Table 2 shows the details of the interviews. 7. And that makes it everybody's business. From a practical point of view, despite the managerial efforts discussed previously, Estra has not yet achieved a full integration of sustainability principles in its strategic and planning activities, given a business-as-usual mindset in formulating corporate strategies. Callon, M. (1986), The sociology of an actor-network: the case of the electric vehicle, In Mapping the Dynamics of Science and Technology, Palgrave Macmillan, London, pp. The report, compiled by London's Grantham Research Institute on Climate Change and the Environment, defines 'climate washing' as cases that challenge companies, and occasionally governments, over . Given the multitude and complexity of the new information required by the legislation, coordination problems in data collection increased when compared to phase-1. 32 No. Going forward, stability and prosperity require that executive leaders advocate for structural changes that enable them to focus beyond the next quarters numbers. But the growth in the number of ESG raters has not improved reliability. Heres a partial list of the reasons why: According to the Global Sustainable Investment Alliance, nearly two out of every three dollars classified as socially responsible investment are in negative screen funds. Recognizing that, from the very beginning, Estra implemented a gradual learning process to turn sustainability principles into shared core-values. Nelson, R. and Winter, S. (1982), An Evolutionary Theory of Economic Change, Harvard University Press, Cambridge, MA. Conversely, it did not significantly affect the development of sustainability reports, in contrast with prior studies (i.e. 1, pp. 1. 25 No. As they present a wide categorization of the challenges that a firm meets when implementing SR, this framework fits the purpose of this study very well. 113-122. However, we also need stronger civic engagement, sharper regulation, different incentives for investment, and a rethinking of what makes a company or society successful. 23 No. Just recently BMW announced that its suppliers carbon footprints will be a key factor in procurement decisions going forward, and Climate TRACE, a coalition funded partly by Google, is developing a satellite-based tool to measure all emissions, including scope 3, in real time. Timberland began offering employees 40 hours of paid community-service time in 1995; it was among the first publicly traded companies to use renewable energy to power its factories; and by printing Green Index scores on its shoeboxes, it pioneered package labeling that informed consumers about products environmental and social impact. Measurement is often nonstandard, incomplete, imprecise, and misleading. The reporting of these new contents represented a relevant challenge due to their qualitative dimension. According to a 2016 study that examined more than 40,000 CSR reports, less than 5% of reporting companies made any mention of the ecological limits constraining economic growth. Massa, L., Farneti, F. and Scappini, B. (2011), Signaling theory: a review and assessment, Journal of Management, Vol. It can be said that the involvement in SR activities generated a single-loop learning process under which employees fulfilled their tasks without having full awareness of sustainability principles. In this article, you'll learn what ESG reporting is and the challenges it faces. Over the past two decades, many people bought into the idea that if corporations committed to measuring and reporting on their sustainability performance, the payoffs would be profound. 9 No. Sustainability reporting challenges. The last sub-element of the second constraint relates to the quest of legitimacy. Since NGOs are globally renowned as watchdogs for advancing socio-economic development and sustainable societies, research on their efforts in this regard will help develop recommendations on how they can be better . This study collates potential economic effects of mandated disclosure and reporting standards for corporate social responsibility (CSR) and sustainability topics. Halfway towards 2030, most African countries are struggling to meet most SDG targets. CRM solutions provider Salesforce announced the launch of the SASB Report Builder within its Net Zero Cloud sustainability management solution, expanding the platform with capabilities enabling users to automate the disclosure of ESG data, in alignment with the Sustainability Accounting Standards Board (SASB) standards. Even metrics that seem easy to grasp may cause confusion. 