopted are integrating the SDGs into their sustainability reporting, particularly
the EPs, estimated to cover more than 70% of international project in the context of strategies, goals, and focus areas.
finance debt in emerging markets. Other ESG commitments formed by
the financial sector and banking industry include the Carbon Principles Similarly, a set of commitments have been formed to support the
and The Climate Group. Additionally, the Ceres Coalition is comprised landmark 2015 Paris climate change agreement. Within the new
of more than 130 investors, advocacy groups, and other public interest Commit to Action platform affiliated with the We Mean Business
organizations working to "mobilize investor and business leadership" to coalition), over 500 companies so far - and growing - have committed to
reduce environmental and social risks. a series of actions including (1) adopt a science-based emissions
reduction target, (2) procure 100% of electricity from renewable
As mechanisms to value and protect "natural capital" become sources, (3) remove commodity-driven deforestation from all supply
prioritized, more than 90 global financial institutions and partners have chains, and (4) Place an internal price on carbon.
joined the Natural Capital Finance Alliance. In 2016, the Alliance was
launched to pilot scenario modeling to stress-test corporate lending These commitments support the Science-Based Targets Initiative (with
portfolios for environmental risk, and in particular, the economic over 200
resilience of major industries to the risk of extreme droughts. The companies having approved targets) and RE 100 (where nearly 90
participating financial institutions represent more than US$10 trillion companies including Coca-Cola, Goldman Sachs, Google, H&M, London
in assets. Gatwick Airport, and Tata Motors have committed to 100% renewable
power).
Insurers have also formed their own commitments to proactively The financial power behind these commitment-forming global investors,
address ESG risks through the UN Principles for Sustainable lenders, and corporations has created demand for sustainability
Insurance. Over 180 organizations representing approximately more reporting among the thousands of companies in their supply chain
than 25% of world premium volume and US$14 trillion in assets under (both large and small as well as public and privately held) and a
management - have adopted the Principles. The UN Principles for mechanism by which the practice of sustainability reporting is
Sustainable Insurance are also part of the insurance industry criteria becoming institutionalized.
 environmental and natural capital information, namely water and forest
Sustainability Reporting Framework Providers (Creating commodities.
Structure)
group of non-profit organizations create the structure, frameworks, In the USA, the Sustainability Accounting Standards Board (SASB) is
guidelines, and currently
standards for it. The Global Reporting Initiative (GRI), established in developing standards for material sustainability issues designed for
1997, is often referred to as the de facto guideline for sustainability disclosure in
reporting in the absence of mandated reporting. In 2015, 60% of mandatory filings to the Securities and Exchange Commission (SEC),
Sustainability reporters referenced GRI guidelines in their disclosures. such as Form 10-K and 20-F. As part of its partnership with CDP, SASB
At least partial reporting in alignment with GRI guidelines or receives technical assistance in referencing CDSB protocols for
standards, or an explanation for non-reporting, is embedded with the disclosure of carbon emissions. While not yet adopted in the
Investor Listing Standards Proposal issued by the Investor Initiative for marketplace or endorsed by regulators, SASB continues to evolve with
Sustainable Exchanges. In 2016, GRI introduced new standards, which an update to its governance and conceptual framework published in
are designed to be updated more frequently with oversight from GRI's 2017. Additionally, the International Integrated Reporting Council
newly created Global Sustainability Standards Board. (IIRC) is an entity consisting of international regulators, investors,
companies, standards providers, accountants, and non- governmental
CDP, formerly known as the Carbon Disclosure Project and established organizations whose mission is to enable integrated sustainability
in 2000, is an independent body that develops and distributes annual reporting to become a mainstream practice in both the public and
information requests on behalf of 827 investors representing US$100 private sectors. More than 35 investor organizations and 100
trillion in capital and approximately purchasing organizations, companies, including Unilever, Clorox, Marks and Spencer, Microsoft,
including Walmart. Initially distributing a singular questionnaire on and Tata, participated in the IIRC Pilot Programme. IIRC's partners
climate change, CDP now governments, and policymakers. In 2016, include GRI, CDP, and SASB. Companies in Travel & Tourism that
more than 5,600 companies responded to one of CDP's Water, Forest, currently utilize integrated sustainability reporting practices include
and Supply Chain disclosure programs. CDP also engages with cities, Cinnamon Hotels & Resorts, HSH Group, IHG, Melia Hotels
disclosure programs. More than 500 cities also disclosed environmental International, and TUI Group.
information to CDP.
