5 MIN READ

9-2-2024

Corporate Sustainability Reporting: Best Practices and Emerging Trends in 2024

Alex Schulze , CEO/Co-Founder

Corporate Sustainability Reporting: Best Practices and Emerging Trends in 2024

In her 2019 COP25 speech, climate activist Greta Thunberg warned, “The biggest danger is not inaction. The real danger is when politicians and CEOs make it look like real action is happening when in fact almost nothing is being done, apart from clever accounting and creative PR.”

Corporate sustainability reporting, although voluntary, is increasingly shaped by regulatory requirements and investor demands for ESG data. This reporting is crucial for generating data, tracking progress, and contributing to global sustainable development objectives. It enables companies to evaluate their performance, set targets, and support the shift to a low-carbon, resource-efficient, and inclusive green economy.

However, despite its growing prevalence, the quality of sustainability reporting often falls short. Carbon emissions have continued to rise, and environmental degradation has accelerated. Thus, as corporations continue to report on their ESG initiatives, it is essential to anchor their reports in recognized best practices.

Adopting Best Practices in Sustainability Reporting

   1. Ensuring Reporting Integrity through Third-Party Auditing: While 90% of the world’s largest companies produce CSR reports, only a minority are validated by third parties, leading to potentially misleading and incomplete data. Unlike financial reporting, which follows strict standards and is overseen by regulatory bodies (like the SEC in the U.S.), sustainability reports often lack such rigor. To enhance transparency and accountability, sustainability reports should be mandated and audited by an empowered authority. Soliciting feedback from stakeholders can further establish credibility.

  HP has reported on its sustainability efforts for over 20 years, with strong governance through third-party verification. For the past decade, EY has independently reviewed selected key performance indicators in HP’s reports, including metrics on Scope 1, 2, and 3 greenhouse gas emissions.

   2. Streamlined, Balanced, Consistent, and Contextualized Measurement: Even as leading standard setters like Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB), as well as initiatives by the European Commission and IFRS Foundation, aim to harmonize standards and improve reporting practices, the current multitude of frameworks can be confusing and burdensome. Companies should choose a framework they can consistently adhere to, ensuring balanced, consistent, and contextualized reporting.

      a. Balanced Reporting: ESG reporting should not just highlight positive performance but also address areas needing improvement. Stakeholders prefer a realistic picture over an overly optimistic one.

      b. Consistency: Information should be comparable over time, allowing stakeholders to track performance. Changes in reporting methods should be disclosed, similar to financial reporting.

      c. Contextualization: ESG data should be presented with context, such as relative performance within the industry or local sustainability thresholds. For example, water usage should be reported in relation to local water availability and sustainable practices.

   3. Data transparency: To ensure accuracy and transparency, companies should disclose data sources, methodologies, and limitations. Reports should include both historical data and forward-looking information about sustainability targets and strategies. Performance metrics should be benchmarked against industry peers, and qualitative narratives should support quantitative data to explain the company’s sustainability journey and challenges.

  Danone, a global leader in the food production industry, consolidates business and sustainability into its integrated annual report, which discloses comprehensive data across its value chain. They plan to establish a monitoring, reporting, and verification system with publicly available indicators of progress, that allows stakeholders to track Danone’s sustainability efforts in real-time, providing a clear and transparent view of their progress towards achieving their sustainability goals.

   4. Global impact consideration: Sustainability reporting often overlooks the impact on developing countries, despite their significant role in global supply chains. The greatest increases in consumption, emissions, and social impacts are expected in regions like China, India, and Africa. Companies must focus on efficient resource management and strong governance structures in these markets to preserve global resources.

   5. Integrating ESG within Organization’s Objectives: The strength of a company’s sustainability reporting is determined by its commitment to ESG impact. Setting up a cross-functional ESG team with clear roles and responsibilities, equipped with appropriate digital tools, is essential. Establishing a robust ESG governance framework, integrating sustainability into the core business strategy, ensuring leadership commitment, and implementing reliable data collection and reporting systems enable organizations to track progress, measure impact, and drive continuous improvement.

In addition to the practices corporations can adopt to enhance their sustainability reporting, regulatory standards like the European Sustainability Reporting Standards (ESRS), introduced in 2024, play a pivotal role in elevating the quality of reporting. This new regulation, impacting over 50,000+ companies operating in Europe, will alter the scope, volume, and detail of sustainability-related disclosures. The ESRS, adopting a “double materiality” perspective, mandates companies to report not only their impacts on society and the environment, but also how these factors pose financial risks and opportunities. This approach will empower investors with a deeper understanding of the sustainability impact of their investments.