Change is never easy. It disrupts patterns, habits, and expectations. But while it brings about a sense of discomfort, it also invites one to explore new perspectives, practices, and values. Whether at the personal, societal, or organizational level, change is an essential element of progress.
The complexity of change is no exception to sustainability reporting, which requires companies to measure and disclose their social, environmental, and economic impacts. Companies make significant changes in their operations, culture, and stakeholder relationships. When done right, sustainability reporting is crucial to achieving long-term viability, competitive advantage, and social impact.
The sustainability report, as Global Reporting Initiative (GRI) CEO Eelco van der Enden puts it, “is the end of a long journey of transactions and actions that define the company’s approach to sustainability.” With over 30 years of experience in financial and sustainability senior management roles, Van der Enden assumed the position in 2022, coinciding with the 25th anniversary of the GRI. Before becoming CEO, he was senior partner at PwC leading the ESG platform for tax, legal, people & organization, served on the GRI Board, and was chairman of the Tax Policy Group of Accountancy Europe.
In an interview with Cristina Mihailoaie, business unit manager of The KPI Institute’s Research Division, Van der Enden emphasized the growing recognition of the GRI brand among the users of the standards, from accountants to regulators. He also noted the widespread acceptance and rapid evolution of sustainability reporting in conjunction with the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG).
Why Sustainability Matters
According to KPMG’s survey in 2022, 96% of G250 companies (the world’s 250 largest companies by revenue based on the 2021 Fortune 500 ranking) and 79% of N100 (a worldwide sample of the top 100 companies by revenue in 58 countries, territories, and jurisdictions) report on sustainability or environmental, social, and corporate governance (ESG) matters. Of the top 250, 78% use the GRI standards.
Among the surveyed companies, 75% in the Americas, 68% in Asia-Pacific and Europe, and 62% in the Middle East and Africa use the GRI’s reporting standards. However, Van der Enden stressed that there is still an uneven adoption of sustainability practices across different regions. He cited Europe as an example, with the Netherlands having a low rate of 20.25%, while Italy and Turkey boast a 90% rate.
The rising popularity of sustainability reporting is driven by various factors, including capital markets and investors. Van der Enden explained that institutional investors are concerned about sustainability and managing sustainability risks and risks related to socioeconomic factors, such as workplace safety and climate issues. In addition, companies face reputational risks from society, employees, suppliers, and clients. He said that to mitigate these risks, companies must reassess their supply and value chains and adopt more sustainable business practices, especially with the current reorientation to new suppliers.
By demonstrating its commitment to sustainability, a company can establish trust and credibility among stakeholders. Other advantages include attracting and retaining talent, strengthening brand identity, and enhancing reputation. Being a pioneer in an industry will bear risks but also high rewards. When an organization engages in sustainability reporting while its competitors do not, this represents a significant competitive advantage, according to Van der Enden.
Reporting on sustainability is more than just meeting compliance standards. It can drive changes in the organizational culture. Furthermore, Van der Enden supports mandatory sustainability reporting and legal regulations because, in his experience, it can drive systemic change. “The best way is to regulate it in. If possible, establish a global comprehensive baseline constraint, and then enact it into national law to change the mindset and behavior of companies.”
Sustainability Reporting Is Important Regardless of Organizational Size
Although larger companies may have more resources to invest in sustainability reporting, small and medium-sized enterprises (SMEs) cannot afford to overlook it. Van der Enden explained that SMEs are integral parts of the supply chain. With this, sustainability reporting is not only essential for demonstrating their own commitment to responsible practices but also for meeting the demands of larger companies and consumers for sustainable practices.
“This trickle-down effect highlights the importance of education and training for understanding the entire supply chain, especially for smaller enterprises that provide necessary goods, tools, and services to larger organizations,” he said.
According to Van der Enden, SMEs need to prioritize sustainability reporting to remain competitive in the global market, as manufacturers receive requests from clients in Europe and the US to provide information on their sustainability practices and report on their social and environmental impact. “If you cannot provide this information to your clients, you will lose the contract to those competitors that can.”
Challenges in Sustainability Disclosure
When asked about the challenges companies face regarding sustainability reporting, Van der Enden highlighted the selection of key performance indicators and data gathering. He emphasized the importance of having a data extraction system to easily obtain relevant information.
