In pursuit of a transparent and comparable sustainability report

Undoubtedly, companies are increasingly scrutinized by their stakeholders for their detrimental environmental and social impact, which explains the proliferation of companies filing reports on sustainability.

According to the KPMG Survey of Sustainability Reporting 2020, 80 percent of companies worldwide report on sustainability. But finding the right metrics to measure can be bewildering when faced with a cacophony of sustainability frameworks.

Just some of the standards and frameworks available range from the Global Reporting Initiative, the Task Force on Climate-related Financial Disclosures, the Carbon Disclosure Project, the UN’s Sustainable Development Goals as well as Environmental, Social, and Governance reporting.  However, this array of standards can make it difficult for a firm to know which framework to adopt and how to communicate progress to investors and other stakeholders.

To navigate through the noise of sustainability standards, it is important to classify the standards and frameworks according to two key elements — the breadth of stakeholders they address and the breadth of scope they cover.

For example, the TCFD, founded by the Financial Stability Board, an international body that monitors the global financial system, is a 2015 framework that is of interest to investors who want to understand climate-related risks associated with an investment. This is particularly evident if the business is in a sector that has a high environmental impact such as energy.

The GRI framework has a much broader scope and addresses multiple stakeholders across broader environmental and social issues. It remains the most widely used standard today.

The good news is we are seeing an appetite to establish a common language for reporting on sustainability.

May Barber & Mourad Ben Ayed

Beyond the confusing choice of standards, another challenge presented by sustainability reporting is the complexity of gathering data from various sources and departments. Christelle Bitouzet, sustainability consultant and professor on CSR and stakeholder relationship at HEC Paris, affirms that although reporting can be a time-consuming exercise with a challenge of aligning all internal contributions within an organization, it offers significant virtues of defining priorities, as well as driving and valuing progress as long as the engagement strategy is clearly defined and the reporting exercise is truly recognized as an essential driver towards meaningful change.

Indeed, sustainability reporting is clearly not as mature as financial reporting, but it remains instrumental for companies to set a clear roadmap on social, environmental and societal topics and accelerate their performance on sustainability.

However, it is important to remember that reporting alone is not a catalyst for progress. Even though there has been a surge of corporate sustainability reports filed every year, the world is still far from the generally accepted Paris Agreement targets of limiting global warming this century to well below 2C, compared to pre-industrial levels. In fact, carbon emissions continue to rise.

Furthermore, aligning with sustainability metrics doesn’t always project a transparent reality. It is common to see companies or investment funds, presenting themselves in a positive light to burnish their green credentials or make an investment fund look attractive.

This led US research firm Morningstar to remove more than $1 trillion of ESG funds from its investment list due to false or ambiguous sustainability claims in February.

But the good news is we are seeing an appetite to establish a common language for reporting on sustainability. The International Sustainability Standards Board, launched last November, chaired by former Danone CEO Emmanuel Faber, said it was formed “to deliver a comprehensive global baseline of sustainability-related disclosure standards” to meet the demand for comparability.

Amid the fog of information on sustainability, what standard should companies use? The most appropriate standard is the one that best conveys relevant information to stakeholders in a transparent and accessible format. Sustainability reports can bring the clarity that stakeholders value, but they should not stray into becoming purely aspirational.

• May Barber is a LEED Green Associate Architect and brand management adviser focused on building brands with purpose.

• Mourad Ben Ayed is a seasoned adviser in finance and strategy focused on purpose-driven businesses and an educator at the American University in Sharjah.