Finding the balance in your sustainability disclosures

Finding the balance in your sustainability disclosures

Globally, sustainability reporting is gaining momentum. Stakeholders are more focused on how organisations are performing on a variety of sustainability issues, with value and risk now closely linked to topics like climate change and social license to operate. To meet this demand, organisations must prepare accurate and transparent disclosures, and indicate how they intend to make progress on a range of material issues.

Yin and Yang webinar by thinkstep-anzHaving delivered the webinar 'The Yin and Yang of sustainability reporting: Value creation and risk' I was struck by the volume of questions about how an organisation’s size relates to the depth and the focus of its sustainability disclosures.

It appears many organisations are struggling to define the right direction for their reporting journey and the intended audience. It is important to keep in mind the direct correlation between the size and scale of an organisation, and the size and scale of its risks and opportunities. In other words, the larger the organisation, the more detailed and transparent your disclosures need to be.

To help get a handle on what reporting style is the most appropriate for your organisation, I have prepared a few general rules of thumb to help you identify what topics are most relevant to your organisation, and which reporting techniques are the best fit.

Report on what matters most to your stakeholders

Sustainability issues are relevant to all organisations. However, it is important to define which are most material to you, who your relevant stakeholders are, and what depth of information they will be looking for.

Think about your stakeholders and what their expectations are regarding the following questions:

  • How are you treating the planet? — it all counts, whether you have a full-blown environmental management system or are engaging and supporting your staff with a local tree planting initiative.
  • How are you treating people? — successful talent attraction and retention depends on a multitude of factors. Increasingly, prospective employees are choosing organisations with values that match their own.
  • How are you managing risks and opportunities over the long term to ensure ongoing profitability? — timelines for sustainability performance are ever expanding. Targets are no longer restricted to financial years but several years and in some cases even decades (for example, NetZero 2050).

No one is starting from scratch

Organisations big and small will benefit from assessing their current policies and programmes before setting out to report on sustainability performance.

If you have a health and safety policy, you are not only meeting regulatory requirements but are showing you care about your people. Likewise, sponsoring the local sports team or school demonstrates that you are engaging with your community which adds value beyond providing local employment. Furthermore, if you offer your staff development opportunities, internal career paths, or prefer to recruit from within, you are developing the intellectual property of your organisation and your sector.

Reporting on environmental performance can have similarly humble beginnings. An existing waste policy, carpooling initiative, or supplier code of conduct is an opportunity to demonstrate that environmental issues are important to your organisation. Be mindful though — remaining transparent about the scale and reach of your current programmes is crucial for avoiding greenwash. It is best to be clear about what you are doing now and set goals for progressing these initiatives further down the track.

Apply a framework that fits your business and reporting objectives

Once you have accounted for current programmes within your organisation, the next step is to identify how you want to develop these areas and where you want to improve. There are a range of reporting frameworks out there to guide organisations in this process. These frameworks encourage standardisation in the reporting process and enable organisations to identify and meaningfully report on common sustainability issues.

Global Reporting Initiative (GRI) and Sustainable Accounting Standards Board (SASB) provide a wealth of sector-specific assistance. Although their technical language and granular detail can sometimes appear overwhelming for smaller businesses, taking time to read through them can be hugely beneficial for understanding the key topics involved in sustainability reporting. GRI and SASB touch on the most relevant areas of environmental and social performance for each sector. Just remember — they are generally aimed at the larger corporate entities.

Integrated Reporting (IR) logo

The framework developed by the International Integrated Reporting Council (IIRC) differs slightly in style. Integrated Reporting, or <IR>, introduces a different language to convey sustainability issues. Reporting uses the concept of “capitals”, which are the resources and relationships an organisation needs to create its “outputs” as well as wider social and environmental “outcomes”. Outputs and outcomes together equate to “value creation”. This holistic approach to reporting brings to the fore your organisation’s corporate strategy, governance, and performance, with a longer-term view in mind.

Finally, the Task Force on Climate-Related Financial Disclosures (TCFD) reporting framework has recently emerged as the foremost framework for identifying financial risks and opportunities related to climate change. It is important to note that TCFD is also aimed at bigger organisations. In New Zealand, for example, it has become mandatory for publicly listed companies to provide TCFD disclosure, affecting 200 entities that have assets or investments over $1 billion. Although it is not relevant for the majority of firms, TCFD’s approach to disclosures using the four themes of governance, strategy, risk management, and metrics and targets, could be usefully applied to any organisation and any sustainability issue of importance.

Please note: The Task Force for Climate-related Financial Disclosures (TCFD) has completed its work. The International Sustainability Standards Board (ISSB) now oversees climate-related financial disclosures. We still use TCFD as shorthand for climate-related disclosures as many people are familiar with this term.

Reporting is an opportunity to better understand your organisation and its stakeholders

Image of scales, sustainability disclosure blog thinkstep-anzDiscovering the most important sustainability issues for your business provides a real opportunity to improve your governance, risk management processes, organisational development, and people engagement. It is also an opportunity to identify and set sustainability targets to build on in future reporting.

Organisations should avoid strictly adhering to a single reporting framework. This can lead to reporting becoming a mere box ticking exercise, running the risk of taking the life out of your disclosures. Instead, take the opportunity to communicate your sustainability approach using your unique narrative and engage meaningfully with the people who care most about your business — your staff, suppliers, and customers. You might be surprised by the insights that emerge.

Focus on your main audience, but not to the exclusion of others

Many large corporates focus their disclosures on meeting investor requirements to attract international capital. Global sustainability indices are used by investment analysts and their approach is very black and white. If the information they are seeking is not in the public domain, then it is not being managed. As with organisations that focus on a singular framework, the risk here is that reporters focusing exclusively on an investor audience will also fall into the sterile tick box approach.

Aim for your sustainability story to be unique to your organisation. Embrace the opportunity to develop a narrative that resonates with your stakeholders and amplifies the purpose behind your brand.

Ask yourself — is this narrative engaging, educational, authentic, and timely? If the answer is ‘Yes!’, then you are on the right track.

Guiding corporate sustainability

Martin Fryer

Our Head of Strategy and Disclosures Martin Fryer has made a career out of affecting positive change from the inside – 99 percent of his working life has been spent helping large corporate organisations to succeed sustainably. Martin specialises in sustainability strategy, climate related risk, materiality assessments, and all manner of corporate disclosures.