To ensure best practices in sustainability reporting, the CEO provided three recommendations. First, he suggested speaking with colleagues from other organizations who have already undergone the reporting process and used the GRI. Second, he recommended exploring the GRI Academy’s training programs. Lastly, he urged organizations not to be afraid of sustainability reporting, as it is becoming increasingly common and necessary.
“If you decide to report, do it well,” he advised. “Misrepresenting impacts is as bad as misrepresenting financial data, and we all know that misrepresenting financial data is usually seen as financial or bookkeeping fraud. Sustainability reporting is an investment, and it will prepare you for what is to come.”
Collecting and reporting is just one part of the equation, as organizations need to learn how to use data for performance improvement. Van der Enden’s point of view on education is that there is still a significant gap to close, although the topic is not necessarily recent.
“I think that the interesting part is that people who work in compliance and administration still regard sustainability as something extra, on top of what they have to do, and they do see it as a holistic model, as part of everything else they do,” said Van der Enden. This outlines the need for more education among professionals to change their mindset first and then their practices. He stated, “You need to have a good understanding of your supply chain, your manufacturing processes so that one can truly grasp the depth and ramifications of sustainability for your business.”
Corporate sustainability (CS) represents a business approach that creates long-term shareholder value by embracing opportunities and managing risks derived from economic, environmental, and social developments, Yale University states. Organizations are increasingly realizing that their long-term success and profitability depend on measuring the financial impact of CS initiatives for several reasons: enhanced risk management, increased cost efficiency, greater investor demand, and improved brand reputation—ideas that were highlighted in a 2022 paper from the International Journal of Economics and Management.
The NYU Stern Center for Sustainable Business developed the Return on Sustainable Investment (ROSI™) framework as a methodology used to evaluate the financial performance and returns generated from sustainability initiatives. It aims to measure the economic benefits derived from sustainability investments and assess the value created for the organization.
ROSI™ assists decision-making processes, resource allocation, and the prioritization of sustainability investments based on their potential financial returns. The framework also facilitates communication with stakeholders (i.e. investors, customers, and employees) by quantifying the financial value created through sustainable practices. The sustainability drivers of financial performance and competitive advantage based on ROSI™ methodology can be consulted below (see Figure 1).
Entities need to follow a clear set of steps to implement the ROSI™ methodology, per The NYU Stern Center for Sustainable Business:
Identify material sustainability practices.
Determine the potential benefits that might drive financial and societal value from sustainability-focused practices.
Quantify benefits derived from the sustainability practices.
Derive a monetary value for the benefits.
The main advantage that ROSI™ brings is helping companies make a compelling business case for sustainability, driving both financial value and positive societal impact while advancing sustainability goals, as NYU Stern concludes in a report published in 2021.
HSBC Bank USA and the NYU Stern Center have launched the Food and Agriculture Sustainability Strategies Framework, based on ROSI™ to help food and agriculture companies make a business case for sustainable initiatives that deliver financial value and societal impact. The framework identifies twelve sustainable strategies and describes practical suggestions for calculating returns. It serves as a strategic tool for unlocking the advantages of sustainability and driving real change in the industry.
According to Forbes—and adapted to adhere to The KPI Institute’s KPI naming standards—% Return on investment (% ROI) is a KPI that measures the efficiency or profitability of an investment or compares the efficiency of several different investments. This metric is also used to measure and evaluate the financial impact of organizational sustainability initiatives, making it easier to understand the value proposition of certain environmental, social, and governance (ESG) criteria used in socially responsible investing. A positive % ROI score indicates a profitable outcome, as the gains generated from the investment exceed the costs incurred (see Figure 2).
An article from Brightest presented findings based on data gathered between 2020 – 2023 from five top companies that measure the ROI of sustainability. It stated that companies like HP Inc. ($3.5B), Unilever ($1.2B), McKesson ($227M), Nike ($50M), Anheuser-Busch ($7.5M), and Medtronic ($2.2M) earned extensive profit from internal cost savings actions based on sustainability criteria like energy efficiency or waste reducing. By demonstrating the financial value of sustainable practices, % ROI enhances the business case for social investment and encourages stronger ESG administration, balancing monetary performance with social and environmental impact.