Sector-specific framework providers are also gaining market influence.
As the practice of sustainability reporting matures and the perception For example, the Global Real Estate Sustainability Benchmark (GRESB)
increases that sustainability-related externalities are material to the distributes a survey on behalf of 250 members (including 60 pension
financial success of companies, standards are now also under funds and their fiduciaries). In 2016, 759 real estate companies,
development for sustainability reporting within investor filings and including those owning Travel & Tourism assets, responded to the
annual investor reports. Globally, the Climate Disclosure Standards survey. The GRESB Survey covers both environmental and social topics
Board (CDSB) including the CDP, Ceres, The Climate Group, the World with questions about supply chain standards and monitoring. GRESB is
Business Council for Sustainable Development, the World Economic now part of the Green Building Certification Institute, the partner
Forum, and the World Resources Institute (WRI) - has developed two organization of the US Green Building Council that focuses on technical
frameworks for disclosures in mainstream financial reports. The first advancement of certification across various components of buildings
CDSB framework is focused on climate change disclosures. The second and real estate. Commitment formers may also provide their own ESG
CDSB framework has expanded beyond climate change to include frameworks, as in the case of the UNGC, which has guidelines for its
signatories to issue a Communication of Progress (COP) on its progress data points from publicly available sources. GS SUSTAIN is described
toward applying the ten Principles. as a "global,
long-term investment research strategy designed to generate
Similarly, the SDGs have become an unofficial reporting framework, as sustainable alpha by
companies seek to map their sustainability strategies and programs to integrating analysis of global themes, company fundamentals, and
the 17 SDGs, 169 targets and global indicators for these targets. To governance and
support this trend, GRI has also aligned with the SDGs, helping to stakeholder factors, including environmental and social considerations.
produce the 'SDG Compass', a guide for business action on the SDGs.
This is in collaboration with the UNGC and World Business Council for Notably, S&P Global Ratings announced plans in 2016 to launch ESG
Sustainable Development and is also used as a linkage document evaluation tools, separate from its credit rating, to assess risks to
between the SDGS and the GRI framework. The UNGC has also sustainability at both the individual project and corporate entity level.
published an 'SDG Industry Matrix', which provides industry-specific The ESG Assessment will aim to rank issuers on a five-point scale based
examples and ideas for corporate action related to the SDGS. Similarly, on the degree of an issuer's exposure to ESG risk factors over a two- to
the World Business Council for Sustainable Development has produced five-year horizon and beyond.
an online 'SDG Business Hub' to facilitate information sharing.
A multitude of more than 100 ratings and rankings have sprung up in
In fact, the momentum behind the SDGS is so strong that The GreenBiz recent years as the ability to use publicly available data for
2016 State of Green Business Report opined that they "could become a comparative analysis has a relatively low barrier to entry. Rate the
de facto standard against which companies will be judged going Raters research has been published by Sustainability on evaluating the
forward. No doubt they will become the basis for benchmarks, various ratings and organizations to help understand the strengths and
scorecards and ratings by activists, investors and media seeking to weaknesses of each.
identify leaders and laggards."
