Gone are the days where all that companies would focus on is how to make profits, how to stand out from their competition in the market, how to retain their competitive edge and how to make sure that as far as certain products and services are concerned, they are the first priority to choose from. As much as that hasn’t changed, businesses, companies and organizations are looking into other ways of ensuring this; business reporting.
Business reporting or enterprise reporting is a tool that helps understand how the value a business creates and reduces for society is likely to affect the value it creates for shareholders. This knowledge provides a new lens for decision-making to improve performance, inform strategy and increase influence.
It improves the quality and transparency of information that companies provide so that investors and key stakeholders can make better decisions. It focuses on shifting paradigms that were primarily based on historical or financial information to a model that incorporates relevant value drivers, financial and non-financial performance measures, and information around a management’s strategy, plans, risks and opportunities. This business reporting model delivers a broader view of current performance and greater understanding of a company’s or organization’s future.
Berkshire Hathaway’s Chairman Warren Buffet described it well in a recent company report: “Today our world is changing faster than ever before –economic, geopolitical and environmental challenges abound. A company must invest in the key ingredients of profitability: its people, communities and the environment.”
One of the main reasons many companies don’t actively address the issue of sustainability reporting in their management is many do not have a clear definition of it.
So what are some of the reasons why should companies adopt business reporting?
• Aligning with today’s needs: Globalization, digital connectivity, the financial crisis, population growth, and the explosion of the global middle class, climate change and other economic, social and environmental factors are all factors that are transforming the business landscape. It is critical for business to start operating in a sustainable manner in order to avoid the dangers of a ‘business as usual’ practice that enables positive corporate value creation especially in today’s fast moving world.
• The global population is not only growing rapidly but is also increasingly urban. This is a pattern that has seen an enormous need for the high rate of consumption of energy, fuel and other resources leading to even higher challenges around the existence of food, water and natural resources to sustain this need. At the same time, climate is changing. All these systems are interconnected and have significant implications for the entire global community, and specifically, businesses.
The Natural Capital Accounting tool is an emerging tool that gives companies greater insight into their environmental risks and opportunities by determining the financial value of a company’s depletion of non-renewable resources, and its emissions into the air, water and soil.
• While internalization can bring risks to corporate value creation such as decreased earnings, higher costs of capital and reduced license-to-operate, there are also opportunities to create value, for example, through increased revenues or decreased costs. Businesses that anticipate new regulations, stakeholder actions and market dynamics will invest ahead of the curve to benefit from reduced risk exposure and potentially higher earnings as a result.
• Leading companies and organizations are using corporate social responsibility (CSR) as a driver for competitive advantage and an opportunity as well to unlock innovation and value. Companies that invest in CSR activities that most dwell in environmental conservation projects and activities that help the less fortunate in the society reap the most rewards. This is because the company goes beyond what consumers expect – good products, services and yearly increasing profits – and dwell in overall community development which strikes the heart of most people.
Companies that integrate sustainability into their core business strategy will not be disappointed in the value that sustainability strategy creates.