The Value of Sustainability Reporting (Beyond Compliance)

In recent months, the Omnibus proposal has reignited debates about the value of sustainability reporting. Although the European Commission aims to increase the efficiency of sustainability reporting and simplify due diligence to support responsible business practices¹, the package has created doubts around ESG disclosures: By delaying the implementation of the CSRD and CSDDD until 2028 and reducing the scope of companies that must file sustainability reports under the CSRD², the proposal has prompted scepticism in some corporate circles, with firms questioning whether the benefits of sustainability reporting justify its costs. However, this reaction overlooks years of academic and corporate research that highlight the benefits and the strategic potential of sustainability reporting. Especially when implemented with proper care and expertise, sustainability reports can be an important tool to increase firm valuation, attract investors, reduce risks, and lead to process efficiency and employee  retention. 

The impact of sustainability reporting on valuation and capital access 

One of the central benefits of sustainability reporting is enhanced transparency. The accountability and traceability of information achieved through ESG disclosures has been proven to be extremely valuable to companies. Research has consistently shown that sustainability reports reduce information asymmetry between managers and investors, which improves the perceived credibility of a company. This is essential to investors when valuing companies and can lead to a higher market valuation. For instance, studies in Finland³, South Africa⁴, the UK⁵, and a global sample of 47 developing and developed countries⁶, all report that improved sustainability disclosures correlate with higher firm value. Similarly, the mitigation of information asymmetry is an important determining factor for the cost of capital: studies conducted in Australia⁷ and the United States⁸ found that sustainability disclosures also lead to a reduction in the cost of capital. Therefore, firms that report high-quality sustainability information are more likely to access capital at favourable rates, which enhances their financial resilience. 
Furthermore, a study of the 500 largest European firms showed that sustainability reporting provides value-relevant content to existing and potential investors and therefore has a positive effect on share prices⁹. While there have been contradictory studies that show higher environmental disclosures leading to lower share prices¹⁰, the overwhelming majority of sources indicate the benefits of sustainability reporting for investors. Especially in recent years, investors have begun to view sustainability issues as financially material: sustainability risks and opportunities are seen as direct financial risks and opportunities. Therefore, high-quality, meaningful and comparable reporting attracts responsible investment, addresses investor concerns, and enables better-informed dialogue and decision-making for investors^11-12. This coincides with the existing research on stakeholder trust and corporate reputation: transparent ESG reports lead to better stakeholder relations by improving the reputation and enhancing the credibility of companies^12-16. 

Operational and strategic benefits 

Beyond financial benefits, sustainability reporting also offers operational and strategic advantages. Double materiality assessments (DMAs) are becoming an essential tool for companies to identify which sustainability aspects are both financially and societally material or immaterial^11-13,17. Through DMAs, companies can capitalise on opportunities and improve their risk management by anticipating problems earlier and preparing appropriate actions¹⁴. Moreover, effective ESG disclosures require companies to reorganise internally—by upskilling staff, increasing boardroom involvement, investing in data infrastructure, building relationships throughout the value chain, and integrating and collaborating cross-functionally¹². These structural transformations, while resource-intensive initially, can significantly improve operational efficiencies. Studies and surveys have confirmed this by determining a direct link between ESG reporting and higher corporate efficiency as well as cost and waste reduction^13-14,18. 

The importance of quality of disclosures 

It is, however, important to recognise that these benefits are not automatic. The effectiveness of sustainability reporting depends largely on the quality and integrity of the disclosures. Superficial ESG reports rarely enhance the value of companies and can even undermine stakeholder trust and be perceived as greenwashing. Integrating sustainability reporting into a firm’s business practices requires significant change, cross-departmental alignment, and ongoing training. If companies do not address these internal dynamics, they may struggle to realise the full potential of ESG disclosures. 

Employee attraction, retention, and engagement 

Another area where ESG reporting can add value is talent attraction and retention. Many executives view this as one of the central benefits of sustainability disclosures¹³. Companies with authentic commitments to sustainability practices are becoming increasingly attractive to purpose-driven employees. Research shows that ESG leaders have higher employee satisfaction and staff motivation, lower absenteeism, and improved retention rates^19-22. While it is important not to conflate ESG reporting with the internal culture of companies, the act of disclosing sustainability practices can reinforce a firm’s mission and values, and signal to existing or potential employees that their employer is ethically and socially responsible. 

Leveraging sustainability reporting as a strategic advantage 

In conclusion, sustainability reporting is far more than a compliance obligation and should be used as an important strategic tool: If implemented correctly, sustainability reports can increase firm value, lower the cost of capital, identify risks and opportunities, improve internal processes, and attract employees. Although recent policy delays and the ensuing public discourse have raised concerns about its value, the benefits of sustainability reporting are well-documented and far-reaching. For companies navigating an increasingly complex business environment, investing in high-quality ESG disclosures offers a pathway not only to regulatory alignment, but also to competitive advantage. 

 References 

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