To assist organizations in navigating the numerous publicly available
ESG Rankings, Ratings, and Indexes (Comparing and ESG rankings, ratings, and indexes, The Global Initiative for
Benchmarking) Sustainability Ratings (GISR) has been established and has developed
With the proliferation of public ESG data and increased interest in 12 principles from which the quality of ratings can be assessed. These
using it to inform decision- making, many organizations rate and rank principles include transparency, impartiality, continuous improvement,
companies based on their ESG information. These include broad-based, and assurability.
holistic ESG rankings, such as the DJSI, FTSE4Good Indexes, and the
Global 100 Most Sustainable Companies. Additionally, there are ESG Research Providers
targeted environmental rankings, including the Newsweek Green In the background behind many leading ESG rankings, ratings, and
Rankings and the CDP Leadership Index, in addition to social indices, a set of
responsibility rankings, such as Ethisphere's World's Most Ethical specialized ESG research providers develop and apply the
Companies. Additionally, regional, local, and industry rankings, such as methodologies in addition to providing support and research products
Brazil's Most Sustainable Companies ranking, exist. to investors and stakeholders. Leading ESG research providers include
SAM (supporting the Dow Jones Sustainability Index), MSCI (with a
Goldman Sachs' GS SUSTAIN platform has expanded its analysis to series of its own ESG Indexes), Sustainalytics (supporting seven
nearly 3,300 companies globally, which includes the collection and investment indexes including the UNGC 100 Index and STOXX Global
analysis of thousands of ESG ESG Leaders Index), Trucost (supporting the Newsweek Green
Rankings), and IW Financial (supporting Corporate Responsibility Young, actively engage with standard providers to promote and
Magazine's annual 100 Best Corporate Citizens list). Some firms emphasize the emerging practice of having ESG data assured.
perform their own research in-house to produce their own ratings, as is
the case of oekom research (developing proprietary country, sector, Data management providers, including SAP, CRedit360, CSRware, and
and corporate ratings in addition to publishing annual Corporate OneReport, also work to streamline and promote the practice of
Responsibility Review reports). sustainability reporting.

ESG Aggregators and Disseminators WHO ARE THE INTENDED USERS OF SUSTAINABILITY
Another by-product of sustainability reporting is the aggregation and REPORTING?
dissemination of information across platforms. Examples include Reports about a company's social, economic and environmental
CSRHub, which houses data from more than 300 data sources and performance are
nearly 17,000 companies across 133 countries, and the Corporate relevant to a diverse group of stakeholders:
Register, which is an online registry of sustainability reports.
Additionally, ESG frameworks, including the GRI, CDP, UN PRI, and Corporate Customers
UNGC provide repositories for accessing sustainability reports. Other Large corporate purchasers across nearly every sector now ask their
third- party disseminators of information include Google, where suppliers to provide information on ESG policies, performance, and
companies' CDP Climate Change scores are posted as 'key statistics' on commitments. Notable examples include Walmart, which has expanded
public companies' Google Finance pages. its sustainability questionnaires for suppliers from 15 to 100 questions,
and Microsoft, which is specifically requesting that its Tier 1 suppliers
Bloomberg's ESG products provide data on more than 120 indicators produce GRI reports. Other large corporate purchasers that issue
for approximately 5,000 publicly listed companies globally, based sustainability surveys to suppliers include IBM, Airbus, Siemens,
primarily on public disclosures, and are increasing coverage every day. Marathon Oil, British Telecom, Boeing, Volvo, BMW, and Johnson
Bloomberg's products include scoring based on quantity of disclosure Controls.
(not the quality of disclosure or the organization's ESG performance),
robust customized screening, and other portfolio optimization tools. As with investors, corporate purchasers are also using specialized
Additionally, Bloomberg's ESG platform provides investors with access research providers such as EcoVadis, which conducts a survey and
to scores from ESG researchers including Sustainalytics. grades suppliers on sustainability to inform decision- making and
manage their value chain risks. More than 150 companies, including
Thomson Reuters also provides ESG data to its customers, leveraging Accor, Air France-KLM, Coca-Cola, ING Bank, and Michelin, use
its database of more than 60,000 companies and 400 metrics. EcoVadis's supplier scorecards.

