As the global push for sustainable business practices intensifies, the importance of sustainability reporting cannot be overstated. With careful planning and the right approach, sustainability reporting can become a manageable and rewarding endeavour for any organisation. Below are crucial considerations and steps to guide your journey towards effective sustainability reporting.
What is sustainability reporting
A key element of demonstrating the commitment of an organization to sustainable development is sustainability reporting (or ESG reporting – ESG stands for Environmental, Social and Governance). Sustainability reporting is the reporting on non-financial aspects such as resource management, climate-related risks and opportunities, human right policies and other sustainability topics.
Key Considerations for Companies
Top-Level Commitment
The commitment and endorsement from senior management are pivotal in shaping the direction and success of sustainability initiatives within your company. Their support determines the allocation of resources, budgets, and the overall priority given to sustainability efforts. Without top-level buy-in, sustainability reporting may lack the necessary traction and resources to drive meaningful changes.
Early Action is Key
Time is of the essence when embarking on sustainability reporting. Starting early allows ample time to navigate ESG-related regulatory requirements, familiarize yourself with sustainability reporting standards, and develop a robust sustainability strategy. Latecomers might lose their “license to operate”.
Begin Small, Grow Steadily
Don’t feel pressured to achieve perfection in your sustainability reporting from the outset. For newcomers especially SMEs, starting small and scaling gradually is prudent. You can attend ESG-related events and have a better understanding on the basic approach regarding environmental sustainability, social responsibility initiatives, and governance practices. Then you could begin by focusing on key sustainability metrics and gradually expand the scope as your understanding and capabilities evolve.
Build in-house skills
Developing internal expertise is crucial for the long-term sustainability of the company. Invest in building a dedicated sustainability team equipped with the necessary skills to work on reporting frameworks, interpret data, and effectively showcase your company’s sustainability performance. Engaging with external experts to provide ongoing training to train your own team and ensure that your team remains abreast of emerging trends and best practices in sustainability reporting.
(contact us to receive the list of training courses for building up sustainability in-house skills)
Stakeholder Engagement
Attracting ESG investing, meeting clients’ expectations, improving employees’ working environment, following the industries’ regulations… Meaningful engagement with stakeholders is central to crafting comprehensive and credible sustainability stories. By soliciting input from both internal and external stakeholders such as investors, clients, suppliers, and employees, you gain valuable insights into the diverse perspectives and expectations regarding your company’s contributions on e.g. environmental management, and corporate social responsibility (CSR) and sustainable business practices. Prioritise engagement with primary stakeholders to foster collaborative partnerships and enhance transparency throughout the reporting process.
Five Steps for Successful Sustainability Reporting
To implement a structured approach to ensure the effectiveness and credibility of the sustainability reporting, we outline a five-step sustainability reporting process tailored to guide organisations towards successful reporting outcomes:
Step 1: Test & Establish
Step 1 is about analysing your current business activities to establish your sustainability starting point. Test your ESG readiness and your sustainable development potential, and understand which sustainability areas are already covered and which are not.
Questions:
- What does sustainability mean for your company?
- What are your sustainable development goals (SDGs)?
- Who are your most relevant stakeholders?
- What matters most to your stakeholders?
- Which sustainability topics are already been dealt with in your company (status quo and gap analysis)?
- What kind of ambition level do you target, e.g. only complying with regulatory compliance, integrating sustainability into your company, or sustainability as a competitive advantage?
The answers to the questions above should help you understand your company’s current position and relevant requirements for your company, identify the most important stakeholders and have a clear understanding of drivers and expectations.
Step 2: Determine & Identify
Step 2 is about developing your sustainability strategy, taking into account the regulatory requirements and stakeholder expectations, exploring your value chain and evaluating risks and opportunities.
Questions:
- Materiality assessment – which sustainability (ESG) topics are the most important for your company, the environment, and your stakeholders?
- What kind of sustainability engagement needs to be started based on the identified topics?
- What is the ambition level per topic and engagement (important, moderately important, or less important)?
- Which goals, measures and performance indicators need to be applied?
- What KPIs need to be established and which ESG data need to be collected?
The answers to the questions above should help you conduct your materiality assessment for sustainability topics, define your ambition level for the identified material topics, determine your sustainability strategy including clear goals, KPIs and areas of engagement and draft a catalogue/inventory of key ESG metrics.
Step 3: Change management
Make sustainable development part of your business. Set up the organizational changes and implement essential processes and reporting structures. Monitor your changes on a regular basis to adjust where necessary.
Questions:
- What organizational changes are necessary to enable your company to collect sustainability data and monitor your sustainability performance?
- Who are the persons and/or departments in charge (sustainability team)?
- Are the essential elements for sustainability data collection defined and implemented?
- Are the organizational changes documented and communicated internally and externally?
- Is the necessary IT infrastructure set up?
The answers to the questions above should help you set up and implement the organisational changes, integrate the IT tools into the organisational changes, tailor-made a sustainability handbook/guide for your sustainability team and the company, and set up the monitoring and controlling processes including internal controls and external assurance.
Step 4: Collect & Report
After the preparatory work is done by steps 1-3, it’s time to collect sustainability data and draft reports. A reasonable timeline with milestones (what should be completed and when) should be established.
- Questions:
- What kind of data needs to be contributed by which department?
- Is the data complete, counterchecked and validated?
- Any internal control and/or external assurance for the data and report?
- What sustainability (ESG) reporting framework is being used for your report?
- Does this framework comply with regulatory requirements at your company’s location?
- Has the report been signed off and approved by your company’s management board?
- What is your publishing date?
- Where will you publish your report (online, printed, handout)?
The answers to the questions above should help you issue a meaningful sustainability report with verified qualitative and quantitative data, check whether the wording used in the upcoming sustainability report can be easily understood by external parties, and publish the report to your target audience before a reasonable deadline.
Step 5: Evaluate, optimise and improve
Your published reports are the foundation for a continuous improvement process of subsequent reports. Receive the feedback from the target audience, the market, and inside the company, and take the experiences you made from your reporting and improve in the next report.
- Questions:
- What optimization potential should be considered for the next report?
- What elements/documents/data need to be already prepared for the next reporting period and when?
- Is there a roadmap for next year’s report?
The answers to the questions above should help you utilise the experience, implement the necessary measures, and gradually improve your sustainability performance and your sustainability reporting. Reviewing the reporting process to find improvement opportunities for data management, sustainability contribution, and collaboration. Ensuring that the data and results from the report will result in actionable insights and support decision-making about the sustainable transition of your company.
Conclusion
In conclusion, while sustainability reporting may present initial challenges, by aligning with top-level priorities, embracing early action, starting small, investing in internal capabilities, and engaging stakeholders effectively, organisations could conduct a successful sustainability report with confidence and integrity. If you want clearer and tailor-made guidance on sustainability reporting in Europe or China, please feel free to contact Ms. Sisi He (sisi.he@cwhkcpa.com).
Related article:
