Environmental and social factors are directly linked to the performance of a business. For instance, an environmental factor such as global warming may have an adverse impact on resources such as fuel, which is critical to the day to day running of business since it may affect the cost of production in a number of ways (Crowther, 2012). Social factors, on the other hand, may include the changes in lifestyles of individuals which may affect the demand for certain goods. Such factors, which were previously not covered in earlier reporting, are now incorporated in the new framework for reporting since they greatly impact the overall performance of any given business. Investors have been wary about the return to their investment due to a lack of a proper framework to guide the decision-making process.
The new approach aims at addressing this by providing support knowledge to long term investors by illustrating to them the repercussions for longer-term decision making. In the past, there had been no clear guidelines for undertaking the decision-making process and as such poor decisions could not be clearly accounted for. There has been a need to report about the day to day governance and running of businesses by the management.
This has been necessitated by stakeholders who would like to get in-depth knowledge of how the business they invested in is run and how this affects its output or performance (Dipiazza & Eccles, 2002). Very few details have been revealed in past reporting about the day to day running of organizations by managers and this makes it difficult to fault find in the event there is a problem or lackluster performance. Past reporting was stringent and rigid.
It was based on specific but limited avenues of reporting. However, the new approach to reporting embraces more avenues of reporting and this would include discovering innovation in corporations reporting processes, both within the organization and outside as well as how they include all aspects of their operational activities.
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