Value-based sustainability reporting: Measure true performance

Today, companies are under greater pressure to generate data, assess their sustainability performance, and publicly make this information available. As per the McKinsey Sustainability Reporting Survey, 83% of investors’ agree or strongly agree’ that more standardization of sustainability reporting would help their firm manage risk more effectively, while 85% believe that it will help them allocate capital more effectively.

In general, good sustainability reporting can empower companies to communicate with stakeholders far more transparently about their business activities, whether related to non-financial management or performance aspects. There is also considerable evidence to suggest that financial performance is influenced positively by companies’ ESG focus.

Often, financial statements, by themselves, are not a good measure of a company’s performance as they provide a narrow view of a company’s performance, as was proven during the 2008 banking crisis triggered by the fall of Lehman Brothers. There is now greater awareness about the role of a company’s environment or social initiatives in judging overall performance.

There is sufficient evidence suggesting that a company should pay attention to profits, people, and the planet. Therefore, value-based sustainability reporting plays a crucial role in indicating a company’s survivability and future growth since it encompasses financial information and the company’s responsibility in shaping the economy, society, and environment.

The UNEP describes Corporate Sustainability Reporting as a potential mechanism to generate data and measure progress and contribute to global sustainable development objectives. Sustainability reporting by companies can help them set goals and measure their performance across various sustainable development parameters. In turn, this enables them to play a part in supporting the transition towards a low carbon, resource-efficient, and inclusive green economy.

McKinsey describes a sustainability report as a document that contains a set of sustainability disclosures from an organization for some time, whether a stand-alone document or a part of the annual report.

At its basic level, a sustainability reporting standard refers to specifications that cover the measurement and dissemination of sustainability disclosures. The mandate for sustainability reporting could arise from various places, whether a regulator, government entity, communities, or even stock exchanges. In several instances, sustainability reporting can be a voluntary initiative. However, unlike financial reporting that globally conforms to uniform standards, sustainability reporting can conform to various standards.

For instance, Global Reporting Initiative Standards (GRI Standards) is currently the most comprehensive and widely accepted of sustainability reporting standards. However, it is so extensive that it tends to intimidate new reporters. Several disclosures tend to require references to detailed explanations to understand the requirement. Similarly, the 17 Sustainable Development Goals (SDGs or UN SDGs) adopted by the United Nations in 2015 are quite comprehensive. However, the targets and goals are qualitative and are not assertive about quantitative reporting of SDG actions. This impacts the measurability of progress on sustainability efforts and also the credibility of the reporting.

Others such as Sustainability Accounting Standards Board (SASB), Integrated Reporting (IR) Framework, Carbon Disclosure Project (CDP) Guidance, Dow Jones Sustainability Index (DJSI), International Finance Corporation (IFC) Performance Standards, UN Principles for Responsible Investment (PRI) also come with specific pros and cons that might make them suitable in one context or the other, depending on the organization’s requirements. This article is an excellent reference to the different reporting standards and frameworks across geographies, regions, and industry segments.

Since data lies at the heart of value-based sustainability reporting, companies need an easy-to-use sustainability and ESG solution that can reduce the time and efforts in collecting, validating, and managing the data for reporting. Also, it must equip enterprises to implement industry best practices. For instance, companies must collect the insight required to deepen supply chain collaboration, mitigate sustainability risks, and monitor the strategic use of energy and resources. The right solution for sustainability and ESG reporting must encompass:

• Information gathering
  Various systems can contribute to the sustainability data, so connectors for major ERP systems such as SAP, Oracle, and others. and third-party data sources will be essential to the success of this solution.
• Turnkey visualization
  The availability of turnkey visualizations for leading standards such as GRI, Frequency SDG, and CDP, amongst others, with the ability to also customize on the go
  
• Intelligence Engine
  Goal setting, compliance tracking, and integrated understanding of company risks

In addition, an effective solution allows you to address regulatory, corporate reputation, worker well-being, and process standardization without the prohibitive cost and specialized expertise required to implement more complex reporting solutions.

Companies can accrue several benefits, including:

• Compliance
  Comply with corporate reporting requirements as well as the GRI, UN SDG, CGP, and any other standards, and report them accurately
• Actionable insights
  Drive initiatives including training programs, incident captures, and legal proceedings or take course correction measures when specific metrics are breached
• Self-service
  Freedom to create custom dashboards based on the individual or corporate
• Real-time Tracking
  Companies can set alerts for breach of set standards or KPIs in real-time, to reactive and proactive action enablement
• Aggregated information
  Aggregate disparate data for a comprehensive view across Corporate & Social Sustainability, Environmental Sustainability & Employee Health & Safety. The data ranges from human rights initiatives, including parental leave, equal compensation, child labor incidents, and harassment, to greenhouse emissions, waste management, marketing, and labeling.
• Collaboration
  Real-time collaboration across stakeholders is a cornerstone to success for multi-site, multi-entity, multi-country companies needing to report as a single enterprise

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As ESG and sustainability efforts take center stage, the availability of credible data that helps provide the required insights to get a reasonable overall view of company performance becomes more valuable than ever. Take a look at Eka’s offerings for effective Sustainability and ESG reporting to know more.