ROSI™ and % ROI are valuable tools for measuring the financial impact of sustainability initiatives. ROSI™ goes beyond traditional metrics, helping companies understand the value of sustainability strategies. Meanwhile, % ROI quantifies the fiscal returns generated, enabling data-driven decision-making. Together, they support making informed choices, practicing accountability, and leaving behind a positive environmental and societal impact while delivering long-term financial value.
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Editor’s Note: This article was originally published on August 14, 2023 and last updated on September 17, 2024.
The EFQM Model, or the European Foundation for Quality Management (EFQM) Excellence Model, is a globally recognized management framework that allows organizations to achieve success by measuring where they are on the path toward transformation. The EFQM Model helps them understand the gaps and possible solutions available and significantly improve an organization’s performance.
The excellence also recognizes the role that organizations play in supporting the goals of the United Nations (UN). Those goals have also helped to shape the latest edition of the EFQM Model. It covers the UN Global Compact (ten principles for sustainable and socially responsible business) and the UN 17 Sustainable Development Goals, which are a call to action for all countries to promote social equity, sound governance, and prosperity while protecting the planet.
The strategic nature of the EFQM Model, combined with its focus on operational performance and results, makes it the ideal framework for testing the coherence and alignment of an organization’s ambitions with the future and referenced against its current ways of working and its responses to challenges and pain points.
The EFQM Model in 2020 has seven criteria:
Purpose, vision, and strategy: An outstanding organization is defined by a purpose that inspires, a vision that is aspirational, and a strategy that delivers.
Organizational culture and leadership: Organizational culture is the specific collection of values & norms that are shared by people and groups within an organization that influences, over time, the way they behave with each other and with key stakeholders outside the organization.
Organizational leadership relates to the organization as a whole rather than any individual or team that provides direction from the top. It is about the organization acting as a leader within its ecosystem, recognized by others as a role model, rather than from the traditional perspective of a top team managing the organization.
Engaging stakeholders: Having decided which stakeholders are the most important to the organization, i.e., its key stakeholders, and independent of the specific groups identified, it is highly likely that there is a degree of similarity in applying the following principles when engaging with key stakeholders.
Creating sustainable value: An outstanding organization recognizes that creating sustainable value is vital for its long-term success and financial strength.
Driving performance and transformation: Now and in the future, an organization needs to be able to meet the following two important requirements at the same time to become and remain successful.
Stakeholder perceptions: This criterion concentrates on results based on feedback from key stakeholders about their personal experiences of dealing with the organization – their perceptions.
Strategic and operational performance: This criterion concentrates on results linked to the organization’s performance in terms of the ability to fulfill its purpose, deliver the strategy, and create sustainable value.
Nowadays, an organization’s primary focus is to maintain continuous business development and the high satisfaction of its stakeholders while facing the pressure to reduce resource utilization and changes in the business ecosystem. Hence, the way organizations cope with competitiveness, data processing, and customers’ needs and taking a proactive approach in the market have become the main concerns in their strategic agenda.
By benchmarking themselves against their environment, organizations learn how to better position themselves in the market and assess their performance levels compared to their competitors, and secure sustainability based on the three world-known sustainability pillars: society, environment, and economic.
Ultimately, the application of a sustainability strategy enables a recalibration of improvement initiatives and strategic approaches to provide better products and services while using fewer resources to benefit the planet, the economy, and society.
Sustainability focuses on meeting the needs of the present without compromising the ability of future generations to meet their needs. The concept of sustainability is composed of three pillars: economic, environmental, and social, also known informally as profits, planet, and people.
Sustainability encourages businesses to frame decisions in terms of environmental, social, and human element impact for the long-term rather than on short-term gains, such as next quarter’s earnings report. It influences them to consider more factors than the immediate profit or loss involved. Increasingly, companies have issued sustainability goals, such as a commitment to zero waste by a certain year or to reduce overall emissions by a certain percentage.
The ultimate framework of sustainability is described in the UN Sustainability Goals, which set targets to be realized by 2030. Countries have announced their Sustainability Goals and are expected to be followed by leading organizations. Those organizations would design their own Sustainability Strategic Objectives to align with those of the UN SDGs.
