Sustainability Reporting

This year, the UN Climate Change Conference of the Parties (COP 26) will take place in the United Kingdom. Never before as a society, have we been so concerned and engaged about environmental issues such as climate change. Building a sustainable future for the planet and ensuring that the growth of our economies is based on fair practices have become key priorities for us as consumers, for governments and for businesses around the world. This increased awareness has seen the emergence of B corporations. These corporations have redefined success in businesses by balancing profitability whilst making a positive impact on the environment and communities they affect.
Investors are now focusing their interest on ESG factors when assessing companies. During the Covid crisis ESG investments have outperformed any other investment. ESG criteria are here to stay and will have a long-lasting effect on how companies are managed. This means transparency has become critical.

Sustainability reporting is the direct result of this drive for more transparency on key topics that reflect a company’s commitment to protect the planet, defend human rights and improve local communities. It has certainly been difficult for many firms to understand what these disclosures should include as there are no consistent standards in place. The additional work around this new kind of reporting can be seen as cumbersome. However, many companies have been embracing sustainability and have included it in their long-term strategy. Yes, ESG standards are tools that are mainly used by investors to quantify the risks and the future potential of a business; they are also a commercial opportunity for companies.

ESG can be used to build a competitive advantage. Having a sustainability strategy, distilling it into clear metrics that can be reported on and that will feed into your business model will give your firm visibility on the market. Sustainability reporting will allow the Board, the investors as well as consumers and employees to appreciate the progress made against the strategic goals.

The role of management is to understand how to link sustainability and strategy and to identify the risks and opportunities that could impact the business. It could unearth cost cutting options around energy usage or the implementation of a shorter and more resilient supply chain. It could also generate ideas to future proof your business by investing in areas that will be growing in the future. Sustainability reporting will help to determine which measures are more effective for your firm and allow corrective action to improve your capital allocation. This will prove to the Board that the right management is in place to drive and grow the business in a more sustainable way.

Gaining an understanding of the disclosures your investors are expecting from you to adapt your reporting will also help to build trust and confidence. The approach taken by investors has driven change at a governance level. They have influenced how companies are run, ensuring Boards are independent and more diverse and that systems and processes in place guarantee full transparency.

The different scandals around modern day slavery that have appeared in the news over the last decade have been a wake-up call for many. The consequences of our buying habits have made us realise that our consumerism and addiction to fast fashion is damaging the planet and is sometimes fuelled by unethical practices. Consumers now expect the companies they buy from to share their values and contribute to making the world a fairer place. They want to make sure children are not being exploited, that water is not being polluted and that local communities benefit from the economic activity generated. To attract those clients, firms will need to prove a real commitment to social and environmental issues. Sustainability reporting will contribute to representing your business’s values as well as the steps taken to make a difference.

Being able to substantiate the progress made will also help increase employee engagement. We all want to work for a company that we feel proud of and that reflects our own values. Employees who can see the difference that their work is making will have an increased job satisfaction and a sense of giving back which will enhance retention. Engagement creates loyalty which entails commitment to building and developing the business further. Treating employees with respect, closing the gender pay gap and giving everybody a fair chance to grow and develop are all indicators that will make your company an employer of choice.

ESG transparency should become the norm for every company because ensuring a sustainable way to develop is important for all of us. Success is more than profit, developing a thriving business whilst having a social and environmental purpose is more rewarding than just lining up zeros. Consumers now care about what your brand represents and sustainability reporting will help you articulate your story. A reputation takes years to build but can be ruined very quickly, making sure you run a purposeful and ethical company will be a differentiator.

It all comes down to one question: what legacy do you want to leave?

September 28, 2021