With a new year comes a new reporting season. Late last year, we seem to have hit a nerve by asking the question ‘where’s the value in sustainability reporting?’ The answer’s different for every organization, but some frequently-asked questions point the way to rules of thumb that might work in your business.
Summing up how companies should respond to the many pressures and trends coming at them on sustainability reporting is not easy, and there are still many unknowns. What will be mandated, by whom, and when? Will the frameworks ever really align, or continue to push different agendas? Can there ever really be credible standards for performance on social impact? The list goes on, with plenty of speculation and commentary about the likely future, but no definitive answers.
One problem is the industry that reporters, stakeholders and advisers are all more or less part of, is devoted to the view that reporting is a good thing and worth the investment. Reporters carry on reporting, and in doing so hope that they are navigating this landscape in a way that brings value to their organization through improved performance. To do so they are having to find ‘good enough’ answers and make choices about what will be useful in any future reporting scenario. Below, we capture some of the main questions that have come up, and some of the answers on offer, as discussed at our recent event and webinar on reporting. Not quite a definitive guide for every business, but a good starting point.
Question 1: where do I start if I want to be confident about getting value?
Two answers here: the first is an almost philosophical point about focusing on ‘why’. It sounds obvious, but it’s easy to get into the habit of reporting and lose track of the reasons for doing it. The why might be to do with any aspect of the business case, or some greater purpose, but the top tip from our events seems to be to start with the commercial case for your organization, since this should steer you towards actions that are useful, irrespective of how the reporting landscape changes. Does reporting help you manage risk, enhance your reputation, grow your revenues or reduce your costs, and how does it do those things?
The second answer is ‘materiality’ and particularly ‘context-based materiality’. Materiality is not magic dust to sprinkle on your report, but done well it performs several vital functions. It forces you to look at what really matters to future sustainability and business success. It forces you to talk to people, and along the way find out all sorts of stuff you might not have thought of, that could be risks or opportunities for collaboration. And it can give you the foundations for strategy, all the way up to purpose. The fact that it’s a core requirement of pretty much every reporting framework is just a bonus!
Question 2: how do I find out who really cares?
The starting point for our debate about reporting was a sense that, if hardly anybody is reading reports, how can we be sure they actually care or that the reports make a difference? Working out who your audiences ought to be is a fairly straightforward communications planning exercise, but identifying who really cares might be more of an evolving process. For one of our reporters, the picture has changed dramatically in recent years, with the traditional stakeholders’ demands for issue-based disclosure increasingly outnumbered by customer requests for information.
Ultimately that will mean shaping outputs to suit that audience in particular, without alienating other stakeholders who you may only become aware of when there is a problem. If that seems a bit vague, there are some easier starting points: assessing materiality via surveys and interviews should help to identify who cares about which issues, and you can use these methods to find out what people like about your reporting and what you could improve on. You can start collecting and tracking requests you are getting from customers – what types of ESG information are they asking you for, how is it changing over time, are they doing anything with that information or not? And if you still cannot tell how they are using that information just go ahead and ask them! The speed and responsiveness of digital communication via social media is an increasingly vital way to understand who cares and what they care about, and there are simple and more sophisticated tools available to track who is using your content, and generating or sharing content on relevant issues.
Question 3: what’s the point for privately held companies?
The threat or the reality of increased investor focus on non-financial performance has driven reporting up the agenda in many businesses, but what about privately held companies? The consensus seems to be that reporting still has important commercial benefits. Customer drivers will be the same for both public and private companies. As companies get more sophisticated in their supply chain management programs, those questions will be passed down to all companies. And all companies face challenges attracting and retaining top talent as baby boomers retire. According to Cone Communications’ Millennial Employee Engagement Study, 76% of millennials say they wouldn’t even consider working for a company that doesn’t have commitments to corporate responsibility, and 83% say they would be more loyal to their employer and fulfilled in their work if there are opportunities to contribute to social and environmental issues. Reports are an important way of letting them know you meet these criteria.
Beyond all this is the culture of family- or trust-owned companies, where different aspects of sustainability are often core values, and aligning business strategy with some greater purpose is almost second nature. Reporting is one way for such companies to show what that means in practice, and put it in the broader context of stakeholder interests and concerns.
Question 4: is it all about frameworks, standards and data?
The debate underway about the future of frameworks is in some ways the symptom of a more profound debate about where reporting is going next. On the one hand is the sense that the future is all about data, transparency, comparable indicators, and standardized approaches, with digital reporting enabling all this to happen in real time. This appeals to the standards and frameworks industry because it suggests that non-financial reporting will achieve the status of financial reporting and presumably that social and environmental performance will improve remorselessly as a result. The idea that there can be standards for environmental and social performance is of course highly problematic, but the Sustainability Accounting Standards Board (SASB) and others have set out to codify all this, for investors and other stakeholders.
On the other hand, we have a trend driven more by the strategy and communications industry. This trend sees materiality assessment as the bridge between sustainability and business strategy, and reporting as an opportunity to define and tell a story about the unique purpose of a company, and find the narratives and stories and imagery that prove it, supported by data, but more about difference than comparability. Communications people like this because it points to investment in creative and diverse communications for different stakeholders.
Perhaps our view of all this will change. Perhaps everything will one day be standardized and reporting will be a conversation between machines. But for now, there seems to be a balance to be struck between these different ways of seeing the world, and striking that balance to bring both tangible and intangible forms of value back into your business through your reporting is where the action is.
Ben Tuxworth is a Director at Anthesis. You can contact him by emailing Ben.Tuxworth@anthesisgroup.com.