Sustainability Disclosure in Corporate Reporting: Economic Impact

This report examines the significance of sustainability disclosure in corporate reporting, highlighting its increasing importance for organizations. It discusses the nature of non-financial information, referencing IFRS, USGAAP, UNPRI, and JSE guidelines, and analyzes the economic impacts of disclosure on share trading, climate change mitigation, and corporate social responsibility. The report also addresses challenges such as the costs associated with CSR activities and the importance of ethical policies to combat bribery and corruption. Ultimately, it emphasizes that sustainability reporting enhances a company's reputation, attracts investment, and fosters better relationships with stakeholders, leading to improved economic performance and long-term benefits. Desklib provides this student contributed assignment and many similar resources for students.

Running head: SUSTAINABILITY DISCLOSURE IN CORPORATE REPORTING
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Sustainability Disclosure in Corporate Reporting
Your Name
Institutional Affiliation

SUSTAINABILITY DISCLOSURE IN CORPORATE REPORTING
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Sustainability Disclosure in Corporate Reporting
The importance of sustainability reporting cannot be underestimated for any organization
in the modern age. This is happening because of the increasing trend for companies to improve
business reporting through provision of non-financial information in their annual reports. Most
organizations today are faced with both Obligatory as well as voluntary reporting regulations
within the countries they operate and therefore the need for a sustainable way of disclosure in
reporting. Sustainability reporting can be defined as the openness and the mutual concern with
which a company shares its information regarding social and environmental issues in the area
they operate on. (Herbohn, Walker & Loo, 2014). According to IRFS, sustainability reporting
helps in ensuring there is a standard way of reporting and thus avoiding plurality and hence
compelling companies to behave in a responsible and ethical manner and therefore have a care
for the environment and social impacts of the company on the physical areas they operate on.
Aims and Objectives of the Report
Aims
This research report aims to determine the effects of sustainability disclosure on the
economic performance of a company.
Objectives
 To discuss the nature of sustainability disclosure in accounting.
 To identify and elaborate the consequences of sustainability disclosure on the company
and the economy of a country.
 To explain how sustainability disclosure should be reported in accounting as required by
accounting standards such as USGAAP, UNPRI and JSE.

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 To find the correlation between sustainability disclosure in corporate reporting and
economic performance of the reporting entity.
The significance of the Study
This research will be helpful to a number of stakeholders. At the forefront, it would help
companies to see the importance of sustainability disclosure in corporate reporting and the
consequences it has on the overall economy of the country. Secondly, the research will also help
the members of the public to identify themselves with companies that promote good social and
environmental practices as evidenced by their good corporate responsibility reports. Members of
the public usually prefer to deal with companies they trust and therefore disclosure of non-
financial information is key to the company's present and future performance. (Hedberg & von
Malmborg, 2003). In essence, a company that adheres to sustainability disclosure reporting is
doing a lot in building its future because the members of the public will have more trust in it.
Thirdly it helps the governments of the day to come up with proper policies and regulations on
how companies should operate in their respective countries (Gadau, 2016). Finally, it helps to
account standard setters in coming up with proper regulation and policies on how reporting
should be done by companies as well as academia who are intrigued by sustainability disclosure
and would wish to perform further research on the subject.
Nature of Nonfinancial Information in Sustainability Reporting
According to IFRS guidelines, all large corporations should disclose information on its
policies, the risks and results regarding a number of aspects of its operations including the
environmental, social and sustainability issues related to employees, the company’s actions
towards respect for human rights, issues to do with corruption and bribery and the diversity of

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the director’s directors. The information to be disclosed should, therefore, follow a certain
guideline to avoid a plurality of information among different firms operating in the same industry
(Gazdar,2007). Various international and local accounting standards such as the United States
Generally Accepted Accounting Principles (USGAAP), and International Financial Reporting
Standards (IFRS) and other institutions including the United Nations Principles for Responsible
Investment (UNPRI) and Johannesburg Stock Exchange (IFRS) have provided the correct
formats which are recommended for companies to prepare non-financial reporting to be included
in annual reports. These bodies have been aiming at enhancing uniformity and facilitate easy of
understandability from the side of the stakeholders and other users of financial information so
that they can make informed decisions regarding the company. Furthermore, having a standard
format of non-financial reporting ensures that the administrative costs attached to the creation of
such sustainability reports are kept at a minimum level at all times ("Providing clarity on the
benefits of non-financial reporting", 2018).
The US Generally Accepted Accounting Principles View on Non-Financial Reporting
In conformity with other internal accounting bodies such as IFRS, USGAAP have backed
up the practice of non-financial reporting by corporates as a measure of improving the quality of
the financial reports presented through the annual reports. USGAAP has encouraged
corporations to improve both their financial and non-financial accountability through disclosure
of environmental, social and risk practices that are undertaken by the company ("The
Comprehensive Guide to Understanding GAAP | Accounting.com", 2018). This requirement
goes hand in hand with reporting of corporate social responsibilities that are being undertaken by
a company during a certain financial period. The importance of non-financial reporting