Of particular interest to corporate customers are the environmental

Consultants, Auditors, and Data Management Providers attributes of
Consultants, auditors, and data management providers also play an products and services, and mechanisms to ensure responsible labor and
important role in shaping markets. Consulting firms, including human rights practices within the supply chain
McKinsey, Bain, and SustainAbility, regularly publish research that
emphasizes the strategic importance of ESG issues and conduct studies
to elucidate the business case and potential financial implications.
Large accounting firms, including PwC, Deloitte, KPMG, and Ernst & Investors and Lenders
Investors are an important audience for sustainability reporting with The degree to which investors utilize and value the information will
the market size for "sustainable investments" estimated at 30% of vary as well. Some investors have signed the UN PRI and request
professionally managed assets globally. information as a best practice while others have more rigorous
screening processes and evaluation criteria. In addition to the
Within the investment community there has been a shift from 'negative' commitment formers, investor groups have entered into association
to 'positive' screening on sustainability performance. Originally, this with each other around the concepts of screening and evaluation,
community would seek to divest from companies or investments based including the US Forum for Sustainable and Responsible Investment
on negative market perceptions. Currently, certain investors (US SIF), and the Global Sustainable Investment Alliance (GSIA), which
specifically seek companies with a positive reputation, with some is a consortium of national-level investment forums.
portfolios and indexes focused on positive screening. ESG is perceived
as a framework for managing risks and achieving above-average Investors are also informed by ESG raters and analysts producing
returns. Mainstream investors use ESG principles to achieve above- reports based on the companies target investors by considering ESG
average financial returns. For the sizable yet niche group of 'socially raters and analysts as well. ESG raters and assessment of a company's
responsibility investing' (SRI) firms and funds, the role of ESG is sustainability report and public disclosures. As such, some support
evaluated. These entities aim to be socially conscious first and integration within their methodologies for developing rankings, ratings,
foremost, with secondary goals to achieve positive financial returns as indices, and analysts typically seek to easily find information on
well as positive social and environmental impacts. policies, programs, and performance metrics other products.

Among investors, institutional investors and pension funds are an Employees

important audience, as many - notably CalPERS, CalSTRS, TIAA-CREF, Sustainability is also now a leading topic of interest among the newest
and RobecoSAM - have committed to incorporate ESG into investment generation of employees entering the workforce, with research
decisions. Additional investor audiences include niche SRI firms, such indicating that 96% of millennials look for an employer that is
as Calvert and Generation Investment Management, where ESG is environmentally aware, and employees who are proud of their
central to fund selection. Mainstream firms, such as Morningstar, have organization's socially responsible activities are more engaged,
begun to provide ESG ratings for specific funds for both institutional confident, and likely to stay with the company. These trends are also
and retail investors. highly prevalent among millennials with more than 50% of millennials
indicating that they would be willing to take a pay cut to find work that
Investors are particularly interested in governance practices, value matches their values, and 90% wanting to use their skills for good.
creation Similar trends exist among Generation Z (or post- millennials).
opportunities, and quality of management approaches. Some investors Research has indicated that 31% of Generation Z consumers have
will seek specific ESG-related criteria as part of their investment boycotted a company that they perceived as following unsustainable
evaluations. practices.

Lenders are also increasingly interested in ESG factors, particularly for Sustainability reports are used as an engagement and recruiting tool.
project In addition to
financing, as evidenced by the growth of the Equator Principles as well environmental programs, reporting on workforce and community
as the growing demand to invest in green bonds and pending S&P ESG engagement is of
assessment ratings. particular importance to employee audiences (both current and
prospective).
 Regulators and Government Agencies
Communities Companies in Travel & Tourism, particularly cruise lines and aviation,
Communities where an organization has a significant presence are also often identify regulators and government agencies - at the local and
potential national levels - as a prioritized audience for the sustainability report. A
audiences for sustainability reporting. Community audiences are company's sustainability report provides the opportunity to
generally interested in knowing an organization is responsible and demonstrate their commitment to compliance with laws and
strives to make a positive impact in communities while also mitigating responsible business practices, and to describe their management
any potential negative impacts to communities. Information found in approach in addition to key actions and/ or investments to comply with
sustainability reporting can help form the basis of discussion for a laws and regulations. A company's sustainability report also provides
company's social license to operate. the opportunity to explain any challenges that the organization has
experienced about compliance.
