5 Clear-Cut Economic Benefits of Sustainability Reporting

Written by Moritz Bühner   // May 15, 2013    1 Comment

Business is not responsible for society. Business is society. Entrepreneur, manager, employee, customer – no matter what role you play, there is one fact you cannot deny: as soon as you participate in the market, you are the economy. It has often been proposed that prostitution is the oldest enterprise in the history of humankind, but that’s wrong. Actually, even older than prostitution, is trading goods. Trade, and trade-off, is a benefit so essential to human interaction that even the most primitive societies relied on it. The principle of trade lies at the core of society. You give and you take.

What Goes Around, Comes Around

For the most part, nowadays, this interaction is in the form of business. However, the borderline between your role as a citizen and your role as a customer is constantly getting blurrier. Even when it’s is not you who pays for a search engine or a social network, you are participating in someone making a profit. Your behavior generates value; whether you pay directly or not is irrelevant. Every time you pass a billboard on the street, you make it more valuable. It may sound disturbing, but the billboard company does not actually sell printing and putting up billboards. Much rather, it sells a target group of, say, 20,000 people like you who pass by the billboard on your way to work every day. 20,000 passers-by that are at least 2,000 views, 2,000 potential customers. But what does that mean for society? Living in the second decade of the 21st century, have we become more customers, and less citizens? With a society that merges into business, and vice versa, clear roles become indistinguishable. The only conclusion to be drawn from business taking over responsibilities traditionally held by other societal players is that business should also promote societal values. From an ethical point of view, this is more apparent than anything else. Be it, on the one hand, as a family member or as a citizen or, on the other, as an employee or a business’s manager, your behavior should always respect and promote the values of the society that your well-being relies on. Your well-being, and your business’s well-being. So here comes the critical part.

Business Beyond Solely Increasing GDP

For the longest time, mainstream economists promoted business values that were counterproductive for society. The tale that economic growth increases societal well-being in an infinite loop has long been identified as neoliberal propaganda. But there is a lower limit below which the bigger the GDP, the better for society may indeed be the case. However, once this critical threshold has been reached, once a certain wealth has been achieved, not economic growth, but rather societal equality, fair access to education, environmental quality and many other dimensions determine well-being. Economic growth at all costs is a thing of the past.

The belief that economic profits are automatically related to societal costs is a thing of the past, too. Believe it or not, it actually does makes economic sense for business to promote and follow the same values for which society strives. I’ve long been arguing this point. Corporate Social Responsibility taken seriously, and real Sustainability Reporting, do increase the success of your company. Yes, the overall success for society, the environment and, what’s most important since it’s still a business after all, for financial success. About a year ago, I explored the benefits of sustainability reporting in my article Integrated Reporting: How Business Can Transform Society through Serious Sustainability Communication. It doesn’t really matter if you call it triple bottom line, sustainability or integrated reporting. The idea is that companies do realize their accountability, quite literally. And accounting needn’t refer only to financial affairs, as this article illustrates: How Traditional Cost Accounting Methods Resolve Carbon Footprint Issues. So all three – triple bottom line, integrated reporting, and sustainability reporting – help demonstrate how a company interferes with people and nature. By demonstrating this, you easily realize how negative effects on society and ecology can be reduced. This reduction, in turn, reduces costs. In this regard, I am very happy to present the findings of a study from Nigeria that found how sustainability reporting and economic performance go hand in hand.

Study: Sustainability Reporting Increases Economic Performance

Three researchers from Nnamdi Azikiwe University, C. M. Ekwueme, C. F. Egbunike and C. I. Onyali, explored the “Benefits of Triple Bottom Line Disclosures on Corporate Performance”. Triple bottom line refers to holistic management goals that go beyond the exclusive maximization of financial parameters. Instead, two more dimensions are taken into account, namely society and the environment. So in order to discover if companies that support social and environmental goals, and report on achieving these in a transparent manner perform better economically than those who don’t, the researchers distributed four types of questionnaire to 141 respondents. Analyzing all the answers, the final “exploratory study of corporate stakeholders” was published in the Journal of Management and Sustainability by the Canadian Center of Science and Education.

Here’s Ekwueme et al.’s abstract:

Advocates of [Corporate Social Responsibility] argue that transparency and accountability are essential components of a successful sustainability strategy. In this context, sustainability reporting is one such tool for communicating organisational performance with respect to organisational CSR practices. This empirical paper examines the connection between such reporting practices and corporate performance from a stakeholder perspective. Using a sample of 141 respondents, comprising 21 corporate managers; 55 corporate employees and 65 consumers and investors, this study examined the connection between sustainability reporting and corporate performance.

