An essential attribute of good corporate reporting is bespoke disclosures. Therefore, a good sustainability report should contain information that enables stakeholders and users to understand the context of the document.
The ‘basis of preparation’ information is one critical piece that helps organisations to achieve this objective. It contains details on the organisation-specific policies, standards, frameworks and judgments applied in preparing the sustainability report.
Similar to preparing financial statements, where the basis of preparation provides information on the accounting policy choices, judgments and estimates, sustainability reports should also include such information.
Just as financial statements accounting policies cover significant balance sheets and profit or loss amounts, in the context of a sustainability report, the basis of preparation would cover the significant or material issues reported on.
Examples of material topics in a sustainability report requiring the basis of preparation information include topics such as the measurement of greenhouse gas emissions, energy consumption, people and culture, health and safety, and supply chain.
Others are social and environmental impact, economic value added, governance effectiveness, stakeholder engagement and feedback, and brand index among others.
Readers can understand how the data reported has been measured. The basis of preparation could also inform used within the report. As sustainability reporting standards and frameworks become interoperable, it is pertinent that organisations explain the bespoke manner in which they have applied different elements of multiple reporting frameworks and standards.
When provided, users can understand how the organisation has measured and developed the data and KPIs. It clearly defines the issues, their scope, the unit of measurement and the methodology applied.
For the organisations that already do, the information is not always comprehensive. Reporting on non-financial KPIs can be subjective; therefore, organisations must provide users with details or disclosures. It will make sustainability reports easy to understand, increase comparability, and build stakeholder trust.
Awodumila is a Partner at Deloitte East Africa. He is an author who writes and speaks widely on corporate reporting topics
