Sustainability reporting key to good corporate governance

Corporate-sustainability reporting should deliver information in such a way that it provides decision-making value to investors, customers, employees and other relevant groups who have a stake in the company or who are in some ways affected by the company’s actions. This type of reporting should increase the transparency and accountability of companies, and is considered an important way for companies to demonstrate their performance and long-term economic value, to assume corporate responsibility and to contribute to sustainable development.

Jane Diplock, chairwoman of the International Organisation of Securities Commissions, asserted that “how companies report, how they tell us about the risk in their company, both financial and non-financial, is the solution to rebuilding trust”.

Stock exchanges play a unique role in shaping more sustainable capital markets. The exchanges are critical levers for improving the depth, consistency and comparability of corporate disclosure on sustainability performance, including climate-change risks.

Leading exchanges around the world have implemented robust corporate education programmes, established sustainability-themed indices and set minimum standards for sustainability disclosure as a prerequisite for companies to list on those exchanges.

There are currently 180 laws and regulatory standards in 45 countries calling for corporate sustainability reporting. Additionally, institutional investors have increased their focus on the critical role of stock exchanges in creating sustainable capital markets, including supporting mandatory requirements for stock exchanges to promote sustainability disclosure that is consistent and comparable across markets.

Investors and market analysts (including rating agencies) are also demanding disclosure of companies’ sustainability (including environmental, social and governance), impacts and performance.

In Thailand, listed companies are required to demonstrate, in their annual registration statement (Form 56-1) and annual reports, how they apply 15 principles of good corporate governance.

The Securities and Exchange Commission (SEC), in conjunction with the CSR Club (under the Stock Exchange of Thailand), has requirements for listed companies to disclose their CSR (corporate social responsibility) operations on Form 56-1 and their annual reports, or in standalone reports.

Any listed companies planning to issue new securities have to disclose on Form 69-1 whether they have operated on CSR practices regarding stakeholders, the economy, society, and the environment. The disclosure provides key information to investors on which to base their decisions. The regulation became effective on January 1, 2014.

At the international level, many stock markets require that the sustainability reports issued by listed companies have to be assured by the independent auditor.

Last year, 10 sustainability reports issued in the SET were recognised in the Dow Jones Sustainability Indices, which serve as benchmarks for investors who integrate sustainability considerations into their portfolios, and provide an effective engagement platform for companies that want to adopt sustainable best practices.

One factor for a sustainability report to be included in the DJSI is that it is assured by an independent auditor. A good example is Siam Cement Group, which has issued sustainability reports recognised in the DJSI for many years.

Besides DJSI recognition, SCG has received Best Corporate Social Responsibility awards from the SET for many consecutive years. SCG sustainability reports have also been recognised by the Thai SEC, the CSR Club, and the Thai Listed Companies Association. Last year, SCG’s sustainability report complied with the Global Reporting Initiative (GRI) G4 comprehensive option. Only a few companies in Thailand have done this.

GRI is a leading organisation in the sustainability field and works with a global multi-stakeholder network that includes experts who participate in working groups and governance bodies, reporters, and report users. GRI has pioneered and developed a comprehensive sustainability-reporting framework that is widely used around the world, and many countries and regulators recognise the standards issued by GRI.

Last December, the European Union adopted a directive on disclosure of non-financial and diversity information by certain large companies, amending its 2013 accounting directive. Member states now have two years to transpose it into national law, and it is expected that the first company reports will be published in 2018 covering financial year 2017-18.

In addition, a number of multilateral initiatives, led by both international organisations and investors, have emerged in this space – such as the Sustainable Stock Exchanges initiative, the Investor Network on Climate Risk, a project of Ceres, and the sustainable working group of the World Federation of Exchanges. Such initiatives aim to build consensus and lead calls for greater disclosures of sustainability information.

GRI is working with those organisations to encourage the use of informed policies to promote sustainability reporting for companies listing on their exchanges. Such policies can be good for capital markets, good for investors and companies, and, ultimately, good for society as a whole.

Small and medium-sized enterprises may also be required to prepare sustainability reports when they are in the supply chain of listed companies that have complied with GRI standards. However, it will be beneficial for SMEs to prepare and present sustainability reports to ensure their future success.

Get started today for your success tomorrow through sustainability reporting.

Dr Suwatchai Meakhaamnouychai is assurance partner, Deloitte Thailand.