5 Sustainability Reporting Essentials for 2024
As stakeholder expectations for sustainability reporting evolve and mature, companies need to proactively improve their processes to keep up, or they could put ratings, compliance, and even valuation at risk.
Once upon a time, the storytelling of a company’s good works counted as sustainability reporting. Those early days are long gone as the practice continues to attract new audiences with growing expectations for higher-quality ESG data and aligned financial reporting. Today, sustainability reporting requires research-based targets and data that can stand up to investor-grade rigor even as new expectations and ESG regulations layer on additional complexities all the time.
It’s an ever-shifting landscape prompting new questions and concerns from corporate leaders. While some are pondering issues such as whether to include the term ‘ESG’ in the sustainability report title or if reporting frameworks are still relevant to ESG ratings, a new slew of even more complicated questions also needs to be on leaders’ radars. For example, executives should be asking themselves about emerging topics like the relevance of the EU Green Claims Directive and if the US Supreme Court decision on equal opportunities should drive any changes in diversity reporting.
Stay ahead of evolving reporting expectations
There are sure to be even more questions to consider in the months ahead. A range of factors, including industry, geographic footprint, and the maturity of engagement with ESG topics, will influence the right answers for each unique organization. Following these five best practices can help companies keep their sustainability reporting efforts aligned with and even a step ahead of ongoing changes.
- Conduct an ESG reporting landscape analysis annually
In the sustainability arena, a lot can and does change in a 12-month period. The only constant is that the stakes keep getting higher. Right now, the regulatory environment is extremely active in both the United States and the European Union. Global frameworks that were stalwarts for years are shifting and merging, and country adoption changes are soon to follow.
While building or reviewing a reporting strategy against a moving target is never easy, it is increasingly essential. An annual review that includes peer analysis helps companies understand how adoption trends are progressing. Ideally, most companies should be isolating a set of eight to 12 comparable and aspirational peers and conducting a careful review of their reports and ESG disclosures. The analysis can help shed light on reporting framework adoption, topics, KPIs, and targets and how each area is evolving. Depending on industry, footprint, and stakeholder pressure, additional planning may be needed to meet upcoming regulations, newly introduced measures from raters/rankers, framework updates, or certain ESG disclosures based on peer reporting.
Putting in the effort to take this annual pulse check of the reporting environment is always worth it and will provide strong insights to shape reporting strategy and report development today and in the future.
- Align across all public disclosures with rigor
Regulators in many countries are looking for sustainability reports to align with financial reporting. For years, the US Securities and Exchange Commission (SEC) has actively looked for alignment between formal public disclosure and corporate sustainability reports.
One key to ensuring greater alignment between sustainability reports and all other corporate communications is to involve a wider team of people in report development. Investor relations, accounting, finance, controls, human resources, communications, and legal should all have seats at the table. It may also be appropriate to engage professionals from IT, cybersecurity, supply chain and procurement, operations, and facilities to weigh in on the discussions from time to time. Drawing together a cross-functional group that includes multiple areas of expertise will strengthen the sustainability report content while also ensuring it meets legal and regulatory requirements.
Another strong action to add to your development process is to cross-reference reports before finalization. This quick measure should ensure that risks, structure, process, procedure, policy, and metrics are aligned across all public disclosures, with special attention to regulatory submissions to governments.
- Substantiate the ESG data
As companies move toward investor-grade reporting, building controls for mapping ESG data collection is critical. And not just climate data; some global ESG reporting requirements are progressing to data assurance for all ESG data, and this will likely become the expectation of more and more stakeholders.
Ideally, the data controls process will be virtually identical to the financial controls process. This includes finding sources, understanding ESG reporting frequency, identifying data owners, and determining data collected by software. Companies also need to proactively identify areas of vulnerability and explore solutions for addressing the weak spots.
In the United States in 2023, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) adapted the leading internal controls framework for financial reporting for ESG disclosures, providing guidance on improving the quality of sustainability data.
Capturing processes, identifying process risks, and mapping toward improvement takes time. Companies that are not yet discussing controls for ESG data internally should start the conversation as soon as possible. Be sure to consider future ESG reporting requirements to allow time to set efficient, risk-free processes and to be prepared for forthcoming reporting deadlines.
- Weigh the words carefully
Language matters greatly in sustainability reporting, and minor nuances can make a major difference on everything from rankings to investor perceptions. For example, in the European Union, a more formalized consideration of product greenwashing oversight is developing. The right words to use can vary based on company and target audiences. Here are just a few examples of where things can get tricky:
- Public companies need to carefully consider technical language for ESG rater and ranker purposes to ensure their work is accurately counted and reflected in scores. Without proper wording, companies may miss out on earning the credit they are due. However, rating-friendly language sometimes deviates from the best language to influence an investor audience. So, companies need to strike the right balance.
- For companies selling government goods, there may be a political environment or government vernacular that shapes language.
- For global companies, good practice in one country may be considered illegal in the next, particularly when it comes to reporting diversity, equity, and inclusion (DEI) information. Here, companies need to walk a fine line to find appropriate ways to discuss the topic for all audiences.
Clearly, it can get complicated quickly. Transparency is key to reducing communication risks, but it can take specific expertise to use or avoid using the right and wrong words in different scenarios, especially when audiences or objectives are not fully aligned.
- Abandon ESG reporting limbo for a more proactive report and resolve approach
The long-awaited SEC Climate Disclosure Rule was passed. Organizations waiting for other key ESG regulations or requirements to be finalized by a state like California, can’t wait anymore. There are ways to prepare responses, but opting out should never be one of them.
Instead, consider building a multiyear reporting roadmap to identify the key ESG considerations that can be made now to prepare for the future. For example, organizations can run an internal audit ahead of required assurance or build a framework for internal purposes in preparation for external reporting. These types of exercises allow companies to learn of any gaps well in advance of compliance deadlines.
Most importantly, while considering any of the above, don’t wait to report. Internally, a regular reporting drumbeat will help companies maintain the internal data network and processes. Externally, a continuous stream of reporting offers consistency to stakeholders, avoiding any questions regarding unexplained changes. Ultimately, sustainability reporting requires significant investments of time and sometimes capital. Best to start now and evolve processes as new ESG regulations are finalized than to wait for final rules and then scramble to meet deadlines.
Get the right counsel and support for the process
Sustainability reporting has evolved into a major initiative for many companies with each individual ESG factor representing potentially complex territory, trends, and requirements. While creating a cross-functional taskforce to weigh in helps, it may not be enough. Companies choosing an external partner may want to consider an experienced ESG expert who is actively tracking the ESG reporting landscape and who can provide expertise, research, and guidance to the development team—something most copyeditors don’t offer.
If you are ready to discuss your ESG landscape and reporting strategy, please reach out to Riveron for more information. We’ve helped companies evaluate reporting strategy and execution to improve ESG ratings, meet regulations with confidence, and put the right preparation timelines in place to stay a step ahead of stakeholder expectations. Whatever your sustainability goals, questions, or challenges, we have answers and advice for your unique situation.