Sustainability reporting is often derided as being outside the mainstream of financial reporting, devoid of any relationship to performance. The Economist calls it “corporate storytelling.”
Unfortunately, The Economist is right. Reports are unique accounts of each company’s journey, impossible to compare with other reports, even when reporting frameworks such as the Global Report Initiative’s are applied. The hard analytics (earnings per share, price-earnings ratio, return on assets) and sophisticated comparative reports of financial reporting are absent from the practice of sustainability reporting.
One cannot imagine the financial markets functioning without public disclosure of financial fundamentals in a form that allows for benchmarking with competitors. Yet investors who wish to take a longer-term view of risk and consider sustainability performance are left hanging. And without key performance indicators, sustainability performance will never improve.
Just like financial fundamentals, sustainability fundamentals can be defined for issues that describe performance and will enable comparison within a sector. Once they are reported, they can be managed. Market leaders will drive performance to capture efficiencies and reduce risk, while laggards will be subject to public derision. Ultimately, this will affect the flow of capital, rewarding companies that contribute to sustainable development.
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