The world of reporting is changing, and the inclusion of non-financial information is on the agenda around the world. Take for instance the UK’s Strategic Report legislation which mandates that environmental and social issues are disclosed in the Annual Report, and the EU Non-Financial Reporting Directive which is to be transposed into Member States’ legislation by 6 December; not to mention the US where the Securities Exchange Commission (SEC) is consulting on non-financial reporting requirements. Also, a growing number of companies are choosing to bring their financial and non-financial reporting into a single frame via the IIRC’s International Integrated Reporting Framework.
These moves towards non-financial reporting mean communicating your sustainability performance should definitely be on your agenda, but you may still be wondering whether your company is getting the most out of your sustainability report. Are you engaging readers? Are you reporting on the right impacts? With so many different audiences to please, it can sometimes be difficult to keep sight of a clear objective for your report and, as a result, hard to establish whether you are really getting the best value from it.
Relevant and effective – the top priorities
Working with a range of clients on different kinds of report, we’ve learnt to prioritize two things in particular. Your sustainability reporting process needs to be effective in helping to bring sustainability further into the heart of the business. It’s sometimes forgotten that the reporting process itself can be an important driver of improved business performance. Also, your report needs to be relevant. It may sound obvious, but sustainability reports often attempt to speak to too many stakeholders, without managing to speak to anyone.
Ensure relevance – Engage stakeholders to understand what really matters
If you really want to understand and meet stakeholder expectations, there’s no substitute for asking them. A good materiality assessment starts with a stakeholder mapping exercise that identifies key stakeholders and what their information needs are with respect to sustainability performance. Once you know who they are, there are a range of ways to engage them and create a materiality assessment that identifies what they believe will drive the future performance of your business.
Materiality is a somewhat ambiguous term – with no single definition or process agreed on by the various reporting frameworks. Integrated Reporting asks companies to identify the most important issues to ‘providers of financial capital’ in order to make investment decisions. The GRI, on the other hand, is more focused on the concerns of a diverse base of stakeholders and how these map onto the priorities and activities of the business. Though this may seem a significantly different framing, the truth is that investors are become more aware of how sustainability risks and opportunities drive financial performance. So a good materiality assessment can be the foundation of a relevant report for all your stakeholders, and more importantly is the starting point for a relevant sustainability strategy.
Ensure effectiveness – link your sustainability progress with your strategy, KPIs, risks and opportunities to drive value creation with tangible objectives and outcomes
Ask yourself, what do you want your sustainability report to do? The last thing you want is a stagnant report, produced and used once a year which has no real bearing on your sustainability strategy. Incorporate your sustainability reporting into strategic objectives, report back on progress, and measure with KPIs that are comparable year-on-year. Readers don’t just want to read about your sustainability story – they want to know about your impact, and seeing your sustainability progress translate into your strategy, KPIs, and how you are turning your risks into opportunities, to allow them to truly see your sustainability strategy in the context of the world.
Integrated or separate?
Because it requires you to focus hard on the things that matter most, the Integrated Reporting Framework can help you make your reporting more relevant and effective. You present to investors and other stakeholders the information which is most material to your business, and provide a holistic view of how your business operates and creates value. But Integrated Reporting does require integrated thinking – and an understanding within the business that sustainability is a central concern and driver of performance. For companies still on that journey, separate reports may make sense, ensuring that there is still a distinctive emphasis and action plan for achieving sustainability.
Demonstrate how you create value
The world has changed, and businesses are held accountable to their stakeholders, where they are increasingly being asked to articulate their purpose and role in society. Business as usual is not an option anymore, so whatever type of report you choose, whether integrated or separate, understanding how you create sustainable value is an indicator of your relevance and effectiveness, and something it’s vital you communicate.
If you want to speak to us about your reporting, or would just like a chat on different ways of reporting, please contact Yvonne.Ngo@anthesisgroup.com.