Could Your Dealership Benefit from Sustainability Reporting?
With a growing focus on the environmental impact of their everyday activities, businesses in a wide range of industries are adopting the practice of sustainability reporting. This includes automobile dealerships, which can potentially leave a heavy environmental footprint.
According to the Governance & Accountability Institute – a research firm that specializes in environmental, social and governance issues – more than four out of five S&P 500 companies issued sustainability reports in 2015.
What is sustainability reporting?
Sustainability reporting is defined by the Global Reporting Initiative (GRI) as “the practice of measuring, disclosing, and being accountable to internal and external stakeholders for organizational performance toward the goal of sustainable development.”
The report provides details about the sustainable business practices of a company and the environmental, social and governance impacts of its activities. These include efforts to replace fossil fuels with renewable energy sources; the overall use of natural resources by the business; the size of the business’s carbon footprint; and any workplace, health and safety risks present in the business’s operations.
According to the GRI, this type of report should provide information on the performance of an organization in a “balanced and reasonable” fashion. This includes both positive and negative contributions to sustainability by the business.
What are the benefits?
Currently, creating such a report is not mandatory for U.S. businesses, though the Securities and Exchange Commission requires public companies to include sustainability-related disclosures in financial reports. But dealerships may realize a number of benefits by adopting this practice, such as:
Enhanced reputation among customers. Many car buyers today want to purchase vehicles from dealerships with a demonstrated commitment to environmental responsibility. Sustainability reporting can give you a competitive edge in this area, possibly increasing your sales.
Improved employee morale. Similarly, many employees want to work for businesses that are environmentally responsible. Creating a sustainability report will keep your employees informed about your dealership’s efforts in this area, thus giving them a greater sense of pride about working for you and possibly increasing employee retention.
Higher dealership profits. Tracking your sustainability efforts can help you identify new ways to reduce energy consumption and wasteful practices while also boosting operational efficiency. This, in turn, may improve your dealership’s bottom line.
Easier access to capital. Research has indicated that businesses ranked highly for sustainability have a lower Kaplan-Zingales score than low-sustainability businesses. This is a relative measure of reliance on external financing – a lower score indicates that there are fewer capital constraints on a business.
A sustainability report can be especially effective when combined with financial information to create an integrated report. This report can be included with a loan application package to demonstrate to potential lenders that a dealership has adopted responsible business practices. And this may help secure loan approval.
Uniform structure and framework
To maximize the positive impact from your sustainability reports, you should follow a uniform structure. This will allow all of your stakeholders – including lenders, investors, analysts, shareholders and employees – to quickly and easily review and assess your reports.
One such structure is the GRI Sustainability Reporting Framework, which has been adopted by organizations worldwide. According to the GRI, reports prepared according to this framework can be used to:
- Benchmark your dealership’s sustainability performance with respect to laws, norms, codes, standards and voluntary initiatives;
- Demonstrate how your dealership influences and is influenced by expectations about sustainable development; and
- Compare the sustainability performance of your dealership both internally and with other dealerships.
To ensure the quality of the information, the framework contains guidelines for how the content should be reported. The guidelines consist of reporting principles, reporting guidance and standard disclosures.
Environmental risk management
Given the increased emphasis placed on sustainability today, you should consider the potential benefits of sustainability reporting for your dealership. By regularly drafting these reports, you can better manage your dealership’s environmental and social impacts while reducing risks that could negatively impact your business.
Sidebar: GM program recognizes green dealerships
General Motors has launched a program designed to encourage dealerships to adopt voluntary sustainability efforts while building a network for dealerships to share sustainability best practices. So far, more than 400 dealerships have signed up to participate in GM’s Green Dealer Program.
This program is part of GM’s efforts companywide to reduce its environmental footprint and make its supply chain more environmentally friendly. Participating dealers have a proven track record of sustainability in such areas as renewable energy use, water conservation, recycling, energy reduction and community outreach with regard to sustainability and conservation.
The Green Dealer Program originated with an Arkansas dealer who wanted to share ideas with his peers for how sustainability practices could help reduce a dealership’s carbon footprint and lower operating costs.
Among the practices implemented by participating dealerships are using waste oil to heat the facility, installing natural skylights in the shop area to reduce electricity use, and installing LED lighting on the store’s exterior and in the parking lot.
Dealer Insights - January/February 2017