What is sustainability reporting?
Sustainability reporting is a way for organizations to share information about their environmental, social, and governance (ESG) impacts. It’s a detailed report card that shows how a company is performing in areas that affect people and the planet.
- Environmental impact: detailing how the company’s operations affect the environment. This includes information on energy use, waste production, water consumption, and efforts to reduce carbon emissions.
- Social impact: Focusing on how the company affects people both inside and outside the organization. This includes labor practices, community engagement, employee health and safety, and human rights.
- Governance impact: Examining the company’s economic performance and contributions to the economy, such as profitability, market presence, and economic contributions to the community, like taxes paid and jobs created.
The goal of sustainability reporting is to provide a transparent and comprehensive account of an organization’s environmental, social, and governance impacts. This is enabling stakeholders to understand how the organization contributes to sustainable development.
How to start with sustainability reporting?
Starting with sustainability reporting involves several key steps to ensure that the process is thorough, accurate, and aligned with recognized standards. In this section you’ll find several practical steps to start with sustainability reporting.
1. Understand your why and inform management
Starting with sustainability reporting begins with understanding its purpose and benefits. Recognize that sustainability reporting enhances transparency, improves stakeholder engagement, manages risks, and can lead to potential cost savings.
Once the importance is clear, secure commitment from top management. Leadership support is crucial for allocating resources, setting priorities, and integrating sustainability into the company’s overall strategy.
2. Find the right sustainability reporting framework
Selecting a recognized reporting framework is essential for any organization aiming to provide structured, transparent, and reliable sustainability reporting. A framework offers clear guidelines and best practices for reporting. This is helping you avoid the pitfalls of unstructured or inconsistent reporting.
Choosing the right framework not only aligns your reporting with industry standards but also meets the expectations of various stakeholders. A well-chosen framework ensures that your sustainability efforts are communicated effectively and transparently.
In the upcoming chapter, we will delve deeper into different sustainability reporting frameworks. Each framework has its own unique features, benefits, and focus areas, catering to various needs and goals. Understanding the distinctions between these frameworks will help you select the one that best fits your organization’s specific needs.
3. Conduct a (double) materiality assessment
Once the framework is selected, conduct a materiality assessment to identify and prioritize the sustainability issues most relevant to your business and stakeholders. A materiality assessment is a common practice in almost every modern sustainability framework.
This assessment helps determine which sustainability topics to focus on in your report. For example, waste reduction might be a material (important) topic for a production company but less relevant for a consulting company. Materiality ensures that you report on topics that genuinely matter to your company.
A standard materiality assessment focuses on topics that are most relevant to your company. In contrast, a double materiality assessment also considers the topics on which your company has an impact in terms of the planet and people.
4. Start collecting sustainability data
Collecting sustainability data is a crucial step in the sustainability reporting process. Accurate and comprehensive data collection allows organizations to measure their performance. These data points should align with the material issues identified during the materiality assessment and the chosen reporting framework.
Once the key data points are identified, establish processes for collecting this data. Determine where the data will come from. This can be internal data which is already in place, or external data which needs to be collected.
Regularly monitor the data collection process to ensure it is working effectively. Hold periodic review meetings with data owners to discuss any challenges, insights, and improvements. Be prepared to adjust data collection methods and processes as needed. This could involve updating data points, refining collection techniques, or upgrading data management systems.
5. Review and reporting assurance
The final step in your sustainability reporting process is review and assurance, which ensures the credibility, accuracy, and reliability of your report. Begin with an internal review of the report to make any necessary adjustments.
After completing the internal review, proceed with external assurance. This involves having an independent third party examine the report to verify the accuracy and completeness of the information disclosed. Select a reputable assurance provider with expertise in sustainability reporting and the specific framework you are using.
Use the feedback from both the internal review and external assurance to drive continuous improvement in your sustainability reporting process. Implement any recommendations or corrective actions suggested during the assurance process to enhance data accuracy and reporting practices.
Using sustainability reporting frameworks
In the previous chapter it already became clear that using a sustainability reporting framework is a crucial step in sustainability reporting. However choosing the right framework can be hard. In this chapter we will take a deeper dive into more frameworks and which one might be best for you.
Coporate Sustainability Reporting Directive (CSRD)
The CSRD is a regulatory framework introduced by the European Union to enhance and standardize sustainability reporting across member states. It aims to ensure that companies provide reliable and comparable sustainability information, covering environmental, social, and governance (ESG) aspects. This directive applies primarily to large companies, including listed companies.
The CSRD provides a comprehensive and standardized approach to sustainability reporting. This framework can improve transparency and comparability of ESG data across companies and sectors. The CSRD is mandatory for large and listed companies, making it an optimal choice for organizations of this size.
However, the complexity and breadth of the CSRD can pose challenges, especially for smaller companies. The detailed reporting requirements can be resource-intensive, requiring significant time, expertise, and financial investment.
