As environmental, social and governance issues move front of mind, sustainability reporting is growing in importance. In a 2021 PwC survey, 91% of business leaders said that they believe their company has a responsibility to act on ESG issues. This focus on ESG is driving the inclusion of sustainability performance in investment advisers’ and asset managers’ due diligence.
As a result, sustainability reporting is fast becoming an expectation, even where it isn’t an obligation mandated by regulation or legislation. A “sea change in the way investors evaluate companies” means that sustainability reports are increasingly used to assess a business’s investability, as well as its desirability as a supplier, partner or employer.
But creating these reports isn’t always straightforward. As a Harvard Business Review article notes:
“The challenge for companies wishing to attract these investors is that there is currently no agreed-upon way of measuring a firm’s “externalities”—the positive and negative effects of its products and services on society.”
Without this single framework, how should businesses go about creating compliant and meaningful sustainability reports?
What is a sustainability report?
First, let’s explore what a sustainability report is.
A sustainability report is a statement outlining how a business will make its operations more sustainable, as well as how close it is to meeting key objectives. It sets out an organisation’s ESG goals, highlighting the action needed to meet targets relating to environmental, social, and ethical issues.
Sustainability reporting is considered a defining benchmark of ESG. It’s a transparent means of detailing a business’ environmental and social responsibility. And as we’ve noted above, these are two attributes that are rapidly becoming prerequisites of securing shareholder funding and customer advocacy.
Your sustainability report’s aims and benefits aren’t only external, though; it is also an effective way to identify the ESG risks and opportunities you face, enabling your business to implement changes that respond to changing environmental and social best practices.
Is sustainability reporting mandatory?
Who has to report on sustainability?
In the UK, although plans to make financial services firms carry out more stringent environmental reporting were allegedly dropped from the 2022 Queen’s Speech, it’s likely that we will see increased expectation and regulation around sustainability reporting in future.
The TCFD (Task Force on Climate-related Financial Disclosure) has published recommendations on climate-related financial disclosures which, although not mandatory, are increasingly seen as a benchmark for financial reporting.
In the EU, the Sustainable Finance Disclosure Regulation (SFDR), which came into effect in March 2021, requires EU fund providers, and those doing business in the EU, to disclose their ESG considerations to potential investors.
And a proposal for a Corporate Sustainability Reporting Directive is open for consultation until August 2022. Under the proposals – described as a ‘game-changer’ for sustainability reporting – sustainability due diligence will become mandatory for certain very large EU and non-EU companies.
Even without mandated reporting, we can see a clear trend toward companies being expected to report on their sustainability performance. Voluntary global ESG disclosure standards for investment products were published by the CFA Institute, the global association of investment professionals, in November 2021, and BlackRock CEO Larry Fink focused on the power of capitalism to deliver on sustainability goals in his annual letter to investors.
Publishing your sustainability performance is increasingly becoming expected and routine.
What should you include in a sustainability report?
Once you have a good understanding of what a sustainability report is and why sustainability reporting is becoming a growing imperative for businesses, you turn to your own reporting.
How do you prepare a sustainability report, and what should you include?
One of the challenges with sustainability reporting – more on which below – is that there is no single accepted framework for reports. But, as reporting becomes more commonplace, some best practice standards and benchmarks are developing.
A good sustainability report may be more wide-reaching than you imagine; because ESG and sustainability themselves are big – and evolving – topics, a sustainability report covers a surprisingly large number of areas. What should you include in your sustainability report?
- A vision statement. This should set out your corporate stall on ESG; what are your beliefs on sustainability, and how do you think your organisation can contribute to a greener future?
- Key issues to address. What have you identified as key action points for your business to tackle? What are the essential steps that will move you closer to your vision? These might include issues like a more sustainable supply chain, reductions in waste or a commitment to using more sustainable materials.
- Current sustainability performance. Where are you now; a transparent assessment of your state of play that sets the baseline for improvements you aim to make.
- Goals and objectives. This is key: defining the goals and objectives that will help you move forward in your ESG strategy. This again will help to put achievements into context later in your report, and in future reporting.
- A clear sustainability strategy; outlining how you will achieve the goals you have set. What steps will you take, by when and what will the implications of these actions be. This is the real “meat” of your report, where you set out your strategy for the coming year and beyond.
- Clear performance indicators that measure your progress and quantify the impact of your actions.
- Information on governance and accountability. Detailing who is responsible for achieving your ESG strategy, and the governance framework you have in place to ensure it delivers on its aims.
- CEO statement: a nice way to round off your report, to stress accountability in your performance and strategy, and to circle back to your vision statement, marrying your aims with tangible action from a visible face of the business.
You can read a more detailed exploration of the elements you should include in your sustainability reports in our blog, 8 things to include in your next sustainability report.
The challenges of sustainability reporting
Knowing what to include in your report isn’t the whole story, though. Sustainability reporting has historically proven challenging for a number of reasons.
While investors and customers may increasingly value ESG credentials, and use them to support their decisions, as we saw earlier, “there is currently no agreed-upon way of measuring” this.
This lack of consistency makes it difficult to compare or assess organisations’ ESG and sustainability reporting. Some bodies are starting to tackle this; the TCFD (Task Force on Climate-related Financial Disclosure), as we mentioned above, and the United Nations with their Sustainable Development Goals (SDGs), for instance. Businesses can look to the TCFD guidelines and SDGs as a start point for their own reporting, helping to ensure a degree of consistency and comparability.
The role of the board and leaders
There are many ways the board and senior leadership can drive ESG progress, and sustainability reporting is a key part of that. As Harvard Business Review notes, corporate leaders “play a vital role in speeding the pace of change”. One way this can manifest is by putting their corporate ESG standards “into practice in their external reporting”.
Create sustainability reports that reflect your vision and achieve your goals
Sustainability reporting is a relatively new responsibility for organisations, and there are challenges to creating meaningful reports. Hopefully, this paper has given you an idea of some of the items to include, some of the obstacles you may face, and some of the benefits of consistent, comprehensive reporting.
Working with a team that has experience of producing sustainability reports can make all the difference when it comes to your reporting. At Perivan, we are experienced in helping organisations in all sectors to publish their sustainability reports; contact us to find out how we could help you.