A diverse, multi-faceted discipline such as sustainability, can be difficult to measure and compare across distinct categories of products, not to mention companies and industries. With the bar set high and a relatively short historical timeframe from which to draw experience, environmental, social and governance (ESG) reporting is still under development. However, one thing is for sure: integrated reporting is coming soon.
There has been a massive surge in the number of reporting instruments since 2016. KPMG identified in 2017 almost 400 sustainability reporting instruments in 64 countries, compared with 180 instruments in 44 countries in 2013. A whopping 2/3 of those were mandatory and 1/3 voluntary.
Driven by regulatory compliance, risk mitigation and shareholder demands, public companies are adopting new reporting that releases sustainability data annually alongside financial information. Yet, according to Environmental Leader, only 25% of executives are confident that their current reporting meets the information needs of investors and other external stakeholders. How are companies to navigate this environment characterized by disparate reporting requirements, overlap, and ill-defined specifications? Here are some tips to keep in mind:
Go integrated: It’s not just financial anymore
While sustainability reporting may currently draw a different audience than pure financial reporting, there is great synergy between the two. With integrated reporting, the company reports on its value creation as a whole, not just from a dollars-and-cents profitability standpoint. Integrated sustainability and financial reporting paint a larger picture of the company and its value - from community-building and resource-saving to long-term sustainability. These benefits are increasingly understood and valued by shareholders, consumers and the business community. This encourages integrated thinking across the organization and also communicates the true value of the company.
Go digital to get a better handle on your data
Reporting can impose a significant burden on administrative teams in terms of data collection, consolidation and review. Increasingly, companies are moving to digital systems for tracking this information, which eliminates much of the burden. Digital corporate social responsibility (CSR) systems automate the data collection, analysis and reporting processes, putting complete sustainability information at your fingertips. Companies that move to digital platforms not only benefit from labor savings associated with ESG reporting, but also experience additional perks like increased visibility across their organizations and reduced risk.
Get assurance from inside and outside the organization
To ensure the credibility of reporting, companies should have both internal and external processes and resources in place to validate the data in their reports. To avoid problems, the process should be systemic, documented and evidence-based. With so many options on third party assurance, it’s important to do your homework and select credible third-party resources that are well-versed in international regulations.
With only a little of the journey in the rearview mirror, companies that report are already seeing big benefits:
- In one study, as reported by Environmental Leader, 91 percent of respondents felt that the connectivity of financial and non-financial information would help to effectively identify and manage company risks, with 89 percent agreeing it would help present a longer-term view of performance.
- According to the 2017 BDO board Survey, 54 percent of board members say that disclosures regarding sustainability are important to understanding a company’s business and helping investors make informed investment and voting decisions.
- A 2015 report by Oxford University and Arabesque Asset Management based on more than 200 academic studies, industry reports, newspaper articles and books — found that 88 percent of the research reviewed shows “solid ESG practices” at companies lead to better operational performance, and that 80 percent of the studies analyzed showed a company’s stock performance is positively influenced by good sustainability practices.
While it may be some time before we land on agreed-upon, completely harmonized 360 sustainability and financial reporting, companies are wise to begin setting the foundation for their benefit as well as preparing for reporting demands to come.