Sustainability Accounting Standards Board (SASB)
The SASB provides a set of industry-specific standards for disclosing financially material sustainability information. SASB standards are designed to help companies communicate sustainability information to investors. These standards cover a range of ESG topics, tailored to the specific risks and opportunities within different industries.
The focus on financial materiality may exclude some broader sustainability issues that are important to other stakeholders, such as employees, customers, or communities. For smaller companies, aligning with SASB standards can be less burdensome than broader frameworks. However it still requires a good understanding of the standards relevant to their industry.
International Organization for Standardization (ISO) frameworks
ISO standards provide internationally recognized guidelines and requirements for various aspects of business, including sustainability. Key ISO standards related to sustainability include ISO 14001 (Environmental Management Systems), ISO 45001 (Occupational Health and Safety), and ISO 26000 (Social Responsibility).
ISO standards offer a structured and internationally recognized approach to managing sustainability issues, which can enhance an organization’s credibility and operational efficiency. They provide clear guidelines and best practices that can be tailored to an organization’s specific context.
ISO is particularly beneficial for smaller companies because they are less complex and easier to implement compared to broader frameworks. However, for larger companies, ISO standards might be too limited, as these companies primarily need to focus on CSRD due to reporting obligations.
Global Reporting Initiative (GRI)
The GRI provides a comprehensive framework for sustainability reporting, covering a wide range of ESG topics. GRI standards are designed to be used by organizations of any size and type, offering a flexible and widely recognized approach to sustainability reporting.
GRI’s comprehensive and flexible framework allows organizations to report on a wide array of sustainability issues, making it suitable for companies of different sizes and sectors. GRI is particularly useful for international companies since the standards are standardized globally.
Sustainable Development Goals (SDGs)
The SDGs are a set of 17 interconnected global goals established by the United Nations in 2015, aimed at addressing a wide range of social, economic, and environmental challenges by 2030. The SDGs provide a universal framework for all countries and organizations to work towards sustainable development.
The SDGs offer a comprehensive and universally recognized framework that can guide organizations in aligning their sustainability strategies with global priorities. By integrating SDGs into their operations and reporting, companies can demonstrate their commitment to addressing critical global issues.
The SDGs are particularly useful for smaller organizations because they do not have specific reporting standards and offers a lot of flexibility. This flexibility means that smaller organizations can align with the SDGs without the need for deeper technical knowledge or extensive resources.
For larger companies, the SDGs might be seen as too simplistic due to their lack of specific reporting requirements. These companies might need to integrate SDG reporting with more detailed frameworks like CSRD to ensure comprehensive coverage of their sustainability performance.
Why start with sustainability reporting?
Starting sustainability reporting is crucial for every company. Beyond benefiting people and the planet, it can also positively impact your company, creating a win-win scenario.
Enhanced reputation and brand loyalty
Sustainability reporting promotes transparency and accountability, which can significantly enhance a company’s reputation. By regularly disclosing ESG information, companies demonstrate their commitment to sustainable development and responsible business practices.
This transparency helps build trust and loyalty among customers and other stakeholders, providing a competitive edge in the market. Companies known for their social and environmental responsibility are often preferred by consumers, leading to increased brand loyalty and market share.
Investor attraction and retention
Investors are increasingly prioritizing ESG factors in their investment decisions, which is also known as sustainable finance. Sustainability reporting provides the necessary information for investors to make a conscious investment decision.
By demonstrating a commitment to sustainability, companies can attract and retain socially conscious investors, potentially leading to more stable and long-term investment. Transparent reporting on sustainability practices helps reassure investors about the company’s future resilience.
Improved risk management
Sustainability reporting also helps organizations identify, assess, and manage risks associated with environmental, social, and governance factors. By regularly evaluating their sustainability performance, companies can better understand potential risks and opportunities.
This proactive approach not only protects the company from potential ESG-related issues but also ensures long-term operational stability and resilience. Effective risk management through sustainability reporting can lead to cost savings, improved operational efficiency, and a stronger overall business strategy.
Upcoming regulatory obligations
With increasing regulatory requirements related to sustainability, regular reporting helps companies stay compliant with laws and standards. Many regions are implementing stricter regulations on ESG disclosures, and companies that proactively report on their sustainability practices are better positioned to meet these requirements.
Compliance with regulatory standards can prevent legal issues, fines, and other penalties. This is ensures a smoother operations and also ensures protection of the company’s reputation.
Long-term value creation
Ultimately, sustainability reporting contributes to long-term value creation for the company. By integrating sustainability into their core business strategies and operations, companies can enhance their overall performance and competitiveness.
Sustainable practices often lead to cost savings, improved resource efficiency, and access to new markets and opportunities. Furthermore, companies that prioritize sustainability are better positioned to adapt to changing market demands and global challenges. Sustainability reporting is not just about compliance; it is about building a resilient and forward-thinking business that can thrive in the future.
