SUSTAINABILITY REPORTING: Staying on Top of New Trends

Staying on top of sustainability reporting trends is challenging, since the field is constantly evolving and new standards and expectations are emerging. The focus on reports gradually shifts from mere operations towards a more life-cycle approach. The growing demands for transparency, mandatory disclosure and detailed reporting on CSR initiatives place reporting on top of the agenda for organizations.

According to a Carrots & Sticks survey, regulators urge companies to disclose ESG (environmental, social and governance) information in their annual reports and a trend towards integrated corporate reports was created. That is, investor-relevant sustainability information is concisely reported alongside financial data, while further information may be shared separately. This is also confirmed by Wim Bartels, member of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures and Global Head of Sustainability Reporting & Assurance at KPMG, who expects fewer stand-alone sustainability reports in the future. Even though the tools used to produce sustainability reports (eg. spreadsheets and databases) are basic compared to those used for reporting on financial measures, the findings of an EY survey support that 65 percent of CFOs are now involved in sustainability in terms of cost reduction and risk management, meaning that the status quo may change. There is an increased interest in the representation of companies’ social and environmental impact in financial terms. Such quantification methodologies will facilitate the integration of sustainability issues in the annual reports.

In fact, hard data (numbers) is the norm for reporting leaders. An increase of inquiries is evident from shareholders and investors about sustainability-related issues and, in order to satisfy their stakeholders, companies even compete to offer more quantifiable and, thus, comparable information. The link created between financial and non-financial information through integrated corporate reports is expected to shed light on company risks that were otherwise hard to identify and to provide a clearer view of performance.

One more trend that simplifies comparison of and access to such data is the digitalization and standardization of sustainability reporting and tagging of information. This technological advancement will eventually lead to increased awareness regarding social and environmental impacts of corporations and will allow stakeholders to make choices that reward responsible corporate behaviour. To this end, effective disclosure of more sustainability-related topics can grant businesses higher sustainability ratings or rankings (e.g.  Dow Jones Sustainability Index) that can greatly affect their reputation.

Speaking of this digital trend, we have to stress the power of social media where many stakeholders go to validate information. More businesses try to exploit this power and global reach to their benefit and increasingly use social media to communicate their CSR activities. Companies that will manage to capitalize on this direct interaction with stakeholders will be able to develop more effective reporting and even strengthen their overall business strategy.

Moreover, the effectiveness of reports can be reinforced through attentive materiality assessment, which helps identify the most important concerns of stakeholders that simultaneously create opportunities and value for the company. Brian Sansoni, VP of sustainability initiatives of the American Cleaning Institute, foresees an increased use of materiality assessments. The findings of such an assessment are of strategic importance as they are used in reporting to win over key stakeholders and create new growth opportunities. Dr. Nelmara Arbex, GRI’s senior advisor for innovation in reporting, claims that reports in the next decade are expected to demonstrate companies’ strategic commitment to tackle the challenges society will be facing.

Furthermore, aiming to enhance the value of such reporting for shareholders, companies need to seek third-party assurance. External assurance adds credibility to the report, which is crucial in sustainability. Major reporting and disclosure organizations and indices, such as GRI and CDP, encourage assurance of sustainability reports, in order for their content to be verified and validated. It is found that only half of sustainability reports have external assurance. Therefore, it is an essential feature for a company to demonstrate leadership. There are two main reasons that render organizations reluctant to seek external assurance; lack of understanding of the importance and benefits of external assurance and cost.

Also, keep in mind that, since reporting of ESG information has become mandatory in the EU, India and China, it is reccomended to be proactive and comply with the regulations before they are put into effect. SustainAbility’s Global Trends and Opportunities 2016 & beyond report assures that even more companies will be obliged to disclose their major environmental and social impacts as part of their annual reporting cycle due to this directive. These changes are due to begin in 2017 and companies meeting certain criteria will be required to report information on their human rights policies, risks management, due diligence and key performance indicators. Finally, greenhouse gas emissions and water usage reporting is becoming more common through the years.

 From a technical aspect, provided that companies mostly follow the GRI framework, we will refer to some changes in the current GRI G4 Guidelines. This October, the GRI G4 Guidelines were transitioned into a set of modular, interrelated GRI Sustainability Reporting Standards, representing global best practice in sustainability reporting and providing the foundation for the future of reporting. Most changes will focus on the structure and format. For organizations already reporting in accordance with G4, impacts on the reporting process should be relatively minor. Improvements aim to increase usability through simplified language and relocation of content. Besides the new modular structure, clarifications on how to use and reference the Standards will be given as well as a clearer distinction between requirements, recommendations and guidance.

As you get more experience in this field, it is important that you keep up with what the leaders do. However, in order to do better than competition, it is critical to be well-informed about issues on the horizon through conversations on blogs and social media. Direct and meaningful insights can also be obtained from experts by attending conferences and webinars.

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