Historically, the most important factor defining business activities have been focused on the economic analysis of investments. However, in the past few decades businesses have begun to incorporate social and environmental aspects into their reporting and decision making. While the inclusion of additional variables into their bottom-line analysis are necessary, the underlying need is still driven by economics. This integrated method of understanding financial and non-financial elements for a business is critical to long term success.
The move towards a triple bottom line concept that incorporates economic, social, and environmental performance factors was an important step in moving away from destructive profit-only driven business activities (Eccles and Krzus 2015, 6). This change in thinking has been prolific over the past two decades with 92% of the world’s largest 250 companies now releasing reports that include sustainability and corporate responsibility (BSD Consulting 2017, 2). Between 2013 and 2016, the number of reporting instruments used more than doubled (KPMG International 2016, 9). This adoption and growth of new ways for measuring business performance indicates a better understanding of the components that drive business success. By understanding and identifying more risks and opportunities, businesses can gain insight into the areas they should invest resources in for continued business success.
While this change in thinking has resulted in improved transparency and inclusion of non-financial components, the underlying driver continues to be economics. A business can ensure continued success and future value creation by identifying and mitigating future risks (Eccles and Krzus 2015, 6). By including non-financial elements in their reporting and planning, the risks from public perception, potential regulations, climate changes, and technological changes can begin to be understood and mitigated to ensure continued business success and profit. This forward-thinking planning allows these businesses to outperform conventional businesses especially during periods of fast-paced change and market disruption (Cher 2020). Environmental and integrated reporting allows businesses to better understand the non-financial elements that can eventually impact their financial bottom line. By better understanding their direct financial elements with these indirect non-financial elements, and how their businesses impact and are impacted by them, businesses can ensure continued financial success for the future.
Author: Logan Callen
BSD Consulting. 2017. The Sustainability Reporter: A Deep Dive into the Challenges and Benefits of New Corporate Reporting Processes. New York: Thomson-Reuters. http://www.bsdconsulting.com/bsd-files/news-downloadable-pdfs/Reporting_Process_White_Paper_FINAL_07.03.2017.pdf.
Cher, Audrey. 2020. “Sustainable Funds Are Outperforming Their Peers During the Pandemic, BNP Paribas Says.” CNBC. Access September 16, 2020. https://www.cnbc.com/2020/06/02/esg-funds-outperforming-peers-during-coronavirus-pandemic-bnp-paribas.html.
Eccles, Robert G., and Michael P. Krzus. 2015. The Integrated Reporting Movement: Meaning Momentum, Motives, and Materiality. New York: Wiley.
KPMG International. 2016. Carrots & Sticks: Global Trends in Sustainability Reporting Regulation and Policy. New York: KPMG International. https://assets.kpmg.com/content/dam/kpmg/pdf/2016/05/carrots-and-sticks-may-2016.pdf.