Sustainable Business Development Sustainability Performance

Sustainable Business Development

Sustainability Performance Reporting

The Introduction section of the paper discusses important issues regarding sustainability performance reporting. The paper continues with the Sustainability Performance Reporting that focuses on discussing some of the most important financial metrics that companies use their sustainability performance reports to stakeholders. The Conclusions section summarizes important aspects regarding the subject of the Sustainability Performance Reporting paper.

In their efforts to increase their market share and create competitive advantage companies must expand their strategy in order to include sustainable business development practices. There are several objectives that these companies expect to reach when intensifying their efforts regarding sustainable development. Some of them are obligated by laws and regulations to do so. This usually takes place in very polluting industries. Other companies are trying to increase investor capital. Therefore, they orient towards developing environmentally sustainable strategies that attract a large number of important investors. These investors want to see their money spent on activities that support environmental protection. This is because they want to improve their image to the public by associating it with green activities.

Such practices are also addressed by companies determined by their customers to increase their efforts in supporting the environment. As a result, they focus on improving their product development process and on assessing environmental factors when deciding to build production facilities. They also focus on discovering innovative environment-friendly materials used in their production process.

Sustainability Performance Reporting

It is important that companies that develop sustainability practices present their reports to different groups of stakeholders. The most important types of stakeholders that are interested in the progress made by these companies and their results in this field are represented by: investors, customers, and governments. Investors are interested in this because they want to know how their money is spent. In other words, they want to make sure that their money is efficiently spent on green activities they can associate their image with.

In addition to this, governments are also interested in sustainability performance reporting. This is because they establish different sets of regulations on environmental protection and want to ensure that companies comply with these regulations. Therefore, such reports help them in their control of such activities developed by companies (Szekely & Knirsch, 2005). Customers are also interested in these reports. They allow them to determine whether the company they are interested in meets their standards on environmental sustainability.

In this case, financial reporting is very important to stakeholders. There are several types of metrics used in financial sustainability reporting (Verdantix, 2011). The most important metrics are represented by: risk return ratio, investment performance, production costs, additional costs, level of operating costs, product prices, and others.

Risk return ratio

This financial indicator can be applied to private investors, institutional investors, and asset managers. It is suitable for direct and indirect investments. The importance of this indicator relies on the fact that investors are interested in the risk return ratio of the amounts of money they invest in different businesses (Lowe & Ponce, 2008). This indicator depends on several factors, like attitude towards risk, the investment strategy, and the period of time that investors establish when making an investment. The investment strategy can be growth or value oriented.

In most cases, investors try to identify investments with higher return at the same risk level, or investments with lower levels of risk at the same return. In the real estate industry, in the case of property investments it has been observed that investors tend to orient towards sustainable investments with risk return ratios that are similar to those of conventional investments.

Investment performance

This indicator can be reported to private investors, institutional investors, investment advisors, banks, fund managers, rating agencies, and others. The reason behind including this financial metric in sustainability reports to stakeholders relies on the fact that investors want to evaluate the economic success of their investment. Therefore, they need this indicator in order to measure the performance of their investment so that they can make better decisions regarding the size and type of their future investments in the company or business in case.

In order to better evaluate the performance of investments, the value of this indicator is usually compared to the value of other basic indexes. Investment performance or total return of investment reveals the cash flow determined by an investment towards the investor. However, it is important to take into consideration the fact that this indicator is used in measuring the profitability of the investment, and not its size.

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.

Production costs

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).

Conclusions

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).