Many stakeholder groups, including investors, are increasingly calling for disclosure detailing corporate environmental, social, and governance (ESG) performance. Learn the importance of corporate sustainability reporting and get a handle on the alphabet soup of options that exist today.
Reporting All Businesses
As a kid, I recall few backpacks more burdensome than those delivering a report card. That discreet, ominous manilla envelope marked with my full name (yes, middle name!) contained gravitas that few other documents could muster. Upon interpretation by key stakeholders (my parents), that single document foretold the ease of my life over the next few months.
For many business leaders, corporate sustainability reporting can elicit similar emotions. Reporting can be intimidating because vulnerability is often uncomfortable and scary. Fear of negative feedback from investors, customers, and other stakeholders causes many leaders to take a defensive stance and hold their data close.
But growing research indicates corporate transparency isn’t a nice-to-have. Businesses that take a proactive stance on ESG transparency pose to Sustainability disclosure is already a competitive advantage and is becoming a business necessity.
Take Me to Your Data
The benefits of corporate sustainability and ESG reporting are well-documented. Customers seek responsible vendors. Employees desire to work for savvy companies. One in four dollars invested globally flows into ESG, so investors are into it, too.
(Tip: If you’re unfamiliar with ESG check out this previous article to get up to speed).
The demand for ESG reporting is only heating up.
Akin to “report card day”, accountability motivates actors to maintain good marks and calls attention to areas of need. Great leaders understand feedback is a gateway to improvement. The gratification gained from watching “Bs” turn into “As”, and sharing progress with stakeholders and the world, underlines the value of transparency.
ESG reporting is currently voluntary, resulting in a lack of unified standardization. That’s led to various stakeholder-led agencies have sprouting up touting different methodologies. As a result, one can find as many ESG-reporting options as shampoo in the supermarket aisle! (Is anyone else overwhelmed by the variety?)
To distill the menagerie of sustainability reporting acronyms, let’s start with one key distinction.
Frameworks versus Standards
We categorize ESG reporting into two primary sub-categories: frameworks and standards.
Frameworks exist at the macro scale and are principle-based. Some examples of sustainability reporting frameworks include:
- Financial Stability Board’s Task Force of Climate-Related Financial Disclosures (TFCD)
- United Nations Sustainable Development Goals (SDG)
- CDP (formerly Carbon Disclosure Project)
- Climate Standards Disclosure Board (CDSB), and the International Integrated Reporting Council (IIRC). Other options exist, but these are the most popular.
Frameworks can provide helpful direction but often don’t prescribe specific metrics. Standards provide actionable measures to work towards intended outcomes. In other words, standards are a tool to implement frameworks.
Standards offer three important distinctions from frameworks. Standards:
- Include requirements,
- Can be adaptive over time, and
- Are designed for assurance by a third party.
The most broadly adopted standards are the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI).
The Great Convergence
In today’s dynamic world of sustainability reporting, we don’t enjoy the simplicity of a single succinct, standardized report card. As a result, many will find peers rated on the “grade-point scale” of their choosing.
Some companies even generate separate sustainability reports based on different standards tailored to different stakeholder groups. Any college applicant required to sit for the SAT, ACT, or other institution-specific entrance exams understands this challenge intimately.
If you’re like me, you may be wondering why doesn’t a single unified standard or framework exist yet? There must be a better way. Right? Good news!
Setting the (New) Standard
In September 2020, five of the leading framework and standards institutions announced a head-turning joint statement committing to develop a single comprehensive global ESG-reporting standard. The announcement did not include a timeline, but the vision is noteworthy.
While the global sustainability reporting community develops a unified standard, it’s time to get ahead. Businesses proactively positioning themselves on sustainability and ESG reporting will save time and money in the long run by avoiding an expensive game of catch-up down the road.
Like that upcoming exam, there’s no better time to prepare than now. What results would you be proud to see on your report card?
Solutions in Sustainability helps businesses tackle the “E” (Environmental) in ESG. Whether facing demand from investors, employees, or customers (or all three), we are clean energy experts helping firms develop strategies to reach their long-term sustainability goals. We exist to help companies mitigate energy-related business risks, improve ESG transparency and performance, and unlock access to capital markets.
About the Author
Alex Kaufman is a science communicator, clean energy specialist, sustainability nerd, professional engineer, travel enthusiast, and resident of San Diego, California. When not helping clients, you can usually find him cycling, hiking, reading, spending time with loved ones, or planning the next big adventure. He is open to speaking engagements. Contact him at alex@alexkaufmanpe.com.