This brief is part of the Insights @ Center for Emerging Markets, a publication focused on cutting edge ideas and advice for global leaders about emerging markets.
By Peter Tashman (University of Massachusetts – Lowell), Valentina Marano (Northeastern University), and Tatiana Kostova (University of South Carolina)
Benefits of Sustainability Reporting
Corporate sustainability reporting has emerged as a global best practice to communicate companies' efforts in the environmental and social arenas. The benefits of sustainability reporting are many, including:
- Increased transparency about the company's social and environmental impacts
- Improved trust with local and global partners
- Increased employees' loyalty
- Improved relationships with regulatory bodies
- Increased consumers' loyalty
Research shows, however, that companies often overstate their positive social and environmental impacts while downplaying negative ones.
This misalignment is particularly problematic for emerging market multinationals, given their already existing “liability of origins,” which cause societal and regulatory stakeholders in more economically advanced markets to closely scrutinize these companies' practices.
For emerging market multinationals, the misalignment between their sustainability “talk” and “walk” often happens because of:
- Weak regulatory environments in their home countries that limit the incentives to engage in sustainability efforts
- Lack of knowledge and experience with corporate sustainability
Aligning Sustainability Walk and Talk
Sustainability reporting that is misaligned with the company's actual impacts in the social and environmental arenas is problematic for a few reasons. First, it erodes trust in the company because it implies a lack of substantive and positive change.
Other negative impacts of overstating positive sustainability impacts or failing to disclose negative ones include:
- The potential for litigation
- Increased regulatory oversight
- Financial penalties
To align their sustainability “walk” and “talk,” emerging-market multinationals may need to quickly learn about the available best practices for doing so. One strategy involves expanding the company's footprint to those markets where sustainability practices are more established.
Research shows that internationalization can expose emerging market multinationals to a variety of economic, civil society, and governmental stakeholders who scrutinize their actions. This helps them make sense of both the potential disconnect between their sustainability disclosures and their actual impacts, and the risks if these discrepancies were to be discovered.
Tashman, P., Marano, V., & Kostova, T. (2019). Walking the walk or talking the talk? Corporate social responsibility decoupling in emerging market multinationals. Journal of International Business Studies, 50(2): 153-171.
If you are interested in learning more about this work, contact Professor Marano.