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How Mandatory Reporting on Sustainability Pays Off - Harvard B Review

How Mandatory Reporting on Sustainability Pays Off - Harvard B Review

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Published by: Eric Britton (World Streets) on Aug 08, 2011
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How Mandatory Reporting on Sustainability Pays Off 
Forced sensitivity to environmental and ethical issues improves a
company’s standing and competitiveness.
Ioannis Ioannou (London Business School) and George Serafeim (Harvard BusinessSchool)
Harvard Business School Working Paper No. 11-100
Date Published:
March 2011Because of growing concerns over corporate corruption and the impact of business on society andthe environment, some companies have released sustainability reports touting their achievements inthese areas and their ability to self-regulate. According to the Global Reporting Initiative, the groupbehind the most widely used standards for sustainability disclosures, the number of firms releasingreports that follow its guidelines grew from 44 in 2000 to 1,973 in 2010. Increasingly, though,national governments and stock exchanges have been adopting laws and regulations that makesustainability reporting mandatory for companies.Although some business leaders see these requirements as onerous, this paper identifies importantbenefits. Mandatory reporting on environmental practices, proponents say, forces companies toadopt more ethical and effective practices in general, including in sensitive areas such as thosewhere bribery and corruption could take place. In addition, the researchers found that sustainabilityreporting efforts tended to lead companies to train employees more effectively, to put in place betterpractices for board supervision, and to gain credibility in the marketplace. Far from holdingcompanies back, the researchers argue, the reporting requirements help make companies morecompetitive.To measure the impact of mandatory reporting, the researchers built a model that analyzed datafrom 1995 to 2008. They collected country-level information on laws and regulations that mandateda base level of reporting. Among the nations that had passed such laws were Australia, Canada,Denmark, France, Germany, Italy, Malaysia, the Netherlands, Sweden, and the United Kingdom.During the period covered in the study, several countries adopted new laws mandating one aspect oranother of sustainability reporting, which the researchers incorporated while controlling for thespecific impact of each requirement. For example, the Canadian Environmental Protection Act of 1999 requires companies to disclose particular pollutant emissions; in Denmark, the 1995 GreenAccounts law mandates that more than 3,000 firms detail their management of environmentalissues; and in the U.S., the Sarbanes-Oxley Act of 2002 imposes a number of reportingrequirements concerning corporate governance.

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