Sustainability and Sustainability Reporting Introduction

SAA Chapter 1

What is sustainability?

Sustainability means using resources in a way that meets the needs of the present without compromising the ability of future generations to meet their own needs.

What is sustainable development?

Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Origin of the sustainable development definition

First defined in 1987 by the World Commission on Environment and Development (the Brundtland Commission) in the UN-sponsored report "Our Common Future."

Sustainable development — global aspiration

It serves as a shared commitment across governments, organizations, and communities.

Two key concepts of sustainable development — the concept of "needs"

Focuses on the essential needs of the world's poor; gives overriding priority to global equity and poverty alleviation.

Two key concepts of sustainable development — the idea of "limitations"

Restrictions imposed by current technology and social organization on the environment's ability to meet present and future needs.

Nature of sustainable development

Not a fixed state of harmony, but a continuous process of alignment.

Four dimensions of strategic alignment in sustainable development

(1) Resource Exploitation — managing natural asset consumption responsibly; (2) Direction of Investments — capital allocation toward long-term sustainability; (3) Technological Development — orienting innovation toward ecological balance; (4) Institutional Change — evolving governance and policies to meet present and future needs.

Legacy CSR focus (paradigm shift)

Philanthropic roots (voluntary giving/peripheral community initiatives); qualitative scope (broad corporate reputation/image management); siloed operations (managed independently from core financial and risk strategy).

Modern ESG integration (paradigm shift)

Strategic integration (embedded directly into core business models and supply chains); quantifiable risk (addresses measurable climate, social, and governance factors); stakeholder demand (mandated by global investors, regulators, and market exchanges).

The Three Pillars of ESG — Environmental (E)

Management of climate risks, natural resource scarcity, greenhouse gas emissions, pollution, and waste reduction strategies.

The Three Pillars of ESG — Social (S)

Human rights, labor standards, employee safety, diversity and inclusion, product responsibility, and supply chain ethics.

The Three Pillars of ESG — Governance (G)

Board diversity, executive compensation, anti-corruption policies, political contributions, and business transparency.

What is ESG?

A framework used by organizations, investors, and stakeholders to evaluate how sustainably a company operates and how effectively it manages non-financial risks and opportunities; looks at a business's broader impact on the world and its long-term viability, rather than focusing solely on traditional financial performance.

ESG — Environmental (E), detailed

How a company manages risks and opportunities related to climate, natural resource scarcity, pollution, waste, and other factors.

ESG — Social (S), detailed

Information about company values, labor and supply-chain standards, employee health and safety, privacy/data security, and diversity/inclusion.

ESG — Governance (G), detailed

Focuses on corporate governance structure, board diversity, executive compensation, critical event responsiveness, and policies on lobbying and bribery.

Strategic responsibility for organizations

Organizations must evaluate the wider and longer-term consequences of their decisions; protects investor/stakeholder value (long-term sustainable value) by mitigating risks; must evaluate economic activity impacts — things bought and investments made, waste and pollution generated, and impact on natural and human resources.

Nature of sustainability reporting — global standards

Uses recognized frameworks (e.g., GRI, CDP) to disclose material ESG performance.

Nature of sustainability reporting — voluntary diversity

Offers flexible reporting formats including standalone, integrated, and digital disclosures.

Nature of sustainability reporting — risk and dependency

Communicates organizational reliance on social and natural resources.

Nature of sustainability reporting — accountability tool

Establishes clear targets for long-term stakeholder transparency.

What exactly is "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 — enabling them to measure, understand, communicate ESG performance, set goals, and manage change. It is voluntary in nature, unlike mandatory financial reporting frameworks.

Scope of sustainability reporting content

Covers strategy, priorities, policies, performance, and how sustainability shapes operations, plus related risks, opportunities, and accountabilities.

Other names for a sustainability report

ESG Report, EHS Report, Triple Bottom Line, Corporate Citizenship, Corporate Responsibility, Accountability Report, Responsible Business Report, Creating Shared Value, Environmental Report, CSR Report, Non-Financial Report. "Sustainability report" remains the most common term across stakeholder groups.

Sustainability reporting — Standalone Report format

A traditional annual report published separately from financial statements.

Sustainability reporting — Integrated Report format

Social, environmental, and economic data presented alongside financial results.

Sustainability reporting — Website/Social Media format

Ongoing disclosure that reaches new audiences and enables dialogue.

Why do organizations report? (accountability through communication)

Sustainability reporting is primarily a channel for communicating with stakeholders, though some organizations also use it to inform internal decision-making. Rising investor awareness of ESG-related risk is pushing organizations to improve the quality of their disclosures.

Key stakeholders of sustainability reporting (why organizations report)

Investors, employees, regulators, communities, customers, suppliers.

The credibility gap in sustainability reporting — no formal audit mandate

As a largely voluntary practice, reports lack a consistent, enforced verification mechanism.

The credibility gap in sustainability reporting — greenwashing concerns

Stakeholders regularly question whether disclosures reflect genuine performance.

