Sustainability or ESG (environmental, social and governance) accounts have become the mainstay of corporate reporting. Public and private sector leaders recognise the importance of providing a complete and connected picture of how their organisation creates value for stakeholders and positively impacts people’s lives.
Investors are equally demanding non-financial information and disclosures to understand how non-financial concerns or sustainability/ESG matters impact short-, medium- and long-term financial viability. Not-for-profit organisations are equally embracing sustainability reporting to communicate impact to donors to sustain funding for their activities.
Therefore, organisations need to recognise the common pitfalls of sustainability reporting, avoid them and leverage these reports for their benefit with their stakeholders. The sustainability landscape has evolved in the past few years, and some common principles and concepts are shared by the sustainability reporting frameworks and standards countries and regulators apply. The pitfalls could be legion and here are a few.
Organisations must ensure that their sustainability reports are prepared using a framework or standard. Organisations that do not apply a reporting framework or standard fail to demonstrate accountability and transparency with their stakeholders because there is no basis for them to be held accountable. Similar to how financial statements apply reporting frameworks such as IFRS or IPSAS, sustainability reporting should be prepared using a reporting standard such as GRI or IFRS S1 and IFRS S2.
Another risk not easily recognised when preparing sustainability reports that organisations should avoid is doing so in silos that are disconnected and inconsistent with other reports or information about the very organisations. For example, organisations need to ensure the information in their sustainability reports is aligned and connected with the information in their financial statements.
In extreme cases, such misalignment could result in significant risks of greenwashing by organisations as information included in their reports need to be reflected or accounted for in their financial statements.
Also, organisations must ensure that sustainability reporting is a year-round exercise and not a year-end exercise. Too often, organisations only begin to prepare their sustainability reports at the end of the financial year, which does not enable them to provide a comprehensive view of their performance on sustainability.
Akinyemi Awodumila is a Partner at Deloitte East Africa. He is an author who writes and speaks on corporate reporting
