Welcome to Business Sustainability Reporting & Analysis

We wrote Business Sustainability Reporting & Analysis to emphasize that sustainability reporting is much more than just a few additional disclosures in the traditional financial statements. Instead, sustainability reporting is a new type of reporting that complements traditional financial reporting by enabling a much broader range of business stakeholders to cooperate for their mutual benefit.

The need for sustainability reporting has been amplified by the enormous success of traditional financial reporting. Financial reporting facilitates cooperation between just two sets of business stakeholders: managers and owners. It does so through a singular focus on business financial performance. In doing so, it has facilitated the efficient allocation of capital and resulted in enormous economic growth.

Unfortunately, the singular focus on financial performance has had negative impacts on other stakeholder groups. These impacts include environmental damage, harmful products and services, abusive working conditions, and price fixing. The negative impacts of profit-seeking businesses are nothing new. The prevailing view has historically been that affected stakeholders should develop “rules of the game” that require businesses to operate sustainably. For example, most countries have long had rules banning forced labor, toxic discharges, and anti-competitive behavior.

Rules protecting stakeholders, however, are not static. They are continuously developing as impacts evolve. Developing effective rules requires good information and takes time. Historically, many rules have evolved crisis-by-crisis. We have seen humanitarian crises, environmental crises, and financial crises. As the negative impacts of business continue to evolve, stakeholders are increasingly demanding better information to facilitate the more rapid development of effective rules that guide profit-seeking businesses to operate for the mutual benefit of all stakeholders. Global warming is a prime example. Experts tell us that the costs of global warming are expected to far exceed the benefits from uncontrolled emissions. Yet, these costs mostly manifest as externalities that are not borne by the emitter. In the absence of good information and clear rules, we can’t expect profit-seeking businesses to voluntarily curb their emissions.

Businesses have responded to stakeholder demand for sustainability information through the production of sustainability reports. Currently, the reporting of sustainability-related information is largely voluntary and unregulated. This unregulated reporting has resulted in incomplete and unreliable disclosures that are of limited use to stakeholders, not unlike the financial reports of a century ago. Fortunately, the situation is rapidly improving. Numerous organizations and government agencies are developing comprehensive standards for the preparation of sustainability reports. Regulators are requiring a wide range of businesses to prepare reports in accordance with these standards and to obtain external assurance. Finally, numerous intermediaries are helping stakeholders to interpret and act on the information in the reports.

These developments hold great promise for guiding businesses to act in the mutual best interests of all stakeholders. They also require a whole new ecosystem of intermediaries to help produce and interpret the associated reports. This book introduces students to sustainability reporting and the key players in the sustainability reporting ecosystem.

The book goes beyond simply providing lists of reporting rules and technical protocols. Instead, it also provides readers with a solid grounding in the problems being addressed by sustainability reporting. Foremost are problems in which the individual pursuit of financial performance makes everyone worse off. These problems can be resolved through information sharing and cooperation. In the process, we explain the world’s most pressing environmental and social challenges. We also explain the governance structures that have been developed to oversee large businesses with disparate ownership. Finally, we explain how stakeholders can promote the development of rules and institutions that guide businesses to operate for the common good.

Sustainability reporting plays several important roles, including

1. Informing stakeholders about the environmental, social, and economic impacts of businesses so that stakeholders can promote the development of governance and regulatory structures that guide businesses to act in their mutual best interests.
2. Informing investors about the risks and opportunities associated with emerging environmental, social, and economic issues so that investors can allocate capital more efficiently.
3. Informing managers and directors about the environmental, social, and economic impacts of their businesses so that they can take preemptive action to promote the mutual interests of stakeholders.

These goals are intertwined. Sustainability reports are demanded by and targeted at a broad set of stakeholders. If businesses can engage with these stakeholders on favorable terms, the value of the business will be improved, and the business model will be sustainable. Good information is essential for understanding the impacts of businesses on different stakeholder groups and how to optimize business activities for the long-run benefit of all stakeholders.

This book is designed to serve as a foundation text in the emerging field of business sustainability reporting and analysis. After reading the book, students will have a solid understanding of the key sustainability issues affecting our planet and society. Students will also understand the strengths and weaknesses of current sustainability reporting practices. Finally, they will understand how various stakeholders use the information in sustainability reports to guide their decisions.

TARGET AUDIENCE

The material in this book has been used in introductory-level business sustainability reporting classes at both the undergraduate and the graduate levels. It doesn’t assume any prior college-level work in related areas such as sustainability, accounting, finance, or economics. That said, students with backgrounds in one or more of these areas are more likely to hit the ground running. We have found it helpful to encourage enrollment from students with diverse backgrounds. The perspectives of students from different majors (accounting, public policy, finance, environmental science, etc.), different geographies, and different socioeconomic backgrounds greatly facilitate group learning.

While the material has been used in elective classes, it is also suitable for business programs looking to add a required or core introductory course on sustainability. Just as financial reporting is the language of business, sustainability reporting is the language of sustainability.

Flexibility for Courses of Varying Lengths

We have been asked for suggested class structures based on courses of varying length. Here is a table of suggested course designs.