Augment Attractiveness for Consumers, Investors, Employees

Now guess what the study’s conclusion was?

The results of the data analysis showed a positive connection between sustainability reporting and corporate performance.

Here we go! It pays off to go green. It pays off to be transparent. And it pays off to be socially responsible. But wait a second, which corporate measure are we talking about? Sales? Turnover? Market share? Employee loyalty?

Both consumers and investors were inclined to product purchase of green corporations.

In other words: companies perceived to be green are more popular not only among consumers, but also with investors. How does this increase corporate performance? The researchers give the answer. And mention another merit of sustainability reporting:

This would have the dual effect of increased market share and market capitalization of the companies. Employees were inclined to work in green corporations safeguarding their interests and healthy work environment.

Be Crisis-Safe, Improve Stakeholder Relations

By the way, sustainable companies not only have easier access to capital, they may also need less external financing in the first place, because of being less vulnerable to crisis:

Investors perceived that green corporations were less likely to feel the impact of a market crash and their stocks inclined to future growth more than non-sustainable ones;

Increase your market share, make yourself more attractive to investors, amplify employee satisfaction and be crisis-safe. Not enough reasons? Well, employees are not the only stakeholders of interest. Improved stakeholder management is a key benefit from sustainability reporting. Especially desirable, expensive scandals can be prevented right from the get-go in developing countries like Nigeria, where environmental pressures are often concentrated in small, unregulated industrial areas inhabited by politically marginalized populations. Ekwueme, Egbunike and Onyali reviewed the “manager” questionnaire’s findings:

Managers opined that while business turbulence caused by negative societal reaction could distort profit margin, sustainability reports significantly reduces stakeholders pressure and negative reactions from host communities (as was the case in the Niger Delta region);

We can conclude that what we already knew has been proven right. Ethically, sustainability reporting is a wise tool for business. What’s more, as we had guessed, that it is also financially viable, is also true. Hooray! Just for the record: once you have your material and energy consumption calculated, nothing is more apparent than reducing it. And what the researchers also found was that people generally overestimated the cost of recycling and were surprised by the efficiency of secondary cycles.

How to Get Started

So when we want to adopt triple bottom line principles for our company, when we want to get going with sustainability reporting, where should we start? Maybe by recapitulating some financial accounting principles. Reporting is accounting, and environmental reporting is not that different from financial accounting. Puma, with its single-indicator-environmental cost accounting, has shown a possible way. However, when it comes to the calculation of emissions, there is no method that beats life cycle assessment. See How Life Cycle Assessment with LCA Software Works or check out many more life cycle management-related articles at knowtheflow.

The conclusion is drawn, I guess, but I still won’t let you go without the beautifully clear finale of Ekwueme’s, Egbunike’s and Onyali’s abstract:

[T]he study recommends the adoption of sustainability reports for organisations seeking sustainable corporate performance. The improved transparency and accountability levels of traditional financial reports through inclusion of [triple bottom line] principles could serve as a labyrinth safeguarding corporations against legal hassle and surmounting stakeholder pressure. Thus, ultimately leading to improved market share, improved employee motivation and reduced labour turnover in such organisations.

Further Reading

  • C. M. Ekwueme, C. F. Egbunike & C. I. Onyali (2013): Benefits of Triple Bottom Line Disclosures on Corporate Performance: An Exploratory Study of Corporate Stakeholders. Department of Accountancy, Faculty of Management Sciences, Nnamdi Azikiwe University, Nigeria; Journal of Management and Sustainability, Vol. 3, No. 2, 2013; Canadian Center of Science and Education; PDF Download here

Article image edited by Moritz Bühner, based on this image by rvacapinta (CC BY 2.0) that was taken in Hong Kong.


Tags:

Corporate Social Responsibility

CSR

developing countries

green business

Integrated Reporting

sustainability

sustainability reporting

triple bottom line principles


1 COMMENT

  1. By Alberta Benedith, May 14, 2014

    We are where we’ve been simply because of our disposition.
    AndSure most of us will definately continue to be immobile until all of us welcome
    doing things in a different way purely because when we all carry on undertaking issues much the same way,
    we shall just end up being stagnant

    Reply

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