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5 Best Practices for Sustainability Reporting

5 Best Practices for Sustainability Reporting

Published on: 18 Mar 2024 8 min read

Sustainability reporting has gained significant traction in recent years. Investors now seek to evaluate business value beyond financial performance, with sustainability performance as an indicator of long-term stability and risk reduction. 

Companies with a strong (environmental, social, and governance) ESG profile attract customers, employees, and investors alike.

Climate change, reduction of greenhouse gas emissions, and younger generations’ preferences shifting to sustainable brands and employers have further driven the need for ESG reporting and transparency.

According to the latest edition of the Global Sustainable Investment Review (GSIR), sustainable and responsible investments continue to mature. The GSIR notes that investors increasingly utilize corporate engagement and shareholder action to drive positive change and mitigate sustainability risks associated with their assets.

Companies are exploring different ways to meet sustainability reporting requirements and share their achievements. And several best practices emerge that can facilitate even more credible ESG reporting.

ESG reporting is important for promoting transparency, building trust, and meeting stakeholder demands.

Set up a strong ESG team

ESG and sustainability reporting require a deep understanding of different reporting frameworks, legal requirements, and various environmental and social metrics. Most organizations will lack the resources to hire a dedicated team concentrated solely on ESG reporting. Thus, setting up a cross-functional team with clear roles and responsibilities equipped with the appropriate digital tools becomes essential.

To ensure comprehensive ESG reporting, it’s best to involve a team with diverse skills and expertise covering areas such as regulatory requirements, transparency, investor demands, risk and project management. All of these professionals should have something in common as well. They need to be well-versed in data management and adept at translating complex data into easily digestible insights.

Align reporting with stakeholders’ priorities

Stakeholder engagement is integral to sustainability reporting, guiding organizations to identify key ESG issues and prioritize stakeholders’ concerns. It’s important to engage with stakeholders like employees, investors, customers, vendors, and communities to drive the ESG strategy forward.

Regular programs can be established to tap into their concerns and keep them engaged. This can be done through periodic surveys, questionaries, interviews, media monitoring, or local community discussions. Engaging their stakeholders will enable companies to display the relevant metrics for each audience and build trust.  

By aligning reporting with stakeholder priorities, organizations can enhance the relevance and impact of their sustainability disclosure.

Establish a robust governance framework

A well-defined governance framework is the backbone for comprehensive sustainability reporting, enabling organizations to track progress, measure impact, and drive continuous improvement. Sustainability considerations should be integrated into the core business strategy of the organization and its risk management processes.

A robust governance framework requires a top-down approach, with clear leadership commitment and accountability. Its foundation is reliable data collection and reporting systems supported by a set of digital tools and automation. By aligning ESG reporting with the organization’s overall objectives, companies can effectively communicate the value-creation potential of their sustainability initiatives.

Robust data collection and measurement

The accuracy and reliability of ESG metrics are paramount to the credibility of sustainability reporting. Robust data collection and measurement processes are essential for accurately capturing the organization’s environmental footprint, social impact, and governance practices. 

Leveraging advanced data management systems, companies can streamline the collection, validation, and analysis of ESG data, ensuring its integrity and completeness. This enables stakeholders to evaluate the organization’s performance over time and benchmark it against industry peers. Moreover, leveraging advanced data analytics and visualization tools facilitates the identification of trends, patterns, and opportunities for performance improvement.

Independent verification of sustainability data

External assurance and verification play a critical role in ensuring the credibility and accountability of sustainability reporting. Independent verification of ESG data and reporting processes by qualified third-party auditors enhances the reliability and trustworthiness of sustainability disclosures. This demonstrates the organization’s commitment to transparency, accuracy, and adherence to reporting standards.

Engaging external assurance providers to validate the organization’s sustainability performance signals a proactive approach to accountability and continuous improvement. It provides stakeholders with confidence in the accuracy of reported ESG data and the robustness of reporting processes.

Sustainability reporting best practices include setting up a strong team, aligning reporting, and establishing a robust framework.

Frameworks and standards for reporting 

Deciding which ESG framework or standard to use for sustainability reporting can be a daunting task, but companies should make sure to choose the one that will produce the most useful and meaningful disclosures for their stakeholders. It is important to consider the distinctions between the different frameworks and standards, as well as the key metrics that are important to the stakeholders the company is trying to reach. A framework provides guidance on the structure of a report, while a standard specifies what should be reported on each topic.

Examples of popular frameworks and standards

Global Reporting Initiative (GRI)

The GRI Standards offer a wide range of sustainability topics, which are composed of Universal Standards and 34 topic-specific standards. The Universal Standards include information about topics such as governance, management systems, reporting practices, products, services, stakeholder engagement, and management approach. Companies can either report using the GRI Standards as a complete system or use them to report on selected topics.

Sustainability Accounting Standards Board (SASB)

The SASB has developed a set of standards that focus on the sustainability-related risks and opportunities that have the potential to influence a company’s performance, financial condition, and risk profile. These standards are designed for 77 industries and 11 sectors. Companies are advised to refer to the SASB standards for their industry, but they still have the freedom to decide which sustainability topics and metrics are most relevant to their business.

Task Force on Climate-related Financial Disclosures (TCFD)

The TCFD Recommendations provide a structure to facilitate enhanced climate-related financial disclosures, with the intent of enabling stakeholders to comprehend how organizations appraise climate-related risks and chances. This framework has four main sections: governance, strategy, risk management, and metrics and targets, each with recommended disclosures at a high level. Although the TCFD provides guidance on the type of information that should be disclosed, it is based on principles and does not specify the exact metrics that should be used for these purposes. 

Corporate Sustainability Reporting Directive (CSRD)

This is the new European Union directive that modernizes and strengthens the rules concerning the social and environmental information that companies have to report. A broader set of large companies, as well as listed SMEs, will now be required to report on sustainability. The new rules will ensure that investors and other stakeholders have access to the information they need to assess the impact of companies on people and the environment and for investors to assess financial risks and opportunities arising from climate change and other sustainability issues. The first companies will have to apply the new rules for the first time in the 2024 financial year and reports published in 2025.

Conclusion

Mastering sustainability reporting best practices requires a comprehensive approach integrating robust frameworks, accurate data measurement, stakeholder engagement, enhanced transparency, and external assurance. Implementing these best practices can significantly improve stakeholder trust, organizational credibility, and commitment to sustainable development.  

If you’re looking to elevate your sustainability reporting, our experts can help you simplify the entire reporting process. Our solutions streamline your data and integrate it with the right analytics and visualization tools. Through automation and digitalization we foster collaboration across the whole organization to craft your compelling ESG story.

About the Author:

Dimitar Grancharov

Dimitar Grancharov

Content Team Manager

Mitko has a background in journalism and advertising – challenging fields that turned him into what some would call a copywriting go-getter. He is interested in topics such as Energy and Renewables, Big Data & Analytics, everything AI, and how people-first content can reach its designated audience through SEO. In his spare time, he enjoys camping, skiing, and listening to quality Spotify lists.

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