Corporate Sustainability Reporting and its Implications

Posted on May 5, 2011 by


Corporate accounting has gained significant momentum in the corporate world. Major corporations have chosen to have some form of non-financial reporting, whether voluntary or by mandate, and the presence of voluntary non-financial accounting is a strong indicator of the growing importance of corporate accounting. From a meager 44 firms participating in the Global Reporting Initiative, 2000, to 1,973 firms participating in 2010, the trend has shown that major businesses have decided to follow this path and account for their sustainability at the environmental, social and governance (ESG) front.

A recent report by Ioannis Ioannou and George Serafeim revealed the reality of the implications of corporate accounting. Using data collected from 58 countries, the report showed that sustainability reporting impacted the company’s profile in more ways than one. More so, the trends follow significantly unique paths between developed and developing countries. Using regression analysis technique against a working framework, the report analysis impacts based on the ESG, incorporating 15 variables namely;

  • Social responsibility
  • Sustainable development
  • Employee training
  • Corporate boards
  • Ethical practices
  • Bribery & corruption
  • Managerial credibility
  • Reporting
  • Enforcement
  • Assurance
  • Log of total GDP
  • GDP per capita
  • Life expectancy at birth
  • Adaptability of government policy
  • Unemployment rate

The findings suggest that corporate accounting impacts a company on several levels. On the social front, mandatory or otherwise voluntary accounting improves the social perception of the company which is crucial for market share, especially after the high profile scandals that have happened over the years. Social trust is an issue that has been hanging by a thread, as most view companies to be unable to self regulate.

Corporate accounting has also resulted in employee training gaining high prioritization which in turn improves workforce development.

Socially responsible managerial practices subsequently evolves from this process, which are potentially economically important as they could enhance the competitiveness of a country by generating higher levels of trust in business and its leaders.

On the governance front, the report suggest that amongst all the entities under the study, countries’ (at macro level) and firms’ governing boards (at micro level)  with higher assurance and flexibility in their policy making could facilitate a higher positive perception on the overall sustainability of each entity.

On the environmental front, corporate accounting has pushed more firms into having a more environmental outlook with environmental sustainability and sustainable development being prioritized at par with other corporate functions.

All these three fronts are particularly significant in developed countries due to higher rate of dissemination of information through technology and not so much in developing countries. Access to technology has been the main force that drove the overall perception in developed countries while the lack of the same, has kept developing countries behind.

Overall, corporate accounting leads to general improvements along all the three fronts. There is increased social and environmental responsibility with increased public and corporate perception. There is higher implementation of ethical practices, lower bribery and corruption, increased managerial credibility, higher employment generation, improved life expectancy and increase GDP per capita.

Reference

Report:

Ioannis Ioannou and George Serafeim(2011). “The consequences of Mandatory Corporate Sustainability Reporting”

(Available at:http://www.hbs.edu/research/pdf/11-100.pdf)

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