By Jagriti Punjabi
If the sustainability reporting landscape has you feeling confused and overwhelmed, fret not: it’s about to get a whole lot easier. 2021 is a critical year for all things sustainability. Read on to find out which corporate reporting trends are shaping the post-COVID-19 world (if we can call it that) and how to up your game.
ESG: from niche to norm
Climate change, social responsibility, value creation... If these weren’t top-of-mind concerns for businesses before, they certainly are now. Early in the pandemic, it seemed like ESG (Environment, Social and Governance) issues would take a back seat to economic survival and crisis management. Plot twist: the opposite has proven true.
Long before COVID-19, investors began demanding more transparency on a company’s purpose, beyond making money for its shareholders. Environmental issues (the “E”), like carbon emissions and water consumption, have typically dominated corporate agendas. The pandemic has accelerated this trend—perhaps the only silver lining in this crisis. I mean, climate change hasn’t taken a step back because of COVID-19—the clock is still ticking!
COVID-19, a catalyst for positive change
It’s now clear that the crisis is a people-centred one. As people struggle with situations like their health, working from home, loneliness and social inclusion, there is a rising emphasis on “S” and “G” issues. Investors want to know exactly how businesses are taking care of their employees, if their dealings with their suppliers are fair and ethical, how much they invest in developing their talents, how diverse their Boards are, if they are actively involved in helping their communities… These moral and ethical factors are increasingly considered in investment decisions.
How businesses have reacted to COVID-19 is a clear indicator of how they are likely to respond to another unforeseen event in the future. Those who have done it well have garnered loyalty, goodwill and trust. Those who resorted to greenwashing and half-hearted action got called out by an increasingly informed and discerning public. And those who haven’t done anything at all… well, let’s just say they have an expiry date.
But how do you even know where to begin?
Embedding ESG topics into a corporate strategy and culture is one thing; reporting them is another. We have a common language for financial reporting, with 144 jurisdictions using IFRS standards. But when it comes to ESG reporting, the number of frameworks and standards runs into the hundreds: The Paris Agreement, the United Nations 17 Sustainable Development Goals (SDGs), GRI guidelines, the UN Global Compact, the IIRC International Framework… If you’ve found yourself getting overwhelmed by all these acronyms, you’re not alone. It’s hard to know where to begin or which one to follow. As an investor, how do you make an informed decision if the various metrics and frameworks aren’t directly comparable?
Towards a universal ESG reporting standard
Enter purpose-driven reporting. That is, a common framework for sustainability reporting, comparable and relevant across business models, industries and geographies. It’s long overdue, if you ask us.
In September 2020, *brace yourself for more acronyms* the World Economic Forum’s International Business Council (IBC), in collaboration with the Big Four accounting firms (Deloitte, EY, KPMG, and PwC), released a set of comparable ESG metrics. They identified 21 core and 34 expanded metrics, organised under four pillars:
1- Principles of Governance (corporate purpose, stakeholder engagement, ethical behaviour…)
2- Planet (land use, greenhouse gas emissions, water consumption in water-stressed areas…)
3- People (pay equality, training, health and safety…)
4- Prosperity (rate of employment, R&D, total taxes paid…)
These metrics were chosen based on their universality, on their ability to be obtained with reasonable effort, and their ease of being verified, amongst others.
If you’re thinking “Oh great, another framework thrown into the mix…,” it’s important to point out that these proposals aren’t intended to drive out or add to existing standards. Instead, they build on the work already done, and converge a number of existing frameworks and disclosures into a singular and standardized system. In essence, they were designed to simplify things and accelerate their adoption.
Why you should jump on the bandwagon
Sure, this will come with its share of challenges. It may take some work initially, especially for those who are far along on their ESG journey and may need to reorient their trajectory. But there is no doubt that the shift to standardized sustainability reporting is a win-win: businesses will be able to direct their resources to meaningful areas, better measure their progress and identify areas for improvement; investors can benchmark performances and make better-informed financial decisions; and communities will be better served by companies whose agendas are aligned with their needs.
So far, the IBC’s 120 members have shown support for these efforts. The hope is for the new reporting framework to gather steam in 2021, even by businesses in less developed markets (including Mauritius.) After all, the trend of factoring ESG issues into lending and investment decisions isn’t going anywhere. This could be a real opportunity for forward-thinking companies to take the lead locally and declare their intention to their stakeholders to fully commit to ESG issues and create sustainable value for their business, the planet and society.
We aren’t saying printed reports are a thing of the past, but failing to go digital is a missed opportunity. Digital reports are more interactive, more compelling, and reach wider and new audiences (they can be shared with thousands or even millions of people with a simple click). Not to mention, they send a strong message to your shareholders about your commitment to sustainability! So in the spirit of sustainability (you know, less paper and all that stuff,) Numbers helps you take your story online.
Jagriti is a writer who uses the power of storytelling to connect businesses to audiences. She specialises in corporate reporting and has written for conglomerates and companies like Currimjee Jeewanjee, UBP and LUX*. When she isn’t writing CEO’s messages, she can be found compulsively reading fiction, working out or correcting people who mispronounce her name.
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