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according to USGAAP is that sustainability and CSR activities usually have an overall effect on
the financial image of the company and so the need for disclosure.
Economic Impacts of Non-Financial Reporting
Disclosure of non-financial information of any company has many economic benefits.
One of the key benefits is that the disclosure usually leads to an increase in the volume of shares
being traded for the company at the stock exchange. This is because such a practice encourages
more people who are willing to sell their shares and those willing to buy, to have some direct
link to the affairs of the company because of the non-financial information being disclosed.
Research has shown that companies whose sustainability disclosure is higher, usually tend to
have more shares traded and therefore the share price will rise up steadily over time.
("Sustainability Reporting | UPS Sustainability", 2018) Conversely, if the sustainability
disclosure is negative, then the share volume traded at the stock exchange drops drastically over
time because no one would wish to be associated with a company that does not address its social
and environmental obligations in the correct way (Gnanaweera & Kunori, 2018).
. Companies may, therefore, withhold crucial non-financial information if it feels that the
disclosure will negatively affect its financial performance by negatively altering the perception
of members of the public.
Importance of Non-Financial Information Reporting to the Economy
Companies that address the environmental aspects through its sustainability disclosure
will in the long run help in controlling adverse climate change and consequently help in lowering
global warming. This can be achieved by adopting environment-friendly methods and practices
that do not affect the environment negatively (Hedberg, & von Malmborg, 2003). Reduction in

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global warming will in effect enable economic activities that depend largely on weather and
climate change to be carried out without any hitches (team, 2018). Such economic activities
include farming which is practised by most members of the public in most countries. The
members of the public earn an income through such activities and therefore uplifting their living
standards.
Non-financial reporting practices such as reporting of corporate social responsibility
activities undertaken by the firm have a positive impact on the economy of the country as well as
the performance of a company. This is because when a company engages in corporate
responsibility, it reputation improves and this translates into a better relationship between the
company and members of the public, government officials, Bankers, and investors (Jones, S., &
Ratnatunga, 2012). As a result, the company will be able to access capital easily because bankers
will gladly lend money to the company and the investors will commit their money comfortably
in the company.
An attraction of additional workforce to the company is another internal benefit of non-
financial information sharing to a company. Most people will be attracted and will be eager to
work for the company because of its good reputation. Employees who are employed at the same
company will have good working conditions because the company reports well on its employee
relation activities and safety policies it has put in place (Songini, & Pistoni,2015; Mio & Fasan,
2013). Staff turnover will be low and the productivity of each employee higher since most of
them will stick to the company and achieve greater experience in their dockets. As a result, the
company will perform better and its profitability increase with time and all this is attributed to
sustainability disclosure by the company.

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Challenges of Non-Financial Information Reporting
The negative aspect of non-financial reporting are costs attached to the practice of
corporate social responsibilities. CSR activities of a company usually have an effect of making
the organization incur additional costs especially when it focuses on making charitable
contributions that are extensive, promoting plans in the community such as assisting in the
construction of community projects (Hąbek,2017; Herbohn, Walker & Loo, 2014). The
additional costs may put the company at an economic disadvantage as compared to other
companies who do not engage themselves in such corporate responsibility activities.
Bribery and corruption are one of the most destructive vices of any company the world
over. Through sustainability disclosure, this vice can be reduced drastically if not eliminated by
companies which put in place policies on ethical principles which should be followed by the
company. This will reduce the material risk associated with the vices of bribery and corruption
and save funds that will otherwise have been lost. The economic impact of bribery and
corruption is like cancer eating away a country and the solution to the vice is by nabbing it in the
bud by having policies to prevent such an occurrence.
How Sustainability Disclosure Should Be Reported
The major source of nonfinancial information in the annual report of any corporate
organization is the sustainability disclosure reports. Most of the information found in these
sources are linked to corporate responsibility policy of the company and are mostly not sufficient
for investors to make decisions based on them. ("Sustainability Reporting", 2018). Therefore, the
non-financial information should be integrated into the financial information of the company in
such a way that it is comparable to other companies which compete with each other. Key

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performance indicators are important while reporting on non-financial information in order to
assess the sustainability disclosure in a company.
Importance of Sustainability Reporting for Companies
The importance of sustainability reporting cannot be underestimated. Such a practice
brings a number of positive implications for the company. This can be evidenced by several
studies that have been done worldwide where it has been found that organizations with good
sustainability disclosures perform well in terms of equity because their stock prices increase in
value and the volume of shares traded also rise (Cronjé & Buys, 2015; "2017 in Review: Tools
for Non-financial Reporting", 2018). This is because investors will be willing to invest in
companies that have good sustainability disclosures and reporting because of the goodwill the
company enjoys in the market. Capital will be available to expand the operations of the company
and lead to more profits for the shareholders in the long run (Gnanaweera, & Kunori,2018).
Bankers will also be willing to lend to any organization that has a good sustainability disclosure
because of the goodwill the company has in the market which translates to better financial
performance (Jones & Ratnatunga, 2012). Most members of the public will be willing to do
business with the company and this translates to better performance of the organization
financially in the long run. The organization will be able to repay back its loans if the financial
performance is better. Therefore, an organization that complies with the sustainability disclosure
will, in the long run, have greater economic benefits as compared to the company that does not
share any of it non-financial information ("The Value of Sustainability reporting", 2018).

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Conclusion
To sum up, the relationship between sustainability disclosure and its economic
consequences on a company is becoming increasingly important. Firms, therefore, must have a
standard way of reporting non-financial information in companies all over the world. The impact
of such disclosures is clearly evident in most companies because it will improve the economic
well-being of the company in the long run. In the short term, costs associated with carrying out
corporate responsibility can seem much for an organization but the benefits that will accrue as a
result of such disclosures will far surpass the costs.

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