May 23, 2019

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Beyond G4: Connecting The Dots on Sustainability Reporting and Disclosure Practices

New ways of making sustainability reporting more relevant and accessible need to be developed and deployed.

Monaem_ben_lellahom

By Monaem Ben Lellahom

In contrast to financial reporting, the history of sustainability reporting is comparatively recent. Alternatively presented as non-financial disclosure, it has become the buzzword in business today. 

In order to make non-financial reporting possible, a variety of different standards and frameworks have emerged, both mandatory and voluntary. The vast number of these initiatives has made it difficult for reporters to decide which framework to pick and for the readers of reports to assess the quality and reliability of disclosed data. 

Sustainability Reporting The De Facto Law For Business

The Global Reporting Initiative (GRI) has emerged as the preferred international framework for reporting. According to GRI “95% of the world’s largest companies are already producing sustainability reports in 2012 up from around 80% in 2008 and 50% in 2005” and according to a 2011 KPMG report “62% of companies surveyed (378 global companies) have sustainability strategies in place.”

However, despite the fact that sustainability reporting is now the “de facto law for business,” reporting continues to be one of the most challenging issues for sustainability executives and practitioners, who are debating its relevance and its value to business today.

More than 6,000 reports are published each year and the number keeps increasing. How much money, effort and time were invested to produce each one of them? Who’s reading those reports? There are also questions about the accuracy and completeness of the data reported and its relevance global reporting initiativeto financial performance, as the SASB team discussed recently on Talkback

What will the future of reporting look like and how can we revolutionize disclosure practices to generate more value to reports and stakeholders addressed? Is the next evolution of the sustainability report tied to the next iteration of the current frameworks including GRI?

Here are some sustainability reporting dots for you to connect and predict where this is all heading. 

Only Disclose What Is Relevant To Your Business

Trying to set meaningful global metrics across different areas of sustainability, even within single sectors, isn’t really the best thing to add value to the practice. Business realities vary, and what is considered material by one organization does not apply to another.

Some companies choose to develop their own reporting frameworks, including sustainability metrics and indicators. This provides them with the flexibility to focus on industry-specific issues and metrics and report those that they judge most relevant. However, this can give rise to questions about credibility, so they have to comply with recognized sustainability reporting standards, such as GRI. 

The good news is that GRI has learned from this and the new G4 guidelines rules will reflect the change; reporters will be required only to provide disclosures and indicators that are relevant to their business.

Ranking Sustainability Reports

The general perception around sustainability ranking reports is that while they may be useful in disclosureproviding some indications of companies’ activities, they lack credibility and the methodologies tend to be unclear. If Company X gets A+ in the GRI index, does it rank better than Company Y?

This dichotomy has been dropped from the coming GRI G4 guidelines and reporting levels, which often caused confusion about the quality of the reports produced.

It is, therefore, critical to develop a meaningful ranking system that reflects a companies’ quality of performance and its improvement over time, rather than simply its level of transparency.

"The answer is that there has been far too much focus on companies wanting to look good, and not nearly enough attention paid to actually performing well," explains Ramon Arratia, Sustainability Director of Interface in his book, Full Product Transparency.

Commenting on labels, certifications and standards for sustainability reporting, he writes:

The problem with all this activity is that looking more virtuous doesn’t have anything to do with being more sustainablethat can deliver nice stories and marketing claims, but frighteningly ineffective at producing anything that will affect actual performance.”

Accuracy Of Sustainability Data

There are various factors contributing to reporting inaccuracies and misrepresentations. The core issue for accuracy and fair representation of data and information in sustainability reporting goes back to management and the degree of priority and professionalism reporting enjoys in the hierarchy of leadership decision making.

The general perception is that companies do aim to deliver accurate sustainability data. But they tend to massively over-claim when they state some of their key indicators in order to be in compliance with GRI guidelines or to cover more GRI indicators and gain the upper level in the GRI scale.

In order to confirm their transparency, many companies seek third-party assurance of their sustainability reporting. While many practitioners advocate for it, I’m not entirely sold on its value, ESGespecially since there haven’t been as many efforts to develop a universal set of rules to support the assurance as there is on the financial side.

The system needs to look at the whole full product life cycle and embrace customers and suppliers to measure an entire value chain for sustainability performance. By opening up the process to a full value-chain transparency approach, no single action can be labeled as greenwashing because all value chain partners will be on the same path and some are further along.

Integrated Reporting

Integrated reporting is another sign of the increasingly serious attention being given to sustainability for the future operations of business. This framework may solve the issue of financial reports being read only by investors and would bring more readers of sustainability reports to have a look at this kind of combined disclosure.

In addition to that, stakeholders need to make informed assessments about the longer term sustainability of a company and integrated reporting will facilitate a more holistic and meaningful reporting of financial results, enabling all stakeholders to gain a better understanding of a company's sustainability in the future.

However, some experts in the field believe that integrated reporting could devalue sustainability and reduce it to a narrow set of indicators within an annual report that focuses on financial features.

Digital Reporting

Isn’t it worth it to finally admit that only consultants and a few practitioners are currently reading the 60 to 70 pages of sustainability reports? How significant is the number of customers, suppliers and even employees who take the time to download a sustainability report and learn about its performance, achievements and challenges?

Is this the truth that we keep hiding?

It is obvious that producing those big reports is not practical. Some companies have gone digital and social mediahave designed microsites for their reports, offering easier access from smartphones, tablets and other popular mobile devices.

Other companies produce GRI reports available in eXtensible Business Reporting Language (XBRL). GRI expects that XBRL will be increasingly used for disclosure on sustainability information and will facilitate and improve the comparability of information especially with the coming G4 guidelines. 

However, it has been argued by some experts that due to the complexity of the data and the lack of standardized taxonomy, it would not be possible to compare results from different companies, even using XBRL.

The key problem today is how companies can engage their stakeholders continuously throughout the year by providing them with information about their sustainability performance in a short, smart and relevant way to engage and seduce them to even care in the first place, much less enjoy following the progress. 

This is why the next evolution of sustainability reporting is not tied to the next development of GRI guidelines or other standards. The next evolution of reporting is about genuinely connecting and engaging with the audiences by providing the information they will respond to.

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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