What makes a robust sustainability report?
Sustainability reports face big challenges before they uniformly meet investor needs
Initial attempts at sustainability reporting could arguably be written off as 'greenwash' – a company painting a rosy picture of its charitable activities, for instance. But things have moved on quite considerably from there. Sustainability reports may be in their infancy but their future value shouldn't be underestimated.
"There's growing momentum for a move away from the marketing message to more tangible metric-based reporting," says Malcolm Preston, PwC's global head of sustainability services.
He sees increased "granularity" and "fact-based data" on what different aspects of sustainability mean to individual companies. These are just some of the essential requirements of any sustainability report that is to be of real use to investors and other stakeholders.
Gordon Wilson, a senior manager within KPMG's climate change and sustainability practice, emphasises the need to link sustainability reports to overall corporate strategy. But there are other questions to ask, he says, when assessing the quality of a report: "Is it fair and balanced? Has it made an appropriate assessment of what should be included in the scope?" This scope might differ, for example, from that applied to the financial statements, potentially extending further up and down the value chain.
Wilson also highlights the importance of metrics and key performance indicators, but stresses that these need to be sensible. For example, he says: "In a failing business it's no good to say that the carbon footprint has gone down year on year in absolute terms – because so has your business." Intensity metrics may be more relevant – taking account of an organisation's growth or shrinkage.
Consistency is another vital quality required for effective sustainability reporting. "More could be done in terms of consistency of reporting and comparables from one year to the next," says Bozena Jankowska, global head of sustainability research at RCM, a global asset management company within Allianz Global Investors.
Jankowska is frustrated by companies that change the metrics they report in successive sustainability reports. For investors, "it's all about trends and improvements from year to year". Effective analysis of these trends clearly requires consistent metrics.
This is a point also emphasised by Steve Waygood, head of sustainability research and engagement at Aviva Investors, the global asset management business of Aviva plc. "We ideally look for three-to-five-year trend data, and an explanation from the company, where the trends are poor, what they are going to do about those," he says.
Greater standardisation could help investors analyse corporate data and compare performance. "Some core indicators are sufficiently business relevant, sufficiently often, to require standard setting," says Waygood. These could include greenhouse gas emissions, and health and safety data.
"Even within the oil and gas sector, trying to compare that data on an international basis is really difficult," he says.
"We may see industry groups getting together and agreeing on a common set of industry standards, even if they are not regulated, in order get some consistency," suggests PwC's Preston. "But that will be a long process, because everybody wants to report in a way they think is fair and right for their business. What one company thinks is fair and right, another might not."
Ideally, global coordination on any such standards is desired. "It would be a real shame if we ended up, for example, with eight different ways of reporting carbon across different parts of the world, with listed companies having to report in different ways in different territories, then trying to consolidate that information. That's not a good outcome. It would be lovely if we had global standards. But don't underestimate the challenge," says Preston.
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