337-353. Top 12 Sustainability Issues in 2020 1.Poverty and youth unemployment However, neither investment strategy was found to yield meaningful social or environmental outcomes. Article publication date: 30 December 2020. The GRI has been the go-to place for sustainability reporting for years and has responded to growing concerns at the sheer weight of metrics by going back to core principles such as materiality. The authors found that the challenges that gradually arose induced the evolution of SR. This is true also in phase-2, but with significant changes. In this context, some authors found out that stakeholders and institutional pressures are the main factors pushing companies to elaborate or modify sustainability reports (Duran and Rodrigo, 2018). For two decades progressive thinkers have argued that a more sustainable form of capitalism would arise if companies. In addition, as Meadows pointed out when discussing leverage points for system intervention, our mindsets and assumptions about how the world works are potential sources of profound impact. Moreover, our results showed how a firm can manage them, pointing out the mechanisms that can be implemented to face them. In Set2, the challenges mainly concerned the reduction of information asymmetry, data reliability and the quest for legitimacy. Referring to the period post-Directive 2014/95/EU, he stated: nowadays only a minority of my colleagues dont understand the importance of SR and think it is an administrative task. In this regard, the first challenge that the company had to face was the definition of a stakeholder map. The Directive 2014/95/EU induced more corporate transparency. Visit emeraldpublishing.com/platformupdate to discover the latest news and updates, Answers to the most commonly asked questions here. In facing this challenge, Estra adopted two different solutions. The other challenge induced by legislation concerned the matching between the compliance to the new and strict deadlines set by the normative requirement and employees workload. 39 No. In this chapter, we shed light upon the current practice of integrated reporting in relation to sustainable development issues. 6, p. 977. That will probably be true as long as corporations are allowed to ignore externalitiesthe spillover effects that their operations have on society. Decisions made to chase low-cost labor have led to highly distributed supply chains where the producers of goods are often located nowhere near the end users. 2, pp. During the past two decades, SR has increasingly become a common managerial practice among companies (Higgins et al., 2020) and growing attention has been paid to it by academic literature (Bini and Bellucci, 2020). This could be a future step for Estra. 20 No. Finally, the set of indicators was defined, also considering the middle- and top managements willingness to disclose non-financial topics. Popper, M. and Lipshitz, R. (2000), Organizational learning: Mechanisms, culture, and feasibility, Management Learning, Vol. Practitioners receive and respond to requests for information that may not be material to investors or the company's impact on sustainability. 25 No. Discover how AI and IT delivers the insights you need to help drive exceptional business performance. management studies and law and education sciences). Moreover, data heterogeneity and complexity generated the issue of ensuring their reliability. As noted earlier, there are structural measurement and reporting problems because the data is voluntarily shared, largely unaudited, and incomplete. We promote involvement activities, but they are not monitored or structured (the person in charge of SR, who became sustainability manager in phase-2). Next, we draw on relevant academic literatures in accounting, finance, economics, and management to discuss and evaluate the potential economic consequences of a requirement for CSR and . Recognizing that, the aim of our study is to investigate the challenges that arise from SR; and the mechanisms that companies can implement to face them. 2, p. 147e160. 3, pp. Introduction In recent years, there has been an organizational change in universities seeking more competitive universities and sustainability issues forms part of this change, with sustainable values becoming fundamental ( Ceulemans et al., 2015, Dumay, 2016 ). The case of Estra, analysed adopting B&H (2018) framework, produced some interesting insights on SR challenges. The quality presents a tremendous challenge for sustainability reporting as more organizations are joining the sustainability reporting process, the quality would become a differentiator and competitive advantage, the study concludes. KEYWORDS: Sustainability Reporting Practice, Stakeholder, Global Reporting Initiative (GRI), Integrated Reporting, Social . According to the authors, the vast majority of ESG investment is allocated to mutual funds that either stay away from specific industries (mainly tobacco and weapons) or factor ESG data into their decisions about which stocks to buy (mostly to optimize financial performance). However, the latter was considered too complex to be fully understood and applied and, hence, it was not adopted. Hahn and Kuhnen (2013) found that most of the literature on SR adopts four main theories