Mandatory sustainability reporting came into force in Australia from 1 January 2025, with associated assurance requirements*.
For many organisations, understanding what is really required to ensure compliance is their main focus as these reporting requirements start to affect them.
For others, not caught by mandatory reporting requirements, there are some who will report voluntarily, others who will report specific matters requested by their customers or suppliers, and others still who see sustainability reporting purely as a compliance cost to be avoided or minimised where possible.
Here, we consider the business case for sustainability reporting: for those organisations wondering how to turn compliance into value; for those looking to report voluntarily and needing Board support, and for those who wonder whether there is any reason to report at all.
1. Increased revenue
There is a significant amount of research which shows that consumers are willing to pay more for sustainable products and services, and sustainability reporting offers a way for organisations to demonstrate their credentials. This is why sustainable products and services achieve a compound annual growth rate almost double that of non-sustainable competitors, and why organisations with solid ‘ESG’ ratings have outperformed revenue growth against their peers.
2. Access to government grants
The Federal and State governments in Australia have a large number of grant programs on offer. There are a number of grant programs associated with sustainability and addressing climate change. There are opportunities for organisations reporting on climate-related risks and opportunities to identify actions which they can take to mitigate those risks or maximise those opportunities where those actions may be supported through government grants.
3. Improved share price
Studies, including those specifically looking at the ASX, show that outperformance in environmental, social and governance (ESG) matters is associated with a 2 – 7 per cent annual shareholder return difference. Sustainability reporting is a key mechanism for organisations to demonstrate this outperformance.
Similarly, improvements in ESG scores are associated with an increase in an organisation’s EV/EBITDA multiple. Sustainability reporting can be leveraged to improve ESG scores from ESG-rating providers.
4. Talent attraction and retention
In a competitive job market, organisations looking to attract and retain talent need to stand out. Employees increasingly factor sustainability into their decisions: nearly 40 per cent select one job over another because of an organisation’s sustainability practices, and 70 per cent of employees note that an organisation’s sustainability initiatives impact their decision to stay. This is why more than 60 per cent of business leaders see improved employee attraction and retention as one of the key value creation benefits from sustainability activities.
Sustainability reporting provides organisations with a pathway to communicate with current and prospective employees and capitalise on this sentiment.
5. Enhanced brand reputation
Announcements of environmental targets are associated with a significant improvement in media coverage and sustainability more broadly is associated with improved customer loyalty. These benefits can augment the other factors discussed in this article, and can be accessed through adopting sustainability reporting.
6. Reduced costs
Contrary to the perception that sustainability reporting is a compliance cost for organisations, it can result in a reduction of costs across the organisation. Fifty per cent of business leaders see increasing efficiencies and reducing costs as a key area of value from sustainability, and sustainability reporting assists organisations with identifying where those risks and opportunities are, which can be leveraged to gain those efficiencies and cost reductions. Investing in sustainability reporting is seen as similar to other forms of investment: a short-term cost with outsized longer-term returns.
7. Access to capital
Organisations with higher ESG scores have better access to and lower costs of capital. Green and sustainable finance is also available for organisations, with these attracting lower interest rates than conventional forms of financing. In some instances, these need to be used for sustainability-linked projects, whereas in other instances they are linked to the organisation’s sustainability-related metrics.
Sustainability reporting can be leveraged to improve ESG scores from ESG-rating providers, or to identify areas where green and sustainable finance can be obtained to invest in the organisation’s sustainable growth.
8. Supply chain resilience
With global markets still recovering from post-COVID shocks to supply chains, addressing supply chain resilience is a critical area for many organisations. Sustainability is inherently linked to resilience, and seen as key to supply chain resilience more specifically. Sustainability reporting can be used to identify risks to the organisation’s supply chain or opportunities for improving resilience.
9. Cross-functional collaboration
Cross-functional collaboration is central to organisational efficiency and growth, and sustainability reporting results in increased cross-functional collaboration, with 44 per cent of business leaders indicating this results in better shared understanding and value creation opportunities.
10. Adapting to a changing climate
Climate change will have a significant impact on Australian organisations, with everything from the energy sector, to tourism, to education affected. Sustainability reporting gives organisations an opportunity to consider what this means for them: what risks and opportunities they face, how they can mitigate the former and maximise the latter. Sustainability reporting is a pivotal step to future-proofing the organisation for the changes we know are coming.
The business case for sustainability reporting is clear: it is an area of vast, untapped potential value for many organisations. The cost of reporting is dwarfed by the potential value which can be obtained. Investment in sustainability reporting will set organisations up to derive the most value from it, while reducing risks the organisation faces.
This is an area which is new and emerging where specialist support can really maximise the opportunities it presents, and Grant Thornton has specialists which can assist through advisory, due diligence, reporting or assurance services.
Learn more about how our ESG, sustainability and climate reporting services can help you
*Associated assurance requirements
