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Sustainability reporting has become an essential tool to meet customer, investor, employee and stakeholder demands for transparency from companies. Sustainability reports serve this need.
Selecting an effective framework when developing a corporate sustainability report is of vital importance. There are various models available, but quality is of utmost importance.
Transparency
Transparency reporting involves disclosing a company’s sustainability activities and efforts. It is an integral component of corporate social responsibility (CSR), helping build trust among stakeholders. Unfortunately, studies (Adhariani & du Toit Citation2020; Fernando & Lawrence Citation2014) reveal that companies tend to report only what is most critical for maintaining their reputation rather than reporting what actually occurs at plant level – this impression management leads to low-quality sustainability reports.
In order to address this problem, we conducted an examination of 172 sustainability reports from nonfinancial companies operating within the energy sector for 2016. We assessed their level of transparency, stakeholder engagement and corporate governance practices in 2016.
At each level of engagement we classified companies’ actions according to: 1. Employees-disclosing training programs, safety measures and employee relations. 2. Customers-addressing product quality and customer service issues. 3. Suppliers- addressing relationships with suppliers and procurement processes. 4. Communities-disclosing corporate philanthropy and community investments while 5. Governments/Regulators-disclosing lobbying activities or political activities.
Reputation
Reputation is one of the primary drivers of business performance and growth. Stakeholders tend to engage with and support businesses that demonstrate transparency, trustworthiness, and accountability – hence why creating an effective stakeholder engagement plan and reporting this information are both necessary components.
By providing more transparency about their environmental, social, and governance (ESG) practices, companies can increase trust with stakeholders while simultaneously helping identify and prioritize business risks and opportunities. This information also ensures that their ESG agenda fits with overall corporate strategy as well as being focused on the most pressing issues.
Today’s business world sees over 90 percent of the 250 largest corporations reporting their sustainability impacts voluntarily. Most follow Global Reporting Initiative (GRI) standards which are renowned for being comprehensive while remaining flexible enough to address diverse stakeholders.
Performance
Sustainability reports help companies refocus their resources, increase operational efficiencies and recalibrate their approach to risk management. Furthermore, sustainability reports allow stakeholders to rethink their engagement strategies as they gain a better understanding of both current and future operational risks, giving them time to anticipate any necessary changes and prepare accordingly.
In this study, we employed quantitative content analysis to investigate the impact of materiality, stakeholders, and corporate governance factors on sustainability reporting quality. This research evaluated GRI disclosure items present in 172 sustainability reports published between 2016 and 2020 by non-financial Indonesian energy companies, as well as categorizing and systematizing engagement actions reported by them. We found that various levels of engagement received different degrees of emphasis in reports. Employee engagement was most frequently mentioned, followed by community and government/regulator stakeholders and regulators. These results highlight the significance of creating an engaging sustainable business strategy to meet stakeholders needs and expectations.
Continuous Improvement
As legislation tightens and penalties are applied to companies who do not report correctly, sustainability reporting quality has become ever more crucial. Many studies use quantitative measures such as number of disclosure items disclosed (Alipour et al. 2019; Diouf & Boiral 2017) to evaluate quality.
While some studies analyze the effect of sustainability reporting on overall company image and reputation, others investigate its specific effects for different stakeholder engagement strategies. This study aims to add to existing literature by investigating how sustainability reports can be enhanced through increased understanding of their various engagement levels, types, and stakeholders. At this point, the research analyzed 119 sustainability reports prepared using the GRI framework and disclosed by nonfinancial companies. Results demonstrated that engagement actions classified at Levels 1-3 tend to focus on employees, customers, investors/shareholders and communities while those classified at Level 3 tend to prioritize suppliers and governments.