legitimacy theory, stakeholder theory, institutional theory and signalling theory also highlighting that scholars tend to focus on single SR issues or aspects, producing contrasting results. Theres no doubt that attention to material ESG issues can deliver better social, environmental, and financial outcomes for individual companies. The analysis showed how all the three sets of constraints proposed by B&H arose in both phases analysed. Clarkson, P., Overell, M. and Chapple, L. (2011), Environmental reporting and its relation to corporate environmental performance, Abacus, Vol. Connelly, B.L., Certo, S.T., Ireland, R.D. 2, pp. 25 No. Companies face challenges and uncertainties that evolve due to business environments dynamism (Bebbington and Larrinaga, 2014) and managerial expectations. The role of an issues-based field, Journal of Business Ethics, Vol. Several scholars investigated the degree of non-financial disclosure compliance with reporting standards (Manes-Rossi et al., 2018; Sierra-Garcia et al., 2018), while others analysed the changes in sustainability reports contents over time (Feng and Ngai, 2020; Samkin, 2012). Latour, B. Creating Shared Value (CSV) is at the heart of our purpose: to unlock the power of food to enhance . challenges, also suggesting that its interdependencies with the denition and execution of sustainability shouldbeexploited. The business world is soon likely to see some of the most significant innovations in corporate accounting and reporting in decades. Schaltegger, S. and Wagner, M. (2006), Integrative management of sustainability performance, measurement and reporting, International Journal of Accounting, Auditing and Performance Evaluation, Vol. However, despite the increasing attention in the literature to the difficulties that companies have to deal with when implementing SR (Brusca et al., 2018; Dumay et al., 2017; McNally et al., 2017), this topic remains under-investigated. Evidence from a case study, Ex-Ante impact assessment of sustainability informationthe directive 2014/95, Organized hypocrisy, organizational faades, and SR, Revisiting the relation between environmental performance and environmental disclosure: an empirical analysis, Environmental reporting and its relation to corporate environmental performance, Signaling theory: a review and assessment, The institutionalisation of corporate social responsibility reporting, The institutionalisation of mining company sustainability disclosures, The State of Disclosures on Stakeholder Engagement in Sustainability Reporting in Australian Local Councils, An overview of legitimacy theory as applied within the social and environmental accounting literature, Sustainability Accounting and Accountability, The iron cage revisited: institutional isomorphism and collective rationality in organizational fields, Barriers to implementing the international integrated reporting framework: a contemporary academic perspective, Why do firms in emerging markets report? Accordingly, sustainability reporting (SR) is becoming a mainstream practice (Bini and Bellucci, 2020) and a tangled process to manage. The legislative requirement accelerated the facing of some challenges, which otherwise would have remained latent. Firstly, questions have been specifically formulated and structured according to the three sets of constraints described above. a stakeholder theory approach to study the determinants of Non-Financial disclosure in Latin America, Doing more on the corporate sustainability front: a longitudinal analysis of CSR reporting of global fashion companies, Strategic Management: A Stakeholder Approach, Corporate environmental sustainability reporting in the context of national cultures: a quantile regression approach, Social reporting as an organizational learning tool? Regarding external legitimacy, Estras funders began to pay greater attention to sustainability performance. Moreover, the case study fosters the integrated management of sustainability issues, possibly encouraging the development of Integrating Thinking. Finally, we compared the results of the questionnaire and interviews with the evidence highlighted by the prior documental analysis to ascertain the correspondence between the statements made by respondents and what formally reported in corporate documents. According to the IMF, global subsidies for fossil fuels topped $5 trillion in 2017. (2015) showed how, initially, the sustainability report tends to have only a disclosure purpose, while, over time, it becomes a tool to foster planning and sustainability strategies. Problem 1: You have to collect data from many different sources True sustainability reporting may require gathering data across many different teams or departments within your organization and beyond. The introduction of the regulatory obligation played a key role in SR evolution. The QSE middle-manager confirmed the perception that such an increase of internal legitimacy was due to the legislation. Kuruppu, S.C., Milne, M.J. and Tilt, C.A. And headlines touting new milestones in disclosure and socially responsible investment are often just fanciful greenwishing (in the coinage of Duncan Austin, a former ESG investment manager). 