This article was originally published on The Conversation
There is an increasing trend among companies across the globe to report on their sustainability. As well as information on the company’s economic performance, this includes information on how it is handling social, ethical and environmental concerns. It is a trend driven by customers, suppliers, employees and banks in recognition that these are just as important elements of any business.
Often, the level of information provided by companies is criticized for being inadequate. But my recent research into Swedish companies shows that the quality of information does appear to be increasing. It also shows what areas are in need of further improvements to make this practice worthwhile.
For years Swedish companies have been regarded as among the best in corporate communication – in general and in sustainability reporting in particular. Their excellence in disclosing information on their performance on the sustainability arena is confirmed in both academic research and comprehensive reports like major accountancy firm KPMG’s research on global sustainability trends.
Until recently, whether or not a company reported on its sustainability was voluntary in most countries. But from the financial year 2017, a new EU directive requires every so-called ‘public interest entity’ to report on the social and environmental impact of its business model.
Having recently studied sustainability reports from the 30 largest listed Swedish companies over the period 2008-2015, there’s a lot to be learned from them. It includes household names like retailer H&M, telecoms company Ericsson and car maker Volvo. It makes clear that big and profitable companies can be more accountable when it comes to sustainability reporting.
None of these companies is perfect. My research shows that they too are learning all the time when it comes to their sustainability reporting. Over the seven-year period that I looked at, the information goes from being quite brief and general to more elaborate and detailed.
This is an increasingly important part of demonstrating business ethics. In these sustainability reports companies communicate how they take responsibility for their impact on society. This is done by disclosing their efforts to integrate social, environmental and ethical concerns into their business practices.
Most importantly, my research shows that Sweden’s biggest companies have started to integrate sustainability into their business models. Volvo’s business model is built on three pillars: economic, social and environmental. This holds true for large companies that you may not have heard of too. Take Assa Abloy – it’s the world’s largest lock manufacturer and has a market cap of $22.6 bn. In its business model, sustainability is accentuated in all processes from innovation and product development to logistics and sales.
The more recent reports show that several companies have also started relating their sustainability goals to risk management. They increasingly see how things like climate change and environmental issues will impact on their bottom line. For example, Sandvik, SEB, and Volvo are good at relating their sustainability goals to risk management. They highlight risks throughout the value chain and sometimes also discuss how these are being managed.
Room for improvement
There is, of course, room for improvement in all the companies [studied]. In some, this integration of sustainability into their business models is more tentative. It is clear that this is a new process for them and they are still working on efficiently integrating sustainability at the heart of their business model.
In particular, I found there were many that failed to realize how engaging in various sustainability activities can help their bottom line. Instead, sustainability is seen as more of a corporate social responsibility exercise. But relating sustainability to the bottom line is critical for any company – not least because shareholders often use this against their company having a focus on sustainability goals.
Another area for improvement is what gets included in sustainability reports. It is evident that developing valid and reliable measures of sustainability is tricky. Often concrete targets and time frames for achieving a sustainable goal are simply left out, leaving vague statements such as an aim to decrease CO2 emissions and waste.
This also proves problematic when it comes to comparing the sustainability performance of different companies. Even where there is sophisticated reporting, the lack of a universal system of measures makes it difficult for investors to assess which companies are better.
Despite these shortcomings, the growth in sustainability reporting in recent years is significant. It shows that companies are thinking about and forcing themselves – as well as others – to act in a way that profits the wider society as well as their financial earnings. And Swedish companies offer inspiration to others that there is a business case to put ethical concerns on the same plane as economic ones.
Susanne Arvidsson is associate professor in accounting and finance at Lund University.
Image from shutterstock.com via The Conversation
