Society

How to carry out proper sustainability reporting

energy-clean

Summary

  • Disclosure of a company's status will also result in a better valuation of the company and better returns due to the competitive advantage associated with the sustainability.
  • In recent years investors and consumers have become more interested in sustainable companies with current data showing that 62 per cent of consumers in the region want to buy from sustainable companies.

We have all heard the saying, “What gets measured gets done.” This also applies to corporate sustainability reporting, where companies measure and communicatie their economic, social and environmental footprint to stakeholders.

Disclosure of a company's status will also result in a better valuation of the company and better returns due to the competitive advantage associated with the sustainability embedding.

In recent years investors and consumers have become more interested in sustainable companies with current data showing that 62 per cent of consumers in the region want to buy from sustainable companies by 2023.

Clearly, consumers and investors are coercing companies towards sustainability, and are genuinely punishing the laggards using their wallet power.

Companies are required to strengthen their brands and seek the ‘social licence to operate’ and sustainability reporting is an excellent way of heading to this achievement.

Companies that have been presenting their sustainability reports over the years have reaped from this benefit as the ways to measure social and environmental impact become more rigorous, accurate and widely accepted.

There is no doubt that sustainability reporting will lead to a competitive advantage for individual companies who are likely to be rewarded with lower costs of capital, and their focus on sustainability can improve margins and enhance brand value.

Based on my assessment, there has been a lot of greenwashing regarding sustainability reporting in the continent. The effect of these is that sustainability efforts have not made much difference both for companies and societies.

There is a clear need for companies to rethink their sustainability strategies as well as their reporting mechanisms. When it comes to sustainability strategy- it is not about doing sustainability for the sake of feeling good; it is about doing good by doing good business.

Companies can only achieve this by embedding sustainability in the business model, which is not an art. It is a science that will need an expert to guide the journey that many corporations take for granted.

When it comes to reporting, which is the end of pipe activity, the process suffers from genuine problems. One of the challenges is the lack of assurance of the reports, unlike the financial reporting, which follows agreed-upon standards, and external audits ensure compliance.

Companies will need to ensure that their sustainability reports are assured if they are serious about their sustainability impacts.

Sustainability reporting is about comparing the targets vs the achievements made by the corporate. In this case, companies will need know-how to help them develop relevant targets and mechanisms of achieving those targets. Unfortunately, companies’ targets are more based on their capabilities or aspirations as opposed to science-based and objective targets.

There is a need to ensure comparability within the reports and within the industry, which has been a challenge. Companies need to consider reporting standards such as the global reporting initiative(GRI) standards for sustainability reporting.

This will help compare the performance of a single company from year to year because of consistency in methodology or decisions to use the same metrics or standards to measure the same thing over the years.

Consideration for the rating of sustainability matters is another option for companies. It is, however important that management and users of sustainability information be aware of the methodologies that raters use to ensure that the information provided by such rating agencies is reliable.

This will avoid situations like those faced by both Volkswagen and boohoo, the UK fast-fashion retailer. The two got high marks from ESG ratings firms before their respective scandals came to light (VW’s deception regarding diesel car emissions and boohoo’s exploitation of factory workers).

Adopting a sustainability report is a daunting task for companies. It should be built on a foundation of governance and a culture that understands how to create the business models and strategies needed to drive long-term viability. The challenge for companies is where to begin.

One approach is to “just do it.” which will mean an initiative to publish a sustainability report at the end of the next reporting cycle. Another option is for a company to develop a prototype report focused on critical concepts such as governance, stakeholder engagement, materiality, strategy, risks, and opportunities.

Whichever approach your company decides, my advice is that management should take the necessary steps to evolve their sustainability reporting to effectively respond to the increasing investor and societal expectations by using expert advice.