Collecting ESG data for internal use is invaluable, but developing a strong disclosure approach to validate and share this information with stakeholders will take your sustainability programme to the next level.
There can be an understandable trepidation when it comes to sharing ESG data, especially if you have not yet reached your targets. However, ongoing reporting keeps organisations accountable to its commitments while building trust with key stakeholders. Moreover, as sustainability becomes a bigger priority for consumers, employees and investors, companies will need to have a solid reporting framework to fulfil new regulatory requirements and a growing public appetite for corporate transparency.
Select a reporting framework
With ESG data in hand, it is important to choose a reporting framework that aligns to the company’s stakeholders’ needs. Many companies rely on two well-established sets of standards to measure and report sustainability metrics, the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB).
Though the differences between the two sets of standards are nuanced, companies trying to decide between GRI or SASB should keep their stakeholders in mind.
For private companies primarily concerned with disclosing to customers and employees, the GRI framework is a great fit. The GRI standards are broader in scope and will help build a strong foundation of widely recognised, consistent ESG metrics.
For publicly traded companies, the SASB standards accommodate a broader range of stakeholders. Unlike the GRI framework, SASB focuses on financially material issues that are of interest to investors and shareholders. These metrics provide a view into how a company can continue its operations long-term through risk reduction and responsible resource management.
As sustainability reporting standards and governing bodies change, approaches will inevitably evolve. For example, in recent years investors have become increasingly interested in the Task Force on Climate-Related Financial Disclosures (TCFD), which provides recommendations on the information that companies should disclose to support the assessment and pricing of climate-related risks.
Reference your materiality assessment
Conducting a materiality assessment is critical to identifying and prioritising an organisation’s sustainability focus areas. This essential exercise also allows you to determine which ESG metrics are key. Both GRI and SASB have built-in materiality assessment tools to help this process.
A materiality assessment also confirms the data points that stakeholders will find most beneficial. Some example questions include:
- What will assure investors that your organisation is well-positioned to navigate future climate risks?
- How can you be transparent while protecting privacy with your workforce about diversity, equity and inclusion, safety, and other employee concerns?
- What do customers want to know about the environmental and social impacts of their consumption habits?
The answers to these questions will help shape and focus sustainability reporting and develop standardised KPIs.
Sustainability reporting done right also requires time and resource investments. Given evolving requirements and the increased interest in sustainability performance and metrics, the need for third-party data verification will continue to grow. It is critical to have an unbiased expert outside of your organisation to review your ESG data and confirm that the data collection process is sound and that the data being disclosed is accurate. This lends an additional layer of credibility while providing confidence in your approach.
Unfavourable results
Sustainability reporting is no longer simply an opportunity for organisations to share positive stories about their environmental and community activities. Telling feel-good stories is not a true measure of ESG performance.
You may not always have the most favourable ESG data to disclose. However, once you have set your framework and commitments to reporting against specific KPIs, you must prioritise transparency and not shy away from telling the full story, even when targets have been missed.
Sustainability reporting allows organisations to assess performance, identify areas for improvement, and take decisive remedial action. Without measurement, there is no progress. If your company is not where it wants to be yet, collecting and disclosing ESG data can help set a baseline for future goals and plans.
Even if there is a gap to reach targets, having a defined action plan keeps organisations accountable while driving steady progress. By building trust, communicating ESG data effectively and demonstrating a plan to achieve goals, stakeholders will understand that current disclosures are all part of the sustainability journey and not the final destination.
The future of ESG disclosure
It’s clear that sustainability reporting is not a passing fad, especially with the Securities and Exchange Commission considering a proposal to mandate climate-risk disclosures by public companies. Important also to note the EU taxonomy for sustainable activities, the Sustainable Finance Disclosure Regulation and UN Guiding Principles on Business and Human Rights. Additionally, Europe is considering increased reporting requirements under the Corporate Sustainability Reporting Directive.
As demand for greater transparency into ESG data and sustainability initiatives grows, ESG disclosures will become more pervasive and standardised over time, making it easier for investors, customers, and employees to measure how organisations perform against their peers.
In addition to GRI and SASB, ESG rating agencies are now being used by investors to assess companies in their funds and portfolios. Investors and customers also consider the CDP’s guidelines for climate, water and supply chain. In the future, organisations will be asked to report their ESG data with greater rigour and frequency, and we are already seeing companies integrate this information into their annual reports.
Organisations should be disciplined as they develop their disclosure framework, and take an incremental, phased approach. One common mistake is in assuming that getting off the ground will be a quick process. The reality is that confidence in publishing a sustainability report and comprehensively disclosing against recognised frameworks can often take 3-5 years.
Disclosing ESG data may not always be a comfortable or straightforward process, but it is a critical practice for organisations that want to be successful in a world where stakeholders are invested in building a sustainable future.
This article was previously published on flex.com by Kyra Whitten, Vice President, Sustainability and President, Flex