Advocacy Groups and Media
Advocacy groups (including non-governmental organizations) and Additionally, when entering new geographic markets, a sustainability
media are also report can be
important audiences because their assessments of organizations can shared with local and national regulators to demonstrate a company's
create a multiplier effect that influences guest and other stakeholder 'social license to operate'. Furthermore, the sustainability report can
perceptions, and overall reputation. explain the organization's economic, social, and environmental
practices to assist in addressing any potential concerns and/or
These audiences generally seek to easily find information on differentiate an organization from other potential entrants in a market.
management approaches to the economic, environmental, and social
topics about which they care the most. Because reporting is prevalent It is worth noting that regulators and government agencies are also
across sectors, campaign-focused advocacy groups are often able to purchasers of travel services. As with corporate customers, they
engage in sector-wide comparisons regarding key issues utilizing consider ESG practices in purchasing decision making. For example,
sustainability reports as a resource. Examples include Friends of the the US General Services Administration has encouraged potential
Earth and Greenpeace, who publish regular advocacy reports, such as vendors to disclose their environmental performance through
'How Dirty is Your Data?'. Increasingly, leading non-governmental sustainability reports or other mechanisms.
organizations, such as WRI, World Wildlife Fund (WWF) and The
Nature Conservancy also review companies' sustainability reports with Suppliers and Business Partners
a focus less on 'criticism campaigns' and more on identifying Through sustainability reporting, organizations can communicate their
collaboration and partnership opportunities based on sector practices. expectations of suppliers and business partners, and in numerous
instances, where shared values and focus areas exist.
Media, both mainstream and specialized, can refer to sustainability
reports when Industry Peers and Influencers
developing content for mass consumption. For example, Skift - an When reporting on sustainability, organizations should be aware that it
online tourism is very likely that industry peers and influencers will view the
industry news and research firm - publishes stories on environmental information for competitive benchmarking purposes. Through
and social sustainability reporting, organizations can highlight leading-edge
practices in the industry. practices and innovative approaches to industry challenges.
INTERNAL AND EXTERNAL BENEFITS OF SUSTAINABILITY sustainability issues in the organization. This all helps organizations to
REPORTING reach better decisions and can enhance long-term financial prospects.
Stakeholders (who may include investors, customers, employees,
suppliers, NGOs, Sustainability reporting can be a tool to attain cost savings because it
local communities, etc.) are now more aware of the impact that encourages an organization to use natural resources more efficiently,
businesses have on the economy, environment and society. This impact improve process efficiency and use recoverable resources. For
may be positive or negative. For example, agricultural activities may example, paying attention to energy consumption and possible
create a positive economic or social impact (e.g., providing job measures to reduce it can help to reduce energy bills and thus
opportunities; improving quality of life of local communities) but may spending. Indirect savings can occur, for instance, if the need to pay
also create a negative impact on the environment in the form of local or associated environmental taxes is reduced or through reduced
regional air pollution (e.g., haze generated from open burning). This insurance costs.
negative impact may become a reputational risk to the organization
which allowed it to occur and may subsequently affect its ability to 1. Effective management of sustainability risks and
obtain funding. Sustainability- related issues, therefore, can opportunities. The process involved in sustainability reporting allows
significantly affect an organization's risk profile, potential liabilities and companies to know and better understand their sustainability risks and
its value. Hence, there is a need for the business community to respond opportunities. This would in turn result to a more effective assessment
appropriately. Business leaders have also begun to recognize the and management of said risks and opportunities.
benefits of integrating sustainability.