The UN Sustainable Development Goals Agenda is a plan of action for obtaining 17 improvement objectives for society, environment, and prosperity by 2030. The Sustainable Development Goals and targets are integrated, indivisible, global in nature, and universally applicable, taking into account different national realities, capacities, and levels of development and respecting national policies and priorities.
The Sustainability Accounting Standards Board (SASB)’s Materiality Map determines sustainability issues that are likely to affect the financial condition or operating performance of organizations within an industry. SASB identifies 26 sustainability-related business issues or General Issue Categories, encompassing a range of disclosure topics and their associated accounting metrics that vary by industry.
For example, the General Issue: Category of Customer Welfare encompasses both the Health and Nutrition topic in the Processed Foods industry and the Counterfeit Drugs topic in the Health Care Distributors industry.
With SASB standards, companies can benefit from greater transparency, better risk management, improved long-term performance, and stronger, more valuable services. All of these while providing investors a more accurate picture of their sustainability performance to improve their image and contribution to the SDGs.
SASB standards and tools are helping organizations because they identify a handful of ESG and sustainability topics that most
directly impact the long-term value creation; implement principles-based reporting frameworks including Integrated Reporting by the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD); and communicate sustainability data more efficiently and effectively to investors.
SASB can be a core part of any reporting system. Whether used alone, alongside other reporting frameworks, or as part of an integrated report, SASB standards and metrics enable companies to communicate with investors in a detailed, powerful way. SASB standards and tools enable organizations around the world to identify and manage financial-material sustainability issues and communicate these issues to investors.
Today, organizations face unique challenges, from climate change and resource constraints to urbanization and technological innovation. Although financial statements provide valuable information on tangible assets and financial capital, investors are increasingly interested in how organizations also manage sustainability issues that affect their long-term value and the global economy.
Companies can no longer afford to ignore sustainability. It is not just a trend but a major factor that drives where most businesses are headed. According to Globescan’s The State of Sustainable Business 2019, reputational risks, consumer demand, investor interest, operational risk, and employee engagement are some of the catalysts behind the sustainability efforts of most organizations.
Manufacturing is one of the industries that are pressured to realign their activities with the mounting call for sustainability practices. Sustainable manufacturing refers to developing products with minimal negative environmental impacts and maximum contribution to the conservation of natural resources. These products are expected to be economically sound and safe for employees, communities, and consumers.
Sustainable manufacturing aims to reduce the intensity of materials use, energy consumption, emissions, and unwanted byproducts while maintaining or improving the value provided for society and organizations.
Some relevant key performance indicators that are often considered when evaluating the sustainability of manufacturing companies are:
Environmental performance KPIs, such as: # Air emissions, % Energy utilization, % Hazardous waste etc.
Economic performance KPIs: % Product reliability, % Conformance to specifications, $ Material cost, % Labor cost etc.
Social performance KPIs: % Occupational health and safety, % Turnover rate, % Supplier commitment etc.
Sustainability standards are observed to ensure quality, transparency, compliance, and results in terms of making organizations accountable for their economic, environmental, and social performance.
Among the internationally renowned frameworks is the Global Reporting Initiative’s (GRI) Sustainability Reporting Standards. The GRI Standards consist of Universal Standards, which apply to all organizations and report on human rights and environmental due diligence, the new Sector Standards for sector-specific impacts, and the Topic Standards that come with the revised Universal Standards and relate to a particular topic.
is to create a sustainable future enabled by transparency and open dialogue about impacts. In this regard, they are a provider of the world’s most widely used sustainability disclosure standards.
With GRI Standards, companies can publicly present the outcomes of their activities in a structured way. This allows their stakeholders and interested parties to better see their status of how they are responding to calls for sustainability. GRI Standards can be used by any type of organization, whether large or small, public or private, or from any location or industry.
As cited in the report “A Short Introduction to the GRI Standards,” the Reporting Process for organizations using the GRI Standards involves determining impacts and their significance, identifying material topics, or topics that are relevant to the organization’s activities, and reporting disclosures. The final stages are reporting the organization’s most significant impacts on the economy, environment, and people and publishing information and GRI content index.
The GRI Standards comprise three series of Standards: The GRI Universal Standards can be applied to your reporting. The GRI Sector Standards are for sectors while the GRI Topic Standards are used to report specific information regarding material topics.