1. 2, pp. To fully understand the mechanisms implemented to cope with SR challenges (both formal and informal) and their effects (both tangible and intangible), we carried out an in-depth analysis, developing a five-year longitudinal case study of an Italian multiutility large company. There are three major reporting challenges companies face in sustainability reporting. We believed that measurement and transparency would increase competition within the industry to find sustainable solutions while engendering healthy pressure from investors and consumers. Specifically, the complex nature of the network in which the company operates emerged. Two main limitations were identified. 20 No. Deegan, C. (2014), An overview of legitimacy theory as applied within the social and environmental accounting literature, in Unerman, J., Bebbington, J. and ODwyer, B. An example is the value added distributed to our stakeholders, which always thrills me. when dealing with sustainability reporting (SR) and focusses on potential mechanisms they may adopt to copewiththem. A casual observer might think that this approach is working. Social inequity, too, is increasing. 1, pp. This is not to say that investors and companies cant make a difference. 6. The selected data were then assigned to employees according to their competences. and Reutzel, C.R. The full terms of this licence maybe seen at http://creativecommons.org/licences/by/4.0/legalcode. Ultimately, corporations exist within a broader system. While measuring equity returns is relatively straightforward (even though attributing returns to specific factors is challenging), measuring ESG impact is far more complicated. This implies you get the opportunity to check the challenges and bottlenecks that stand on your path to faster growth and success. Sections 4 and 5 present results and discussion, respectively. The real danger is when politicians and CEOs are making it look like real action is happening when in fact almost nothing is being done, apart from clever accounting and creative PR.. Conversely, other mechanisms, which the literature emphasized as powerful, worked only partially, such as stakeholder engagement and data management. The Big Five challenges in reporting reliable sustainability data More and more companies are encountering the same obstacles when it comes to reporting reliable sustainability data. Samkin, G. (2012), Changes in sustainability reporting by an African defence contractor: a longitudinal analysis, Meditari Accountancy Research, Vol. Individual firms in the oil and gas industry, for instance, report on sustainability in varied ways: Out of 51 relevant GRI indicators, only four appear in more than three-quarters of the companies GRI reports, according to researchers at the University of Perugia. Moreover, most studies tend to use a single theoretical perspective when investigating SR. In line with Manetti (2011) and Torelli et al. (2021), "The challenges of sustainability reporting and their management: the case of Estra", Meditari Accountancy Research, Vol. Andy Ruben, who was the first chief sustainability officer at Walmart, notes that even companies with Walmarts influence find it challenging to really understand what is going on in an increasingly global and interconnected supply chain.. Alaska Airlines, the fifth largest airline in the US, recently revealed its 2022 sustainability report, showcasing some of its successes and lessons learned throughout the year.Among its learnings, the carrier highlighted its continued initiatives to promote diversity, equity, and inclusion (DEI) and a pathway to becoming net zero within the next two decades. (1987), Science in Action: How to Follow Scientists and Engineers through Society, Harvard university press. Therefore, communication, collaboration and the daily adoption of SR practices, fostered by the sustainability team, triggered an internal learning and growth process, leading to the development of new skills. Busco, C., Gran, F. and Quattrone, P. (2017), Integrated thinking: Aligning purpose and the business model to market opportunities and sustainable performance, CIMA Research Report, Vol. Based on that experience, we believe there are three main challenges that hold companies back in a sustainability transformation: determining where to focus for greatest impact, how to put the right transformation engine in place, and how to fund the journey. 27-60. Nevertheless, SR involves considerable challenges in terms of managing and communicating non-financial information (Brusca et al., 2018) that can weaken it (Brand et al., 2018). Moreover, a longitudinal approach is fundamental when studying sustainability, as it takes time to integrate it into organizational practices and culture (Caputo et al., 2017). 