ESG issues are starting to feature more prominently in the
Internal Benefits management of risks. You may consider integrating ESG risks into your
Internal reasons for adopting sustainability reporting usually relate to organization's risk framework.
improving an both by generating additional information that was not Sustainability reporting may serve as a catalyst to prompt
previously available and by improving organization's performance. organizations to assess the ESG risks that may impact their businesses.
Reporting processes can help increase the quality of information, Managing ESG risks can help in:
information and improve management systems and the quality of
management information. and safeguard sustainable growth in the long a. Reducing exposures to sustainability-related risks -
run. Therefore, the process of producing a Paying attention to Businesses are increasingly exposed to environmental and social
sustainability can help to drive innovation, developing new market changes, including population growth, climate change, ecosystem
offerings sustainability reports can be a very valuable exercise for decline, etc. Failure to manage sustainability-related risks (e.g., floods
organizations internally. arising from extreme weather or strikes arising from unsafe working
conditions) may result in an organization incurring losses or costs (e.g.,
Sustainability reporting can also improve organizations' ability to disruptions to production). Therefore, if an organization proactively
understand and manage sustainability related risks and help them recognizes and manages sustainability-related risks, it can be better
better anticipate changing societal expectations. The effective placed to avoid and reduce cost impacts resulting from these risks.
management of natural resources, for instance, affects current Businesses are increasingly recognizing that non-financial risks may
performance and the failure to plan may risk prospects. Further, have financial impact, directly or indirectly. For example, financial
reporting can act as a tool for leadership, increase employee institutions are particularly vulnerable as they could be exposed to
satisfaction and make organizations attractive to new employees. credit risks because of ESG issues such as long- term impact of climate
Sustainability reporting can also improve the internal awareness of
change, adverse weather conditions or the valuation of fossil fuels
faced by their clients which may be unpredictable. 4. Motivated workforce. Creating a sustainability report requires a
concerted effort from companies' employees, exposing them to the
b. Staying ahead of emerging sustainability risks and disclosure companies' commitment to sustainability. Knowing that the company is
regulations - For example, when a new requirement emerges for environmentally and socially conscious increases morale and motivates
greenhouse gas ("GHG") emissions information, an organization which the workforce to work hard for the company.
has already considered GHG emissions as material I would have
already factored this into its risk considerations and will be ready to When sustainability efforts, such as employee engagement programs or
respond. health and
safety programs, go beyond basic compliance with labor standards (for
c. Reducing the cost of capital through a lower risk profile - example,
There is a tendency for investors to favor organizations which incorporating other benefits), an organization can expect to improve its
demonstrate good ESG risk management. This in turn can enhance attractiveness to recruit and retain top talent and enhance employee
corporate value and diminish risk, resulting in a lower cost of capital. and supplier productivity. This can lead to longer- term benefits such as
This is because investors add risk premiums to the cost of capital for customer attraction, improved reputation, stronger operating margins,
firms with questionable environmental and social practices. and optimized capital expenditure. If sustainability efforts fail, such as
in relation to health and safety, the impacts may include interruption in
2. Sustainable vision, strategy and business plans. Sustainability production, investigations by relevant government agencies, fines and
reporting encourages companies to assess, and if necessary to update, negative publicity. Further, considering sustainability risks and
their visions, strategies and business plans to ensure that sustainability opportunities may lead to cost efficiencies.
is embedded in their organizations. It gives companies the opportunity
to determine the necessary changes in their vision strategies and External Benefits
performance goals/targets for more sustainable operations. External reasons to disclose sustainability information deal mostly with
stakeholder communication and providing transparency on risks,
As sustainability considerations increase, an organization that opportunities and performance, as well as establishing trust with
recognizes the opportunities and has the capacity to innovate will drive stakeholders. The management of reputation is also an important
growth through new products, services and customers. The motivation. Thus, it is no surprise that most of the reporters are large
introduction of sustainability-driven products and services can carve companies and firms having severe environmental impacts.
