The benchmarks used in evaluating investments' performance are represented by overall indexes like NASDAQ, or industry specific indexes. Business practice has revealed that economic performance is significantly influenced by environmental and social performance. Therefore, it is important that companies include this indicator in their sustainability reports to stakeholders.
This indicator is of great interest to stakeholders like investors, awarding authorities, banks that finance companies in different projects they develop, project developers, and others. This indicator is used in analyzing direct investments. It is of great importance in industries where production costs are quite large. This is the case of the construction industry, the automotive industry, the oil and gas industry, and others.
International organizations that establish standards in environmental sustainability state that companies should assess life cycle costs in order to make their decisions, it seems that the evaluation of production costs tends to be preferred by these companies because they allow them to better determine their performance. In certain industries market participants do not have an accurate perception of production costs. This is because businesses in such industries are affected by significant additional costs.
The benchmark regarding this indicator is represented by statistical measures and by investment and production costs. The advantage of this benchmark is that it is easily available within different countries, allowing investors to make a complex opinion about evaluating their investment. However, there are industries where these costs are fluctuating as a result of environmental factors' influence.
Life cycle cost or full cost
This indicator is of great interest to stakeholders like investors, awarding authorities, project participants, and others. The reason behind using this indicator refers to the fact that the reduction of life cycle costs is significantly influenced by including sustainable development principles in companies' strategy. ISO standards provide indicators that can be compared with these costs reported by companies. The benchmark regarding this indicator is usually represented by statistical measures. Same as in the case of production costs, the benchmarks in different countries can be evaluated.
There are also other indicators that investors are interested in. These indicators are represented by product revenues, improved image of the company and its products and services, product development process, increased market share, credit ratings, and others. These indicators vary in accordance with the characteristics of industries addressed by these companies (Epstein & Roy, 2001).
Specialists in the field consider that sustainability performance reporting has significantly improved as a result of the pressure made by different groups of stakeholders. The number of reporters has significantly increased, especially in France, Japan, and the U.S. Another important aspect that was observed regarding sustainability reporting refers to companies focusing on integrated sustainability reporting, rather than on environmental reporting. This means that companies are more serious and committed towards developing and implementing such practices within their strategy. It also reveals their great interest in the subject. This also means that companies understand the importance of reporting to stakeholders, and not just limiting to developing such practices (Schuermann, 2008).
The volume of information provided by these reports has also increased. This helps companies explain their actions and decisions to their investors, and it also helps other groups of stakeholders understand companies' strategy regarding sustainable development. However, it is important to determine the metrics that should be included in these reports. The financial reporting of sustainable development to stakeholders should include metrics like risk return ratio, investment performance, production costs, additional costs, level of operating costs, product prices, and others. It is recommended that each company establishes the metrics it should report on based on its type of activity and industry. Therefore, it is important that companies focus on determining the indicators that interest investors regarding sustainability performance.
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2. Epstein, M. & Roy, M. (2001). Sustainability in Action: Identifying and Measuring the Key Performance Drivers. Long-Range Planning Journal. Retrieved February 8, 2012.
3. New Metrics to Improve Sustainability Performance (2011). Verdantix, Ltd. Retrieved February 8, 2012.
4. Szekely, F. & Knirsch, M. (2005). Responsible Leadership and Corporate Social Responsibility: Metrics for Sustainable performance. European Management Journal. Retrieved February 8, 2012.