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Why sustainability reporting is a marker for decision making

FINANCIAL STANDARD
By Jones Kimeu | July 7th 2015

Financial reporting is the most common form of accountability adopted by organisations to disclose financial information of a company’s performance over specific time.

It provides vital information about the financial health and activities of the company to its stakeholders such as shareholders, investors, consumers and government regulators.

The accountant plays the core role of collecting, analysing, investigating, and reporting the financial data - thereby guiding decision-making by top management. In quest to be more proactive in ensuring long-term shareholder value and managing risks derived from economic, environmental and social developments, companies are adopting sustainability reporting as a marker for decision making.

In addition to capturing the financial metrics, sustainability reporting incorporates information about the environment, social and governance performance of a firm. In the same way that the accountant is at the anchor for a firm’s financial reporting, the accountancy profession has an important role in defining and delivering the means by which sustainable development is measured and reported.

This reporting which includes the social and environmental aspects of a business, seeks to promote transparency and best practice, and aim to help businesses and organisations realise the growing importance of sustainability to their enterprises. Over the last two decades, sustainability reporting and corporate social responsibility has grown rapidly in the private sector. Now, there is an increasing interest to expanding into public sector.

The drive for sustainability reporting in the public sector differs from that of the private sector on several aspects. Private sector reporting is largely driven by legal and regulatory requirements and industry standards. Public sector reporting is often driven by domestic political forces, persuasions by pressure groups and non-governmental organisations and international agreements. Others are trading relationships, targets and the need to cut costs.

Reporting frameworks

In the private sector, sustainability reporting frameworks rely on complex considerations of supply chains. In contrast, the public sector’s conceptualisation of sustainability is different as it considers sustainability in a holistic manner - capturing existing reporting on actions, identifying the gaps and how it can contribute to the organisation’s central purpose. It also recognises that different forms of public sector organisations exist. For example, the central government, regional government and local government and that all have different responsibilities. There is need for governments to consider sustainability in all its social, environmental and economic elements.

The accountant plays an important role in sustainability reporting and in influencing the manner in which governments report on such issues. Accountants have the core skills essential for developing robust, consistent, effective and useful reports for the county and national governments and the public sector.

They are equally in the position to understand the regulatory environment, manage risk and develop efficient frameworks to measure information that can be monetised. The accountancy profession should seek to adapt its training support and programmes to accommodate the future needs of sustainability reporting. In doing this, accountants should leverage on the experience of public sector accountants in reporting on financial indicators. Accountants should also be encouraged to work in collaboration with economists, social scientists and environmental scientists on new forms of integrated reporting.

Organisations can use reporting to inform their risk analysis strategies and boost their business. A growing number of companies see sustainability reporting as a means to drive greater innovation through their businesses and products to create a competitive advantage in the market. Some of the key benefits associated with sustainability reporting include; trust building, improved process and system.

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