Sustainability reporting involves companies and organizations demonstrating their corporate responsibility through measuring and publicly reporting on their economic, social and environmental performance and impacts. It can be delivered through the company's annual report, a stand alone sustainability report, a triple bottom line report or an environmental or social impact report.
In most of the countries in the world this kind of reporting is voluntary and it is seen as an advantage if it is to be presented. Companies choose to report for a variety of reasons, including: to inform stakeholders of impacts of the company's performance and strategies to improve impacts, to inform shareholders and the market how well the company is dealing with non-financial and financial risks, and to enable companies to identify areas of key risks and analyze performance. Therefore, it is often in the company's interests to undertake sustainability reporting. Many countries around Europe are experiencing (or have already experienced) a move towards non financial mandatory disclosures, including France, the UK, Sweden and Denmark.
Get your grade
or your money back
using our Essay Writing Service!
In the European Union countries, environmental and sustainability reporting initiatives have been increasing recently. Some countries have even legally obliged their companies to publish reports. Although everybody welcomes this trend and hope that more countries will follow it in the future the main question is should it be mandatory in EU. There is still no clear answer to this question from the institutions of EU regarding this topic but I will try to list few pros, cons and possible problems of this subject and deliver my personal conclusion at the end.
The first problem is unbalance between sustainability reporting in developed countries and developing ones. In the area of sustainability management and reporting developing countries' institutions are significantly behind Western countries' institutions. The situation in the different countries can be linked to the level of regulatory and societal attention. This involves legislation on environmental and social reporting, in force in a few countries, and more importantly, other forms of government encouragements of such types of disclosures, for example through the publication of official reporting guidelines. While in developed countries there is a longer history of sustainability reporting it seems that in developing countries much awareness raising and capacity building remain to be done on sustainability reporting as a management tool and as legislative subject.
In many developing countries pressure for non-financial disclosure from the finance and investment community is still non-existent. Since the transition, economic sustainability was a continuous challenge for entrepreneurs so in general local enterprises, mainly SMEs, had no time and resources to pay attention to social or environmental responsibility - the general public did not put pressure on companies to be any more than profitable. Companies had never experienced applying the principles of good corporate governance or considering their wider impacts, so there was a lack of knowledge, instruments and tools. Nobody knew how to be efficient, profitable and socially and environmentally responsible at the same time. Privatization and the new economic agenda resulted in "wild capitalism", where profit became the most important goal for most companies in the region. Sustainability reporting is now the norm among large companies globally and it seems that these are the companies that are introducing it in developing countries.
It is enough to compare Croatia with any of the "old" EU member state countries to see the huge differences in sustainability reporting. In Croatia and countries like Croatia sustainability reporting is still seen as something that "big" international companies do to look better. Small and medium size companies still see it as an additional cost and time consuming project that doesn't have enough added value to their company. In most of the developing countries, it is more often foreign, multinational companies with long-term commitments to local and global economic success that are key corporate drivers of the social agenda. These companies are, in most cases, applying general standards of corporate governance, transparency, management systems and operational tools. They have imported their own models for CSR, though application of global standards of business operation in local operating environments.
Socially responsible business practice in Croatia and other developing countries miss many different factors. Many of the companies find the concept and practice of CSR relatively new, but have a much longer-term familiarity with, and commitment to, the areas of workplace quality and safety, consumer satisfaction, environmental protection and community investments and partnerships. Much less frequent practices related to corporate governance procedures, integration of CSR in risk analysis and overall business strategy development, supply-chain management and socially responsible investing. It is necessary for companies in developing countries to understand the important of introducing CSR practices thought the whole business model using the concepts that they already have developed.
Always on Time
Marked to Standard
Furthermore, there is a problem of Government and their role in this process. The direct involvement of Governments across the developing countries is diverse. Different ministries at different governmental levels deal with questions related to CSR, although none is really yet taking a lead role. In most of the countries of the region, systematic government incentives and initiatives for social and environmental performance are generally missing. Due to the socialist heritage, there is a general perception however, both in the business community and the public at large, that social responsibility and welfare is the primary role of government. And as we all know the government is in most times very slow and inefficient and usually has much more "important" problems to deal with than CSR.
The NGOs in the developing countries should make a lot of pressure to the government and the business sector to take the problem of CSR more serious but there is a problem that ability and organizational power of NGOs to put pressure on business and government are limited. Existing NGOs commonly see the business community as a source of funding. Given the economic history and ongoing transition process in most of the countries, it is perhaps not surprising that there is relatively little discourse with companies or/and government. Generally, the civil society movement in most of the developing countries is relatively undeveloped compared to Western Europe. Although many thousands of NGOs are registered in some countries, most of these are associations that have registered under legislation that enables some form of tax break. There are several NGOs predominantly funded by international actors that are organised around social, environmental, ethical or broader economic issues and are generally relevant to this enquiry. Overall, civil society's focus on CSR is still rather weak due to the lack of continuous, coordinated monitoring projects, which would serve as an external incentive for enhanced corporate accountability.
Can this unbalance be overcome by introducing mandatory reporting or it will only cause greater problem and even more unbalance?
Second problem is that it would be hard for EU to mandate this as part of the EU Directives, and even if they do, it has to pass into National legislation before it bears any practical mandate. But I doubt that the Ministers of Member states will in fact agree such a Directive. Since SRI is still in its infancy, it is a far from being adopted. This will go much, much slower before it is mandatory - and to a large extent this may be a good thing, as any mandatory reporting also has to be meaningful and have appropriate users. It is very important for reporting legislation to avoid bureaucratic approach and allow for reporting to be a pro-active, innovative management tool that supports improved company performance.
