The Rise and Consequences of Corporate Sustainability Reporting

Ioannis  Ioannou; George  Serafeim

Article | European Business Review | September – October 2011

The Rise and Consequences of Corporate Sustainability Reporting

by Ioannis Ioannou and George Serafeim

Abstract

For many decades the cornerstone of corporate reporting has been financial information that is presented in a company's annual, semi-annual, and quarterly reports. These comprehensive financial reports—required by law for public companies in most countries worldwide—have provided shareholders as well as other interested stakeholders with rather elaborate information on the company's operations and strategic activities during the preceding fiscal year. However, in the last two decades and in addition to these financial reports, a growing number of companies across sectors and geographies are communicating to their stakeholders their initiatives and performance within the environmental, social, and governance (ESG) domains. Disclosure of non-financial reports has generated heated debates about whether such information is useful for stakeholders, whether disclosure along ESG dimensions should be mandated by regulation, and if yes, what form such regulation should take. The underlying debate, of course, relates to the broader issue of the role of the business organization within civil society and whether it may contribute toward the world's acute problems via some form of corporate social responsibility (CSR) through a sustainable business model that also generates superior financial performance.

Keywords: Governing Rules, Regulations, and Reforms; Annual Reports; Operations; Strategy; Business and Shareholder Relations; Business and Stakeholder Relations; Performance; Geography; Civil Society or Community; Business Model; Corporate Social Responsibility and Impact; Corporate Disclosure;

Format: Print

Read Now

Citation:

Ioannou, Ioannis, and George Serafeim. "The Rise and Consequences of Corporate Sustainability Reporting." European Business Review (September–October 2011).

While there has been significant progress in the measurement of an organization’s environmental and social performance, metrics to evaluate the impact of products once they come to market lag far behind. In this paper we provide a framework for systematic measurement of product impact in monetary terms and delve into the rationale for the framework’s seven elements. We then apply the whole framework to two competitor companies and elements of the framework across companies in different sectors of the economy to show the feasibility of measuring product impact and the actionability of the framework. Not only does this application demonstrate feasibility, it also indicates the value of impact-weighted financial statement analysis. We see our results as a first step, rather than a definitive answer, towards more systematic measurement of product impact in monetary terms that can then be reflected in financial statements with the purpose of creating impact-weighted financial accounts.

In the fall of 2018, Hiro Mizuno, the Chief Investment Officer (CIO) of GPIF, the Japanese Government Pension Fund, was reflecting on his efforts to integrate Environmental, Social and Governance (ESG) issues into every aspect of GPIF’s portfolio. His efforts ranged from constructing new stock market indices based on ESG data, changing the compensation and incentives of active investment managers and passive funds, pushing for more corporate sustainability reporting and integrated reporting, and establishing collaborations with other asset owners to drive systems level change. He was convinced that the only way to meet his responsibilities to his beneficiaries was to improve the performance of the entire economy through a focus on improving corporate governance, increasing inclusion in the workplace and gender diversity and reducing environmental damage and progress towards tackling climate change. The early results from his efforts were promising, but was there more he could do?

Case | HBS Case Collection | January 2020

SK Group: Social Progress Credits

George Serafeim, Ethan Rouen and David Freiberg

SK Group was one of the largest companies South Korea. A family-run conglomerate consisting of around 120 subsidiaries and employing more than 100,000, SK was tightly knit into the fabric of Korean society. SK viewed their future success as contingent upon the strength of the societal ecosystem in which they operated. As such, the company had a long history of philanthropic giving. However, SK questioned if their donations were producing the desired impact, as many of the societal issues they, and the rest of Korean society, sought to address were not improving. In order to create a new system of generating social value, SK established the Social Progress Credit (SPC) initiative. The SPC initiative designed a measurement methodology that was used to measure the social value created by social enterprises – firms whose mission was to generate social value in conjunction with generating sustainable financial returns. Additionally, the SPC initiative provided monetary incentives to social enterprises in proportion to the social value generated by participating social enterprises. Looking to the future, SK envisioned a marketplace in which SPC’s were traded among investors and credits were priced by the market. Initial results of the SPC initiative were positive, showing positive growth in social value created and financial stability of social enterprises. How then could SK convince other public and private organizations to adopt the SPC model and promote social value? Moreover, how could SK convince mainstream capital markets to make investments into society enterprises on the basis of the social value creation? More importantly, was this attempt to enrich and grow the ecosystem of social value creation making a difference?

Keywords: Impact; impact investing; impact measurement; social value; social development; conglomerates; measurement of purpose; ESG; ESG (environmental, social, governance) performance; capital markets; cooperation; innovation; Environmental Impact; collaboration; Social Enterprise; Social and Collaborative Networks; Social Issues; Measurement and Metrics; Value Creation; Environmental Sustainability; Employment; Accounting; Energy Industry; Telecommunications Industry; Chemical Industry; South Korea;

Citation:

Serafeim, George, Ethan Rouen, and David Freiberg. "SK Group: Social Progress Credits." Harvard Business School Case 120-071, January 2020. View Details

Cite View Details Educators

Faculty & Research

The Rise and Consequences of Corporate Sustainability Reporting

Abstract

Citation:

About the Author

More from the Author