The credibility gap in sustainability reporting — a growing driver

Investor focus on ESG risk is pressuring organizations to raise disclosure quality.

Nature of sustainability information — Financial

Monetary, accounting-based.

Nature of sustainability information — Non-Financial

Quantitative or qualitative; covers Environmental, Social & Governance matters.

Financial vs. non-financial reporting — examples (financial)

Energy expenses, water bills, waste disposal cost, purchased cost.

Financial vs. non-financial reporting — examples (non-financial)

CO2 emissions, water consumption, recycled waste, share of eco-labeled and fair trade products.

Financial reporting vs. sustainability reporting — key question

Financial reporting asks "How much?"; sustainability reporting asks "What impact?"

Financial reporting vs. sustainability reporting — time orientation

Financial reporting covers the reported year (historical); sustainability reporting is future oriented.

Financial reporting vs. sustainability reporting — focus

Financial reporting has a financial focus; sustainability reporting addresses wider impacts.

Financial reporting vs. sustainability reporting — data type

Financial reporting relies on financial data; sustainability reporting relies more on non-financial data.

Financial reporting vs. sustainability reporting — audience

Financial reporting is for investors; sustainability reporting is for stakeholders (broader group).

Evolution of sustainability reporting — Late 1980s: Environmental Reporting Emerges (focus)

Voluntary environmental disclosures by high-polluting industries (e.g., oil & gas, chemicals) to protect reputation against NGO criticism.

Evolution of sustainability reporting — 1996 milestone

ISO 14001 launched to standardize Environmental Management Systems (EMS).

Evolution of sustainability reporting — 1997 milestone

Global Reporting Initiative (GRI) founded to establish voluntary reporting guidelines.

Evolution of sustainability reporting — Mid-1990s to Early 2000s: CSR & Triple Bottom Line (CSR shift)

Corporate Social Responsibility (CSR) focus shifted toward supply chain labor practices, child labor concerns, and human rights.

Evolution of sustainability reporting — Triple Bottom Line (TBL)

Reporting expanded to cover People, Planet, and Profit.

Evolution of sustainability reporting — 2000 milestone

Launch of the UN Global Compact (covering Human Rights, Labor, Environment, Anti-Corruption).

Evolution of sustainability reporting — 2004 milestone

ISO 26000 guidance standard for Social Responsibility introduced.

Evolution of sustainability reporting — 2010s–Present: Integrated & Holistic Reporting (Connected Reporting)

Mid-2000s: Connected Reporting bridged financial performance and environmental/social impacts.

Evolution of sustainability reporting — 2010 milestone

International Integrated Reporting Council (IIRC) founded.

Evolution of sustainability reporting — Integrated Reporting shift

Shift from standalone, single-issue environmental reports to combining ESG data directly with annual financial statements into a single, comprehensive report.

Market Makers — overview

Entities driving the practice/demand of sustainability reporting; includes Commitment Formers, Framework Providers, Ratings and Indexes, Research Providers, Data Aggregators, and Professional Services.

Commitment Formers — definition

Organizations or groups that make formal commitments related to sustainability and ESG (Environmental, Social, and Governance); their aim is to create demand for sustainability reporting by encouraging investors, lenders, insurers, and companies to request, disclose, and act on ESG information. Self-reporting and requesting reporting from value-chain entities is often included.

UN Principles for Responsible Investment (UN PRI)

Seeks appropriate disclosure on ESG issues from companies invested in, and reports on responsible investment activities and progress toward implementing the principles.

Equator Principles (EPs)

Used by financial institutions and lenders to manage environmental and social risks in project financing.

Natural Capital Finance Alliance

Helps financial institutions value and protect natural capital and assess environmental risks to lending portfolios, such as risks from extreme drought.

UN Principles for Sustainable Insurance

Encourages insurers to proactively address ESG risks through sustainable insurance practices.

Other ESG commitments in the financial sector

Mobilize investor and business leadership to reduce environmental and social risks.

UN Global Compact (UNGC)

Encourages participants to act within their sphere of influence according to its ten principles and promote ESG practices among suppliers and business partners.

Sustainable Development Goals (SDGs) — purpose

To drive business awareness and action in support of the UN Sustainable Development Goals for 2030.

Paris Climate Agreement and We Mean Business Coalition

Encourages companies to make commitments such as reducing emissions, using renewable electricity, eliminating commodity-driven deforestation, and placing an internal price on carbon.

Science-Based Targets Initiative and RE100

Supports companies in making science-based emissions-reduction commitments and encourages companies to commit to 100% renewable electricity/power.

Sustainability Reporting Framework Providers — role

Non-profit organizations that create the structure, frameworks, guidelines, and standards for sustainability reporting (while commitment formers create demand for it).

Global Reporting Initiative (GRI) — purpose

Provides guidelines/standards for sustainability reporting and helps organizations disclose their sustainability information.

Carbon Disclosure Project (CDP) — purpose

Develops and distributes annual information requests concerning environmental issues, including climate change, water, forests, and supply chains.

