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The Rise and Consequences of Corporate Sustainability Reporting

September 28, 2011 • Corporate Governance, Finance & Economics, Social Impact, SUSTAINABILITY & ETHICS

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By Ioannis Ioannou and George Serafeim

In the last two decades a growing number of companies across sectors and geographies are communicating to their stakeholders their initiatives and performance within the environmental, social and governance (ESG) domains.

For many decades the cornerstone of corporate reporting has been financial information that is presented in a company’s annual, semi-annual and quarterly reports. These comprehensive financial reports — required by law for public companies in most countries worldwide — have provided shareholders as well as other interested stakeholders with rather elaborate information on the company’s operations and strategic activities during the preceding fiscal year. Financial reports, which typically include the balance sheet, the income and cash flow statements, the statement of retained earnings, and other notes on the firm’s financial position, also incorporate statements from the CEO, as well as statements referring to significant corporate events and accounting principles.

However, in the last two decades and in addition to these financial reports, a growing number of companies across sectors and geographies are communicating to their stakeholders their initiatives and performance within the environmental, social and governance (ESG) domains. Indicatively, as of July 2011, there were over 33,000 such reports publicly available on “Corporate Register”, a database that archives such non-financial reports. Disclosure of non-financial reports has also generated heated debates about whether such information is useful for stakeholders, whether disclosure along ESG dimensions should be mandated by regulation, and if yes, what form such regulation should take. The underlying debate, of course, relates to the broader issue of the role of the business organization within civil society and whether it may contribute towards the world’s acute problems via some form of corporate social responsibility (CSR) through a sustainable business model that also generates superior financial performance.




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