2, pp. 359-371. Spreadsheets Perhaps the biggest problem you'll hear sustainability professionals bemoan is their Excel spreadsheets. The philosopher Onora ONeill has done research that helps explain why. Data collection was conducted in four months (FebruaryMay 2019) and was articulated in the following three main stages. A recent conversation with the CFO of a publicly traded company with a market capitalization in excess of $30 billion leads me to believe that not much has changed on that score. But real progress, he says, requires not just better measurement and reporting practices but also changes in regulations, investment incentives, and mindsets. The key objective was to prevent employees who were dealing with sustainability issues for the first time from perceiving SR as a duty imposed by the top management. In the following sections, this group is named sustainability team. In addition, across the industry, supply chains have become multitiered and contractors have increasingly outsourced to subcontractors; thats made traceability problematic. In the survey of 1,000 global IT leaders and C-suite executives, 78% of the 250 U.S.-based businesses have made achieving carbon neutrality a top priority. (2018), Overcoming current practical challenges in sustainability and integrated reporting: insights from a Swiss field study, Sustainability Management Forum, Vol. Other scholars motivated the choice to elaborate sustainability reports with the will of avoiding reputational risks (Reverte, 2009) or increasing corporate legitimacy (De Villiers and Alexander, 2014; ODonovan, 2002). Moreover, the challenges related to the irreducible part of the qualitative information and to the ever-changing context emerged. Finally, the three sets of constraints are not static, but tend to evolve over time, following the evolution of the context (Bebbington and Larrinaga, 2014). However, this does not mean that the challenges related to organizational learning (Set3) are less relevant, nor that their management can be postponed. Hence, the gradual routinization of SR practices fostered double-loop learning, as they became institutionalized, spontaneously accepted and used within the companys SR context. For many companies, scope 3 emissions represent the bulk of their greenhouse gas impact. how to transmit sustainability and reporting principles throughout the enterprise. Some stakeholder engagement activities were also implemented but as confirmed by the interviews they lacked a well-defined structure and policy. Estra appointed two employees, who belonged to the communication area, as person in charge and coordinator of SR, respectively. 2, pp. The second set of constraints can be analysed through different theoretical lenses that result in the more traditional approaches of legitimacy theory (ODonovan, 2002) and signalling theory (Connelly et al., 2011). 395-413. Therefore, companies are increasingly called to communicate their performance in a holistic and integrated manner to demonstrate if and how sustainability is embedded in their corporate vision and strategy (Porter and Kramer, 2011), also meeting stakeholders and institutional claims for an enhanced corporate transparency. Practical pathways to transformational sustainability. The sustainability team was given the task of monitoring data collection and represented a convergence point for all indicators coming from the various business areas. Adams, C.A. Students were asked to consider environmental challenges and solutions from three lenses: the technical, the behavioral, and the normative. Then, it formalized a partnership with two university departments, financing a post-doc fellowship to benefit from external academic and operating skills. Interestingly, 81.25% of respondents to the questionnaire confirmed that financial reporting and SR did not enjoy the same importance, but they believed that SR was becoming increasingly relevant. Dissemination and organizational learning, employees involvement, managerial commitment and the routinization and institutionalization of sustainability practices significantly contributed to spread sustainability values and gave stability to the entire SR. Conversely, the mechanisms of stakeholder engagement and data management revealed relevant criticalities. From the very beginning, Estras training activities on SR encompassed the concept of Integrated Thinking, understood as a mindset enhancing the connectivity among different organizations activities. This article, by Timberlands former COO, outlines the problems with both sustainability reporting and sustainable investing. As discussed above, Estra opportunistically had neglected these qualitative topics, despite their relevance. Firstly, we collected information from corporate documents (e.g. 8 No. When I started working at Timberland, the