Additionally, many companies acknowledge that guidelines are evolving, yet claim that sustainability reporting is a relatively new area and will take considerable time and effort if it is ever to be considered as valuable and credible as financial reporting. The notion of it being mandatory is opposed on the basis that this would obstruct much of the good work currently in progress: businesses should be allowed to develop guidelines, work out how to interpret sustainability information and elevate it to the same level as financial reporting. It is argued that only when this has been achieved will such reports require independent verification, since accountants and auditors need to be familiar with the criteria used to compile them. In the contrary the most vocal call for mandatory action on corporate sustainability issues comes from the NGO community. They state that mandatory reporting should enhance the credibility of information provided in response to stakeholder concerns and interests.
It is clearly seen that there are, as always, groups that are in favor for the mandatory reporting and groups that are against it. All of them have a lot of arguments that favor their point of view an it could be debated for a long time what point of view is better than the other one and why. But where does EU stand on this point at the moment?
Commitment by the EU to sustainable development is confirmed in the treaties of Amsterdam and Lisbon, as well as the 2001 Green Paper and 2002 Communication by the Commission on CSR. Sustainable development and CSR have been high on the public policy agenda at both EU and national levels in recent years. Supranational in character, EU law is binding for all member countries and can be seen as providing the minimum legal standard for reporting requirements in Europe. Moreover, within the EU, better regulation and the promotion of entrepreneurial culture are of high importanc, as confirmed by the Commission's 2006 Annual Progress Report on Growth and Jobs. The Commission is committed to promoting the competitiveness of the European economy in the context of the relaunched Lisbon Partnership for Growth and Jobs. In turn it calls on the European business community to publicly demonstrate its commitment to sustainable development, economic growth and more and better jobs, and to step up its commitment to CSR, including cooperation with other stakeholders.Current EU reporting regulation has been closely related to a series of directives designed to harmonize the accounting rules for financial reporting in EU countries. These are the 4th Directive (annual accounts) which dates from 1978 and the 7th Directive (consolidated accounts) which applies since 1983. Although the legal requirement for companies to report on their performance is rapidly increasing in Europe, the varying degree and quality of local interpretation means that investors find it difficult to rely on information being quantitative, comprehensive and comparable. The Commission Recommendation of 30 May 2001 is intended to encourage member states to comply with its recommendations as well as any national legislative requirements. In recognition of the needs of investors, the Recommendation urges a stronger consideration of environmental issues in annual reports and annual accounts, with an explicit reference to sustainable development. With regard to recognition and measurement, the general view is that legislation in most countries is in accordance with the Commission Recommendation, but measures have not been taken to introduce the Commission Recommendation where such legislation does not exist. This is partly due to the fact that many countries have already introduced a number of the rules, as these are included in the 4th and 7th Accounting Directives. Four countries - Denmark, Finland, France and Portugal - have introduced elements of the Commission's recommendations into their legislation. In Finland and Portugal, requirements for disclosure in annual reports have been integrated in national accounting standards. In France, the government has introduced specific requirements with respect to reporting on social and environmental issues in listed company annual reports, with the New Economic Regulations Act (NRE). In Denmark, issues for disclosure in the annual report have been determined by a general requirement in the Danish Financial Statements Act. Medium-sized, large and all listed companies have to describe their impact on the environment as well as measures introduced for the prevention, reduction or reversal of environmental damage. However, more specific requirements for the disclosure of environmental policies and performance are not enforced. Moreover, environmental information can be excluded from a company's annual report if it is deemed immaterial by management. None of the remaining member countries have introduced disclosure criteria for annual reporting. Most countries recognize that environmental issues, in line with other issues, should be described to the extent that they are material to the company's financial performance. When looking at the status of implementation in the EU it is clearly seen that only countries that are doing something on this issue are "old"member countries. And what about the new member states? This question is getting us back to the first problem - the problem of unbalance between EU countries.
This Essay is
a Student's Work
This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.Examples of our work
In conclusion the knowledge that the voluntary versus mandatory debate does not imply an "either / or" position, but rather finding a balance between regulation in certain high risk or high impact areas, and allowing industry associations or individual companies to make decisions in other areas. Firstly; in developing countries much awareness raising and capacity building remains to be done on non-financial reporting as a management tool and as legislative subject. In many developing countries pressure for non-financial disclosure from the finance and investment community is still non existent. - Secondly, participants noted the need to improve the links between micro-level / company reporting, national / macro level reporting and international / global level reports and institutions (e.g. international agreements and UN declarations on issues such as the Millennium Development Goals).
When one looks at how sustainability reporting has evolved over the last few decades, it should also be clear that current best practice does not necessarily present a blueprint for the future. Critical debates about the future of sustainability reporting should be encouraged, and should not be constrained by current reporting formats and procedures. For example, if sustainability reporting will be fully integrated with financial reporting in the future, it is conceivable that core indicators will evolve over time and that it would be possible to present them in an annual report alongside the income statement and balance sheet. At the same time, what is currently known as a sustainability report (i.e. a standalone hard copy or online report) is likely to evolve into a process of sustainability communication. This might lead to the overall integration of sustainability reporting with financial reports, the replacement of a standalone report by a series of shorter reports, fact sheets, position statements and stakeholder engagement processes. Clearly, such developments will have a severe impact on the ability of governments to regulate in this area. Finally, there is the issue of collective governmental action to consider. Within this context, participation in intergovernmental discussions and initiatives should be encouraged, with specific emphasis on the need for governments with substantial experience in this area to share their experiences and know-how with others. The role of institutions such as the United Nations and the GRI will be critical to help ensure informed discussions, continued success and progress in this area.