Key trends and recommendations for sustainability reporting

Calum Revfem, Director at Position Green, has identified key trends, recommendations and best practices for first-time through to seasoned reporters to ensure data and report quality. 

We hear a lot about the importance of sustainability reporting regarding public and investor expectations and upcoming regulation. Looking at the latest European reporting season, these factors have driven an increase in the number of companies reporting and the quality of the reports. 

– The number of reporters in Europe (and Scandinavia) has been steadily increasing for some years. There has been no sudden increase in ESG or sustainability reporting in the past 12-24 months, but it would be fair to say, a much larger number of companies are now paying much closer attention to this evolving space. In terms of quality, there tends to be a natural spread between first-time reporters and companies who have been reporting for a longer period of time. Overall the quality and focus of reporting has been steadily improving, driven mainly by greater use of recognized reporting standards, such as the GRI Standards, says Calum.

Key trends in sustainability reporting right now

Looking at the latest reporting season, Calum believes there are two key trends as reporters seek to meet a growing readership’s needs, including those of investors and stakeholders.

– The first trend occurs at the front end of the report, where there seems to be considerably more effort put into explaining the business model for the company and its current operating context. This contextual information is very useful as it enables the reader to make more informed judgements about the performance information presented in the report. The second trend is happening at the back end of the report. In an effort to keep ESG and sustainability reports concise, reporters are moving much more detailed data into the appendix or to online portals, where readers and analysts can do their own deeper dives into their specific interest areas.

Top 5 recommendations for first-time reporters 

For first-time reporters, the many different reporting frameworks and accompanying sea of acronyms can make sustainability reporting seem quite daunting. But luckily, there are things to consider and tools to use if you want to start reporting effectively. 

Calum’s number one recommendation is to use a recognised reporting standard, such as the GRI Standards or SASB. That way, you’ll head off in the right direction. The rest is more operational, and his top five tips would be as follows:

1. Start early!
   If you aim to publish your report in March, start preparing and bring the team together already in August-September the year before. Secure internal buy-in and make sure that everyone involved is aware of their responsibilities and respective timelines.
2. Be strategic
   In the effort to meet the reporting requirements set out in the Standard, don’t lose sight of the big picture. Have a clear vision of where the company wants to go, the sustainability strategy and the two to three main sustainability focus areas. Ensure that these elements resonate with the company as a whole.
3. Make a start
   Start with what you already have and go from there. The first report will not be perfect, but the reporting process enables the sustainability team to gain a clear vision of where it wants to go and what needs to be implemented to meet all the reporting requirements in the next reporting cycle.
4. Keep it simple
   It is important that the language used throughout the report is clear and to the point. Avoid ambiguous language and keep it simple.
5. Be transparent
   Be transparent regarding the positive and the negative impacts on sustainable development. Transparency creates trust and enables the company to build a strong and effective sustainability strategy.

Best practices to ensure data and report quality

Reliable data monitoring and handling is becoming increasingly important as more reports get third-party assurance, and regulations are likely to include audit requirements. According to Calum, there are a few best practices to ensure data and report quality. 

– I always ask reporting companies to compare how they handle ESG data in comparison with the way they handle their financial data. As well as being a good conversation starter, it usually highlights how few processes or controls they have in place for non-financial data. As ESG and sustainability reporting look to become more regulated, including independent assurance requirements, it would make sense to implement similar quality control measures for ESG data as those applied to financial data. This usually means moving beyond Excel spreadsheets and looking at cloud-based solutions that provide a clear audit trail and efficiently simplifying and streamlining data handling in general. Position Green’s ESG software is a good example of such a solution.  

Key developments and trends in sustainability reporting going forward 

As Calum mentioned earlier, the regulation will increase the number of European companies reporting, as well as listed US companies who will need to comply with the SEC’s proposed ESG reporting requirements. At the same time, he believes that the robustness of reporting, driven by more prescriptive regulatory requirements, is likely to increase. 

– As the global consolidation of reporting standards continues, we’re likely to see the two headline standard setters, GRI and ISSB, working to streamline reporting and remove remaining ambiguous crossovers. The concept of ‘double materiality’ is going to be tested and come under scrutiny as to whether it is fit for purpose. Similarly, greater clarification is likely to emerge about the differences between ESG reporting on factors that affect financial performance versus true context-based sustainability reporting – that is reporting on critical sustainability thresholds and whether a company’s contribution (or allocation) exists within a defined sustainable limit. In practical terms, we should hopefully see greater alignment between financial reporting and ESG or sustainability reporting. I’d expect this will translate into more companies producing one single integrated annual report rather than separate ESG or sustainability reports.