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How do companies report their sustainability efforts?
Businesses and organisations around the world are increasingly embracing sustainability goals and taking action to reduce their carbon footprint. However, a deluge of reporting options means this comes with issues.
To make sure their customers, stakeholders and industries know what positive steps are taken, many companies choose to produce an annual sustainability or ESG (Environmental, Social and Governance) report, which shares their performance and impacts on a wide range of environmental topics, such as greenhouse gas (GHG) emissions, supply chain sustainability and resource consumption.
Right now, this kind of sustainability reporting is largely voluntary, although there are some specific mandatory requirements around the world, often usually applied only to state-owned companies and large corporations.
For example, the European Commission’s Directive on Disclosure of Non-Financial and Diversity Information requires certain large companies to disclose environmental, social and employee-related matters. In North Americathe US, meanwhile, the US Securities and Exchange Commission (SEC) states that all listed companies should disclose their environmental compliance expenses.
However, the vast majority of companies and organisations around the world are able to choose if, and how, they report their sustainability performance. Many do produce reports because consumers and investors expect companies to demonstrate how they’re being responsible, and because doing so can give them a competitive advantage within their industries.
According to the International Centre for Trade and Sustainable Development, more than 90% of the world’s top companies published a sustainability report in 2020.
Different reporting frameworks
But unlike traditional financial accounting, sustainability reporting doesn’t yet operate with the same transparency and consistency, and there are more that 600 different sustainability standards, industry initiatives, frameworks, and guidelines around the world. Companies are free to report using whichever method best fits their needs.
Some of the most popular reporting frameworks include:
Global Reporting Initiative (GRI)
The GRI Standards provide three sets (economic, environmental, and social) of 34 topic-specific standards for companies to report on.
Sustainability Accounting Standards Board (SASB)
SASB groups activities into five ‘sustainability dimensions’: the environment, human capital, social capital, business model and innovation, as well as and leadership and governance. It, and provides metrics for companies to report on their performance in each area.
Taskforce on Climate-Related Financial Disclosures (TCFD)
The TCFD provides 11 disclosure recommendations across the areas of governance, strategy, risk management and targets, helping companies provide information about their climate-related risk exposure to investors, lenders and insurance underwriters.
Carbon Disclosure Pproject (CDP)
Focused on GHG (greenhouse gas) emissions, the CDP reporting framework scores companies on four criteria (disclosure, awareness, management and leadership). It, and recognises top performers in the Carbon Disclosure Leadership Index (CDLI).
United Nations Sustainable Development Goals (SDGs)
The UN SDGs are a set of 17 interconnected global goals designed to act as a blueprint for a more sustainable future for all. Many companies choose to use these goals to shape their sustainability reporting.
A global standard for sustainability reporting
With so many different reporting frameworks out there, it’s very difficult to make meaningful and consistent comparisons between organisations. More are being introduced all the time. In the UK, for example, new Sustainability Disclosure Requirements (SDRs) have been proposed by HM Treasury, the Department for Business and the Department for Work and Pensions.
In Europe, the Corporate Sustainability Reporting Directive (CSRD) will come into force in 2024.
But things could be set to change. In response to an overwhelming demand for consistent global sustainability standards, the International Sustainability Standards Board (ISSB) was established at COP26 in November 2021.
The ISSB – which will have a presence in countries around the world – is now working on a set of comprehensive global sustainability disclosures, which will be developed with the likes of SASB, GRI and CDP in mind. The group hopes to have a draft framework in place by the end of 2022.
Check it out
For more information on these issues:
- International Centre for Trade and Sustainable Development (ICTSD), an independent non-profit organisation, Jan 2022 article on sustainability reporting among the world’s top companies.
- Global Reporting Initiative and University of Stellenbosch Business School 2020 Carrots & Sticks report Sustainability Reporting Policy: Global trends in disclosure as the ESG agenda goes mainstream.
- The International Sustainability Standards Board (ISSB) was set up in 2021 to meet demand from international investors for high quality, transparent, reliable and comparable climate, environmental, social and governance (ESG) reporting by companies.
- The Global Reporting Initiative is an independent, international organisation set up to help businesses and others report impacts on planet and people by providing a common language for communication.
- World Economic Forum 2022 article on Why Sustainability Reporting is Vital to Tackling Climate Change (World Economic Forum).
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