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Published: July 29, 2011

 
 

How Mandatory Reporting on Sustainability Pays Off

In discussing the practical implications, the researchers note that reporting can improve communication between the firm and its stakeholders, making the company more transparent and accessible. Earning a reputation for responsible corporate conduct can give firms a competitive advantage in labor, product, and capital markets. In developing nations, establishing social legitimacy can even help firms secure a license to operate.

Sustainability reporting forces companies to manage their corporate affairs effectively in order to avoid the embarrassment of disclosing bad performances to their stakeholders, the authors conclude. As a result, they streamline their operations so that “efficient and prudent use of resources...reduces the likelihood of higher costs in the future through tax mechanisms.” And boards of directors, in turn, function more effectively when they consider a broader set of issues that corporations must address to be sustainable and competitive in the long term.

Bottom Line:
Mandatory reporting on sustainability issues pays off in ways that boost a company’s standing and competitiveness. The disclosure of corporate management practices increases the social responsibility of leaders and enhances their credibility. As companies put more emphasis on sustainable development, they become more ethical in their business practices, with a resulting decline in incidents of bribery and corruption. They also invest more in employee training and benefit from better supervision of senior managers by their board.

 
 
 
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