overwhelming majority of our boots and shoes were produced in Timberland-owned factories, almost all located in the United States. Even if we assume that most investors care deeply about these issues, it is not clear that their pressure can deliver real social and environmental progress. This challenge was faced by creating opportunities to exchange ideas among employees and discuss indicators. On the one hand, the commitment of the sustainability team to communicate sustainability issues was crucial in spreading awareness within the company. The paper is structured as follows: Section 2 focuses on the literature review and the theoretical framework. The sustainability team aimed to achieve a higher degree of comparability and readability and increase the legitimacy of the document. Gallego-Alvarez, I. and Ortas, E. (2017), Corporate environmental sustainability reporting in the context of national cultures: a quantile regression approach, International Business Review, Vol. However, the shortcomings that characterized stakeholder engagement activities made substantial information asymmetry endure in phase-1. 1-2. The late Donella Meadows, the primary author of The Limits to Growth and a distinguished professor of system dynamics at Dartmouth, analyzed 12 types of intervention that would affect system performance and concluded that parameters are the least powerful. As a result, a lot of the input data is misleading and incomplete. 33-50. (2016), Improving how sustainability reports drive change: a critical discourse analysis, Journal of Cleaner Production, Vol. The technical lens solves problems through science and . a stakeholder theory approach to study the determinants of Non-Financial disclosure in Latin America, Sustainability, Vol. In phase-1, this search for legitimacy was both internal and external. This motivated us to perform the present study and address the following research questions: Which are the main challenges that a firm should face over time when dealing with SR? The person in charge of SR explained: our finance manager usually presents the sustainability report to banks, because, so doing, they evaluate Estra not only on economic profit but also on non-financial performance. They are very likely rewarded with lower costs of capital (as a result of being better managers of risk), and their focus on sustainability can improve margins and enhance brand value. The survey reported a satisfactory response rate, with half of the respondents answering the questionnaire (i.e. 1, pp. 10 No. However, with mounting evidence that climate change is harmful and accelerating, grassroots global movements for actionsuch as the Sunrise Movement and 350.orgare making what the civil rights hero John Lewis called good trouble.. 351-366. Mitchell, M., Curtis, A. and Davidson, P. (2012), Can triple bottom line reporting become a cycle for double loop learning and radical change? 2. Higgins, C., Stubbs, W. and Milne, M. (2018), Is sustainability reporting becoming institutionalised? This lack of standardization and interoperability marks a significant challenge for financial institutions globally, which is having a knock-on effect on the businesses looking for investment. Several meetings, involving different company expertise and the auditing firm, were held taking into consideration Estras ethical code, GRI indicators and the specific aspects to be measured. 6, p. 2477. However, not all the mechanisms adopted were equally effective, even if they all contributed to SR development. The constraint linked to complexity, irreducibility and scalability of CSR strengthened in phase-2, as the mandatory requirement forced Estra to enlarge the socio-cognitive network linked to SR. and Ortas, E. (2017), Innovating corporate accounting and reporting for sustainabilityattributes and challenges, Sustainable Development, Vol. (2017), Sustainability strategy and management control systems in family firms. Therefore, the challenge concerning the standardization of reporting routines vs. the risk of obsolescence clearly emerged in phase-2 and mainly regarded data selection and reliability. 2. Published by Emerald Publishing Limited. This result in part confirms the findings by Adams and McNicholas (2007) and Massa et al. The issue of ensuring internal legitimacy to the sustainability report emerged, as to increase the perception of its usefulness among employees. Individual companies social, environmental, and governance (ESG) performance would improve (because what gets measured gets managed). Reporting is not a proxy for progress. Metrics can and should be improved, and stakeholder pressure will incrementally advance sustainability. In its push for reporting, Sustainability Inc. has focused primarily on publicly traded U.S. and European companies. Siggelkow, N. (2007), Persuasion with case studies, Academy of Management Journal, Vol.
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