What companies say can provide great insight into what they do. The way they describe how they are monitoring and addressing sustainability issues, including those related to environmental, social and governance (ESG) matters, through mandatory reporting or voluntary statements can be a lever for building trust with those around them. But any claims made should be intentional, achievable, balanced and verifiable. Just as there are pressures building from a variety of stakeholders—investors, employees, suppliers and customers—for information related to sustainability efforts, pressure from the industry of activism devoted to debunking any misleading, incomplete or false claims is also growing. And companies face consequences for not living up to their stated aims, even if the shortcomings can be validly explained. Companies are also more likely to be fined for getting things wrong as regulators are increasingly willing to enshrine penalties in law.
Creating a narrative that works for key stakeholders—one that is comprehensive, relevant, balanced and accurate—is no easy feat. It requires adherence to standards backed up by data and a clear understanding of stakeholder needs. What is important to one group may not matter to another. And not all the conflicting demands on companies will be reconcilable. Leaders need to be clear about what they are doing—and, critically, why—even if some stakeholders will disagree strongly.
Although a number of bodies have made a great amount of progress in sustainability reporting over the years and companies have developed narratives and metrics on their own that work for them, what’s been sorely missing is some structure among the noise. This is set to change. In 2022, there are three important consultations on non-financial reporting standards: the US SEC’s climate disclosure proposals, the EU’s draft sustainability standards and the International Sustainability Standards Board’s proposed global sustainability-related disclosures. Once finalised, these developments will move us away from a world of voluntary disclosure, where it is up to the company to decide what it wants to say, and into a mandatory-reporting environment, where the company is told what it must say. Such a change will help level the playing field for businesses and give users a better chance of understanding what they are reading.
But even with new guidelines that set the parameters for reporting, figuring out what information matters most, and to whom, is a complex task, and engagement with stakeholders will be paramount. In addition, collecting the information required to satisfy regulations (which are evolving) and stakeholders will involve planning; specialised expertise in areas like carbon footprinting at home and abroad to measure and assess the information; a way to assure it is reliable; and a strategy to deal with the results. Depending on the industry, the strategy could include ways to reduce carbon emissions, reduce water use and improve working conditions. But it will also require determining how to communicate the findings. The old adage that what gets measured gets managed will be a powerful motivator for action—both for informing a company’s stakeholders and for running the business. In PwC’s 2021 Global CEO Survey, when chief executives were asked which areas of their business they should be doing more reporting on, the largest share, 43%, chose their environmental impact.
Comprehensive corporate reporting can shine a light on the cases in which words are not matched by action. ‘The recent avalanche of net-zero pledges by businesses, investors, cities and regions will be vital to keep [a global temperature increase of only] 1.5°C alive and to build towards a safe and healthy planet, but only if all pledges have transparent plans, robust near-term action, and are implemented in full,’ said Catherine McKenna, the former Canadian Minister of Environment and Climate Change who now chairs a new UN initiative that was announced on 31 March to speed up the implementation of business’s net-zero pledges. Ultimately, reporting is no substitute for taking action.
Here are three steps companies can take now to ensure that they can explain how they will deliver on a sustainability strategy and provide meaningful sustainability reporting that meets the requirements of its stakeholders.