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Sustainability reporting is considered a company’s “green and social report card”, which reflects how the company’s operations impact its overall performance through environmental, social and governance practices – creating value beyond the bottom line. The book chapter by Dr Prema Sivanandan discussed the distinctive link between sustainability reporting and ESG to comprehend how companies evaluate and communicate their social performance and financial performance to their stakeholders. The book chapter also reviewed the presumably simple yet complex convergence of sustainability reporting and ESG that makes it possible for companies to pursue sustainable growth and financial success while still doing good. 

The chapter deliberates that sustainability has gained prominence because of key factors such as increased awareness of environmental, social and governance (ESG) practices among investors and other stakeholders, mandatory sustainability disclosures from local governments and regulators, and businesses’ tireless pursuit of profit, favourable reputation and long-term value creation. ESG, a subset of sustainability, evaluates a company's environmental, social and governance performance. The notion of sustainability, therefore, has emerged as one of the driving forces that spur companies to combine environmental, social and governance practices in the pursuit of financial growth and success. Sustainability in its measurable form, i.e., sustainability reporting, is used as a yardstick by managers, regulators, and other stakeholders to assess the level of companies’ environmental, social and governance performance through sustainable practices. It is, thus, not surprising that the importance of sustainability in business has progressed to the point where companies, governments and regulators have made significant and proactive measures to incorporate sustainability reporting into their national and international agendas.

For example, Malaysia’s Ministry of Investment, Trade and Industry (MITI) has taken a pivotal role in promoting sustainability by aiming to reduce greenhouse gasses (GHGs) by 45% in 2030 and achieve net-zero emissions by 2050 through The National Industry Environmental, Social and Governance (i-ESG) Framework. The i-ESG Framework aims to accelerate the transition towards sustainable practices among manufacturing companies with four main pillars comprising standards, financing, capacity building and market mechanisms (Ministry of Investment, Trade and Industry). Globally speaking, the Global Reporting Initiative (GRI) published the updated GRI Standards 2023, which provides companies with a point of reference for creating standalone sustainability/non-financial reports or integrated ESG reports. However, economic disruptions, natural disasters such as floods, landslides and earthquakes, and political upheavals, create obstacles that discourage companies from conducting their sustainable projects and disclosing their sustainable practices fairly and equitably.

Corporate governance refers to the mechanism and system of internal controls implemented in companies to ensure ethical and responsible management of business operations for the maximization of shareholders’ wealth. Good corporate governance promotes transparency, accountability and ethical practices through the implementation of sound corporate governance mechanisms such as executive and non-executive remuneration, board diversity, audit committee and independent non-executive directors, to ensure companies are managed in a fair and ethical manner. Sustainability reporting, which is an integral element of financial reporting, acts as a stakeholder engagement tool that helps to validate a company’s corporate ethical behaviour to its shareholders and other stakeholders. Therefore, in the modern corporate context, the connection between corporate governance, ESG and sustainable reporting presents managers and business leaders with a dynamic opportunity to attain financial success “with a heart”. Nevertheless, companies must chart a difficult course in the rapidly evolving field of corporate governance that is often marked by changing stakeholder demands, economic uncertainties, technological advancements, environmental challenges, and local and global socio-economic issues, as they strive to navigate the complex but presumably lucrative practice of sustainability reporting albeit voluntarily or mandatorily. Good corporate governance and sustainable reporting, thus, emerge as fundamental prerequisites for companies that aspire to attain long-term value creation and sustainable growth during an era of increasing environmental awareness and shifting societal expectations.

To put it simply, sustainability reporting and ESG practices can continue to add value and guide companies that intend to expand their operations, protect the environment and advocate social issues through effective corporate governance, which will in due course lead to long-term sustainability for the present and future generations. Through ESG metrics, sustainability reporting can drive companies to create value for their shareholders and other key stakeholders in the form of financial gains and social gains. Thus, the unwavering commitment and altruistic behaviour of managers are vital to facilitating long-term value creation and sustainable growth through sustainability reporting. Nevertheless, it is crucial to also remember that not all sustainable practices carried out by companies are with the intention of doing good as managers may resort to “greenwashing” to hide behind the companies’ sustainable practices to cover up their wrongdoings and present a virtuous image to shareholders and other stakeholders. It is, thus, imperative for existing and potential investors to bear this in mind during the decision-making process in the spirit of responsible and sustainable investing.

This article has been adapted from the original story found in Sivanandan, P. (2024), "Sustainability Reporting, Value Creation and Effective Corporate Governance: A Managerial Perspective", Ali, M., Choi-Meng, L., Puah, C.-H., Raza, S.A. and Sivanandan, P. (Ed.) Strategic Financial Management, Emerald Publishing Limited, Leeds, pp. 1-12.  

Dr. Premagowrie Sivanandan
������Ƶ Business School
@email