Daimler’s Sustainability Report
An example of a sustainability report that is developed based on the GRI Standards comes from Daimler, one of the biggest producers of premium cars and the world’s biggest manufacturer of commercial vehicles.
In 2006, Daimler joined the multi-stakeholder network of the Global Reporting Initiative (GRI), where it initially was an organizational stakeholder. It later became a Gold Community Member and is now a member of the GRI Community.
Their report is based on the Daimler Group’s sustainable business strategies. It contains two conceptual levels: “Spurwechsel” section, which refers to the external sustainability developments and trends into a context with the internal strategies and measures and “Reporting” section which provides a detailed description of the goals, due diligence approach, measures, and achievements.
The Reporting section focuses on six areas of action: climate protection and air quality, resource conservation, livable cities, traffic safety, data responsibility, and human rights as well as on three enabler topics, which are cross-sector themes that can influence areas of action. The enabler topics are Integrity, People, and Partnerships.
As part of the Climate protection & air quality area of action, the manufacturer frequently monitors the compliance with the internal and external environmental protection requirements. This way, they can take proactive actions to eliminate possible damage.
As a result, the reduction of air emissions is an important focus of their sense of responsibility for the environment (Figure 1).
They consider the consumption of resources in production as an important factor in the environmental compatibility of their vehicles. Thus, they are working to make production more efficient and more environmentally friendly by using less water, energy, and raw materials.
Daimler evaluates in a consistent and transparent way the economic, environmental, and social impact in order to find the best solutions to remain climate-neutral and sustainable in the future.
In addition to this, they maintain regular contact with representatives of business, government, and other interest groups that advocate for the same goal.
Daimler also plays an active role in upholding the UN Global Compact, a voluntary initiative that encourages companies to integrate sustainability practices into their activities. Daimler shares on their website that they are involved in the thematic and regional working groups and initiatives of the pact.
“In the reporting year, these included the action platforms “Reporting on the SDGs” and “Decent Work in Global Supply Chains” as well as the UN Global Compact Expert Network and the German Global Compact Network,” Daimler states.
As part of its obligation, Daimler reports its initiatives on areas like human rights, labor standards, and environmental protection in its Sustainability Report
Reporting sustainability key performance indicators constantly, in a clear and transparent manner, can provide a clear overview of the environmental, social, and economic impacts, and based on this, the organizations can take proactive actions to reduce the negative impact.
In this context, The GRI Standards offer a consistent structure for companies to report information in a way that covers the most significant impacts on the economy, environment, and people.
To learn more about KPIs, visit the world’s largest database of documented KPIs: smartkpis.com.
Nowadays, with mounting pressure on businesses to be accountable for their environmental and social impact, it is no longer optional but expected for them to develop and implement sustainable business strategies that play out across three key areas: Environment, Social, and Governance (ESG). This pressure comes from rising public awareness, tightening regulations, and increased expectations from customers, employees, and investors.
Stakeholder engagement plays a significant role in the successful implementation of ESG strategies. In this article, let’s explore its functions and effects on ESG strategies.
The power of stakeholder engagement
Stakeholders are individuals, groups, or organizations that can influence or are affected by a company’s strategy from within and outside the organization. They can either drive change or resist it. Therefore, it is critical to identify stakeholders and understand their needs and expectations to ensure the ESG agenda reflects the priorities of those who matter and support the strategy’s long-term success.
Pay Governance LLC, a firm that provides independent advice on executive compensation matters, has developed the Stakeholder Value Creation Chain model (See Figure 1) to better understand the effects of stakeholder engagement on the economic success of a business. It demonstrates how ESG strategy, the stakeholder model, and the generation of corporate value all intersect to provide various advantages for corporations.
Engaging with stakeholders during the strategy execution phase allows companies to foster collaboration, build trust and confidence, encourage support for ESG actions, evaluate how the actions are perceived, mitigate potential risks, and improve decision-making.
To know more about ESG strategy and how it exactly boosts stakeholder engagement based on a report, read the full article in the PERFORMANCE Magazine Issue No. 25 – Sustainability Edition. You can download a free digital copy through the TKI Marketplace. Printed copies are also available on Amazon. But the price may vary depending on location.
