Bridging the Gap: Sustainability Reporting & Disclosing What Really Matters

Robust sustainability reporting is barely three decades old. However, her early age shouldn’t be a reason for lack of insightful information being disclosed towards smarter decision making. It is needful that organisations translate relevant factors which were once considered opaque into comparable metrics and indicators towards improving portfolio performance and redirecting capital for more sustainable enterprises.

According to The Reporting Exchange (2018), a survey of sustainability reporting conducted in 2017 affirmed that disclosure on environmental and social factors is now the global norm among large cap companies. Some 93 percent of the world’s 250 largest companies now disclose their sustainability performance, and the rates of reporting have been climbing steadily since 1993. Interestingly, in the last decade alone, US shareholders have filed shareholder resolutions calling on more than 300 companies to publish sustainability reports. As of July 2018, the Global reporting initiative (GRI), the most widely adopted sustainability disclosure framework, revealed that sustainability reporting has immensely grown and this is attributed to pressure from investors and other stakeholders, as well as by regulatory and quasi-regulatory bodies, including stock exchanges and governments.

This is not only the newly accepted norm in the developed world, the developing world is swiftly embracing this as can be seen in Nigeria and few other African countries.  In fact, as of 2018, the reporting exchange identified 1809 global reporting provisions in 60 countries across the world that either required or encouraged reporting on environmental and social factors. Also, Ernst & Young (2017) reports that the percentage of investors who say that environmental, social and Governance (ESG) performance played a pivotal role in their investment decision-making grew from a bare majority in 2015 to 68 percent in 2016 and this definitely keeps increasing.

According to data from; Vigeo Eiris, an independent global environmental, social and governance (ESG) research and services organisation, which analysed the public disclosures of 476 of Forbes Global 2000, an annual listing of the largest public companies in the world, the following indicators measured what exactly investors really need, thereby bridging gaps:

Disclosure Standards – By mapping their disclosures to widely-used, market-tested sustainability disclosure standards, such as Global Reporting Initiative (GRI)’s, firms can produce reliable data from year to year and that investors can use for peer comparisons.

Board oversight of Sustainability – Corporate boards are bound by trustee obligation to investors to direct and oversee vital issues.. By unveiling points of interest in sustainability, companies demonstrate the degree to which they consider appliying sustainability issues to business needs.

Materiality Assessment – a vigorous materiality appraisal enables organisations to distinguish and organise issues, including  dangers and openings. By uncovering the points of interest of their materiality procedures and how they utilise the outcomes, organisations show the degree to which they consider sustainability issues to be vital to their business, and also how these issues coordinate with business methodology.

Since large organisations confront an extensive variety of potential sustainability dangers, most detailing gauges urge organisations to utilise a materiality focal point to control their revelations.

In cases where there is no agreed objectives and standards for navigating these issues, determining what, why is material and would bein their corporate reports would be primarily based on judgement. However, external objectives can be portrayed by clear evidence linking their efforts towards the Sustainable Development Goals (SDGs). For example, a number of factors which includes (but not limited to); the information needs of multiple stakeholders, multiple reporting provisions, internal objectives, external objectives for reporting ( such as showcasing contribution to the SDGs, compliance and measuring impact must be navigated in determining materiality.

Take for instance, The Haulage Sector. Inefficient energy utilisation which results in carbon pollution, GHG emission and even poor air quality resulting from Haulage/Transportation sector, is projected to increase by another 40 percent by 2040. Overall freight operations are slated to quadruple by 2050, with trucks responsible for hauling 70 percent of freight in the United States. This is apparently synonymous to Nigeria and thus signals that urgent efforts are needed to curb associated impacts, improve fleet efficiency for increased profitability. As can be strategically achieved by considering alternatives such as; use of compressed natural gas (CNG) as well as exploring alternatives such as use of transportation infrastructure vis-a-vis.

Companies need not just comply to a specific type of materiality assessment. Rather, clear benchmarks and evidences of how actions were taken towards addressing prioritized issues should be clearly reported and imbibed in corporate strategies.

Stakeholder Engagement – A comprehensive commitment process enables firms to approach their materiality assessment in an all-encompassing way. Moreover, by revealing a robust commitment exertion, companies show the degree to which they methodically focus on investors and other external factors.

Assurance – By externally assuring sustainability disclosures, companies can increase the confidence that users have in the information presented in a sustainability report.

Percentage of some analysed Forbes Global 2000 Companies Disclosing and Average Score Per Indicator. Source- CERES DiscloseWhatMatters Report 2018

Therefore, whilst companies make efforts towards sustainability reporting, it is more worthy to state that the roles of boards over sustainability must be outrightly portrayed. Also, they are encouraged to apply the same thoroughness as being used during financial disclosures. This would strategically reduce economic, social and governance risks, strengthen reliability from stakeholders, provide apt information for potential investors as well as enable investors make smarter decisions and price investments more accurately for better business.Also, companies with previous prior sustainability report would need to state how the relevant indicators are being used to make better and more profitable decisions.

References                                                                              

1. CERES(2018).https://www.ceres.org/sites/default/files/reports/2018-08/Ceres_DiscloseWhatMatters_Final.pdf
2. The Reporting Exchange. (2018). Dashboard. reportingexchange.com. retrieved from https://www.reportingexchange.com/userdashboard
3. Global Sustainable Investment Alliance. (2016). Global Sustainable Investment review. gsi-alliance.org. retrieved from http://www.gsialliance.org/wp-content/uploads/2017/03/GSIr_review2016.F.pdf
4. Ernst & Young. (2017). Is your nonfinancial performance revealing the true value of your business to investors? Retrieved from http://www.ey.com/Publication/vwlUAssets/EY_-_Nonfinancial_performance_may_influence_investors/$FIlE/ey-nonfinancialperformance-may-influence-investors
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