out a niche market for the organization. General Electric's ("GE") Traditionally, active reporters have come from sectors such as
Ecomagination initiative is one of the leading examples of driving chemicals and pharmaceuticals, computers and electronics,
business growth through sustainable products and services automobiles, utilities, and oil and gas. One indication of the investment
perspective is the creation of socially responsible investment tools,
3. Improved management systems. Sustainability reporting involves such as the Dow Jones Sustainability Index that tracks the stock
tracking and gathering data which when evaluated can identify the performance of companies in terms of economic, environmental and
areas that need improvement. In addition, public reporting on social criteria.
performance motivates companies to improve in succeeding reporting
periods, thus, resulting in improvement in management systems, such 1. Investor attractiveness. Institutional investors are now looking at
as streamlining of processes, reduction of costs and overall the ESG practices of companies and makes this a key element in their
improvement in efficiency and productivity. investment analysis and decisions. In CFA Institute Survey done in
2017, 73% of the survey respondents answered that they consider ESG respect for the company. Thereby, improving company reputation and
issues in their investment analysis and decisions. Sustainability brand value.
reporting, thus, provides institutional investors easy access to ESG
information of companies. At the same time, it allows companies to It is widely accepted that reputation and brand can create value by
discuss their sustainability performance in a clear and concise manner. generating demand and securing future earnings for organizations.
Issues such as sourcing of raw materials; energy and water usage; and
Traditionally, investors have looked at an organization's financial human rights are increasingly impacting organizational brand and
performance to drive their investment decisions. However, it is fast reputation. Therefore, organizations will need to identify associated
becoming the norm for investors to evaluate ESG factors alongside risks and opportunities and assess their impacts.
financial data when determining their investments. From 2012 to 2014,
the global sustainable investment market increased by 61% to US$21.4 Stakeholders respond positively to organizations that conduct
trillion. In Asia specifically, responsible investment grew by 32% over themselves in a
this period.12 In Malaysia, local investors are beginning to consider sustainable and ethical manner. This can lead to increased confidence
sustainability factors in their investment decision-making processes. and trust among stakeholders, enhanced brand value and reputation, as
well as improved customer loyalty.
Recognizing the increasing demand from investors for quality
sustainability information, mainstream research providers such as 3. Stakeholder engagement. The process of sustainability reporting
Bloomberg, MSCI, and Thomson Reuters have begun to offer provides
sustainability performance analysis to the market, in particular companies with opportunities for stronger engagement with their
investors. Given the increasing focus by investors, improving stakeholders, which in turn can result in better relationships with them.
sustainability performance and disclosures may provide organizations Stakeholders would feel empowered while the companies can gain
increased access to capital, locally and globally. valuable insights beneficial to their sustainability journey.

The increasing investor focus also led to FTSE and Bursa Malaysia A "license to operate" (also known as "social license to operate") refers
introducing an ESG Index for the Malaysian market called the to implicit
FTSE4Good Bursa Malaysia Index which is part of the globally community-approval of an organization's business operations. It does
benchmarked FTSE4Good Index Series. The main objectives of the not refer to a legal or regulatory license to operate.
FTSE4Good Bursa Malaysia Index are to provide support to investors in
making ESG investments in listed issuers; increase the profile and Organizations are increasingly recognizing the link between ongoing
exposure for organizations with leading ESG practices; encourage best business success and their 'license to operate', especially in the natural
practice disclosures and draw capital allocation and investment interest resources sector (e.g., mining) where the concept has been central for
for those investors focused on ESG risks. some years. A "license to operate" can help organizations realize
opportunities (e.g., the local community co-managing a project with the
2. Improved company reputation and brand value. Having a organization) and manage risks to their business (e.g., boycotts or legal
sustainability report indicates the companies' commitment to full challenges). Communities and various stakeholders are likely to be
transparency and accurate and complete reporting on both positive and more supportive of organizations that engage and openly communicate
negative news. Moreover, it shows the companies' efforts towards their management of EES matters.
sustainability. This improves the company's image and builds trust and
4. Competitive advantage. Awareness on 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 may be in any of the above
mentioned internal and external benefits.