Corporate Sustainability Reporting Theory

TABLE OF CONTENTS TITLE PAGE NUMBER Introduction to corporate sustainability reporting Criticism of traditional financial reporting Theories behind corporate sustainability reporting Cost and benefits of CSR Opinion and conclusion Bibliography Corporate sustainability is a business approach that recognises the importance of corporate growth and profitability, but with that the corporation must also pursue societal goals, specifically those relating to sustainable development — environmental protection, social justice and equity, and economic development. It also formulates strategies to build a company that fosters longevity through transparency and proper employee development. Corporate sustainability has become an economic and strategic imperative

Accounting frameworks such as IFRS allow the preparers of financial statements to use accounting policies that most appropriately reflect the circumstances of their entities. While some degree of flexibility is required to present reliable information for a particular entity, the use of different sets of accounting policies between different entities makes the level of comparability between financial statements difficult. The use of different accounting frameworks (eg, IFRS, US GAAP) by entities operating in different geographic areas also presents similar problems when comparing their financial statements. The problem is being overcome by the increasing use of IFRS and the process of convergence among the main accounting agencies to arrive at a single set of global standards. Accounting requires the use of estimates in the preparation of financial statements where precise amounts cannot be established. Estimates are inherently subjective and, therefore, lack precision as they involve the use of management's forecast to determine the amounts included in the financial

Stakeholders have a reciprocal relationship and interaction with a firm in the sense that they contribute to the firm’s value creation, and the firm’s performance affects their well-being. Freeman’s (1984) stakeholder theory and Jensen’s (2001) “enlightened value maximization” theory recognize maximization of sustainable performance and the long-term value of the firm as the criteria for balancing interests of all stakeholders. In the context of shareholder wealth maximization and stakeholder welfare maximization, non-financial ESG sustainability activities create both synergies and conflicts. Stakeholder theory suggests that sustainability activities and performance enhance the long-term value of the firm by fulfilling the firm’s social responsibilities, meeting their environmental obligation, and improving their reputation. However, these sustainability activities may require considerable resource allocation that could conflict with shareholder wealth maximization objectives and force management to solely invest in sustainability initiatives that would result in long-term financial