To survive and grow in an increasingly competitive and accountable business environment, companies are required to report not only on their financial performance, but also their non-financial performance.
Sustainability has three dimensions: environmental, economic and social which are all inter-linked. While there are different avenues to demonstrate a commitment to sustainable practices, one of the more common ways is with reporting.
There are various sustainability reporting standards and indicators. Kenya has a number of initiatives made up of mandatory requirements, voluntary guidance and initiatives put in place by the Government, the Nairobi Securities Exchange and market regulators. These include the revised Capital Markets Authority (CMA) Code of Corporate of Governance gazetted in March 2016. Internationally, reporting guidelines include, among others, the United Nations Global Compact Communication on Progress (COP) and the Global Reporting Initiative (GRI), which gives guidance on what and how to report.
According to GRI, Sustainability Reporting is an overview of a company’s economic, environmental and social impacts, caused by its everyday operations. This kind of reporting can help companies measure, understand and communicate their economic, environmental, social and governance performance, and then set goals, and manage change more effectively.
In recent years, sustainability reporting, also known as triple bottom line reporting, has become a very important part of Integrated Reporting, which combines financial and non-financial information. The CMA Code of Corporate Governance aligns local standards to global best practice to promote institutional strengthening for listed companies. CMA adopts an “Apply or Explain” approach whereby company boards are required to “fully disclose any non-compliance with the code to relevant stakeholders, including the CMA, with a firm commitment to move towards full compliance.”
However, a recent online research by KPMG (April 2017) found that out of 65 listed companies surveyed, only 29 were found to have published their environmental, social, governance policies and implementation thereof in their annual reports and websites.
The focus for many companies in Kenya tends to be on Corporate Social Responsibility (CSR) reporting. This means that the more challenging aspects of sustainability are neglected. In today’s business environment, it is not enough to simply make claims about your level of sustainability. As the saying goes, ‘You can’t manage what you can’t measure’. The value of sustainability reporting is that it ensures companies are transparent about the risks and opportunities they face.
Sustainability Reporting is a useful risk management tool, it helps better decision-making, generates savings as well as increases the level of trust that stakeholders have in a company. The benefits also include improved reputation and increased innovation.
Sustainability reporting is also important because poor disclosure can lead to a decline in investments for a country. Kenyan companies should therefore move from low-level compliance and basic CSR reporting to comprehensive reporting on sustainability performance.