Climate Disclosure Standards Board (CDSB) — purpose

Develops frameworks for environmental and natural-capital disclosures in mainstream financial reports, including climate change, water, and forest commodities.

Sustainability Accounting Standards Board (SASB) — purpose

Develops standards for material sustainability issues for disclosure in mandatory filings, such as SEC Forms 10-K and 20-F.

International Integrated Reporting Council (IIRC) — purpose

Enables integrated sustainability reporting to become a mainstream practice in both the public and private sectors.

Global Real Estate Sustainability Benchmark (GRESB) — purpose

Provides a sector-specific sustainability assessment for real estate, covering environmental and social topics, including supply-chain standards and monitoring.

UN Global Compact (COP) — purpose

Provides guidelines for signatories to issue a Communication of Progress (COP) showing their progress toward applying the ten principles.

SDGs / SDG Compass — purpose

Helps businesses map their sustainability strategies and programs to the 17 SDGs, 169 targets, and global indicators.

SDG Industry Matrix — purpose

Provides industry-specific examples and ideas for corporate action related to the SDGs.

Market makers — Ratings and Indexes

Agencies that score and rank corporate sustainability to allow for easy benchmarking.

Market makers — Research Providers

Specialized firms that do the heavy lifting, analyzing raw ESG data behind the scenes.

Market makers — Data Aggregators

Platforms that collect thousands of reports to create centralized hubs of information.

Market makers — Professional Services

Consultants, auditors, and tech firms guiding strategy and ensuring data accuracy.

Intended users of sustainability reporting — Corporate customers

Evaluate suppliers' ESG practices, check environmental and labor practices, and manage supply chain risks. Example: a company checks if its supplier follows proper environmental and labor standards.

Intended users of sustainability reporting — Investors and lenders

Assess risks and opportunities, consider ESG when making financial decisions, and evaluate governance and sustainability practices. Example: an investor may prefer a company with good ESG practices.

Intended users of sustainability reporting — Employees

Look for responsible employers; sustainability can help attract and retain workers; shows the company's environmental, workplace, and community practices.

Intended users of sustainability reporting — Communities

Want to know how the company affects the local community; reports show how the company manages its social and environmental impacts; can support the company's social license to operate.

Intended users of sustainability reporting — Regulators and government agencies

Check compliance with laws and regulations, evaluate responsible business practices, and assess environmental and social performance. Example: a government agency may consider a company's environmental performance when choosing suppliers.

Intended users of sustainability reporting — Advocacy groups and media

Evaluate and compare companies, focus on environmental and social issues, and use reports as a source of information. Example: NGOs can use reports to identify companies' good or poor sustainability practices.

Intended users of sustainability reporting — Suppliers and business partners

Communicate sustainability expectations, identify shared sustainability goals, and encourage responsible business practices. Example: a company may require suppliers to follow certain labor or environmental standards.

Intended users of sustainability reporting — Industry peers and influencers

Compare sustainability performance, identify best practices, and learn innovative approaches. Example: companies can compare their sustainability practices with competitors.

Summary — core concepts (sustainable development)

Sustainable development means meeting current needs without compromising future generations.

Summary — three pillars (in the summary slide's framing)

Social (people/health), Environmental (resources/impact), and Economic (viability/jobs).

Summary — ESG elements

Environmental (emissions, waste), Social (labor, safety), Governance (ethics, board structure).

Summary — financial reporting characteristics

Historical focus, direct control issues, monetary data, tailored for shareholders.

Summary — sustainability reporting characteristics

Future-oriented, wide-impact focus, qualitative/quantitative non-financial data, tailored for diverse stakeholders.

Summary — evolution timeline

Evolved from 1980s single-issue environmental reports to modern Integrated Reporting and Triple Bottom Line frameworks.

Summary — key entities in the ecosystem

Demand creators (e.g., UN PRI, UNGC), framework setters (e.g., GRI, SASB, CDP), and ratings/research providers (e.g., MSCI, Sustainalytics, S&P).

Summary — primary users of sustainability reporting

Investors, corporate customers, employees, regulators, and local communities.

Summary — internal benefits of sustainability reporting

Better risk management, lower capital costs, resource savings, and strategic innovation.

Summary — external benefits of sustainability reporting

Increased investor attraction, enhanced brand reputation, and verified compliance.

Q: A broad term describing managing resources without depleting them for future generations is called…

Sustainability.

Q: True/False — Communities where an organization has a significant presence are potential audiences for sustainability reporting, AND advocacy groups/media are important audiences because their assessments create a multiplier effect on stakeholder perceptions and reputation.

Both statements are correct.

Q: What was mainly confined to large, publicly traded companies receiving requests from shareholders and fellow large-company customers?

Sustainability reporting.

Q: Sustainability information includes which types of information?

Qualitative and quantitative information.

Q: Which statement about sustainability vs. financial reporting is true?

Sustainability reporting focuses on non-financial aspects while financial reporting focuses on financial aspects.